Commercial Litigation and Arbitration

Must Trial Court Stay Proceedings Pending Appeal of Denial of Motion to Compel Arbitration? Circuit Split

From McArdle v. AT&T Mobility LLC, 2010 U.S. Dist. LEXIS 73519 (N.D. Cal. July 20, 2010):

Some jurisdictions hold that the trial court must stay proceedings while a denial of a motion to compel arbitration is appealed. See, e.g., Bradford-Scott Data Corp. v. Physician Computer Network, 128 F.3d 504, 505-06 (7th Cir. 1997); Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 215, n.6 (3rd Cir. 2007). However, the Ninth Circuit has held that a district court has discretion to decide whether to grant a stay, reasoning that a mandatory stay

would allow a defendant to stall a trial simply by bringing a frivolous motion to compel arbitration. The system created by the Federal Arbitration Act allows the district court to evaluate the merits of the movant's claim and if, for instance, the court finds that the motion presents a substantial question, to stay the proceedings pending an appeal from its refusal to compel arbitration. See, e.g., Pearce v. E.F. Hutton Group, Inc., 828 F.2d 826, 829 (D.C. Cir. 1987) (district court, after denying appellant's motion to compel arbitration, granted its motion for a stay pending appeal because it found appellant's claim raised issues of first impression and that appellant would suffer substantial harm if the action were not stayed); C.B.S. Employees Federal Credit Union v. Donaldson, 716 F. Supp. 307 (W.D. Tenn. 1989) (developing test to determine whether district court should stay trial proceedings pending appeal from denial of motion to stay proceedings pending arbitration). This is a proper subject for the exercise of discretion by the trial court.

Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990). If the appeal is successful, any judgment rendered in the trial court will be vacated and the parties will be required to arbitrate the claim. ***

Britton refers to two cases which provide guidance as to how a trial court should exercise discretion regarding whether to grant a stay pending an appeal. *** The one most relevant here is C.B.S. Employees Federal Credit Union v. Donaldson, 716 F. Supp. 307, 309 (W.D. Tenn. 1989), in which the court determined that a stay pending appeal of the denial of a motion to compel arbitration falls under Federal Rule of Civil Procedure 62(c) and thus is subject to the four part test set out by the United States Supreme Court in Hilton v. Braunskill, 481 U.S. 770, 776 (1987). ***.

Golden Gate Restaurant Association v. City and County of San Francisco, the Ninth Circuit explained how the Hilton test is applied. 512 F.3d 1112, 1115-16 (9th Cir. 2008). A party seeking a stay must show either (1) a strong likelihood of success on the merits of its appeal and the possibility of irreparable harm, or (2) that serious questions regarding the merits exist and the balance of hardships tips sharply in its favor. Id. at 1115. These two alternatives "represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." *** A court must "consider where the public interest lies separately from and in addition to whether the applicant for stay will be irreparably injured absent a stay."

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