Amicus Curiae Brief — Coinbase, Inc., Petitioner v. Abraham Bielski

No. 22-105

IN THE

Supreme Court of the United States

___________

COINBASE, INC.,

Petitioner,

v.

ABRAHAM BIELSKI,

Respondent.

___________

COINBASE, INC.,

Petitioner,

v.

DAVID SUSKI, et al.,

Respondents.

___________

On Writ of Certiorari to

the United States Court of Appeals

for the Ninth Circuit

___________

BRIEF OF WASHINGTON LEGAL FOUNDATION

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

___________

January 27, 2023

CORY L. ANDREWS

Counsel of Record

JOHN M. MASSLON II

WASHINGTON LEGAL

FOUNDATION

2009 Massachusetts Ave., NW

Washington, DC 20036

(202) 588-0302

candrews@wlf.org

QUESTION PRESENTED

Whether a non-frivolous appeal of the denial

of a motion to compel arbitration ousts a district

court’s jurisdiction to proceed with litigation pending

appeal.

iii

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................... iv

INTEREST OF AMICUS CURIAE ......................... 1

STATEMENT ........................................................... 2

SUMMARY OF ARGUMENT.................................. 3

ARGUMENT ............................................................ 6

I.

THE MAJORITY RULE BEST FURTHERS

§ 16’S TEXT AND PURPOSE .............................. 6

II.

THE MINORITY RULE UNDERMINES THE

FAA’S CORE POLICIES..................................... 9

A.

The minority rule upends the

FAA’s

goal

of streamlined

efficiency ........................................... 11

B.

The minority rule raises the costs

of resolving disputes ......................... 12

C.

The minority rule squanders judicial resources ................................. 14

D.

The minority rule imperils harmonious business relations .............. 17

CONCLUSION ....................................................... 19

iv

TABLE OF AUTHORITIES

Page(s)

CASES:

14 Penn Plaza LLC v. Pyett,

556 U.S. 247 (2009) ....................................... 11, 12

Alaska Elec. Pension Fund v. Flowserve Corp.,

572 F.3d 221 (5th Cir. 2009) ................................. 7

Astoria Fed. Sav. & Loan Ass’n v. Solimino,

501 U.S. 104 (1991) ............................................... 7

AT&T Mobility LLC v. Concepcion,

563 U.S. 333 (2011) ....................................... 10, 11

Britton v. Co-op Banking Grp.,

916 F2d 1405 (9th Cir. 1990) ............................ 2, 3

Circuit City Stores, Inc. v. Adams,

532 U.S. 105 (2001) ............................................. 12

Cobbledick v. United States,

309 U.S. 323 (1940) ............................................ 17

Coopers & Lybrand v. Livesay,

437 U.S. 463 (1978) ............................................... 8

Degidio v. Crazy Horse Saloon & Rest.,

880 F.3d 135 (4th Cir. 2018) ............................... 15

Epic Sys. Corp. v. Lewis,

138 S. Ct. 1612 (2018) ..................................... 1, 11

Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20 (1991) ................................................. 6

Griggs v. Provident Consumer Disc. Co.,

459 U.S. 56 (1982) ................................................. 7

v

TABLE OF AUTHORITIES

(continued)

Hightower v. GMRI, Inc.,

272 F.3d 239 (4th Cir. 2001) ............................... 15

Hovey v. McDonald,

109 U.S. 150 (1883) ............................................... 7

Lamps Plus, Inc. v. Varela,

139 S. Ct. 1407 (2019) ........................................ 10

Levin v. Alms and Assocs., Inc.,

634 F.3d 260 (4th Cir. 2011) ............................... 13

McCauley v. Halliburton Energy Servs., Inc.,

413 F.3d 1158 (10th Cir. 2005) ....................... 9, 17

Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc.,

473 U.S. 614 (1985) ............................................. 11

Morgan v. Sundance, Inc.,

142 S. Ct. 1708 (2022) ......................................... 19

Motorola Credit Corp. v. Uzan,

388 F.3d 39 (2d Cir. 2004) .................................. 13

Olivieri v. Rodriguez,

122 F.3d 406 (7th Cir. 1997) ............................... 12

Pearson v. Callahan,

555 U.S. 223 (2009) ............................................. 15

Preston v. Ferrer,

552 U.S. 346 (2008) ............................................. 11

Shearson/Am. Exp. Inc. v. McMahon,

482 U.S. 220 (1987) ............................................... 1

Smith v. Duffey,

576 F.3d 336 (7th Cir. 2009) ............................... 12

vi

TABLE OF AUTHORITIES

(continued)

