The U.S. Supreme Court is in this great position where they can just “remand for further proceedings in accordance with this opinion” and not worry about how the words from on high will be implemented.  In two cases today, lower courts are faced with applying Bissonnette and Coinbase.  There is also a tip for arbitrators on avoiding a vacatur.

Application of Coinbase stay to bankruptcy proceedings

In Coinbase v. Bielski, 599 U.S. 736 (2023), SCOTUS held that an appeal from the denial of a motion to compel arbitration stays proceedings in the underlying litigation. In re: Nu Ride, 2024 Bankr. LEXIS 2982 (D. Del December 13, 2024)( Walrath, B.J.), addresses the application of that principle to an adversary action in bankruptcy.  In connection with Nu Ride’s Chapter 11 proceedings, Lordstown EV Corporation, the successor to Debtor’s causes of action, filed an eleven-count adversary proceeding against Hon Hai Precision Industry and certain other defendants. Defendants moved to dismiss the action in favor of arbitration. The Court dismissed two of the counts, but denied the motion as to the remaining claims, as they “were not the subject of the arbitration agreement.”  Defendants appealed from that order and sought a stay under Coinbase of litigation on the remaining counts.

Bankruptcy Judge Walrath denies the stay.  The court quickly rejects Plaintiffs’ claim that Coinbase’s reference to “District Courts” means that the holding is not applicable to Bankruptcy Courts.  As Judge Walrath opines, Bankruptcy Courts hear only those cases which District Courts refer to them.

The court, then, denies Plaintiffs’ claims that the jurisdictional divestiture rule, which underlies Coinbase, is not applicable to this adversary proceeding.  She recognizes that  bankruptcy proceedings differ from traditional litigation. For example, there are different rules as to when a bankruptcy order, as opposed to a District Court judgment, is “final.”  Further, a bankruptcy case is more likely to involve “numerous (sometimes thousands) of different parties,” and “a bankruptcy case typically raises a myriad of issues, many totally unrelated and unconnected to any given appeal.”  These distinctions, the Court opines, have led at least one court and some academics to argue that “extending Coinbase as the Defendants seek could cause disruptive – and clearly unintended – delays in bankruptcy cases ‘where time is often of the essence.’”[1]

While rejecting any implication that the Coinbase stay rule always applies in Bankruptcy Court adversary proceedings, Judge Walrath applies the stay to this matter. There are not numerous parties involved in this portion of the bankruptcy proceeding; there are essentially only two parties here. There are no “significant” other issues that a stay would affect during the appeal, as the Debtor’s Chapter 11 Plan has already been confirmed.  Thus, the Court opines, “this adversary proceeding is more akin to a civil action in district court than to a typical bankruptcy matter.”  The important issue for litigators, however, may be the Court’s opining that it “does not suggest by its ruling in this case, however, that the holding in Coinbase is applicable to all adversary proceedings in bankruptcy.”  In the absence of a blanket rule, counsel faced with the stay issue in an adversary proceeding, whether they are proposing or opposing a stay, might utilize the factors which Judge Walrath considers, Ibid, p.27, as an outline for their proof.

Transportation Workers under the FAA; Implementation of Bissonnette

Last Term, SCOTUS reversed the Second Circuit’s standard for determining whether an employee was a worker “engaged in foreign or interstate commerce” and, thus, excepted under Section 1 of the Federal Arbitration Act from the provisions thereof, Bissonnette v. LePage Bakeries Park St. LLC, 601 U.S. 246 (2024).  The Supreme Court remanded the matter to the Second Circuit.  In doing so, it left open key questions as to whether Petitioners “are not transportation workers and . . . are not engaged ‘in foreign or interstate commerce’. . . because they deliver baked goods only in Connecticut.”  In Bissonnette v. LePage Bakeries Park St. LLC., 2024 U.S. App. LEXIS 31579 (2^nd Cir. December 12, 2024)(Order), Circuit Judges Jacobs and Kahn and District Judge Gujarati, sitting by designation, order that remand.  In doing so, however, they do not leave the District Judge in the dark as to the road forward, but give very specific instructions as to what the Court should consider.  “On remand, the court should look toward ‘the actual work that the members of the class, as a whole typically carry out,’” quoting Southwest Airlines Co. v. Saxon, 596 U.S. 450, 456 (2022).  In doing so, “relevant evidence may include. . . parties’ agreements, declarations, and any other evidence tending to show Plaintiffs’ actual duties.”  In addition, the District Judge should consider whether the “transportation worker ‘play[s] a direct and “necessary role in the free flow of goods” across borders.’”(Internal citations omitted). The inquiry could include the buyer-seller relationship between Plaintiffs and the bakery, the buyer-seller relationship between Plaintiffs and their customers, and any direct relationship between the bakery and Plaintiffs’ customers.  The court also includes a laundry list of other sub issues as to which evidence might be presented.

This is not a simple one paragraph mandate sending the case back to the District of Connecticut.  Rather, it is an important read for anyone preparing to try the exception issue. Use it as a checklist for documents and witness testimony. It will, of course, be interesting to see where the District Court comes out.  More to follow.

Fundamental Fairness; Partiality

Garcia v. Pritchard Industries, LLC, 2024 U.S. App. LEXIS 31544 (2^nd Cir. December 12, 2024)(Summary Order)(Lynch, Lee, and Perez, Circuit Judges), is a routine pro se appeal in which the Court holds that it could affirm because the plaintiff-appellant did not preserve her issues below.  However, “in the interest of completeness,” the panel addresses the merits of the appeal.  Garcia argues that the arbitrator displayed partiality in his or her orders related to the defendants’ compliance with discovery and that Plaintiff’s inability to obtain those documents denied her a fundamentally fair proceeding.  In rejecting those claims, the court falls back on general principles related to the broad scope of arbitral discretion.  For those of us who are arbitrators, however, the lesson in this opinion is the importance of assuring that there is a complete record as to why we reached our decisions.  In holding that the arbitration was properly conducted, the court notes that “the arbitrator’s letters and final opinion suggest a fair discovery process with the arbitrator thoroughly explaining the process to the parties and spending time addressing each of Garcia’s discovery requests.”  So, while we arbitrators – like judges – may hate discovery disputes, Garcia is a reminder that we need to spend the time, not only to consider those questions, but to write on our resolution thereof.

Whatever holiday you may celebrate, the days draw nigh.  Whether you’re making sugar cookies, sufganiyot, benne wafers, or some other traditional favorite, enjoy the preparations.

David Reif, FCIArb
Reif ADR
Dreif@reifadr.com
[1] The court’s footnote to this argument provides citations that are a good starting point for counsel who seek to oppose such a stay in a bankruptcy case.