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

Supreme Court briefJan 27, 2023

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No. 22-105

IN THE

Supreme Court of the United States

>>>>

COINBASE, INC.,

Petitioner,

ABRAHAM BIELSKI,

Respondent.

COINBASE, INC.,

Petitioner,

DAVID SUSKI, et al.,

Respondents.

On Writ of Certiorari to

the United States Court of Appeals

for the Ninth Circuit

BRIEF OF THE DRI CENTER FOR LAW

AND PUBLIC POLICY AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

DRI CENTER FOR LAW

AND P UBLIC P OLICY

222 South Riverside Plaza

Suite 1870

Chicago, Illinois 60606

312-698-6210

January 27, 2023

Sarah Elizabeth Spencer

Counsel of Record

CHRISTENSEN & JENSEN, P.C.

Counsel for Amicus Curiae

257 East 200 South

Suite 1100

Salt Lake City, Utah 84111

801-323-5000

sarah.spencer@chrisjen.com

TABLE OF CONTENTS

Page

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

INTEREST OF THE AMICUS CURIAE........

INTRODUCTION AND

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

ARGUMENT ..................................................

Strong, well-established federal

policy liberally favors arbitration ......

II. An automatic stay protects contract

rights and prevents or deters

litigation burdens, costs, and

harms .................................................

III. An automatic stay conserves

judicial economy and promotes

consistency .........................................

CONCLUSION ...............................................

APPENDIX ....................................................

TABLE OF AUTHORITIES

Page(s)

Cases

Am. Express Co. v. Italian Colors Restaurant,

570 U.S. 228 (2013) ...................................

Arthur Andersen LLP v. Carlisle,

556 U.S. 624 (2009) ............................ 7, 9, 10, 19

AT&T Mobility LLC v. Concepcion,

563 U.S. 333 (2011) ...................................

7, 8

Bradford-Scott Data Corp. v. Physician Comp.

Network, Inc.,

128 F.3d 504 (7th Cir. 1997) .....................

Buckeye Check Cashing, Inc. v. Cardegna,

546 U.S. 440 (2006) ...................................

Circuit City Stores, Inc. v. Adams,

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

COMSAT Corp. v. Nat’l Sci. Found.,

190 F.3d 269 (4th Cir. 1999) .....................

CVS Health Corporation v. Vividus, LLC,

878 F.3d 703 (9th Cir. 2017) .....................

Dean Witter Reynolds Inc. v. Byrd,

470 U.S. 213 (1985) ...................................

Doctor’s Associates, Inc. v. Casarotto,

517 U.S. 681 (1996) ...................................

iii

Page(s)

Doe v. Pub. Citizen,

749 F.3d 246 (4th Cir. 2014) .....................

First Options of Chicago, Inc. v. Kaplan,

514 U.S. 938 (1995) ...................................

Gilmer v. Interstate/Johnson Lane Corp.,

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

7, 8

Green Tree Financial Corp.-Ala. v.

Randolph,

531 U.S. 79 (2000) .....................................

Hay Group, Inc. v. E.B.S. Acquisition Corp.,

360 F.3d 404 (3rd Cir. 2004) .....................

In re Security Life Ins. Co. of America,

228 F.3d 865 (8th Cir. 2000) .....................

Levin v. Alms & Assocs., Inc.,

634 F.3d 260 (4th Cir. 2011) .................. 2, 16, 17

Life Receivables Tr. v. Syndicate 102

at Lloyd’s of London,

549 F.3d 210 (2d Cir. 2008) ......................

Managed Care Advisory Grp., LLC v.

CIGNA Healthcare, Inc.,

939 F.3d 1145 (11th Cir. 2019) .................

Marmet Health Care Ctr., Inc. v. Brown,

565 U.S. 530 (2012) ...................................

McCauley v. Halliburton Energy Servs.,

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

Page(s)

Mitsubishi Motors v. Soler ChryslerPlymouth,

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

Moses H. Cone Mem’l Hosp. v.

Mercury Constr.,

460 U.S. 1 (1983) ......................................

Perry v. Thomas,

482 U.S. 483 (1987) ...................................

Preston v. Ferrer,

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

Prima Paint Corp. v. Flood & Conklin

Mfg. Co.,

388 U.S. 395,423 (1967) ............................

7, 9

Qantum Comm. Corp. v.

Star Broadcasting, Inc.,

473 F.Supp.2d 1249 (S.D. Fla.

Feb. 9, 2007) .............................................

Rent-A-Center, West, Inc. v. Jackson,

561 U.S. 63 (2010) .....................................

Scherk v. Alberto-Culver Co.,

417 U.S. 506 (1974) ...................................

Servotronics, Inc. v. Rolls-Royce PLC,

975 F.3d 689 (7th Cir. 2020) .....................

Shearson/American Express v. McMahon,

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

Page(s)

Southland Corp. v. Keating,

465 U.S. 1 (1984) ......................................

7, 8

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,

559 U.S. 662 (2010) ...................................

Weingarten Realty Inv. v. Miller,

661 F.3d 904 (5th Cir. 2011) ..................... 16, 17

Statutes

Federal Act § 2 ...............................................

