In June 2023, the United States Supreme Court decided that a district court is required to stay its proceedings when it denies a motion to compel arbitration and such decision is appealed. In this comment, we recount some key points regarding the case. We also consider how the several jurisdictions where Schjødt is based would handle the same situation, concluding that the law in the United States is somewhat more aggressively pro-arbitration than the law in other countries.
On 23 June 2023, the U.S. Supreme Court decided Coinbase, Inc. v. Bielski. In this case, Abraham Bielski had brought a class action against Coinbase, Inc. (an online cryptocurrency platform) in the U.S. federal court system, alleging that Coinbase was liable after failing to replace funds fraudulently taken from Bielski's and other users' Coinbase accounts. Coinbase took the position that Mr. Bielski was bound by an arbitration clause, and therefore sought to stay the federal court proceedings pending arbitration – i.e., to compel Mr. Bielski to pursue his claims in arbitration. See 9 U.S.C. § 3. The district court denied Coinbase's motion.
A provision in the Federal Arbitration Act (codified at 9 U.S.C. § 16(a)) provides that, as an exception to the general rule that interlocutory orders are not appealable, a denial of a motion to compel arbitration is appealable. Coinbase appealed.
Coinbase moved to stay the district court proceedings – avoiding having the case begin proceeding through discovery, etc. It asked both the district court and, when that attempt failed, the court of appeals for such relief, but both declined the request.
On the one hand, there is no statutory provision stating that a district court must stay its proceedings pending an appeal, nor specifically pending appeal of a denial of a motion to compel arbitration. On the other hand, there is no question of the inherent power of the district court to stay its proceedings, and of the courts of appeal to order the district court to stay its proceedings.
In moving to stay the district court's proceedings pending its appeal, Coinbase relied not (just) on the courts' inherent power to issue a stay order. It also reasoned that a district court is required
to stay its proceedings while an appeal of a denied motion to compel arbitration is being handled. Coinbase found support for its approach in rulings from some other federal courts of appeal.
The court of appeals in this case, however, declined to stay the proceedings. Coinbase therefore appealed to the Supreme Court, which resolved a difference of opinion of the courts of appeals on this issue by concluding, in a 5-to-4 decision, that district courts are indeed
required to stay their proceedings pending an appeal of a denial of a motion to compel arbitration.
The reasoning of the court – and the points of disagreement between the majority opinion and the dissent – pertain to, among other things, what background rules should be assumed to apply when the Congress is silent on a matter, including in light of prevailing Supreme Court precedent at the time Congress legislates related to the matter and in light of comparable statutory provisions in other contexts.
From a legal realist perspective, the background political side of this case can also be of interest. Arbitration jurisprudence in the U.S. tends to be politically charged in close cases, with the right-leaning side of the Supreme Court tending to decide in favor of handling disputes through arbitration and the left-leaning side tending to decide in favor of handling disputes in the ordinary courts. Some commentators have found an explanation for such a conclusion in the overwhelming use of arbitration clauses not just in disputes between highly professional parties in high-value disputes, but also in contracts of adhesion between employers and employees, between merchants and consumers, between franchisors and franchisees, etc. In such contexts, being "pro-business" can mean being pro-arbitration, since being able to handle disputes against employees, consumers, etc. is seen to give businesses an advantage.
However, we will not explore these doctrinal or political questions further here, as our focus is on highlighting the result itself – a confirmation from the U.S. Supreme Court that, in yet one more way, the U.S. is an arbitration-friendly jurisdiction. Specifically, if a party seeks to bring another into court notwithstanding the existence of a (potential) arbitration agreement, a trial court declines to send the case to arbitration, and the party seeking to arbitrate the dispute wishes to challenge such decision, the case will not proceed with subsequent potentially quite expensive legal steps (discovery etc.). Instead, the appeal can proceed immediately as a matter of right, and the district court proceedings will be stayed until that appeal is decided – also as a matter of right.
That policy or law should dictate such result in this kind of situation is not a given. Below, we will briefly review the circumstances in the several jurisdictions where the Schjødt Law Firm is based – namely, in Scandinavia and in England. In general, we observe that in these countries the ability to immediate appeal a denial of a motion to stay and compel arbitration, and the ability to stay lower court proceedings pending such appeal, are often subject to courts' discretion. Then again, such discretion will often be imposed in a way that mirrors the U.S. system's arbitration-friendly process.
In England, a party to an arbitration agreement against whom court proceedings have been brought, may apply to court to stay those proceedings. See Arbitration Act 1996, section 9(1). The court will grant a stay of such court proceedings unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed. See Arbitration Act 1996, section 9(4). Even if the requirements of section 9 are not met, the Court may also grant a stay by applying its inherent jurisdiction under section 49(3) of the Senior Courts Act 1981. The default position is therefore that a stay will be granted by the (lower) court if a valid arbitration agreement is in place.
If a stay is denied, a party may appeal the (lower) court's decision only with permission of the High Court or the Court of Appeal. Permission for appeal will only be granted if the High Court and/or Court of Appeal considers that the appeal would have a real prospect of success or there is some other compelling reason for the appeal to be heard.
A party can seek to stay any ongoing lower court proceedings pending appeal to the High Court or Court of Appeal. Whether to grant such a stay is a matter of judicial discretion and not of right. Civil Procedural Rule 52.16 provides that: "Unless. . . the appeal court or the lower court orders otherwise . . . an appeal shall not operate as a stay of any order or decision of the lower court.”