Viking River Cruises, Inc. v. Moriana,

142 S. Ct. 1906 (2022) ........................................... 1

Weingarten Realty Inves. v. Miller,

661 F.3d 904 (5th Cir. 2011) ........................... 7, 18

STATUTES:

9 U.S.C. § 2 ............................................................... 1

§ 9 ............................................................... 4

§ 16 ..................................... 6, 7, 8, 9, 16, 19

§ 16(a) .................................. 1, 2, 4, 6, 8, 17

§ 16(a)(1)(B) ............................................... 8

§ 16(b)(2) .................................................... 8

RULE:

Fed. R. Civ. P. 23(f) .......................................... 7, 8, 9

OTHER AUTHORITIES:

Arbitration vs. Litigation: the differences,

Thomson Reuters (Oct. 4, 2022),

http://bit.ly/3COFr2W ........................................ 14

John H. Beisner, The Centre Cannot Hold: The

Need for Effective Reform of the U.S. Civil

Discovery Process, Institute for Legal Reform

(2010), https://bit.ly/3Xlyiie ............................... 12

Court Reform and Access to Justice Act, Part I,

Hearings on H.R. 3152, before the Subcomm.

on Courts, Civil Liberties, and Admin. of Justice,

of the H. Comm. on the Judiciary, 100th Cong.

(1987) ................................................................. 6, 8

vii

TABLE OF AUTHORITIES

(continued)

Kaelan Deese, Justice delayed: Federal case

backlog prompts calls to expand courts,

Washington Examiner (Sep. 5, 2022),

http://bit.ly/3kml9r4 ............................................ 15

Christopher R. Drahozal, Contracting Out of

National Law: An Empirical Look at the New

Law Merchant, 80 Notre Dame L. Rev. 523

(2005) ................................................................... 18

H.R. Rep. No. 68-96 (1924) ...................................... 9

H.R. Rep. No. 97-542 (1982) ............................ 10, 17

JAMS, Arbitration Discovery Protocols (2010),

https://bit.ly/3ixHXUe ......................................... 13

Joint Hearings on S. 1005 and H.R. 646 before

the Subcomms. on the Judiciary, 68th Cong.,

1st Sess. (1924) ..................................................... 4

Roger J. Perlstadt, Interlocutory Review of

Litigation-Avoidance Claims: Insights from

Appeals Under the Federal Arbitration Act,

44 Akron L. Rev. 375 (2011) .............................. 14

Victor E. Schwartz & Christopher E. Appel,

Setting the Record Straight About the Benefits

of Pre- Dispute Arbitration, WLF Legal Back

grounder (June 7, 2019), www.bit.ly/2Z6rKqg ..... 1

Douglas Shontz et al., RAND Institute for Civil

Justice, Business-to-Business Arbitration

in the United States: Perceptions of Corporate

Counsel (2011), https:// bit.ly/3GNXqaR ............ 18

S. Rep. No. 68-536, at 3 (1924) .............................. 10

viii

TABLE OF AUTHORITIES

(continued)

United States Courts, Judicial Caseload

Indicators, Federal Judicial Caseload

Statistics 2021, http://bit.ly/ 3kfIJ8M ................ 15

United States Courts, March 2022 Civil Justice

Reform Act, http://bit.ly/3XFS8oB ...................... 15

1

INTEREST OF AMICUS CURIAE*

Washington Legal Foundation is a nonprofit,

public-interest law firm and policy center with supporters nationwide. WLF promotes free enterprise,

individual rights, limited government, and the rule

of law. It often appears as an amicus before this

Court in important arbitration cases. See, e.g., Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906

(2022); Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612

(2018). WLF’s Legal Studies division, its publishing

arm, routinely publishes articles by outside experts

on arbitration. See, e.g., Victor E. Schwartz & Christopher E. Appel, Setting the Record Straight About

the Benefits of Pre-Dispute Arbitration, WLF Legal

Backgrounder (June 7, 2019), www.bit.ly/2Z6rKqg.

To conserve both private and public resources,

the Federal Arbitration Act “establishes a federal

policy favoring arbitration.” Shearson/Am. Exp. Inc.

v. McMahon, 482 U.S. 220, 226 (1987). Under the

FAA, an arbitration clause in a contract involving

commerce is both valid and enforceable. 9 U.S.C. § 2.