Federal Arbitration Act § 16 ..........................

Federal Arbitration Act § 16(a) .................. 2, 5, 6, 9

Rules

FED. R. CIV. P. 30 ...........................................

FED. R. CIV. P. 45 ...........................................

Other Authorities

2 Thomas H. Oehmke,

Oehmke Commercial Arbitration

§ 25:116 (3d ed. 2012) ...............................

8 William L. Norton, Jr.,

Norton Bankruptcy Law & Practice 3d

§ 170:81 (2012) ..........................................

Page(s)

A.C. Pritchard,

Government Promises and Due Process:

An Economic Analysis of the

“New Property,”

77 VA. L. REV. 1053, 1073 (1991) ..............

Alexander J.S. Colvin,

Empirical Research on Employment

Arbitration: Clarity Amidst the

Sound and Fury?, EMPLOYEE RIGHTS

AND EMPLOYMENT POLICY J OURNAL,

11(2): 405–447 (2008) ................................

Andrew B. Nissensohn,

Mass Arbitration 2.0,

79 WASH. & LEE L. REV. 1225, 1226

(2022) ........................................................

Barry C. Edwards,

Why Appeals Courts Rarely Reverse

Lower Courts: An Experimental Study

to Explore Affirmation Bias,

68 EMORY L.J. ONLINE 1035, 1038

(2019) ........................................................

Christopher R. Drahozal,

Stephen J. Ware, Why Do Businesses

Use (or Not Use) Arbitration Clauses?,

25 OHIO ST. J. ON DISP. RESOL. 433,

463-466 (2010) ..........................................

vii

Page(s)

CONSUMER FINANCIAL PROTECTION BUREAU,

ARBITRATION STUDY REPORT TO CONGRESS,

PURSUANT TO DODD-FRANK WALL S TREET

REFORM AND CONSUMER PROTECTION ACT

§ 1028(a) (March 2015), available at

https://www.consumerfinance. gov/

data-research/research-reports/

arbitration-study-report-to-congress2015/ .........................................................

Edith H. Jones,

Appeals of Arbitration Orders-Coming

Out of the Serbonian Bog,

31 S. TEX. L. REV. 361, 376-376 (1990) .....

Evan Caminker,

Allocating the Judicial Power in a

“Unified Judiciary,”

78 TEX. L. REV. 1513, 1528 (2000) ............

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

H.R. Rep. No. 889 (1988)

reprinted in 1988 U.S.C.C.A.N .................

Center for Law and Public Policy,

https://www.centerforlawandpublic

policy.org/center ........................................

Imre Stephen Szalai,

Exploring the Federal Arbitration Act

Through the Lens of History,

2016 J. DISP. RESOL. 115, 116 (2016) ........

viii

Page(s)

Imre Stephen Szalai,

The Prevalence of Consumer

Arbitration Agreements by America’s

Top Companies,

52 U.C. DAVIS L. REV. ONLINE 233 (2019) . 11, 12

Mass Arbitration is an Abuse of the

Arbitration System, U.S. Chamber Inst.

For Legal Reform (June 4, 2021)

(available at https://perma.cc/

HH6K-A5EZ) .............................................

Michael P. Winkler,

Interlocutory Appeals Under the

Federal Arbitration Act and the

Effect on the District Court's

Proceedings,

59 OKLA. L. REV. 597, 635 (2006) ..............

Roger J. Perlstadt,

Interlocutory Review of LitigationAvoidance Claims: Insights

from Appeals Under the

Federal Arbitration Act,

44 AKRON L. REV. 375, 407 (2011) ............. 10, 20

Page(s)

Roy Weinstein, Cullen Edes, Joe Hale

and Nels Pearsall,

Efficiency and Economic Benefits of

Dispute Resolution through Arbitration

Compared with U.S. District Court

Proceedings, Micronomics Economic

Research and Consulting, March 2017

(available online at

https://www.micronomics.com/s/

Efficiency_Economic_Benefits_Dispute_

Resolution_through_Arbitration_

Compared_with_US_District_Court_.

pdf) ............................................................

Shankar Ganesan,

Determinants of Long-Term Orientation

in Buyer-Seller Relationships,

J. OF MKTG., Apr. 1994, at 1, 1 (1994) .......

Steve Sheppard,

The State Interest in the Good Citizen:

Constitutional Balance Between the

Citizen and the Perfectionist State,

45 HASTINGS L.J. 969, 983-84 n. 48

(1994) ........................................................

Thomas J. Stipanowich,

Arbitration and Choice: Taking Charge

of the “New Litigation,”

7 DEPAUL BUS. & COM. L.J. 383, 394

(2009) ........................................................

