No Automatic Stay While an Appellate Court Decides Arbitrability, California Says

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Patricia Tsipras

October 26, 2023

Existing California law allows a party to appeal an order dismissing or denying a petition to compel arbitration of a matter that was filed in court.  When a party files such an appeal, existing law generally provides that the trial court proceedings are stayed pending that appeal.

This existing California law is consistent with the U.S. Supreme Court’s June 2023 decision in Coinbase, Inc. v. Bielski, No. 22-105 (June 23, 2023).  In Coinbase, the Supreme Court resolved a split among the Circuit Courts of Appeals, holding that trial court proceedings are stayed automatically pending an appeal of a decision denying a motion to compel arbitration.  In reaching its decision, the Supreme Court:

• relied on Section 16(a) of the Federal Arbitration Act (FAA). Section 16(a) allows a party seeking arbitration to file an immediate interlocutory appeal when a trial court denies a motion to compel arbitration.  The Supreme Court held that Section 16(a) was enacted against “a clear background principle” that an appeal “divests the [trial] court of its control over those aspects of the case involved in the appeal.”
• reasoned that staying proceedings during an interlocutory appeal on arbitrability “reflects common sense” because many of the benefits of arbitration (e.g., efficiency, less expense, less intrusive discovery) would be lost if a trial court could move forward pending the appeal regarding arbitrability.
• considered the potential for coercion absent a stay because parties may be forced to settle a case to avoid proceedings that they contracted to avoid through arbitration.
• stated that allowing cases to proceed simultaneously in the trial court and the appellate court will waste scarce judicial resources on a dispute that ultimately may head to arbitration.

Despite the consistency of existing California law and the Supreme Court’s decision in Coinbase, on October 10, 2023, California enacted SB 365, a bill that reverses the general rule regarding automatic stays.  Effective January 1, 2024, trial court proceedings will not be stayed automatically (rather, trial judges will have discretion to stay a matter) during the pendency of an appeal of an order dismissing or denying a petition to compel arbitration.

SB 365 raises the same policy concerns that led to the Supreme Court’s decision in Coinbase to support automatic stays.  It is likely that SB 365 will face legal challenges, including the argument that the FAA preempts it.  However, until those legal challenges are decided, SB 365 presents a significant burden on employers because it could force them to continue litigating in court claims that are subject to a valid arbitration agreement.

*Special thanks to Ava Petrellese, our Paralegal, for her contributions to this article.

The author of this article, Patricia Tsipras, is a member of the Bar of Pennsylvania.  This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in California, Pennsylvania, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist.  Always consult an attorney with specific legal issues.