When a district court refuses to compel arbitration

as the parties agreed, the FAA allows an immediate

appeal as of right. Id. § 16(a).

Most courts of appeals recognize that such an

appeal automatically divests the district court of jurisdiction and stays the litigation. But the Ninth

Circuit—joined by the Second and Fifth Circuits—

* No party’s counsel authored any part of this brief. No

person or entity, other than WLF and its counsel, contributed

money for preparing or submitting this brief.

2

holds otherwise. By forcing a company to proceed

with costly and burdensome litigation while its arbitrability appeal is pending, this minority rule wreaks

havoc on the FAA and deprives both the parties and

the courts of the benefits of arbitration. The Court

should reject this self-defeating approach to the

FAA.

STATEMENT

Coinbase operates one of the world’s largest

cryptocurrency exchanges, with 108 million verified

users in over 100 countries. Like many successful

companies, Coinbase includes in its user agreements

a provision in which the parties agree to resolve “any

dispute” between them through binding arbitration.

Although they agreed to Coinbase’s user

agreement, respondents did not honor its arbitration

provision. Instead, respondents brought two separate putative class actions in the Northern District

of California. Invoking the user agreement’s arbitration provision, Coinbase moved to compel arbitration

in both cases. In each case, the district court denied

Coinbase’s motion.

Coinbase timely appealed each of those decisions under 9 U.S.C. § 16(a), which allows defendants to immediately appeal a district court’s denial

of a motion to compel arbitration. In most circuits, a

§ 16(a) appeal automatically divests the district

court of jurisdiction and stays the litigation. But under the Ninth Circuit’s rule announced in Britton v.

Co-op Banking Grp., 916 F2d 1405, 1411–12 (9th

Cir. 1990), district courts retain jurisdiction to pro-

3

ceed with litigation while the court of appeals decides arbitrability.

Bound by Britton, Coinbase sought discretionary stays from both district courts. Although one district judge conceded that “reasonable minds may differ” on the issue of arbitrability, Pet. App. 42a, and

the other acknowledged that significant “time and

money” might be wasted without a stay, id. at 52a,

both courts denied Coinbase’s motion for a stay.

Coinbase next sought discretionary stays from

the Ninth Circuit. Coinbase marshaled strong arguments for why both disputes belong in arbitration,

consistent with the respondents’ user agreements.

Coinbase also explained how it would be harmed if

forced to simultaneously bear the costs and burdens

of district court litigation, with its intrusive and protracted discovery, and appeals over arbitrability. Alternatively, Coinbase asked the Ninth Circuit for an

administrative stay to allow the court to reconsider

en banc its holding in Britton. In each case, the

Ninth Circuit denied Coinbase’s motion without discussion.

Coinbase filed a joint petition for certiorari,

and this Court granted review.

SUMMARY OF ARGUMENT

Litigation is expensive. It’s expensive for

businesses, which must pay lawyers to argue and

employees to miss work to testify and produce documents. It’s expensive for consumers and workers,

who often must cover businesses’ costs through

higher prices and lower wages. It’s expensive for the

4

judiciary, which must pay for “judges, attendants,

light, heat, and power—and even ventilation in some

courthouses.” Joint Hearings on S. 1005 and H.R.

646 before the Subcomms. on the Judiciary, 68th

Cong., 1st Sess. (1924). And it’s expensive for the average citizen; for just as corporate litigation expenses become consumer and worker expenses, the judiciary’s expenses become taxpayer expenses.

It’s no mystery, then, why Congress passed

the FAA. Courts had long refused to enforce most

arbitration agreements, and this meant that more

and more disputes remained in litigation. To save

people time, money, and trouble, Congress charged

the courts with enforcing otherwise valid arbitration

clauses in contracts “involving commerce.” 9 U.S.C.

§ 9. Over time, it became clear that some courts, in

defiance of the FAA, still refused to compel arbitration despite the parties’ valid agreement to arbitrate.

So Congress created a right to immediately appeal

from those erroneous decisions. 9 U.S.C. § 16(a).