Page(s)

Travis M. Pfannenstiel,

The Entitlement to Avoid LitigationDenied: How the Fifth Circuit’s

Rejuvenated Hostility Toward

Arbitration Agreements Deprives

Parties of Their Bargained-for Benefits,

52 WASHBURN L.J. 177, 197 (2012) ...... 14, 20, 21

INTEREST OF THE AMICUS CURIAE 1

The DRI Center for Law and Public Policy is the

public policy “think tank” and advocacy voice of

DRI—an international organization of around

14,000 attorneys who represent businesses in civil

litigation.

DRI’s mission includes enhancing the skills, effectiveness, and professionalism of civil litigation

defense lawyers, promoting appreciation of the role

of defense lawyers in the civil justice system, and

anticipating and addressing substantive and procedural issues germane to defense lawyers and the

fairness of the civil justice system. The Center participates as an amicus curiae in this Court, federal

courts of appeals, and state appellate courts, in an

ongoing effort to make the civil justice system fair,

consistent, and efficient. 2

DRI members regularly represent parties to arbitration agreements. The Center is interested in ensuring that these clients are protected from

needless and costly litigation that will result if the

Ninth Circuit’s decision remains good law. The

Ninth Circuit and other circuits aligned with it

conclude that allegedly arbitrable disputes can be

This brief was authored by amicus curiae and its counsel listed on the front cover and was not authored in whole or

in part by counsel for a party. No one other than amicus curiae, its members, or its counsel has made any monetary contribution to the preparation or submission of this brief.

See https://www.centerforlawandpublicpolicy.org/center

litigated in district court despite an ongoing, nonfrivolous interlocutory appeal of a denial of arbitration.

The Federal Arbitration Act should receive uniform application across federal circuits. This ensures arbitration achieves its basic purpose of

resolving disputes efficiently, predictably, and at

minimal cost. In support of those goals, The Center

submits this brief in support of Petitioner Coinbase, Inc., arguing that the decision of the Ninth

Circuit countenancing the district court’s discretion

to deny a stay of litigation pending interlocutory

appeal should be reversed and its opinion vacated.

INTRODUCTION AND

SUMMARY OF ARGUMENT

An interlocutory appeal under Section 16(a) of

the Federal Arbitration Act addresses the threshold question of arbitrability. This Court should hold

that such an appeal divests the district court of jurisdiction and requires a mandatory stay of all litigation.

Arbitration and litigation are distinct mechanisms of dispute resolution. They cannot coexist.

Parties choose arbitration to avoid litigation. Once

a party has been forced to litigate, this purpose is

destroyed. The loud, resonating bell of litigation,

once heard by all, cannot be un-rung.3 Its course

Levin v. Alms & Assocs., Inc., 634 F.3d 260, 265 (4th

Cir. 2011).

and its effects remain even if an appellate court reverses. Parties who litigate will suffer the consequences, whatever they may be.

The Ninth Circuit (along with the Second and

Fifth Circuits) has adopted an untenable rule that

will adversely impact the bargained-for rights of

millions of American businesses and individuals

who are parties to arbitration agreements in many

diverse industries and contexts. Since the 1990s,

the use of arbitration clauses in consumer, employment, and commercial contracts has increased.

Given the proliferation of arbitration, the Ninth

Circuit’s holding goes far beyond affecting business

interests. Recent scholarship explains an effort by

plaintiff-claimants and their sophisticated attorneys to seize upon arbitration provisions in commonplace consumer agreements. Those claimants

seek to “turn the tables” on business interests by

using arbitration agreements to file mass arbitrations strategically intended to overwhelm and disrupt the operations of their opponents. Put simply,

this issue affects a significant number of U.S. people and businesses and is not unique to businesses.

There are valid reasons why parties prefer arbitration. Like Petitioner Coinbase, Inc., a party who

bargains for arbitration may seek streamlined,

faster procedures; control (such as input on the decisionmaker); limitations on invasive and costly

inter-party, third-party, and expert discovery; added protections for confidential information; less

adversarial and more collaborative adjudications;

and final resolutions without the risk of protracted

appeal.

Civil lawsuits in federal court, by contrast, are

not as predictable. Litigation comes with broad discovery and unpredictable delay. Positions are

staked out early on as one side or the other scores

wins in pretrial motions and depositions held long

before trial. Cases are more easily won on technical

victories. No one person has any final say about

how a lawsuit will take its course. Any given lawsuit has a life of its own, often experiencing a form

of self-propelled but uncontrolled momentum.

There are ripple effects. These costs of litigation

persist even if an appeal is won and a case is transferred to arbitration after a period of forced litigation. This includes direct costs such as attorney

fees, expert fees, and litigation expenses. There are

also indirect costs. Indirect costs include dispositive changes to the probable substantive outcome

resulting from, for example, damning discovery disclosures, dismissals for technicalities, and pretrial

rulings that change the course, tone, and tenor of

the case—all of which might not have happened in

arbitration.

The minority position says these concerns beg

the question. After all, a defendant who loses on

appeal had no right to arbitrate to begin with and

that defendant has already lost once. If the appellate court affirms, then the plaintiff will be prejudiced by having to wait. That may be. But a

plaintiff who is asked to hold tight—and to wait on-

ly for the time it takes to have an appeal decided—

does not suffer the same risk of harm. Delay is not

like the permanent, possibly irreparable harm associated with discovery, case dynamics, and party

positioning in civil litigation undertaken while a

case is on appeal on the issue of arbitrability.