It is difficult to say in the abstract whether an appeal would be allowed, or whether the lower court proceedings would generally be stayed pending an appeal, given that this is a matter of judicial discretion.
In Denmark, Retsplejeloven (the Administration of Justice Act) governs civil proceedings before the ordinary courts of Denmark, whereas arbitration proceedings are governed by Voldgiftsloven
(the Arbitration Act). The ordinary courts generally have no jurisdiction in disputes that are to be settled by arbitration. See Arbitration Act, article 4. If a case that is subject to an arbitration clause is brought before the ordinary courts and a party objects to the handling of the case on this basis, the ordinary courts will dismiss the case. See Arbitration Act, article 8(1).
If the court rejects this objection and concludes that the case should go forward in the ordinary courts, this conclusion would constitute a partial ruling pursuant to section 253(3) of the Danish Administration of Justice Act. If a party does not agree with the court's ruling regarding the arbitration clause, the party can generally only appeal such partial ruling in connection with an appeal of the final ruling in the case. See Danish Administration of Justice Act, article 253(4). However, it is possible to seek permission from the Danish Appeals Permission Board to appeal such a partial ruling immediately. Such permission will be especially likely to be granted if the Board considers the trial court's decision likely to be incorrect on the merits.
If permission is obtained from the Danish Appeals Permission Board to appeal the partial ruling, stay of the trial court proceedings pending the appeal is not required nor practically guaranteed, but would be reasonably likely. See Danish Administration of Justice Act, article 345. In order to obtain such a stay, "special circumstances" must be present. In practice it is mainly considerations of litigation costs that would justify permission being granted. In an appeal of a denial of a motion to dismiss on the basis of an arbitration clause, it is precisely such a basis that would make a stay likely.
In Norway, civil procedure is governed by Tvisteloven
(the Disputes Act), and arbitration is governed by Voldgiftsloven (the Arbitration Act). Voldgiftsloven § 7(1) provides that the Norwegian courts shall dismiss a case that is subject to arbitration. Such a decision is immediately appealable. See Tvisteloven § 29-2(1).
There is no specific rule in Norwegian law requiring that a case before a Norwegian district court be stayed pending resolution of an appeal of a denial of a motion to dismiss in light of an arbitration clause. The general rule is that the court can stay in case of "weighty grounds" ("tungtveiende grunner"), see Tvisteloven § 16-18 (2). This allows the court significant room for discretion, but the court should take into consideration the need for a swift, justifiable and cost-efficient proceeding ("behovet for hurtig, forsvarlig og kostandseffektiv behandling"). Therefore, a stay would in practice be expected where a resolution of a motion to dismiss the case in light of an arbitration clause is pending.
In general, a stay of district court proceedings will often not be granted. This will most often be the case if for example matters subject to appeal are merely ancillary or are not yet relevant to the proceedings. For example, if the district court decides an issue pertaining to evidence early in the case, with the trial scheduled for around a year or more into the future, then a stay would not be expected. However, if questions subject to appeal are a premise for further handling of the case, then a stay would be expected. In practice, a motion to dismiss in light of an arbitration clause would be precisely such a case where a stay would be expected, since the entire proceedings would be unnecessary if handling the matter in arbitration was required.
In Sweden, the Rättegångsbalk (the Swedish Code of Judicial Procedure) governs civil procedure before the ordinary courts of Sweden. Skiljeförfarandelagen (the Swedish Arbitration Act) governs arbitration proceedings. A court may not, upon an objection from a party, rule on an issue which, pursuant to an arbitration agreement, shall be decided by arbitrators. See Section 4 of the Swedish Arbitration Act; see also Chapter 10, Section 17(1) of the Swedish Code of Judicial Procedure. After a court has rendered a decision rejecting a challenge of the jurisdiction of the court because of an arbitration clause, a party that intends to appeal that decision needs to give formal notice of its intention to appeal immediately after the decision is rendered. The court will thereafter determine if the decision is directly/separately appealable or only appealable in conjunction with an appeal of the final judgment. See Chapter 49, Section 4 of the Swedish Code of Judicial Procedure. In practice, where a party has challenged the jurisdiction of the court due to an arbitration clause and the challenge is not frivolous, the court would most likely determine that the decision is directly/separately appealable and not only appealable in conjunction with an appeal of the final judgment.
According to Chapter 49, Section 11 of the Swedish Code of Judicial Procedure, if a party, pursuant to Chapter 49, Section 4 of the Swedish Code of Judicial Procedure, has given formal notice of its intention to appeal a district court decision rendered in the course of the proceedings and the court has decided that the decision is directly/separately appealable, the case before the district court shall be stayed pending the outcome of the appeal. While according to the same provision, the court may determine that the case preparations shall continue, in practice, courts generally stay the proceedings pending the outcome of the appeal in cases where the jurisdiction of the lower court will be determined by a higher court.
Among the jurisdictions discussed above on this particular issue, then, there are a variety of procedural approaches that can apply when a trial court has declined to compel arbitration and the party seeking arbitration wishes to challenge that decision. Some of these jurisdictions are especially likely to have the same procedural approach as the United States courts notwithstanding the potential for judicial discretion – perhaps Norway and Sweden mots of all. In others – England and Denmark – there will be more room for variation, especially because the appeal/stay processes in these countries can be expected to include a threshold consideration of the merits of the (potential) appeal.