Delaware Bankruptcy Court Holds No General Exception to an Automatic Stay of Case After Denial of Arbitration in Bankruptcy Cases

A December 13, 2024, opinion from Judge Walrath held that a 2023 decision from the U.S. Supreme Court in Coinbase, Inc. v. Bielski, 599 U.S. 736 (2023) requires staying prosecution of an adversary proceeding when the defendant is appealing the bankruptcy court’s denial of an arbitration motion. See In re Nu Ride Inc., No. 23-10831 (MFW), 2024 WL 5113000 (Bankr. D. Del. Dec. 13, 2024).

In Coinbase, a divided Supreme Court held that denial of a motion to compel arbitration automatically imposes a stay on the entire action in the trial court, pending appeal from the order denying arbitration.  599 U.S. at 747 (holding that a district court order denying arbitration was automatically stayed pending appeal because the essence of the appeal was whether the district court even had authority to decide the case).

In Nu Ride, the plaintiffs argued that Coinbase created an exception for all bankruptcy appeals citing footnote 6 of the Coinbase decision wherein the Supreme Court acknowledged that there are statutory exceptions to its holding where Congress expressly stated that certain matters are not stayed pending an appeal of an order denying arbitration. That list of statutory exceptions included the only reference in the Coinbase case to bankruptcy appeals.

The defendants countered that argument by noting that footnote 6 of Coinbase does not create an exception for all appeals of bankruptcy court orders.  Instead, plaintiffs noted that that footnote refers only to section 158(d)(2)(D) of the Bankruptcy Code which applies narrowly to certified direct appeals from bankruptcy courts to the courts of appeals.

Siding with the defendants, Judge Walrath noted “that footnote 6 of Coinbase cannot be read to create an exception for all bankruptcy appeals. That footnote does not reference bankruptcy appeals generally; it cites as a statutory exception only subsection 158(d)(2)(D), which is limited to direct appeals from the bankruptcy court to the court of appeal.”  As such, the court held 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.”

This decision is in line with other bankruptcy court decisions interpreting Coinbase.[1]

The court, however, noted that the opinion should not be read to mean “that the holding in Coinbase is applicable to all adversary proceedings in bankruptcy cases.”[2]

The court acknowledged that the unique nature of bankruptcy cases, in some instances, mandates different practices for bankruptcy appeals, noting that bankruptcy cases “are different” because “they involve numerous (sometimes thousands) of different parties and many issues that may affect directly or indirectly some or all of those parties.”  As such, applying Coinbase to all bankruptcy appeals, “could cause disruptive — and clearly unintended — delays in bankruptcy cases ‘where time is often of the essence.’”  However, in the case before the court, those circumstances were not present because the adversary proceeding involved only two parties as was akin to traditional district court litigation.

[1] See, e.g., Google, LLC v. Angell, No. 5:24-CV-309-D 2024 U.S. Dist. LEXIS 109349, at *1 (E.D.N.C. June 20, 2024) (holding that Coinbase applies to a contested matter in a bankruptcy case); Big Picture Loans, LLC v. Eventide Credit Acquisitions, LLC, No. 24-00103, Dkt. No. 26, slip op. (N.D. Tex. May 14, 2024) (concluding that, in the absence of a decision of the Fifth Circuit or Supreme Court excepting bankruptcy cases from the Coinbase holding, it applied to bankruptcy appeals), clarified by 2024 WL 3239935, at *4 (N.D. Tex. June 27, 2024) (holding that the Coinbase stay applied only to the adversary proceeding and did not stay any of the matters in the bankruptcy case).