A defendant seeking an interlocutory appeal

under Section 16(a) of the FAA is asking for protection from the permanent and un-windable litigation process (which it argues it contracted to avoid)

during the limited time when arbitrability is an

open question. Such a defendant is not asking to

arbitrate the dispute in the face of a loss, while on

appeal. Delay alone does not outweigh the presumptive prejudice to the party seeking to enforce

arbitration. Where the very function of arbitration

is to avoid litigation and where the issue on appeal

is whether litigation can proceed, the defendant

should not have to bear the burden and costs of litigation before that question is finally determined.

This conclusion is buttressed by the differences

in reversal rates between appeals from denials of

arbitration as compared to appeals in civil cases as

a whole. Scholars observe that circuit courts reversed approximately half of cases involving denials of arbitration (as compared to a mere 10 to 20%

of civil cases as a whole, depending on the year examined). This statistic is no surprise, however, as

it accords with the strong legislative policy in favor

of arbitration. This policy would predictably generate more reversals of denials of arbitration.

The majority rule better serves the relevant interests of both individuals/consumers and businesses. Further, a clear, bright-line rule better

serves the liberal federal public policy favoring arbitration and federal court judicial economy. The

automatic stay rule and the divestiture principle

are such rules. They promote judicial economy by

freeing up district court resources while cases are

on appeal and by preventing needless expenditure

of district court resources on litigating applications

for discretionary stay. These principles promote

consistency of rulings between trial and appellate

courts. They also advance the form and structure of

the federal civil justice system with its unique

functions of district and appellate courts.

The Ninth Circuit got it wrong when it held that

a district court retains jurisdiction to proceed with

litigation despite a non-frivolous appeal of the denial of a motion to compel arbitration. The Third,

Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits decided the issue correctly when they found

that an interlocutory appeal under Section 16(a) of

the Federal Arbitration Act automatically divests

the district court of jurisdiction and requires a

complete stay of all litigation. The Ninth Circuit

should be reversed. Its opinion should be vacated.

ARGUMENT

Strong, well-established federal

liberally favors arbitration.

policy

The Federal Arbitration Act (“FAA”) was passed

in 1925. Its goal was “to reverse the longstanding

judicial hostility to arbitration agreements.” 4 It also sought “to place arbitration agreements ‘upon

the same footing as other contracts.’”5 The FAA

embodies a “liberal federal policy favoring arbitration.”6 “The overarching purpose of the FAA. . . .

is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate

streamlined proceedings.” 7

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

24 (1991) (citing Dean Witter Reynolds Inc. v. Byrd, 470 U.S.

213, 219-220, 220 n.6 (1985) and Scherk v. Alberto-Culver

Co., 417 U.S. 506, 510 n.4 (1974)).

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

U.S. 395, 423 (1967) (quoting H.R. Rep. No. 68-96, at 1–2

(1924)).

See Moses H. Cone Mem’l Hosp. v. Mercury Constr., 460

U.S. 1, 24-25 (1983) (“[A]ny doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration

. . . .”); Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630

n.5 (2009) (citing Moses H. Cone, 460 U.S. at 24–25); Southland Corp. v. Keating, 465 U.S. 1, 10 (1984) (“In enacting § 2

of the Federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the

contracting parties agreed to resolve by arbitration.”).

AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344

(2011).

The FAA is broad in scope. It preempts state

law.8 It governs cases pending in state court so long

as they implicate interstate commerce. 9 It compels

arbitration of common law and statutory claims for

relief.10 It controls arbitrable employment disputes

other than for employees whose work involves

interstate transportation.11 The FAA limits the defenses available to parties: even arbitration promSee e.g. Doctor’s Associates, Inc. v. Casarotto, 517 U.S.

681, 687-88 (1996) (Montana law imposing requirements on

consumer contracts containing arbitration clauses was

preempted by FAA); AT&T Mobility, 563 U.S. at 341-42

(California law deeming as unconscionable class-action waivers in certain consumer contracts preempted by FAA; FAA

overrides state laws “disproportionate[ly] impact[ing] [ ] arbitration.”); Preston v. Ferrer, 552 U.S. 346, 349-350 (2008)

(FAA preempts state law granting jurisdiction to a state

agency to resolve certain entertainment industry-related disputes); Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530,

533 (2012) (FAA preempts state law providing a state judicial

forum for personal injury claims against nursing homes);

Perry v. Thomas, 482 U.S. 483, 492 (1987) (FAA preempts

state law requiring a judicial forum for wage collection

actions).

Southland Corp., 465 U.S. at 16 (FAA preempted a

state law banning the arbitration of franchise disputes).

