ANALYSIS: Are Automatic Stays Deterring Arbitration Challengers?

The US Supreme Court’s 2023 decision in Coinbase, Inc. v. Bielski resolved a longstanding circuit split regarding the absence of an automatic stay under 9 U.S.C. § 16(a) of the Federal Arbitration Act when defendants file interlocutory appeals subsequent to denials of their motions to compel arbitration. However, finally clarifying the query of whether defendants are entitled to a respite when the arbitrability of claims is being decided may be having the unintended effect of further abating litigation initiated by disgruntled plaintiffs seeking relief.

Circuit Split Resolved

Abraham Bielski, the named plaintiff in a putative class action against Coinbase Inc., argued that the online cryptocurrency exchange violated the Electronic Funds Transfer Act and its accompanying “Regulation E” when it allegedly didn’t replace funds stolen through unauthorized electronic transfers. Coinbase filed a motion to compel arbitration due to the user agreement’s delegation clause which specified that any disputes be adjudicated through binding arbitration.

After being denied by the Northern District of California from the court’s finding of both substantive and procedural unconscionability, Coinbase filed a 9 U.S.C. § 16(a)-sanctioned interlocutory appeal to the Ninth Circuit Court of Appeals, and moved the district court to stay pre-trial and trial proceedings until the issue of the arbitrability of Bielski’s claims was decided.

Both the district court and the Ninth Circuit rejected Coinbase’s motion to stay proceedings, and Coinbase appealed to the Supreme Court.

The Supreme Court reversed the lower courts and found in Coinbase’s favor, with the five-justice majority holding that a “district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing.” (Justice Clarence Thomas joined, in part, the dissent of the three liberal justices.)

The court’s decision aligned all federal circuits under one automatic stay umbrella. Pre-Coinbase, the Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits were “automatic stay” jurisdictions, whereas the Second, Fifth, and Ninth Circuits were “discretionary stay” circuits that left to the district court judges the decision of whether to put such cases on hold.

A Chilling Effect on Litigation?

Notwithstanding the lucidity that Coinbase provides to the previous schism regarding the propriety of automatic stays succeeding arbitrability-based interlocutory appeals, the new ruling does raise a question regarding the effect it could have on parties pondering litigation when arbitration clauses are involved in the first place. Namely: Could prospective plaintiffs be deterred from even initiating litigation, knowing that—should the near-inevitable motion to compel arbitration be denied—defendants could grind the case to a halt with a non-frivolous interlocutory appeal?

An analysis of Bloomberg Law Dockets suggests that such a post-Coinbase chill might be taking place. Because arbitration agreements can be involved in any number of legal situations, but are not invoked until after a lawsuit’s been filed, it’s practically impossible to quantify whether plaintiffs have been less likely to sue since “automatic stay” became the law of the land. However, a more indirect metric might help shed some light on the issue.

Looking at motions to compel arbitration filed by defendants before and after the Coinbase ruling, there is a small but identifiable decrease in recent activity. Defendants filed an average of 28.1 motions per month in the 12 months since June 2023, down from a 41.5 monthly average over the 12 months prior to June 2023.

This downward trend appears to be accelerating. Total filings to compel arbitration in each of the last four months—March through June 2024—were the four lowest individual monthly totals in the federal dockets, going back to at least 2020.

Built-in Deterrents for Plaintiffs

Concrete reasons for this trend are elusive. However, the statistical decline in the months after Coinbase may suggest that the new automatic stay could be discouraging potential plaintiffs from filing lawsuits challenging arbitration clauses.

It doesn’t make logical sense that the notable drop in motions to compel post-Coinbase is because defendants have suddenly been inspired to take a more benevolent approach in challenging the arbitrability of claims—especially with this decision in their favor. A more plausible explanation could shed light on this intriguing statistic.

Simply put, fewer lawsuits initiated by plaintiffs will logically equate to fewer motions to compel arbitration in response by defendants. And a logical reason for the drop in lawsuits is that parties are growing more circumspect in initiating litigation when arbitration clauses are involved, mindful that any denial of a motion to compel arbitration would now mean that defendants’ interlocutory appeal wields a novel advantage: the ability to bring the case to a standstill.