But § 16(a) makes sense only if an interlocutory appeal from the trial court’s refusal to compel arbitration automatically stays litigation in the district

court. Congress never would have granted parties

the right to an immediate appeal if it had contemplated that litigation would continue apace while the

appeal was pending. On the contrary, Congress

crafted § 16(a) against the background principle that

an appeal divests a district court of jurisdiction over

the case being appealed. And Congress recognized

that the main virtues of arbitration—avoiding the

costs and inefficiencies of litigation—would be lost if

the case proceeds simultaneously in litigation and on

appeal, only to be ultimately decided in arbitration.

5

The majority rule embraced by the Third,

Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits

reflects this commonsense view, grounded in the text

and purpose of the FAA. In those circuits, a nonfrivolous appeal from the denial of a motion to compel arbitration divests the district court of jurisdiction and automatically stays the litigation. The minority rule embraced by the Second, Fifth, and Ninth

Circuits creates havoc. In those circuits, an appeal

from the denial of a motion to compel arbitration

does not divest the district court of jurisdiction, so

parties seeking to compel arbitration must either obtain a stay pending appeal under the traditional discretionary test or bear the dual burdens of trial litigation and arbitrability appeals.

But the intolerable risk of bearing both those

burdens undermines the core policies animating the

FAA. First, by displacing the very streamlined procedures that Congress enacted the FAA to secure,

the minority rule frustrates arbitration’s goal of efficiency. Second, by forcing parties to simultaneously

bear the expense of district court litigation and arbitrability appeals, the minority rule ratchets up the

cost of resolving disputes. Third, by allowing district

courts to try cases to judgments that must be vacated not because they are wrongly decided, but because the case should never have been tried in court

to begin with, the minority rule wastes rather than

conserves judicial resources. And fourth, by obliging

contracting commercial parties to litigate their disputes in court even when they have agreed to arbitrate, the minority rule undermines harmonious

business relations.

6

In short, the minority rule “breed[s] litigation

from a statute that seeks to avoid it.” Allied-Bruce

Terminix Cos. v. Dobson, 513 U.S. 265, 275 (1995).

That is the polar opposite of what Congress intended.

ARGUMENT

I.

THE MAJORITY RULE BEST FURTHERS § 16’S

TEXT AND PURPOSE.

Nearly a century ago, Congress enacted the

FAA “to reverse the longstanding judicial hostility to

arbitration agreements that had existed at English

common law and had been adopted by American

courts.” Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 24 (1991). Later, as part of the 1988 Judicial Improvements and Access to Justice Act, Congress enacted § 16(a) of the FAA to ensure that a

party who escapes its duty to arbitrate with the aid

of a sympathetic district judge cannot avoid that obligation for long.

Section 16 “respond[ed] to the needs of arbitration * * * by generally denying immediate appeals

from orders giving arbitration precedence over litigation and permitting immediate appeals from orders

giving litigation precedence over arbitration.” Court

Reform and Access to Justice Act, Part I, Hearings on

H.R. 3152, before the Subcomm. on Courts, Civil

Liberties, and Admin. of Justice, of the H. Comm. on

the Judiciary, 100th Cong. (1987) (statement of Elmo

B. Hunter, Chairman, Comm. on Court Admin., Judicial Conf. of the U.S.).

7

Congress was not writing on a blank slate in

1988. Long before Congress enacted § 16, “one general rule in all cases” was that “an appeal suspends

the power of the court below to proceed further in

the cause.” Hovey v. McDonald, 109 U.S. 150, 157

(1883). By the time of § 16’s enactment, it was “generally understood that a federal district court and a

federal court of appeals should not attempt to assert

jurisdiction over a case simultaneously.” Griggs v.

Provident Consumer Disc. Co., 459 U.S. 56, 58

(1982). As this Court reiterated in Griggs, “the filing

of a notice of appeal is an event of jurisdictional significance—it confers jurisdiction on the court of appeals and divests the district court of its control over

those aspects of the case involved in the appeal.” Id.

Congress “legislate[s] against a background of

common-law adjudicatory principles,” and it “expect[s]” those principles to “apply except when a

statutory purpose to the contrary is evident.” Astoria

Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 104,

108 (1991) (cleaned up). By 1988, the default divestiture rule was just such a background principle. And

Congress gave no indication in § 16 of wanting to

disturb or deviate from it.

True, there are exceptions. But the exceptions

prove the rule. Take Federal Rule of Civil Procedure

23(f), which permits interlocutory appeals from orders granting or denying class certification. Fed. R.