Mitsubishi Motors v. Soler Chrysler-Plymouth, 473

U.S. 614 (1985) (Sherman Act); Shearson/American Express

v. McMahon, 482 U.S. 220 (1987) (Racketeer Influenced and

Corrupt Organizations Act and Securities Exchange Act of

1933); Gilmer, 500 U.S. 20 (Age Discrimination in Employment Act).

Gilmer, 500 U.S. 20 (applying FAA to age-related employment discrimination); Circuit City Stores, Inc. v. Adams,

532 U.S. 105, 119 (2001).

ises contained in contracts which are fraudulently

induced or illegal can be separated and enforced

(absent some fraud or illegality running specifically

to the arbitration provision). 12 The FAA allows parties to agree to delegate to an arbitrator the exclusive authority to resolve an agreement’s validity

and enforceability, including unconscionability. 13 It

is no bar to enforcement of an arbitration agreement that the arbitration process itself would impair the claimant’s substantive rights. 14

Section 16(a) of the FAA gives the party seeking

arbitration the right to immediately appeal the denial of a motion to compel arbitration. Even thirdparty beneficiaries may appeal a decision declining

to enforce an arbitration clause.15 Interlocutory appeals are a special, infrequent, important creature

Prima Paint, 388 U.S. at 409-10 (separability doctrine;

FAA is “national substantive law” and an “arbitration clause

is separable from the rest of the contract.”); Buckeye

Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 446 (2006)

(illegality).

Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 6869 (2010).

Am. Express Co. v. Italian Colors Restaurant, 570 U.S.

228 (2013); see also, Green Tree Financial Corp.-Ala. v.

Randolph, 531 U.S. 79, 89-90 (2000) (“[E]ven claims arising

under a statute designed to further important social policies

may be arbitrated because so long as the prospective litigant

effectively may vindicate [its] statutory cause of action in the

arbitral forum, the statute serves its functions.”) (quotations

omitted).

Arthur Andersen, 556 U.S. at 632.

in the law and Congress knew this when it enacted

Section 16 with its interlocutory appeal procedure.16 By providing the right to immediately appeal an order denying arbitration, Section 16 favors

enforcement of arbitration agreements and protects

the contracting parties’ right to more efficient and

cost-effective dispute resolution. 17

Historical data suggests that on appeal of a denial of arbitration, there is nearly a 50% chance of

reversing the district court’s order. 18 By comparison, in recent years the circuit courts have reversed

only 10 to 20% of orders appealed in civil cases. 19

Id. at 633.

See H.R. Rep. No. 889, at 23 (1988) reprinted in 1988

U.S.C.C.A.N. at 5983 (“Alternative forms of dispute resolution, such as arbitration, should be recognized and encouraged by the Congress.”); id. at 31, 5991; id. at 36-37, 5997;

see also, Arthur Andersen, 556 U.S. at 633.

Roger J. Perlstadt, Interlocutory Review of LitigationAvoidance Claims: Insights from Appeals Under the Federal

Arbitration Act, 44 AKRON L. REV. 375, 407 (2011) (“finding

an almost even split of affirmance and reversal” of appeals

arising from district court orders denying motions to compel

arbitration under Section 16 of the FAA). Counsel updated

Mr. Perlstadt’s research, following his methodology, analyzing Ninth Circuit cases from 2009 to January 2023, and

found there to be an approximately 33% rate of reversal for

district court orders denying motions to compel arbitration.

See Appendix A.

Barry C. Edwards, Why Appeals Courts Rarely Reverse

Lower Courts: An Experimental Study to Explore Affirmation

Bias, 68 EMORY L.J. O NLINE 1035, 1038 (2019).

A party seeking to appeal the denial of arbitration appears to have a much better chance at reversal than civil appellants as a whole. This aligns

with the strong federal policy favoring arbitration.

It also weighs in favor of adopting the automatic

stay rule and the divestiture principle. Because

these appellants have a comparatively stronger

chance of winning on appeal, it is bad policy to allow district courts to proceed with litigation during

appeal.

II. An automatic stay protects contract rights

and prevents or deters litigation burdens,

costs, and harms.

In recent decades, the use of arbitration agreements has significantly increased in the United

States. This is true for employment, commercial,

and consumer contracts. 20 Most “households in the

See Alexander J.S. Colvin, Empirical Research on Employment Arbitration: Clarity Amidst the Sound and Fury?,

EMPLOYEE RIGHTS AND EMPLOYMENT POLICY JOURNAL, 11(2):

405–447 (2008) (nonunion employment settings); Imre

Stephen Szalai, The Prevalence of Consumer Arbitration

Agreements by America’s Top Companies, 52 U.C. DAVIS L.

