In Re: Celsius Network LLC

Background

Celsius Network Limited began an adversary proceeding in the Bankruptcy Court for the Southern District of New York. Equities First Holdings, LLC, and Alexander Christy moved to compel arbitration under the Federal Arbitration Act, asking the Bankruptcy Court to stay or dismiss the proceeding while covered disputes were arbitrated. Celsius agreed that at least some claims were arbitrable.

At a hearing, the Bankruptcy Court judge said it was unclear whether all or only some claims were arbitrable, but stated that no one disputed that Equities First Holdings and Celsius had agreed to arbitrate certain disputes. The Bankruptcy Court then ordered the appellants to file responsive pleadings addressing the complaint. After the appellants asked for clarification, the Bankruptcy Court said it had not ruled on the arbitration motion, but left the pleading requirement in place. The appellants filed an appeal and moved in the Bankruptcy Court for a stay pending appeal; that motion was denied. They then filed the stay motion in the District Court.

District Court’s analysis

The District Court held that the Bankruptcy Court had effectively refused to stay the adversary proceeding under Section 3 of the Federal Arbitration Act. Because such a refusal can be appealed, the District Court concluded that it had appellate jurisdiction. The District Court also noted that the parties and the Bankruptcy Court judge agreed that at least some claims were arbitrable. By requiring responses to all claims, including the arbitrable claims, the Bankruptcy Court had effectively denied a stay as to those claims.

A stay pending appeal requires a showing of probable irreparable harm, meaning harm that is actual and imminent rather than remote or speculative. The District Court found that forcing the appellants to litigate claims that all parties and the Bankruptcy Court judge acknowledged must be arbitrated would cause irreparable harm.

Disposition

The District Court granted Equities First Holdings, LLC, and Alexander Christy’s motion to stay the adversary proceeding pending appeal. The Clerk of Court was directed to terminate the motion at Docket No. 3. Judge Gregory H. Woods did not decide which claims ultimately must be arbitrated; this order addressed the requested stay while the appeal was pending.