In a ruling from 2023, the U.S. Supreme Court ruled in Coinbase, Inc. v. Bielski, 599 U.S. 736 (2023) that a defendant must postpone prosecution of an adversary proceeding when appealing the bankruptcy court’s rejection of an arbitration motion, according to an opinion by Judge Walrath on December 13, 2024. Case in point: In re Nu Ride Inc., No. 23-10831 (MFW), 2024 WL 5113000 (Bankr. D. Del. Dec. 13, 2024).
The Supreme Court, in a split decision in Coinbase, decided that when a motion to compel arbitration is denied, the whole case in the trial court is stayed until the order rejecting arbitration is appealed. United States Court of Appeals for the Fifth Circuit ruled in a case where the central question was whether the lower court had the jurisdiction to deny arbitration (599 U.S. at 747).
Footnote 6 of the Coinbase decision acknowledges that there are statutory exceptions to its holding. Congress expressly states that certain matters are not stayed pending an appeal of an order denying arbitration. The plaintiffs in Nu Ride argued that Coinbase created this exception and cited it. Bankruptcy appeals were the sole subject of the list of legislative exceptions in the Coinbase case.
In response, the defendants pointed out that not all appeals of bankruptcy court orders are covered by the provision created in footnote 6 of Coinbase. Plaintiffs instead pointed out that the footnote in question exclusively pertains to certified direct appeals from bankruptcy courts to courts of appeals, as stated in section 158(d)(2)(D) of the Bankruptcy Code.
Judge Walrath agreed with the defendants and stated, “Footnote 6 of Coinbase cannot be read to create an exception for all bankruptcy appeals.” She sided with the defendants. Section 158(d)(2)(D) is the only statutory exception cited in that footnote, and it applies only to direct appeals from the bankruptcy court to the court of appeal, not to bankruptcy appeals in general. The court decided that “footnote 6 of Coinbase does not indicate an intention by the Supreme Court to exclude all bankruptcy appeals from its holding that an appeal of denial of arbitration creates an automatic stay of the proceeding pending appeal.”
Other bankruptcy court rulings regarding Coinbase are consistent with this decision.[1]
But the court made it clear that “the holding in Coinbase is applicable to all adversary proceedings in bankruptcy cases.” So, the ruling shouldn’t be interpreted that way, the court said.[2]
The court recognized that bankruptcy cases can be distinct from other types of cases, which can necessitate different procedures for bankruptcy appeals. Bankruptcy cases “are different” due to the large number of parties involved and the multitude of issues that can impact them all. The use of Coinbase for all bankruptcy appeals, therefore, “could cause disruptive — and clearly unintended — delays in bankruptcy cases ‘where time is often of the essence.'” The adversarial procedure in this case, however, consisted of just two parties, much like a typical district court lawsuit; hence none of those things were true.