Civ. P. 23(f). In its decision embracing the minority

rule, the Fifth Circuit analogized to one of its Rule

23(f) precedents. Weingarten Realty Inves. v. Miller,

661 F.3d 904, 909 (5th Cir. 2011) (citing Alaska Elec.

Pension Fund v. Flowserve Corp., 572 F.3d 221, 233

(5th Cir. 2009)). “Even though the district court was

8

hearing an issue that was ‘practically identical’ to

that on appeal,” Weingarten explained, “it could proceed because, as a matter of law, the findings on

class certification would not resolve the merits issue.” 661 F.3d at 909.

But that analogy falls apart under the slightest scrutiny. First, under Rule 23(f) “[a]n appeal does

not stay proceedings in the district court unless the

district judge or the court of appeals so orders.” Fed.

R. Civ. P. 23(f). This language was included precisely

to avoid the default divestiture rule. Congress could

have included similar language in § 16(a), but it

chose not to do so. That choice must be given effect.

Second, appeals under Rule 23(f) are discretionary, not a matter of right. Heeding this Court’s

warnings in Coopers & Lybrand v. Livesay, 437 U.S.

463 (1978) about excessive appeals of class certification rulings, those who fashioned Rule 23(f) left the

matter to the appellate courts. See Fed. R. Civ. P.

23(f) advisory comm. note to 1998 amendment (“Appeal from an order granting or denying class certification is permitted in the sole discretion of the court

of appeals.”).

Under § 16, by contrast, district court orders

denying motions to compel arbitration are immediately appealable, 9 U.S.C. § 16(a)(1)(B), while orders

compelling arbitration are not, id. § 16(b)(2). This

reflects Congress’s considered belief that refusals to

compel arbitration will often be wrong, while decisions compelling arbitration will usually be right.

Hearings on H.R. 3152, supra (“Denial of appeal

when arbitration is given precedence should not often be costly: district courts usually will be correct,

9

and the arbitration process is apt to produce considerable savings in the process of preparing for trial if

the dispute is ultimately found non-arbitrable.”)

Rule 23(f) aside, the “central reason and justification” for interlocutory appeals is the “interruption of the trial proceedings.” McCauley v. Halliburton Energy Servs., Inc., 413 F.3d 1158, 1162 (10th

Cir. 2005). Above all, Congress sought in § 16 to minimize any judicial obstruction of arbitration by allowing the courts of appeals to resolve arbitrability

questions before litigation gets underway. Congress

never would have granted parties the right to an

immediate interlocutory appeal from refusals to

compel arbitration if it had contemplated that litigation could proceed to discovery and even judgment

while the appeal was pending.

Respondents contend that arbitrability is a

separate matter not involved in the interlocutory

appeal. Yet when the issue on appeal is whether the

district court should proceed at all, every matter is

subsumed within that question. Put differently, the

question of arbitrability is no more “separate” from

the underlying dispute than one’s nose is “separate”

from one’s face. In this sense, the district court’s proceedings are at the core of—not collateral to—the

appeal.

II.

THE MINORITY RULE UNDERMINES THE

FAA’S CORE POLICIES.

By ensuring that “arbitration agreements are

made valid and enforceable,” Congress sought to

eliminate “the costliness and delays of litigation.”

H.R. Rep. No. 68-96, at 2 (1924). The Senate Report

10

likewise reveals that Congress intended for the FAA

to help Americans “avoid the delay and expense of

litigation.” S. Rep. No. 68-536, at 3 (1924).

Over a half-century later, Congress reaffirmed

the FAA’s core policies favoring private arbitration

over litigation. Arbitration (1) “is usually cheaper

and faster than litigation”; (2) “can have simpler

procedural and evidentiary rules”; (3) “normally minimizes hostility and is less disruptive of ongoing and

future business dealings among the parties”; (4) “is

often more flexible in regard to scheduling of times

and places of hearings and discovery devices”; and

(5) “could relieve some of the burdens of the overworked Federal courts.” H.R. Rep. No. 97-542, at 13

(1982).

This Court, too, has repeatedly recognized arbitration’s many advantages over litigation. Arbitration offers “lower costs, greater efficiency and speed,

and the ability to choose expert adjudicators to resolve specialized disputes.” Lamps Plus, Inc. v.

Varela, 139 S. Ct. 1407, 1416 (2019) (cleaned up); see

AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345

(2011) (arbitration “reduc[es] the cost and increas[es]

the speed of dispute resolution”).

