Arbitration & Mediation

Motion to Stay Litigation Pending Outcome of Arbitration

By Christopher B. Hopkins, Esq.

Tangential to the motion to compel arbitration is the motion to stay litigation pending the outcome of arbitration. We mentioned this back in 2006 in a Florida federal court order in Hudson Global Resource Management v. Beck et al. The same court has re-visited the issue with a November 2007 order in Gerd Petrik v. Reliant Pharmaceuticals, Inc.

The facts are fairly lengthy, but essentially Petrik owns the trademark for a heart medication, Rythmol, which is licensed to Abbott GmbH & Co. That entity then sub-licensed it to Abbott Laboratories which sub-sub-licensed it to Reliant. The Petrik-Abbott contract prohibited assigment of rights and had an arbitration clause. Petrik and Abbott went to international arbitration while Petrik sued Reliant in Florida federal court. Both Abbott and Reliant moved for a stay, pending the outcome of arbitration.

The Middle District held that a stay was warranted because the claims at issue in this case are inextricably intertwined with, and involve the same operative facts and law as, the Swiss arbitration between Plaintiff and Abbott. The court continued to hold that the international arbitrators were better suited to make determinations under Swiss law (which controlled) and their decision interpreting the Petrik-Abbott contract clearly would affect the Petrik-Reliant claim.

The legal basis for this ruling is set out in narrative form, rather than the typical "test" format but, if we might be so bold as to boil down the elements for a stay of litigation by a non-party pending the outcome of arbitration, it might look something like this:

1. Claim(s) are intertwined with the contract obligations and based on same operative facts and law and are inherently inseparable from claims against a party to the contract; and
2. Non-signatory has potential liability derived from the conduct or potential liability of a signatory.

Then, in determining whether to grant a stay, the court must determine:

3. Whether proceeding with litigation will destroy the signatories' right to a meaningful arbitration.

However, the court still must determine:

4. Whether the outcome of the nonarbitrable claims will depend upon the arbitrator's decision.

These issues have popped up now three times in two years and each time in federal court. Likely, there are some developments and refinements as these fact-driven decisions come down in the future.

Full post as published by Florida Arbitration Law on January 16, 2008 (boomark / email).