Opinion ID: 772374
Heading Depth: 1
Heading Rank: 3

Heading: Is National Entitled to a Discretionary Stay?

Text: 13 Though National is not entitled to compel arbitration of AgGrow's claim on the bond, the district court has discretion to stay third party litigation [that] involves common questions of fact that are within the scope of the arbitration agreement in the Construction Contract. Contracting Northwest, Inc. v. City of Fredericksburg, 713 F.2d 382, 387 (8th Cir. 1983); accord American Home Assurance Co. v. Vecco Concrete Constr. Co., 629 F.2d 961, 964 (4th Cir. 1980). 5 As these cases recognized, a discretionary stay may well be needed to further the strong federal policy favoring agreements to arbitrate. Here, for example, AgGrow agreed to arbitrate any performance disputes with TEI but sued National as surety on the bond. TEI is the real party in interest in the lawsuit because it has agreed to indemnify National, and National may assert TEI's defenses under the Construction Contract. Absent a discretionary stay, AgGrow will succeed in avoiding its duty to arbitrate performance issues under the Construction Contract if its suit on the bond is given priority over the parallel arbitration proceeding commenced by TEI. 14 The district court denied a discretionary stay, in part based upon its erroneous understanding that no arbitration proceeding was pending. The court was also concerned that arbitration is unlikely to resolve the entire dispute because Anderson did not agree to arbitrate and refuses to participate in or be bound by the arbitration. However, TEI and AgGrow may not avoid their agreement to arbitrate because they failed to obtain prior commitments to arbitrate from suppliers, subcontractors, or bonding companies whose conduct or contractual obligations may now be relevant in resolving the entire dispute. As the Supreme Court said in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985), we rigorously enforce agreements to arbitrate, even if the result is 'piecemeal' litigation. 15 In these circumstances, we must remand so that the district court may reconsider the question of a discretionary stay. There is now arbitration pending, and it should be given priority to the extent it is likely to resolve issues material to this lawsuit. On the other hand, the lawsuit involves more parties and claims than the arbitration. In a complex, multi-party dispute of this type, issues such as the risk of inconsistent rulings, the extent to which parties will be bound by the arbitrators' decision, and the prejudice that may result from delays must be weighed in determining whether to grant a discretionary stay, and in fashioning the precise contours of any stay. Compare Contracting Northwest, 713 F.2d at 387, and Gilbane, 992 F.2d at 391 & n.8 (granting stays), with Sierra Rutile Ltd. v. Katz, 937 F.2d 743, 750-51 (2d Cir. 1991), and American Shipping Line, Inc. v. Massan Shipping Indus., Inc., 885 F. Supp. 499, 502 (S.D.N.Y. 1995) (denying stays). Such issues are properly committed in the first instance to the district court's discretion. 16 The order of the district court denying National's motion for a mandatory stay is affirmed. The denial of a discretionary stay is vacated, and the case is remanded for further proceedings not inconsistent with this opinion. Each party shall bear its own costs on appeal.