Another deterrent for prospective plaintiffs that could demystify the reason behind the abatement of motions to compel could be loss of evidence.

In her dissenting opinion in Coinbase, Justice Ketanji Brown Jackson proclaimed that “a stay would harm the opposing party and the public interest much more than it would protect the party seeking arbitration” and proffered the hypothetical of a deathbed witness whose testimony, while a 9 U.S.C. § 16(a) arbitrability-based interlocutory appeal is pending, could be lost forever because of the automatic stay.

Stays Requested After Coinbase

Even though parties can now take advantage of automatic stays following arbitration-based interlocutory appeals regardless of what circuit a case was filed in, this change hasn’t necessarily equated to a complete cessation of defendants filing motions and penning letters to the court to stay proceedings.

The following six matters showcase defendants exercising a post-Coinbase abundance of caution in reserving their automatic stay rights.

Mariam Davitashvili et. al. v. Grubhub Inc., et. al.

Six days after Coinbase, in a class action matter involving alleged monopoly, price-fixing, and restraint of trade violations of the Sherman Act, counsel for both plaintiffs and defendants penned a letter to the Southern District of New York requesting a stay pending 9 U.S.C. §16(a) interlocutory appeals.

Flores, et. al. v. The National Football League, et. al.

In August 2023, the NFL requested in a letter to the S.D.N.Y. that the court “formally stay further proceedings” while the appeal of the court’s denial of the NFL’s motion to compel arbitration of the class action plaintiff’s federal and state law racial discrimination claims remains pending.

Patterson v. TerraForm Labs, Pte. Ltd., et. al.

In February 2024, class action defendant Jump Trading LLC, facing claims of violating federal securities laws, renewed its motion asking the Northern District of California to compel arbitration regarding the case’s third amended complaint and otherwise stay the action pending the interlocutory appeal of its motion to compel arbitration of the second amended complaint.

Hussam Al-Nahhas v. Rosebud Lending LZO, et. al.

In March 2024, in a class action lawsuit involving alleged predatory loans, defendants 777 Partners LLC and Tactical Marketing Partners, LLC moved the Northern District of Illinois to stay briefing of the pending motion to related cases until the interlocutory appeal on arbitrability related to 777 Partners LLC’s denied motion to compel arbitration is decided.

Kirkham v. TAXACT, Inc.

Also in March, class action defendant TAXACT Inc. filed a motion to stay pending appeal with the Eastern District of Pennsylvania after its motion to compel arbitration and stay proceedings was granted in part on one plaintiff’s claims but denied in part on the other plaintiff’s claims. TAXACT argues that claims of both plaintiffs must be stayed.

In re Celsius Network LLC, et. al.

Defendants Mawson Infrastructure Group Inc., Luna Squares LLC, and Cosmos Infrastructure LLC filed an emergency motion to stay pending interlocutory appeal with the S.D.N.Y. The entities filed an appeal notice following the U.S. Bankruptcy Court’s partial denial of their motion to compel arbitration on Celsius Network’s 10 causes of action related to three contracts.

It might not be a coincidence that four of these six matters are taking place in former “discretionary stay” circuits. It may imply that, despite receiving clear instruction from the highest court in the land, parties feel the need to gently remind district court judges of their new obligation to press the pause button.

Conclusion

Coinbase is undeniably good news for defendants wishing to embark on the path of alternative dispute resolution, particularly in venues in what were previously “discretionary stay” circuits. The ruling gives them greater latitude and more time to plan a litigation strategy should the denial of their motion to compel be affirmed by their respective circuit.

Now that automatic stays following arbitrability-focused interlocutory appeals is the law of the land—even though the regulation itself, 9 U.S.C. § 16(a), remains silent on the issue—prospective plaintiffs who previously may have acted decisively in taking a litigious route may now be less inclined to avail themselves of remedies in federal court.

Other Supreme Court cases covered in the report are: Malwarebytes v. Enigma Software (2020); AMG Capital Management v. FTC (2021) (available Sept. 27); and West Virginia v. EPA (2022).

The full report is available for download here for nonsubscribers. Subscribers can directly access the report from our Bloomberg Law Reports page.

Bloomberg Law subscribers can find related content on our Practical Guidance: Arbitrability page.

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