Reinsurance Focus

In Katz v. Cellco Partnership, the United States Court of Appeals for the Second Circuit confronted the question of “whether district courts retain the discretion to dismiss an action after all claims have been referred proceedings,” or should stay the litigation. Acknowledging a split in the circuits, the court, in the context of an order compelling arbitration under the Federal Arbitration Act answered, “stay.”

Katz sued Cellco (better known as Verizon) on behalf of a putative class of Verizon subscribers. Katz’s contract with Verizon contained an arbitration clause that required arbitration under the FAA. Verizon moved to compel arbitration and stay the proceedings. Katz sought to void the arbitration provision on constitutional grounds. The district court (1) rejected Katz’s constitutional argument; (2) granted Verizon’s motion to compel arbitration; and (3) having compelled arbitration, dismissed Katz’s claims. The sole issue addressed by the Second Circuit was whether the case should have been dismissed or stayed.

The Second Circuit outlined the divide among federal circuit courts on the stay versus dismiss question. The federal courts of appeals requiring a stay include the Third, Seventh, and Tenth Circuits; those allowing dismissal include the First, Fifth, and Ninth Circuits; the Fourth Circuit remains uncommitted. The Second Circuit then analyzed the question in the light of the Act’s language, which states that if a suit is “referable to arbitration,” the court “shall … stay the trial of the action until such arbitration has been had….” That language, along with the Act’s underlying policy, makes a stay mandatory. Thus, the Second Circuit joined the circuit’s ruling in favor of a stay over dismissal. Katz v. Cellco Partnership, No. 14-138 (2d Cir. July 28, 2015).

This post written by John A. Camp.

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