Supreme Court Considers Appeals, Pauses in Mandatory Arbitration Cases

​During oral arguments on March 21, the U.S. Supreme Court examined whether litigation is automatically paused when a company appeals a district court's denial of its motion to compel arbitration. Whether employers can be forced to litigate a case in court while the appeal is pending is significant because trials tend to be more expensive and more time-consuming than arbitration.

It's unclear when the Supreme Court will issue a ruling, but it's likely to happen before the court adjourns in June.

Background on Coinbase Lawsuits

Coinbase, Inc. v. Bielski combines two class-action lawsuits filed in federal district court in California against Coinbase, a currency exchange and transaction platform. Coinbase's users agreed to arbitrate disputes with the company on an individual basis.

The first lawsuit involves a user who sued Coinbase for violating the Electronic Fund Transfer Act and the accompanying Regulation E after he was allegedly scammed and lost $31,039 of cryptocurrency from his digital wallet. The plaintiffs in the second lawsuit sued Coinbase after participating in a sweepstakes that was allegedly misleading.

Coinbase tried to move the two cases to arbitration based on the user agreement's arbitration clause. A federal district court ruled that the arbitration agreement was too one-sided in favor of Coinbase and therefore unenforceable. Coinbase appealed to the 9th U.S. Circuit Court of Appeals, which denied its request to pause the litigation pending the appeal.

Is Pausing Litigation Required?

Coinbase requested an interlocutory appeal, which happens when a ruling by a trial court is appealed while other aspects of the case are still proceeding. Congress amended the Federal Arbitration Act (FAA) in 1988 to allow an interlocutory appeal of decisions denying a motion to compel arbitration and decisions refusing to stay proceedings pending arbitration.

The FAA doesn't explicitly state whether a pause in litigation is mandatory. Hassan Zavareei, an attorney with Tycko & Zavareei in Washington, D.C., who is representing the plaintiffs, argued that the law's silence means a pause in litigation isn't automatically required.

But Neal Katyal, an attorney with Hogan Lovells in Washington, D.C., who is representing Coinbase, said, "Congress amended the FAA to allow immediate appeals when district courts deny motions to compel arbitration, but not when they approve them. Congress did something else unusual. It made those appeals nondiscretionary. Those choices reflect Congress' fear about the interim harm from continued litigation."

Justice Elena Kagan said, "You're suggesting that every time Congress wants an immediate appeal, it also wants an automatic stay. But Congress might well say what we want is an immediate appeal and a discretionary stay regime."

Justice Ketanji Brown Jackson said, "Just the fact that you get an interlocutory appeal doesn't indicate necessarily that Congress is also saying that a stay follows because there are many situations in which Congress expressly divorces the two."

Justice Sonia Sotomayor said, "All I know is that when Congress thinks about a stay, it either says, 'Yes, do it,' or 'No, don't do it.' When it's not thinking about a stay, it doesn't say anything."

Justice Amy Coney Barrett voiced concerns that an automatic stay "can be used as a delay tactic even when it's frivolous."

Chief Justice John Roberts said Congress provided a "huge benefit" by allowing companies to immediately appeal a denial of arbitration instead of having to wait for a final judgment in the case. "Why isn't that enough?" Roberts asked Katyal.

"I think because the background rule at the time was always that there would be an automatic stay," Katyal replied.

"You know you've gotten a pretty valuable thing. You just haven't gotten the whole ball of wax," Kagan told Katyal.

Potential Pressure to Settle

Court trials are public, but arbitration is kept private. Katyal said if plaintiffs "try and force discovery in the district court, and then they get access to discovery, which may have embarrassing details, it could spill out into the newspapers. We see examples of that all the time."

Several justices expressed concerns about businesses facing pressure to sign big settlements if litigation isn't automatically paused.

Justice Brett Kavanaugh said, "If the district court discovery goes forward in a putative class, in a class-action context, that is going to coerce massive settlements, and they don't want to be coerced into massive settlements without having the opportunity to take advantage of the right that Congress has given them to have an appeals court decide whether arbitration is the appropriate forum."

Jackson doubted the notion that businesses would be coerced to settle, arguing that an appeals court can "move quickly and resolve this in their favor."

Justice Neal Gorsuch said a district court can't undermine an appellate court's jurisdiction over an arbitration question.

Zavareei agreed. "The point is that you don't want two courts deciding the same issue at the same time," he said.