A contractor is gathering documents and information in preparation for filing its arbitration demand against the owner. Without notice, a subcontractor files an arbitration demand against the contractor.
Is there a risk that the contractor can be forced into arbitration before it’s ready? The Federal Arbitration Act (FAA) gives federal courts the power to stay proceedings pending arbitration. Most courts agree that federal courts also have this power, though the FAA doesn’t explicitly say so. However, asking a court to stay an arbitration pending another arbitration is an entirely different question, and not nearly as common.
Attorneys trying to stay an arbitration in favor of a second arbitration typically use one of two procedural methods: a motion to stay or a temporary injunction. For either to succeed, one needs to show the court that allowing the first arbitration to take place before the second arbitration would waste time and resources, result in inconsistent awards, or result in independent and potentially contradictory legal conclusions.
A PRELIMINARY INJUNCTION
Even though a matter is under arbitration, a court still has an obligation to consider the merits of a motion for preliminary injunction. Therefore, filing a preliminary injunction can assure an attorney time in front of the judge. The preliminary injunction standard requires the demonstration of irreparable harm, and either a likelihood of success on the merits or a serious question going to the merits.
In a New York federal court case, the court granted a preliminary injunction staying arbitration because it determined that allowing multiple future arbitrations could result in inconsistent rulings, and permitting litigation to move forward would likely dispose of multiple issues in future arbitrations. Though that court stayed arbitration pending litigation, not arbitration, the court’s analysis is very similar to this issue.
The court also found that it could enjoin arbitration under the All Writs Act, which authorizes federal courts to issue “all writs necessary or appropriate in aid of their respective jurisdictions.”
The court also recognized that there would be multiple future suits on this issue, and that there was a concern that the awards might be inconsistent. This would waste time and resources. Further, if the future arbitrations were heard by different arbitrators, each could come to their own independent and even contradictory conclusions. Because of the risk of harm to future arbitration parties, the court granted the plaintiffs’ motion to temporarily stay arbitration.
A MOTION TO STAY
It is also possible for an arbitration to be stayed pending a second arbitration through a motion to stay under 9 U.S.C. § 3. In another New York federal court case, the plaintiffs subcontracted work on the construction of office buildings in Singapore. After the construction project stopped, arbitration proceedings began in Singapore. The plaintiff filed for arbitration in the United States, and the defendants asked the court to stay the U.S. arbitration pending arbitration in Singapore.
The court recognized that requiring arbitration in the United States could have a disruptive effect on the arbitration proceedings in Singapore. The court also noted that resolution of the issues in the Singapore arbitration could limit or narrow the issues in the U.S. case. Thus, the court granted the defendant’s motion to stay arbitration pending the result of the arbitration in Singapore.
Use of a motion to stay is a more straightforward method of obtaining a stay. However, a preliminary injunction can get the attorney in front of the court, and it could be a quick or last option to stay an arbitration.