Aug 29, 2023

U.S. Supreme Court Rules Appeal of Decision Denying Motion to Compel Arbitration Results in Mandatory Stay of District Court Proceedings

Written by: Jose R. Ruiz

With the deluge of Hurricane Ida lawsuits recently filed in the United States District Court for the Eastern District of Louisiana, insurers and attorneys should be aware of a recent decision by the United States Supreme Court impacting denials of motions to compel arbitration in the Fifth Circuit. In Coinbase, Inc. vs. Bielski[1], the Supreme Court resolved a Circuit Court split in holding that appeals of motions to compel arbitration under 9 U.S.C. §16(a) result in a mandatory stay of district court proceedings while the appeal is pending.[2] Bielski expressly overturns the precedent set forth in Weingarten Realty Investors v. Miller[3], where the Fifth Circuit held there is no mandatory stay under §16(a) for denials of motions to compel arbitration.[4]

Bielski relied extensively on the Griggs principle from Griggs v. Provident Consumer Discount Co.,[5]  which states: “An appeal, including an interlocutory appeal, ‘divests the district court of its control over those aspects of the case involved in the appeal.’”[6] The question following Griggs was whether the merits of an arbitration claim are an aspect of a denial of an order to compel arbitration that divested the district court of control of litigation while on appeal. Disagreement on a broad versus a narrow interpretation of the Griggs principle was the basis of the split among the Circuits.

Bielski adopted the broader scope of the Griggs principle that the majority of Circuit Courts had applied, reasoning that “[b]ecause the question on appeal is whether the case belongs in arbitration or instead in the district court, the entire case is essentially ‘involved in the appeal.’”[7] The Court concluded that “it ‘makes no sense for trial to go forward while the court of appeals cogitates on whether there should be one.’”[8] The Court further noted that “allowing a case to proceed simultaneously in the district court and the court of appeals creates the possibility that the district court will waste scarce judicial resources . . . on a dispute that will ultimately head to arbitration in any event.”[9]  That would represent “the ‘worst possible outcome’ for parties and the courts: litigating a dispute in the district court only for the court of appeals to ‘reverse and order the dispute be arbitrated.’”[10] Accordingly, the Court held “Griggs dictates that the district court must stay its proceedings while the interlocutory appeal on arbitrability is ongoing.”[11]

The Court further noted that under longstanding practices, “when Congress wants to authorize an interlocutory appeal, but not to automatically stay district court proceedings pending that appeal, Congress typically says so.”[12] In contrast, under the background Griggs principle, “[w]hen Congress wants to authorize an interlocutory appeal and to automatically stay the district court proceedings during that appeal, Congress need not say anything about a stay.”[13] The dissenting Justices took particular exception to this finding, noting: “To the contrary, the background rule is that courts have case-by-case discretion regarding whether or not to issue a stay.”[14]

While the above change to Fifth Circuit precedent by the Supreme Court will most immediately impact the numerous Hurricane Ida lawsuits recently filed, it will also impact all current and future claims pending in Louisiana federal district courts where an arbitration clause is at issue. Whereas before Bielski the District Court had discretion on whether to stay proceedings when there was a pending appeal on a denial of a motion to compel arbitration, now the stay is mandatory. Given the sheer volume of pending hurricane litigation, it will be interesting to see if the impact of the new Bielski decision results in legislation being enacted by Congress to clarify whether it intended an appeal of a denial of a motion to compel arbitration to stay the district court proceedings.

[1] 143 S.Ct. 1915, 599 U.S. ---- (2023).

[2] Bielski, 143 S.Ct. at 1922.

[3] 661 F.3d 904

[4] Miller, 661 F.3d at 908-09 (5th Cir. 2011).

[5] 459 U.S. 56, 103 S.Ct. 400, 74 L.Ed.2d 225 (1982).

[6] Bielski, 143 S.Ct. at 1919 (quoting Griggs, 459 U.S. at 58, 103 S.Ct. 400).

[7] Id., 143 S.Ct. at 1919.

[8] Id. at 1920 (quoting Apostol v. Gallion, 870 F.2d 1335, 1338 (7th Cir. 1989)).

[9] Id. at 1921.

[10] Id. at1921 (quoting Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 505 (7th Cir. 1997)).

[11] Id. at 1920.

[12] Id. at 1921 (emphasis in original).

[13] Id.

[14] Id. at 1926 (Jackson, J., dissenting).