Shanferoke Coal & Supply Corp. v. Westchester Service Corp.

Background

A Delaware coal supplier sued a New York buyer in federal court, saying the buyer agreed in writing to buy coal in installments for years and then repudiated the contract after accepting some coal. The buyer answered that the agreement contained an arbitration clause, had offered arbitration, and said the supplier refused to arbitrate. The buyer moved to stay the federal lawsuit until arbitration. The District Court denied the stay, viewing the clause as enforceable only in New York state courts, and the Court of Appeals reversed and ordered a stay.

Reasoning

The central question was whether the federal Arbitration Act’s Section 3 lets a federal court stay a lawsuit when the dispute is covered by a written arbitration agreement, even if the contract points to state-court enforcement. The Court said Section 3 authorizes a stay when the issue is referable to arbitration and the party asking for the stay is not in default. The Court treated the stay request as an equitable application and held a federal stay is permissible even if the federal court could not itself compel arbitration under Section 4. The Supreme Court affirmed the Court of Appeals’ grant of a stay.

Real world impact

Businesses with written arbitration agreements can expect federal courts to pause lawsuits and send disputes to arbitration, even when contracts point to state-court enforcement. The decision does not decide whether federal courts can force arbitration under Section 4; stays may be vacated if the arbitration applicant fails to proceed, and courts may vacate stays later if facts change.