On June 23, 2023, the U.S. Supreme Court held 5-4 in Coinbase, Inc. v. Bielski that an interlocutory appeal of the denial of a motion to compel arbitration automatically stays the district court proceedings.

In Coinbase, Inc. v. Bielski, the plaintiff, after losing funds in his digital wallet account due to a scam, filed a putative class action against Coinbase in the District Court for the Northern District of California, alleging that Coinbase violated the Electronic Funds Transfer Act by failing to return funds fraudulently taken from his account. Coinbase argued that the plaintiff agreed to the terms of its User Agreement when creating an account with Coinbase, which requires all disputes arising under the User Agreement to be resolved through binding arbitration. Coinbase thus filed a motion to compel arbitration.

The federal district court denied Coinbase’s motion to compel arbitration on the basis that the arbitration clause was unconscionable. Coinbase filed an interlocutory appeal to the Ninth Circuit Court of Appeals according to the Federal Arbitration Act and at the same time moved to stay the district court proceedings pending the appeal. The district court denied Coinbase’s motion to stay the proceedings and the Ninth Circuit later upheld the district court’s decision not to stay proceedings relying on its precedent that an appeal from the denial of a motion to compel arbitration does not automatically stay district court proceedings.

The Supreme Court reversed the Ninth Circuit ruling and required a stay pending appeal based on the following reasons. First, the Supreme Court holds that an appeal divests the district court of its control over those aspects of the case involved in the appeal. While in this case, since the question of arbitrability is on appeal, i.e., whether the district court has jurisdiction over the case on appeal, the district court thus loses its control over the case pending the appeal. Second, the Supreme Court reasoned that many of the asserted benefits of arbitration (such as efficiency, less expense, less intrusive discovery) would be irretrievably lost and the district court may waste judicial resources if a district court continues with pre-trial and trial proceedings while the dispute ultimately heads to arbitration. Third, the Supreme Court is concerned that the parties may be forced to enter into settlement to avoid expensive court proceedings.

The Supreme Court’s decision in Coinbase, Inc. v. Bielski resolves a circuit split as to whether an interlocutory appeal of the denial of a motion to compel arbitration automatically stays the district court proceedings and potentially further encourages companies’ preference for arbitration over litigation. With that said, the decision only intends to ensure the efficiency of procedures, companies must make efforts to ensure that its arbitration clauses are indeed enforceable if they really want to resolve disputes through binding arbitration.