REV. ONLINE 233 (2019) (consumer contracts); see also,

CONSUMER FINANCIAL PROTECTION BUREAU , ARBITRATION

STUDY REPORT TO C ONGRESS, PURSUANT TO DODD–FRANK

WALL STREET REFORM AND C ONSUMER PROTECTION ACT

§ 1028(a) (March 2015) (contracts regarding consumer financial products), available at https://www.consumerfinance.

gov/data-research/research-reports/arbitration-study-report-tocongress-2015/; Christopher R. Drahozal, Stephen J. Ware,

Why Do Businesses Use (or Not Use) Arbitration Clauses?, 25

United States (and possibly almost two-thirds) are

covered by broad consumer arbitration agreements.”21

Though some scholars are critical of this Court’s

FAA jurisprudence, claiming it enables business interests to use mandatory arbitration in consumer

and employment contracts to disadvantage the

rights of individuals, 22 this conclusion should not

be assumed. “In recent years, aggrieved plaintiffs,

[previously] shackled by mandatory bilateral arbitration agreements, took matters into their own

hands.” 23 “Armed with highly capitalized law firms

and frequently untapped arbitration provisions,

plaintiffs acquiesced to corporate demands and

OHIO ST . J. ON DISP. RESOL. 433, 463-466 (2010) (contracts

for sale of goods, construction contracts, and joint ventures).

Szalai, 52 U.C. DAVIS L. REV. O NLINE at 234.

See e.g., Imre Stephen Szalai, Exploring the Federal

Arbitration Act Through the Lens of History, 2016 J. DISP.

RESOL . 115, 116 (2016) (arguing “individuals often do not

comprehend the significance of arbitration clauses and how

these clauses block access to courts” and that some claimants

subject to arbitration agreements have difficulty finding lawyers and “do not continue pursuing relief through arbitration

after a court compels arbitration”).

Andrew B. Nissensohn, Mass Arbitration 2.0, 79 WASH .

& LEE L. REV. 1225, 1226 (2022); see also, Mass Arbitration is

an Abuse of the Arbitration System, U.S. Chamber Inst. For

Legal Reform (June 4, 2021) (“plaintiffs’ lawyers are now using the same tactics they perfected to abuse the class action

and mass tort systems to turn arbitration into a new moneymaking scheme called mass arbitration”) (available at

https://perma.cc/HH6K-A5EZ).

filed their disputes in arbitration.” “But this time

they did it differently than others before them:

compiling thousands of nearly identical claims and

filing demands for individual arbitration en

masse.”24 In other words: consumers and their lawyers demand arbitration and use it to their advantage. Staying litigation safeguards contract

rights of individuals and businesses on both sides

of the “v.” 25

Parties who negotiate for the right to arbitrate

generally bargain for far more control over the

process, including input on the decisionmaker.

Arbitration agreements often embody broader protections for confidential information than matters

in court. Arbitration, with its attendant informality, often is not as adversarial or antagonistic as

litigation.

The concern about being forced into a hostile, adversarial setting is a valid one. “Society has a

strong interest in maintaining efficient commerce

through the preservation of business relation24

Id.

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S.

662, 682 (2010) (“Whether enforcing an agreement to arbitrate

or construing an arbitration clause, courts and arbitrators

must give effect to the contractual rights and expectations of

the parties. In this endeavor, as with any other contract, the

parties’ intentions control. This is because an arbitrator

derives his or her powers from the parties’ agreement . . . .”)

(citations omitted); First Options of Chicago, Inc. v. Kaplan,

514 U.S. 938, 943 (1995) (“[A]rbitration is simply a matter of

contract between the parties.”) (citations omitted).

ships.”26 “Companies that regularly use arbitration

as a dispute resolution method are more likely to

strengthen relationships with suppliers and business partners, which is ‘an effective way of ensuring that goals and expectations are’ met.” 27

“Preserving long-term business relationships is a

vital requirement for businesses to succeed in

commercial exchange.” 28 Additionally, “the promotion of efficient commerce [i]s a broad governmental interest.”29 Foisting parties into litigation thus

has the potential to adversely impact interstate

commerce and the U.S. economy.

When parties agree to arbitrate, one of the benefits that they typically receive is a truncated discovery process. For example, most federal circuits

hold that the FAA does not grant arbitrators the

Travis M. Pfannenstiel, The Entitlement to Avoid Litigation-Denied: How the Fifth Circuit’s Rejuvenated Hostility

Toward Arbitration Agreements Deprives Parties of Their

Bargained-for Benefits, 52 WASHBURN L.J. 177, 197 (2012)

(citing Thomas J. Stipanowich, Arbitration and Choice: Taking Charge of the “New Litigation,” 7 DEPAUL BUS. & C OM .

L.J. 383, 394 (2009)).

Id.

Pfannenstiel, 52 W ASHBURN L.J. at 197, n.184 (citing

Shankar Ganesan, Determinants of Long-Term Orientation in

Buyer-Seller Relationships, J. OF M KTG., Apr. 1994, at 1, 1

(1994)).

