What does a District Court do when multiple parties have similar issues but not all parties are signatories to an arbitration agreement?
9 U.S.C. §3, provides in cases in which one of the parties to a valid arbitration agreement brings a claim to district court, the court “shall stay the trial of the action until such arbitration” is resolved. However, in a recent case, multiple plaintiffs were signatures to arbitration agreements but two named plaintiffs were not signatories to any arbitration agreement.
Citing Fifth Circuit authority, the District Court entered a mandatory stay of all proceedings, including those involving non-signatures because the facts met three elements. First, the arbitrated and litigated disputes involved the same operative facts. Second, the claims asserted in the arbitration and litigation were “inherently inseparable”. Finally, litigation would have a “critical impact” on the arbitration. Since proceeding with litigation of the non-signatories’ dispute would thwart the federal policy in favor of arbitration, the court stayed proceedings against all parties including the non-signatories. Paul D. Cruz v Resolute Capital Partners Ltd LLC et al, Civil Action No. 3:22-CV-02349-E (N.D. Texas April 20, 2023.
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