The US Supreme Court has decided that an appeal of a denial of a motion to compel arbitration under the Federal Arbitration Act (FAA) automatically stays trial proceedings.
In 1988, Congress amended the FAA to give parties the immediate right to appeal the denial of a motion to compel arbitration. The statute is silent about whether the appeal automatically stays the district court proceedings. Following the 1988 amendment, a circuit split arose regarding that question.
Here, the plaintiffs filed two separate class actions. The agreement provided for dispute resolution via binding arbitration, so the defendant moved to compel arbitration, which the district court denied. The defendant exercised its right to appeal whether the case should proceed to arbitration immediately. Still, the district court and the US Court of Appeals refused to stay the proceedings while the appeals were pending.
US Supreme Court Decision
The majority said Congress enacted the new law against a transparent background principle prescribed precedent - an appeal, including an interlocutory appeal, divests the district court of its control over those aspects of the case involved in the appeal. Because the question on appeal is whether the case belongs in arbitration or instead in the district court, the entire case is involved in the appeal. Therefore, the district court must stay its proceedings until the appeal concludes.
WHY THIS IS IMPORTANT… This decision sets a new national standard for the FAA, substantially increasing litigation efficiency. Parties should consider drafting arbitration agreements in contracts that subject the arbitration agreement to the FAA to take advantage of this new standard. Doing so may prevent months of wrangling while the issue of where the case should be tried is decided.