Does section 3 of the federal Arbitration Act mandate a stay of litigation pending arbitration not only as to parties that entered into an arbitration agreement but also as to parties that didn't?
The Third Circuit said nosir — and noted its disagreement with the Fifth Circuit on that point. Mendez v. Puerto Rican Int'l Cos., Inc., No. 07-4053 (3d Cir. Jan. 26, 2009).
The case involved claims by 41 individuals of discrimination and retaliation against their employers, including Plant Performance Services and Fluor Corporation. The defendants asserted "on information and belief" that all of the workers had entered into arbitration agreements but managed to locate documentation for only eight of them. The district court granted defendants' motion to compel and for a stay of the lawsuit as to the octet but denied it as to the 33 others.
The Third Circuit, affirming, discussed the Fifth Circuit's willingness to require a stay as to parties that didn't have an arbitration agreement on the ground that "proceeding with [the non-signatories' part of the] litigation will destroy the signatories' right to a meaningful arbitration." Waste Mgmt., Inc. v. Residuos Industriales Multiquim, S.A. de C.V., 372 F.3d 339, 343 (5th Cir. 2004). The panel felt that Fifth Circuit jurisprudence "find[s] more in Section 3 than its text will support". Mendez, slip op. at 14.
Blawgletter concurs. The Fifth Circuit rule puts so high a premium on giving signatories their day in arbitration that it overrides the non-signatories' right to their day in court. Section 3 does mandate a stay "[i]n any suit or proceeding" that involves an arbitrable issue, 9 U.S.C. 3, but (as the Third Circuit held) that doesn't mean the whole suit or proceeding must stop in its tracks.