But these salutary benefits may be realized

only if parties who agree to arbitrate their disputes

are free from the costs and burdens of litigation.

That is why Congress gave parties an immediate

right to appeal from district court refusals to compel

arbitration. Yet under the minority rule, all “the

virtues Congress originally saw in arbitration, its

speed and simplicity and inexpensiveness,” are

“shorn away” as arbitration comes to resemble

11

“the litigation it was meant to displace.” Epic Sys.,

138 S. Ct. at 1623.

A.

The minority rule upends the FAA’s

goal of streamlined efficiency.

“The overarching purpose of the FAA * * * is

to ensure the enforcement of arbitration agreements

according to their terms so as to facilitate streamlined proceedings.” Concepcion, 563 U.S. at 344. The

FAA accomplishes this goal by affording the parties

discretion to craft arbitration procedures as they see

fit. This “allow[s] for efficient, streamlined procedures tailored to the type of dispute.” Id. And “the

informality of arbitral proceedings is itself desirable.” Id. at 344–45.

The minority rule jettisons efficiency by impairing the very streamlined procedures that Congress enacted the FAA to secure. Proceeding in court

with discovery, motion practice, and even trial under

the shadow of an ultimately successful arbitrability

appeal is hardly efficient. On the contrary, it frustrates a “prime objective” of arbitration, which is “to

achieve ‘streamlined proceedings.’” Preston v. Ferrer,

552 U.S. 346, 357 (2008) (quoting Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,

633 (1985)).

If this Court embraces the minority rule,

businesses entering contracts premised on “the relative informality of arbitration” and procedures “more

streamlined than federal litigation,” 14 Penn Plaza

LLC v. Pyett, 556 U.S. 247, 269 (2009), will find

themselves unable to avoid civil litigation. That

would undermine one of the FAA’s core purposes.

12

B.

The minority rule raises the costs

of resolving disputes.

Parties “favor arbitration precisely because of

the economics of dispute resolution.” 14 Penn Plaza,

556 U.S. at 257. “Arbitration agreements allow parties to avoid the costs of litigation.” Circuit City

Stores, Inc. v. Adams, 532 U.S. 105, 123 (2001). In

contrast, the minority rule imposes unacceptable

deadweight litigation costs on a dispute that rightly

belongs in arbitration.

Start with discovery. Judicially supervised

discovery under court rules—rules that would not

apply under the more informal process of arbitration—is “time-consuming and expensive; it protracts

and complicates litigation.” Olivieri v. Rodriguez,

122 F.3d 406, 409 (7th Cir. 1997). By some estimates, discovery costs “comprise between 50 and 90

percent of the total costs of adjudicating a case.”

John H. Beisner, The Centre Cannot Hold: The Need

for Effective Reform of the U.S. Civil Discovery Process 2, Institute for Legal Reform (2010),

https://bit.ly/3Xlyiie. Discovery costs alone in “complex litigation can be so steep as to coerce a settlement on terms favorable to the plaintiff even when

his claim is very weak.” Smith v. Duffey, 576 F.3d

336, 340 (7th Cir. 2009).

Judicially supervised discovery also subjects

parties to more formal (and therefore more costly)

discovery-dispute resolution. For instance, parties in

arbitration may resolve discovery disputes through

telephonic hearings, correspondence, or letter briefs,

rather than by formally noticed motions accompanied by courtroom hearings and full legal briefs—as

13

litigation requires. See JAMS, Arbitration Discovery

Protocols (2010), https://bit.ly/3ixHXUe. Arbitration

typically dispenses with pretrial depositions, authenticating documents, and qualifying experts. Id.

What’s more, arbitration provides for narrower discovery than the free-ranging fishing expeditions that can occur under the Federal Rules of Civil

Procedure. Allowing intrusive discovery to proceed

while an arbitrability appeal is pending alters the

nature of the dispute by requiring parties to disclose

sensitive information that could damage or interfere

with future proceedings. This includes enabling a

party to take information it improperly received during discovery and later use it against its opponent in

arbitration over the same dispute. Even if the court

of appeals later holds “that the claims were indeed

subject to mandatory arbitration, the parties will not

be able to unring any bell rung by discovery.” Levin

v. Alms and Assocs., Inc., 634 F.3d 260, 265 (4th Cir.

2011). On the contrary, “they will be forced to endure

the consequences of litigation discovery in the arbitration process.” Id.