Id. (citing Steve Sheppard, The State Interest in the

Good Citizen: Constitutional Balance Between the Citizen and

the Perfectionist State, 45 HASTINGS L.J. 969, 983-84 n.48

(1994) (and cases cited)).

power to issue discovery subpoenas to a non-party

for production of documents before an arbitration

hearing. The Second, Third, Seventh, Ninth, and

Eleventh Circuits have all held that the FAA does

not grant arbitrators the authority to issue prehearing discovery subpoenas to non-parties.30 The

Eighth Circuit is the lone circuit concluding otherwise.31 The Fourth Circuit says under “unusual circumstances” it will allow pre-arbitration discovery

“upon a showing of special need or hardship.” 32

On the other hand, the Federal Rules of Civil

Procedure grant broad third-party discovery including the ability to compel production of documents

and sworn testimony at pretrial depositions.33 Discovery from third parties who do not have a stake

in the outcome of the dispute is a principal source

of the kind of “smoking gun” evidence that can disLife Receivables Tr. v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 215-16 (2d Cir. 2008); Hay Group, Inc. v.

E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3rd Cir. 2004);

Servotronics, Inc. v. Rolls-Royce PLC, 975 F.3d 689, 695-96

(7th Cir. 2020); CVS Health Corporation v. Vividus, LLC, 878

F.3d 703, 708 (9th Cir. 2017); Managed Care Advisory Grp.,

LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145, 1160 (11th

Cir. 2019).

In re Security Life Ins. Co. of America, 228 F.3d 865,

870 (8th Cir. 2000) (FAA grants arbitrators implicit authority to order pre-hearing production of documents from nonparties).

COMSAT Corp. v. Nat’l Sci. Found., 190 F.3d 269, 275

(4th Cir. 1999).

See FED. R. CIV. P. 45 (subpoenas); 30 (depositions).

positively change the outcome of a case.34 This type of

third-party discovery is not available in arbitration.

Requiring a party to participate in invasive pretrial discovery while it still has a shot at reversing

the denial of arbitration is game-changing—

because the litigation process and the consequences

of it are permanent. They cannot be undone if the

appellate court reverses. The proverbial “cat is out

of the bag.” “[A]llowing discovery to proceed could

alter the nature of the dispute significantly by requiring parties to disclose sensitive information

that could have a bearing on the resolution of the

matter.”35

As observed by the Fourth Circuit in Levin v.

Alms & Assocs., Inc., “If we later hold that the

claims were indeed subject to mandatory arbitration, the parties will not be able to unring any bell

rung by discovery, and they will be forced to endure

the consequences of litigation discovery in the arbitration process.” 36

See e.g. Qantum Comm. Corp. v. Star Broadcasting,

Inc., 473 F.Supp.2d 1249, 1276 (S.D. Fla. Feb. 9, 2007) (discussing use of third-party discovery to contradict the defendant’s testimony and prove the defendant defrauded the

plaintiff).

Levin, 634 F.3d at 265.

Id. Courts on the other side of the circuit split

acknowledge Levin’s wisdom. The Fifth Circuit in Weingarten

Realty Inv. v. Miller found the district court has discretion to

deny a stay. 661 F.3d 904, 907, 916 n.18 (5th Cir. 2011). Despite its holding, its analysis comports with the Fourth Circuit’s reasoning in Levin about why a stay should be

A party subjected to litigation while trying to enforce an arbitration on appeal faces far greater

“negative ramifications” than the other side. 37 This

is because “the cost and time devoted to litigation

[can] greatly exceed that which is necessary for arbitration alone.” 38 Litigation costs have been

deemed “not irreparable injury.” 39 But economists

have found significant “cost to business associated

with delays in obtaining adjudication.”40 Some of

these costs result from allocating “resources that

neither party can rely upon until the dispute is reautomatically granted. The Weingarten court observes that

engaging in discovery, which would occur absent an automatic stay, could irreparably harm the party seeking the stay because of the potential for substantial cost increases due to

discovery, and more importantly, the possibility of revealing

sensitive information that could corrode the parties’ right to

arbitrate.

Michael P. Winkler, Interlocutory Appeals Under the

Federal Arbitration Act and the Effect on the District Court’s

Proceedings, 59 O KLA. L. REV. 597, 635 (2006) (citing Edith

H. Jones, Appeals of Arbitration Orders-Coming Out of the

Serbonian Bog, 31 S. TEX. L. REV. 361, 376-376 (1990)).

Id.

Bradford-Scott Data Corp. v. Physician Comp. Network, Inc., 128 F.3d 504, 505 (7th Cir. 1997).

Roy Weinstein, Cullen Edes, Joe Hale and Nels

Pearsall, Efficiency and Economic Benefits of Dispute Resolution through Arbitration Compared with U.S. District Court

Proceedings, Micronomics Economic Research and Consulting, March 2017 (available online at https://www.micronomics.com/s/Efficiency_Economic_Benefits_Dispute_Resolution

_through_Arbitration_Compared_with_US_District_Court_.

pdf).

solved,” such as money (payment reserves, litigation budgets, etc.) and human resources. 41 There

are also opportunity costs arising from unrealized

returns on missed investments not pursued due to

burdens of litigation (but which could have been

realized had a dispute been arbitrated rather than

litigated). 42

These “direct” and “secondary” losses “reflect an

estimate for the overall negative impact to society

of delays associated with the district court system

relative to arbitration.” 43 “Based on the direct, indirect, and induced losses associated with additional

time to trial for district court cases compared with

AAA arbitration, estimated total losses are approximately $28.3 – $35.3 billion between 2011 and

2015 (i.e., more than $470 million per month).” 44

“The estimated total losses associated with additional time through appeal required for district and

circuit court cases compared with arbitration are

approximately $51.9 – $59.2 billion over the same

period (i.e. more than $860 million per month).” 45

These profound dollar figures carry the potential

for broad harm to American society and economy.

