When a claimant who is party to an arbitration agreement initiates litigation of arbitrable claims, the defendant in that case typically expects to be able to move successfully to compel arbitration under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4. In cases where the litigation is commenced in a federal district court whose geographical jurisdiction includes the agreed place or “situs” of arbitration, that expectation is likely valid. However, if the litigation is commenced in a district other than one in which the parties agreed to arbitrate their disputes, the federal court may not only be unable to enforce the contractual provision regarding the “place” of arbitration, but it may be unable to compel arbitration altogether. The courts are divided on the issue.
Todd Rosenbaum is an Associate in the firm’s New York office. His practice has included litigation ancillary to international arbitrations, general commercial litigation, government enforcement matters, and securities litigation.
In most countries, it is uncontroversial that a court sitting at the situs of an arbitration has jurisdiction to adjudicate a petition to confirm or vacate or modify an award issued in that arbitration. In the United States federal courts, however, the mix of issues concerning subject matter jurisdiction and personal jurisdiction, respectively, has made for bewilderment galore.
Last month, we described the split among Federal Circuit Courts regarding the question of whether the Federal Arbitration Act (“FAA”), 9 U.S.C. § 3, mandates a stay rather than dismissal of a judicial proceeding after a district court compels arbitration of all of the claims in an action before it. (LINK) But what is the practical significance of the district court’s retaining jurisdiction? Among other things, it may thus be able to grant interim relief in order to preserve the status quo pending arbitration.
Under the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq., if a District Court compels arbitration of all of the claims that are before it, and thereupon dismisses the suit, its order compelling arbitration is final and appealable; but if the District Court stays the suit, its order compelling arbitration is “non-final” and not immediately appealable. So what’s a right and proper court to do? The Federal Courts of Appeal are divided on the question of whether the FAA requires a stay or dismissal of judicial proceedings after a District Court sends all of the claims in suit before it to arbitration. Currently, some parts of the U.S. are in effect more “arbitration friendly” in this regard than others.
(Note that we are not considering here the case of an “independent” motion to compel or to stay arbitration. In that case, a petition under FAA § 4 commences a special proceeding, and no ordinary claim in suit is before the court.)