Appealing a denial of a motion to compel arbitration: would this mandate a stay of the underlying litigation?

At the present time in the United States there is a split, and the Third, Fourth, Seventh, Tenth, Eleventh, and DC Circuit Courts require a stay of all proceedings when a party has filed a “non- frivolous” appeal challenging a lower court's decision denying a motion to compel arbitration; the Second, Fifth, and Ninth Circuits hold that the district court has discretion to decide whether to stay the proceedings or allow them to continue while the appeal is pending.

In a case currently slated to be heard by the Supreme Court, a class action had been commenced against cryptocurrency platform Coinbase, Inc. under the Electronic Funds Transfer Act in California. In response to the action, Coinbase filed a motion to compel arbitration, relying on the arbitration provision contained in its underlying user agreement. The district court denied the motion to compel, holding that the arbitration provision was substantively unconscionable under California law.

Coinbase then filed an interlocutory appeal with the US Court of Appeals challenging the decision and seeking to stay the litigation pending a decision on the appeal. The circuit court denied the motion and Coinbase filed a motion to stay the proceedings at the district court pending the appeal. This motion was also denied.

The US Supreme Court granted certiorari to consider the question and resolve the split in the circuits.

Coinbase relied upon Supreme Court precedent in the case of Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982), wherein the Court held that an appeal “divests the district court of its control over those aspects of the case involved in the appeal”. Where the question is one of arbitrability of a dispute, Coinbase argued that the district court had to be divested of jurisdiction to proceed with a case until such time as the court of appeals determines whether the case belongs in litigation or the arbitration can proceed. Coinbase further noted that allowing litigation to move forward while an appeal was pending was contrary to the provisions of the Federal Arbitration Act providing for a right to seek an immediate interlocutory appeal of refusals to compel arbitration.

A decision by the court on this matter will impact strategic decisions on both filing motions to compel, and appealing denials of those decisions. It is currently anticipated that a decision will be forthcoming in 2023.

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