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Legal Memorandum: Stay of an Action Pending Arbitration

Issue: Must a court stay every action, rather than dismiss it, while arbitration is pending?

Area of Law: Alternative Dispute Resolution
Keywords: Stay of an action; Arbitration; Dismissal
Jurisdiction: Federal, Virgin Islands
Cited Cases: 369 F.3d 263; 360 F.2d 512
Cited Statutes: 9 U.S.C. § 3; 24 V.I.C. § 74a
Date: 11/01/2007

In Lloyd v. HOVENSA, LLC, 369 F.3d 263 (3d Cir. 2004), the Court of Appeals for the Third Circuit held, “that a stay of the action, rather than a dismissal, is appropriate pending the results of arbitration”  The Lloyd court, in reaching its conclusion that the district court did not have discretion to dismiss the case pending arbitration, but was required to stay proceedings, looked to the plain language of the Federal Arbitration Act (FAA).  Id. at 269.

The plain language of FAA § 3 also provides that a stay is only authorized if “the applicant for the stay is not in default in proceeding with such arbitration.”  9 U.S.C. § 3.  An applicant for a stay pending arbitration is considered in default if, for example, the applicant has agreed in the arbitration agreement to pay costs but fails to do so, Sink v. Aden Enters., Inc., 352 F.3d 1197, 1199-1200 (9th Cir. 2003), or takes another action that is inconsistent with the right to arbitrate, Cornell & Co. v. Barber & Ross Co., 360 F.2d 512, 513 (D.C. Cir. 1966).  Virgin Islands statutes require any party seeking to arbitrate to make a written request to the other party.  24 V.I.C. § 74a.  If a party does not comply with this provision, it is in default, and the court is not authorized to stay proceedings.

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