Legal Memorandum: Stay Pending Arbitration and Burden of a Party

Issue: What is the burden of a party who moves the court for a stay pending arbitration?

Area of Law: Alternative Dispute Resolution, Litigation & Procedure
Keywords: Stay pending arbitration; Burden of a party
Jurisdiction: Federal
Cited Cases: 151 F.3d 132; 475 U.S. 643
Cited Statutes: 9 U.S.C. § 3
Date: 03/01/2007

It is well established that the party seeking a stay pending arbitration pursuant to 9 U.S.C. § 3 bears the burden of showing that the matter is properly referable to arbitration.  Am. Fin. Capital Corp. v. Princeton Electronic Prods., No. CIV. A. 95-4568 (E.D. Pa. Mar. 20, 1996); see Nederlandse Erts-Tankersmaatschappij v. Isbrandtsen Co., 339 F.2d 440, 442 (2d Cir. 1964) (defendants who seek stay have 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.”).

Thus, to rule on the stay, the court must first decide whether the moving party has established that a particular matter is referable to arbitration.  To make that 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 motion cannot be granted.

In considering these gateway questions, “ordinary state-law principles that govern the formation of contracts” should apply when deciding whether the parties agreed to arbitrate the dispute in question.  First Options, Inc. v. […]

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