The Supreme Court recently decided in Coinbase, Inc. v. Bielski, that federal district courts must stay trial proceedings pending the resolution of an interlocutory appeal of the denial[1] of a motion to compel arbitration. See Coinbase, Inc. v. Bielski, No. 22–105, slip op. at 10.
Under Section 16(a) of the Federal Arbitration Act, when a district court denies a motion to compel arbitration, the party seeking to compel arbitration is entitled to an immediate (interlocutory) appeal on that issue. Id. at 1 (citing 9 U.S.C. §16(a)). Previously, lower courts had split on whether the pre-trial and trial proceedings could proceed pending the outcome of that interlocutory appeal. If the district court did not grant a stay pending appeal, the parties would have to immediately begin the expensive and public process of litigation, even though they might ultimately end up proceeding in arbitration depending on the outcome of the appeal.
Justice Kavanaugh, writing for the majority, held that the litigation must be stayed. Citing to prior precedent, the Supreme Court reasoned 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.’” Id. at 3.
The decision is a victory for government contractors seeking to enforce arbitration clauses against subcontractors and suppliers. Absent a mandatory stay pending appeal, the party seeking to enforce the arbitration clause may irreversibly lose the benefits of the clause. As the Supreme Court noted, “[i]f the district court could move forward with pre-trial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost….” Id. at 6. These risks are particularly significant in the case of Miller Act litigation, where the contractor who obtained the bond often is required to defend and indemnify the surety in any pending action.
A government contractor that either (1) has been sued by a subcontractor or supplier or (2) has had a claim made against their payment bond surety, should quickly reach out to counsel to determine what, if any options they have to proceed in arbitration and how to best take advantage of the Supreme Court’s most recent ruling.
[1] Coinbase (and its predecessor decision) suggest that a district court must stay trial proceedings pending the resolution of a procedurally correct interlocutory appeal of a decision to grant a stay pending arbitration. However, because a party does not have a statutory right to file such an interlocutory appeal, it is unclear whether a stay would be required by Coinbase.
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