Mandatory Stays Under Section 3 of the Federal Arbitration Act After Arthur Anderson v. Carlisle: Did the Supreme Court Announce a Floor or a Ceiling? - Part 2, Chapter 8 - AAA Yearbook on Arbitration and the Law - 23rd Edition
Walter R. Mayer is the Associate General Counsel, Litigation, at Petrohawk Energy Corporation. He is Co-Chair of the Energy Litigation Committee for the ABA Section of Litigation. Mr. Mayer acted as Editor-in-Chief of the Energy Litigation Journal for which he was named Outstanding Subcommittee Chair. He was named a "Texas Rising Star" in civil defense litigation in Texas Monthly. Mr. Mayer previously practiced at Vinson & Elkins in Houston specializing in energy litigation and international dispute resolution. Walter received his J.D. from the University of Virginia.
Russell T. Gips is an Attorney at Vinson & Elkins LLP in the firm's commercial litigation group. He has a general litigation practice with an emphasis on energy litigation, including joint operating agreement disputes, regulatory matters, and business torts. Russell received his J.D., summa cum laude, from the University of Houston Law Center where he was a member of the Order of Coif, Order of the Barons, and the Houston Law Review. He received his undergraduate degree in advertising from the University of Texas at Austin.
Section 3 of the Federal Arbitration Act ("FAA") directs a court, "on the application of one of the parties," to stay a suit or proceeding "upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration." 9 USC § 3. The FAA provides this stay mechanism for two reasons. First, the stay furthers the public policy favoring arbitration. The stay encourages and protects the parties’ right to arbitrate. Second, the stay helps promote the parties’ bargained-for agreement. The parties agreed to arbitrate certain disputes, and the application of the stay is consistent with the parties’ agreement. This paper looks at recent jurisprudence examining the applicability of a mandatory stay under section 3 to a non-signatory. If the contract ground for staying the litigation is removed from the equation, can a court still justify issuing a stay?
A court may easily find itself facing such a situation. The following two examples show how relatively simple fact patterns, involving only three parties, can raise this thorny issue.
Example 1. Claimant and Respondent enter into an arbitration agreement. A dispute arises and Claimant initiates arbitration against Respondent. At the same time, non-signatory Plaintiff sues Respondent in court. Plaintiff is not a party to the arbitration agreement. The arbitration and the litigation against Respondent/Defendant involve the same issue. The Respondent/Defendant, fearful that effects from the litigation will hinder his chances in arbitration, moves for a stay under section 3 of the FAA. Plaintiff, eager to pursue his legal remedies, points out that he is not a party to the arbitration agreement, his claim is not referable to arbitration, and a stay is therefore not available to the Respondent/Defendant.