Supreme Court Rules Litigation Automatically Stayed Following Arbitration Appeal

Recently, the Supreme Court settled a circuit split, ruling that litigation in district courts is automatically stayed when a party appeals the denial of a motion to compel arbitration.  The Federal Arbitration Act (FAA) does not explicitly require litigation to be stayed during an interlocutory appeal of a denial of a motion to compel arbitration.  Six circuits granted stays automatically, but three circuits allowed judges to use discretion when granting stays.  The Court viewed the practice of automatic stays as reflecting common sense.

The decision reversed a Ninth Circuit ruling allowing a class action to proceed against a large cryptocurrency platform while an appeal was pending.  The cryptocurrency platform moved to compel arbitration with one of its users, but the district court denied the motion.  The cryptocurrency platform pursued an interlocutory appeal and sought to stay the proceedings pending the appeal.  The district court denied the stay, and the Ninth Circuit also denied the motion for a stay pending appeal.  The cryptocurrency platform then filed a petition for certiorari.

In the opinion, the Court held Congress passed the FAA with the “clear background principle” that an appeal relieves the district court of its control over all aspects of the case involved in the appeal.  The Court reasoned that an appeal to a denial of a motion to compel arbitration involves the entire case since the question is whether the case belongs in arbitration or the district court.   As a result, the litigation in the district court should be automatically stayed while the question of arbitrability is decided by the court of appeals.  The Court concluded that the benefits of arbitration, like efficiency, lower costs, and less intrusive discovery, would also be lost if the district court continued with pre-trial and trial proceedings while the appeal was pending.

Following the Court’s decision, litigation at the district court will automatically be stayed following an interlocutory appeal on the question of arbitrability.  The decision should also stay discovery and decrease the burden and cost of additional proceedings while the appeal is pending.