Court Rules Litigation

Is Automatically Stayed When Appealing Denial Of Motion To Compel Arbitration.

Coinbase operates an online platform where users can buy and sell cryptocurrencies. When creating an account, individuals agree to the Coinbase’s User Agreement, which contains an arbitration provision and directs that disputes arising under the agreement will be resolved through binding arbitration.

This case involves a class action suit filed in federal court in California. The class representative sued on behalf of Coinbase users who allege that Coinbase failed to replace funds fraudulently taken from the users’ accounts. Coinbase filed a motion to compel arbitration, which the trial court denied.

Coinbase appealed to the U.S. Court of Appeals for the Ninth Circuit, and also moved to stay the trial court proceedings while the Court of Appeals resolved the arbitration issue. The trial court and Court of Appeals both declined to stay the proceedings based on prior precedent in the Ninth Circuit. By contrast, most other Circuit Courts of Appeals throughout the country have held that a trial court must stay the proceedings while there is an appeal on the question of arbitration. To resolve the disagreement among the Courts of Appeals, the U.S. Supreme Court took on the case.

The Supreme Court concluded that a federal trial court must stay its proceedings while the appeal as to whether the case can be arbitrated is going on. The Supreme Court reasoned that an appeal divests the trial court of its control over those aspects of the case involved in the appeal. Here, the question on appeal was whether the case belonged in arbitration or instead in the trial court, and therefore the entire case was essentially involved in the appeal. It would not make sense for trial to go forward while the Court of Appeals decided whether there should be a trial or whether the case should be resolved in arbitration.

The Supreme Court concluded that this decision reflected common sense. Without a stay, the parties could be forced to settle the case to avoid the trial court proceedings, and could give rise to potential coercion, especially in class action cases where the possibility of large liability can lead the parties to settle. Without a stay, there was also the potential that the trial court will waste scarce judicial resources, which could otherwise be devoted to other pressing criminal or civil matters, on a dispute that may ultimately end up in arbitration. The Supreme Court reversed the judgment of the Court of Appeals.

Coinbase, Inc. v. Bielski (2023) __ S.Ct.__ [2023 WL 4138983].

Note:

This decision establishes a uniform rule across the country and overturns the precedent in the Ninth Circuit, of which California is a part. Now, if there is a dispute about whether a case should be sent to arbitration, the trial court proceedings will be put on hold. This is relevant to schools who include an arbitration provision in employment agreements and/or enrollment agreements.