Nor is discovery the only cost associated with

litigation. Hiring attorneys by the hour is hardly

cheap. Whether the attorney charges $500 per hour

or $1500 per hour, those hours mount quickly. And

litigation requires many more hours than arbitration. In litigation, there are hearings, motions to

dismiss, interrogatories and depositions, motions for

summary judgment, pretrial briefs, jury selection,

and trial. A district court can hold an entire trial

while an arbitrability appeal is still pending. See,

e.g., Motorola Credit Corp. v. Uzan, 388 F.3d 39, 46

(2d Cir. 2004). “[A]verage arbitration cases take

14

about seven months, while average litigation can

take from 23 to 30 months.” Arbitration vs. Litigation: the differences, Thomson Reuters (Oct. 4, 2022),

http://bit.ly/3COFr2W. Measured in mounting billable hours, the cost-effectiveness of arbitration over

litigation isn’t even close.

There is “an almost even split of affirmance

and reversal” on appeals from district court orders

denying motions to compel arbitration. See Roger J.

Perlstadt, Interlocutory Review of Litigation-Avoidance Claims: Insights from Appeals Under the Federal Arbitration Act, 44 Akron L. Rev. 375, 407

(2011). That reversal rate is much higher than the

reversal rate for civil appeals generally, underscoring the unfair costs imposed on parties forced to proceed with district court litigation pending appeal.

By stacking the simultaneous costs of district

court litigation on top of an arbitrability appeal, the

minority rule prohibitively increases the costs of resolving disputes. And in cases when arbitrability is

confirmed on appeal, the minority rule imposes significant litigation and discovery burdens that should

never have been incurred. A party who enters arbitration only after being required to exhaust considerable resources litigating in district court has been

denied the fundamental benefits of arbitration.

Again, that result simply cannot be squared with either Congress’s intent or the FAA’s goals.

C.

The minority rule squanders judicial resources.

The FAA “recognizes that arbitration is an expeditious way to resolve disputes and conserve judi-

15

cial resources.” Degidio v. Crazy Horse Saloon &

Rest., 880 F.3d 135, 140 (4th Cir. 2018). By requiring

courts to compel arbitration when a valid arbitration

agreement exists, the FAA “prevents parties from

rushing to court whenever the prospect of arbitration

appears uninviting.” Hightower v. GMRI, Inc., 272

F.3d 239, 241 (4th Cir. 2001). But if parties must litigate validly arbitrable disputes pending arbitrability appeals, the FAA’s policy of conserving judicial

resources becomes a dead letter.

It’s no secret that the federal judiciary has

long been overwhelmed because judicial resources

are “scarce.” Pearson v. Callahan, 555 U.S. 223, 236

(2009). The COVID pandemic has only made matters

worse. Indeed, an “already overburdened and backlogged federal court system got worse during the

coronavirus pandemic, prompting some legal experts

and lawmakers to call for an expansion of the judicial bench.” Kaelan Deese, Justice delayed: Federal

case backlog prompts calls to expand courts, Washington Examiner (Sep. 5, 2022), http://bit.ly/3kml9r4.

In 2020, there were 397,492 pending civil cases in federal court. By 2021, that number jumped to

590,288—a nearly 50% spike on one year. See United

States Courts, Judicial Caseload Indicators, Federal

Judicial Caseload Statistics 2021, http://bit.ly/

3kfIJ8M. The number of civil cases pending longer

than three years has likewise ballooned. See United

States Courts, March 2022 Civil Justice Reform Act,

http://bit.ly/3XFS8oB (showing a 21 percent increase,

from 49,171 on September 30, 2021, to 59,348 on

March 31, 2022).

16

Arbitration lightens the load on the federal

courts and helps the judiciary reach its civil-justice

goals. It’s therefore no surprise that Congress enacted § 16 as part of a larger scheme—the 1988 Judicial

Improvements and Access to Justice Act—to improve

the operation of the federal judiciary by clearing up

the backlogs in the courts. See H.R. Rep. No. 100889, at 23 (1988) (“[T]he Federal judiciary is beset by

problems in all three of these areas: delay caused by

rising caseloads and insufficient support services;

spiraling costs caused by litigation expenses and attorneys' fees; and unfair and inconsistent decision

caused by the pressures placed on judges who must

cope with the torrent of litigation.”).

