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Law School Case Brief

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. - 460 U.S. 1, 103 S. Ct. 927 (1983)

Rule:

Section 2 is the primary substantive provision of the Arbitration Act, declaring that a written agreement to arbitrate in any maritime transaction or a contract evidencing a transaction involving commerce shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C.S. § 2Section 2 is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary. The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Arbitration Act.

Facts:

Moses H. Cone Memorial Hospital (Moses), a hospital located in North Carolina, entered into a contract with Mercury Construction Corp. (Mercury), an Alabama corporation, for construction of additions to the hospital building. Contract disputes were to be initially referred to the architect who was hired to design and oversee the construction project. Disputes decided by the architect or not decided within a specified time could be submitted to binding arbitration under an arbitration clause in the contract. Subsequently, during construction, Mercury submitted claims to the architect for extended overhead or increase in construction costs due to Moses’ delay or inaction. But the claims were not resolved, and Moses refused to pay them.

Moses then filed an action in a North Carolina state court against Mercury and the architect, seeking a declaratory judgment that there was no right to arbitration, that Moses was not liable to Mercury, and that if it was liable it would be entitled to indemnity from the architect. A few days later Moses obtained an ex parte injunction from the state court forbidding Mercury to take any steps toward arbitration, but when Moses objected the stay was dissolved. Mercury then filed a diversity-of-citizenship action in Federal District Court, seeking an order compelling arbitration under § 4 of the United States Arbitration Act. The District Court stayed the action pending resolution of the state-court suit because the two suits involved the identical issue of the arbitrability of Mercury’s claims. The Court of Appeals, holding that it had jurisdiction under 28 U. S. C. § 1291, reversed the District Court's stay order and remanded the case with instructions to enter an order to arbitrate.

Issue:

Was the stay order final and appealable when its sole purpose and effect was to surrender jurisdiction of a federal suit to a state court?

Answer:

Yes

Conclusion:

The United States Supreme Court held that a stay order was final and appealable when its sole purpose and effect was to surrender jurisdiction of a federal suit to a state court. The Court also held that the a stay of federal proceedings was improper because of the probable inadequacy of the state court proceeding to protect respondent's rights where there was a doubt as to whether Mercury could obtain an order compelling arbitration from the state court, and because there were no exceptional circumstances or the clearest of justifications to support surrender of federal jurisdiction. Accordingly, the judgment in favor of Mercury was affirmed.

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