Although many construction contracts contain arbitration provisions, it is not always clear whether a particular dispute is subject to arbitration and, in some cases, a party may seek to litigate a dispute rather than demand arbitration. In those cases, a defendant may move to compel the dispute to arbitration and seek a stay of further proceedings in the litigation. The right to an interlocutory appeal of a federal court’s denial of a motion to compel arbitration was granted via a 1988 amendment to the Federal Arbitration Act codified at 9 U.S.C. § 16(a). But, when a court denies a motion to compel arbitration, Section 16(a) does not state that the district court proceedings must be stayed pending the appeal, and not all federal courts have agreed on the issue. The Ninth Circuit Court of Appeals, for example, has not adhered to the principle of staying proceedings during the interlocutory appeal, whereas the Seventh Circuit and Eleventh Circuit, among others, have held that district court proceedings should be stayed.
On Friday, the U.S. Supreme Court, in Coinbase, Inc. v. Bielski,resolved that split and held that the “common sense” approach, and the one required by the Court’s prior holding in Griggs v. Provident Consumer Discount Co., is that “a district court [must] stay its proceedings while the interlocutory appeal on the question of arbitrability is ongoing.”
The Court reached its conclusion after explaining that allowing district court proceedings to march on while the question of arbitrability is appealed would eviscerate many of the benefits of arbitration, such as efficiency, reduced expense, and less extensive discovery, and might also lead to forced settlements simply to avoid the burden of a dispute resolution process that the parties initially sought to avoid. The Court further reasoned that a continuation of proceedings during an appeal defeats the point of an appeal in the first place and “[a] right to interlocutory appeal of the arbitrability issue without an automatic stay of the district court proceedings is therefore like a lock without a key, a bat without a ball, a computer without a keyboard—in other words, not especially sensible.”
The Court also rejected the appellee’s arguments that Congress did not intend for a stay of district court proceedings when it enacted Section 16(a), an automatic stay would encourage frivolous appeals and create “special, arbitration-preferring procedural rules,” and ordinary discretionary stay factors already adequately protect the parties’ rights during the appeal. The Court also declined to adopt the appellee’s view that, because questions of arbitrability should be treated separately or severed from the underlying merits, an automatic stay provision was unnecessary.
The automatic stay rule implemented by the Court is not new in many jurisdictions, but it resolves the circuit split that has persisted for a number of years and is consistent with prior federal precedent favoring the enforcement of arbitration agreements. In jurisdictions that previously refused to apply the automatic stay provision, the ruling will also limit the utility of using litigation tactically to attempt to avoid arbitration.
If you have any questions about the Coinbase decision or construction dispute resolution in general, please do not hesitate to contact Alex Thrasher.