The Ninth Circuit’s rule creates the potential for

eroding the contract rights of businesses and indi41

Id.

Id. at 4.

Id.

viduals and permanently negates the bargained-for

efficiencies inherent in arbitration. It also poses a

situation in which a party could endure the direct

and indirect costs of litigation despite being vindicated on appeal with a positive determination it

was never supposed to be in court. Under the

minority position, the default posture is ongoing

litigation. This means defendants who seek arbitration are left exposed to the burdens of litigation

despite having a good chance of winning on appeal

(and a much better chance than appellants as a

whole). This is highly inequitable. Conversely, the

automatic stay rule, the divestiture principle, and

the frivolous appeal exception appropriately balance the rights of all parties.

The question of arbitrability is a threshold question that must be decided before one party confronts the burdens of litigation, the very burdens

arbitration is designed to avoid. District courts

should not be allowed to proceed with discovery

and litigation during the appeal which is deciding

that very issue: whether the district court can proceed with discovery and litigation at all. 46

Any conclusion to the contrary eviscerates the

right to arbitration. “[I]f litigation is not stayed

pending the appeal and the district court was

wrong about the defendant’s amenability to suit,

See Arthur Andersen, 556 U.S. at 629-30.

the defendant will have been subjected to litigation

that it was actually entitled to avoid.” 47

III. An automatic stay conserves judicial

economy and promotes consistency.

“Clear, bright-line rules cost less to administer

because they prevent courts from interpreting ambiguous rules.” 48 “Bright-line rules for stays pending arbitrability appeals are favorable because the

discretionary stay test allows for ineffective adjudication.” 49

“The discretionary stay test’s first factor requires

a showing of a likelihood of success on appeal,

which is always difficult for a party to demonstrate

because the showing is made to the district court

that ruled against the applicant.” 50 “Because the

satisfaction of this factor is nearly impossible, the

rule wastes judicial resources through its ineffectiveness.” 51 On the other hand, the automatic stay

Perlstadt, 44 AKRON L. REV. at 376.

Pfannenstiel, 52 W ASHBURN L.J. at 198, n.196 (citing

A.C. Pritchard, Government Promises and Due Process: An

Economic Analysis of the “New Property”, 77 VA. L. REV.

1053, 1073 (1991) (explaining how clear rules lower costs of

judicial administration in numerous contexts)).

Id. (citing 8 William L. Norton, Jr., Norton Bankruptcy

Law & Practice 3d §170:81 (2012)).

Id.

See id.

rule “promote[s] judicial economy.” 52 A stay of litigation reduces the workload of the district court,

allowing it to focus on other matters.

The automatic stay rule also promotes consistency.53 “The federal judiciary is organized in a hierarchical structure in which appellate courts perform

different functions from trial courts while maintaining a supervisory role in which appellate

decisions have a degree of finality.” 54 “The simultaneous litigation and arbitration of the same issues

of law or fact creates an increased risk of inconsistent rulings that would undermine this structure, especially when the issue of arbitrability

requires findings that are closely related to the

merits of the case.” 55 Staying litigation ensures

consistency in the application of the FAA and interpretive case law.

McCauley v. Halliburton Energy Servs., 413 F.3d 1158,

1162 n.1 (10th Cir. 2005); Doe v. Pub. Citizen, 749 F.3d 246,

258 (4th Cir. 2014) (divestiture rule “fosters judicial economy”).

Pfannenstiel, 52 WASHBURN L.J. at 199.

Id. at 199, n.198 (citing Evan Caminker, Allocating the

Judicial Power in a “Unified Judiciary”, 78 TEX. L. REV.

1513, 1528 (2000)).

Id. (citing 2 Thomas H. Oehmke, Oehmke Commercial

Arbitration § 25:116 (3d ed. 2012)).

CONCLUSION

For all these reasons and for the reasons stated

in Petitioner Coinbase, Inc.’s brief on the merits,

this Court should vacate the Ninth Circuit’s decision and remand for further proceedings consistent

with this Court’s opinion.

Dated: January 27, 2023

Respectfully submitted,

/s/ Sarah Elizabeth Spencer

Sarah Elizabeth Spencer

Counsel of Record

CHRISTENSEN & JENSEN, P.C.

Counsel for Amicus Curiae

257 East 200 South

Suite 1100

Salt Lake City, Utah 84111

sarah.spencer@chrisjen.com

801-323-5000

DRI CENTER FOR LAW

AND PUBLIC POLICY

222 South Riverside Plaza

Suite 1870

Chicago, Illinois 60606

312-698-6210

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.