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Legal Memorandum: Stay of Proceedings – Issue Referable to Arbitration

Issue: When a party wishes to enforce arbitration and to do so must request a stay of a pending court case, what burden must they overcome under 9 U.S.C. 3?

Area of Law: Alternative Dispute Resolution, Litigation & Procedure
Keywords: Matter referable to arbitration; Stay of the proceedings; Burden to show
Jurisdiction: Federal
Cited Cases: 514 U.S. 938; 151 F.3d 132; 540 U.S. 1160
Cited Statutes: 9 U.S.C. § 3
Date: 03/01/2006

It is well established that the party seeking a stay pursuant to 9 U.S.C. § 3 bears the burden to show the matter is properly referable to arbitration.  Am. Fin. Capital Corp. v. Princeton, No. CIV. A. 4568 (E.D. Pa. Mar. 20, 1996); see Nederlands Erts-Tankersmaatschappij v. Isbrandtsen Co., 339 F.2d 440, 442 (2d Cir. 1964) (defendants who sought stay had burden of establishing such stay is warranted); Miletic v. Holm & Wonsild, 294 F. Supp. 772, 774 (S.D.N.Y. 1968) (“The burden is on the party seeking a stay to satisfy the court that a matter is referable to arbitration.”).  The U.S. Supreme Court long ago made clear that a stay of the proceedings is only appropriate in “rare circumstances.”  Landis v. N. Am. Co., 299 U.S. 248, 255 (1936).

Thus, to rule on a stay, the court must first decide whether the moving party has established that a particular matter is referable to arbitration.  To make the determination, the court must conduct a two-question inquiry into the “gateway issues”: “(1) Did the parties seeking or resisting arbitration enter into a valid arbitration agreement? (2) Does the dispute between those parties fall within the language of the arbitration agreement?”  John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 137 (3d Cir. 1998).  Unless the evidence answers both questions in the affirmative, the matter is not referable to arbitration and the stay cannot be granted.

In considering these gateway questions, “ordinary state-law principles […]

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