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  • Writer's pictureRobert Lusk

Should a Court Dismiss or Stay Claims Subject to Arbitration?

Assume a plaintiff files a lawsuit that includes claims subject to arbitration under the Federal Arbitration Act (FAA). Should the defendant file a motion to dismiss (or for summary disposition under Michigan practice) or a motion to stay? Does the trial court have discretion to dismiss the case? These were the questions addressed by the Sixth Circuit in Arabian Motors Group, WLL, v. Ford Motor Company, 19 F. 4th 938 (6th Cir. 2021).

Few appellate decisions are fun to read. This is an exception, recounting the story of a protracted procedural battle about an automobile dealership agreement that bounced back and forth between the courts and arbitration over a period of several years. In its most recent incarnation plaintiff filed a lawsuit alleging common law claims that, at an earlier stage of the dispute, had been submitted to and then withdrawn from arbitration. Claims the court characterized as “on life support.” In any event, defendant moved the stay the lawsuit to allow the arbitration panel to resolve plaintiff’s claims. The trial court agreed the claims were subject to arbitration and entered an order of dismissal rather than granting defendant’s motion to stay.

The court pointed to Section 3 of the FAA, which provides that when a court is “... satisfied that the issue involved ... is referable to arbitration ... [it] shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the [arbitration] agreement.” The court went on to note other provisions of the FAA that supported the proposition that claims subject to arbitration should be stayed rather than dismissed. For example, Section 7 of the FAA permits parties to enlist the court to summon witnesses to the arbitration. Other FAA provisions permit the court to confirm, vacate, or modify an arbitration award. These judicial powers are easily invoked if the case is stayed. But more difficult to accomplish if a party needs to file a new lawsuit to reawaken the trial court’s authority and enforcement powers. Accordingly, the court reversed the trial court and directed it to enter an order staying the lawsuit until the arbitration was over.

Michigan practitioners should note that Section 7 of Michigan’s Uniform Arbitration Act appears to compel the same conclusion, providing, “If a party moves the court to order arbitration, the court on just terms shall stay any judicial proceeding that involves a claim alleged to subject to the arbitration until the court renders a final decision ...” MCL 691.1687(6).

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