Given this untenable burden on the courts, it

simply makes no sense to adopt a rule allowing district courts to try cases to judgments that must be

vacated not because they are decided wrongly, but

because the case should never have been tried in

court to begin with. If the court of appeals reverses

and orders the parties to arbitrate, then the judicial

resources the district court expended during the appeal will have been frittered away. Any judgment it

might enter must be vacated once the court of appeals decides that the case belongs in arbitration. If

one set out to design a rule that would squander precious judicial resources, it would be hard to top the

minority rule.

What’s more, forcing the parties to litigate

pending appeal “creates a risk of inconsistent handling of the case by both tribunals.” Bradford-Scott,

128 F.3d at 505. This risk undermines the finality

that is one of the chief goals of our civil judicial system—resolving disputes between parties once and

17

for all. Such finality is essential for “achieving a

healthy legal system.” Cobbledick v. United States,

309 U.S. 323, 326 (1940). That is precisely why most

circuits construing § 16(a) have embraced a “brightline jurisdictional rule” of divestment—to avoid “the

risk of inconsistent handling” by two different

courts. McCauley, 413 F.3d at 1162.

In sum, an automatic stay conserves judicial

resources, avoids anomalous results, and furthers

Congress’s legislative aims behind the FAA. The minority rule does none of those things.

D.

The minority rule imperils harmonious business relationships.

Although the petition arises in a consumeragreement context, the rule this Court announces

will apply in every case—including commercial contracts among businesses. The FAA furthers Congress’s strong interest in fostering interstate commerce by preserving harmonious business relationships. Arbitration “minimizes hostility and is less

disruptive of ongoing and future business dealings

among the parties.” H.R. Rep. No. 97-542, at 13

(1982). The minority rule, by forcing the parties to

bear the dual burdens of trial litigation and arbitrability appeals, undermines that goal.

Relying on the FAA’s liberal policy favoring

arbitration and this Court’s steadfast endorsement

of that policy, millions of American businesses have

structured their contractual relationships with other

businesses around arbitration agreements. Because

businesses may appear as plaintiffs or defendants

(or both) in litigation, they have strong interests in

18

clear, predictable, and balanced rules for how and

when they must incur the costs and burdens of litigation.

For many businesses, arbitration's biggest advantage over litigation in resolving commercial disputes stems from the relatively non-confrontational

nature of arbitration. “The logic is that if companies

have good relationships with one another, they

might be more inclined to use a dispute resolution

process other than litigation, because they will be

more likely to resolve disputes informally or can better predict the nature and magnitude of potential

disputes.” Douglas Shontz et al., RAND Institute for

Civil Justice, Business-to-Business Arbitration in the

United States: Perceptions of Corporate Counsel 21

(2011), https:// bit.ly/3GNXqaR. A RAND Corporation survey confirms that corporate counsel favor arbitration over litigation not only to reduce costs but

also to help preserve good business relationships for

the future. Id. at 21–22.

The choice of arbitration over litigation thus

lends stability and predictability to the contracting

parties’ relationship, especially in business-tobusiness dealings. Arbitration allows companies to

anticipate and adequately price their rights and duties based on the dispute-resolution mechanism that

will be used. See, e.g., Christopher R. Drahozal, Contracting Out of National Law: An Empirical Look at

the New Law Merchant, 80 Notre Dame L. Rev. 523,

531–33 (2005). But arbitration’s advantages become

illusory when parties are forced to bear all the costs

and burdens of litigation as well as arbitration.

19

* * *

No one is asking this Court “to devise novel

rules to favor arbitration over litigation.” Resp. Bielski’s BIO at 1 (citing Morgan v. Sundance, Inc., 142

S. Ct. 1708, 1713 (2022)). There’s no need. Congress

already enacted an entire statute, the FAA, which

strongly favors arbitration over litigation. And § 16

goes further still. By allowing immediate appeals

from orders denying motions to compel arbitration

but denying immediate appeals from orders granting

those same motions, Congress itself was devising

appellate rules “to favor arbitration over litigation.”

This Court does nothing “novel” by honoring that

policy choice.

CONCLUSION

The Court should reverse.

Respectfully submitted,

January 27, 2023

CORY L. ANDREWS

Counsel of Record

JOHN M. MASSLON II

WASHINGTON LEGAL

FOUNDATION

2009 Massachusetts Ave., NW

Washington, DC 20036

(202) 588-0302

candrews@wlf.org