## Facts

- Moses H. Cone Memorial Hospital (hospital) contracted with Mercury Construction Corp. (contractor) to build additions to the hospital.
- The contract required disputes to be submitted to the architect for initial decision; unresolved disputes could be submitted to binding arbitration under an arbitration clause covered by the Federal Arbitration Act (FAA).
- Mercury asserted claims for increased costs and extended overhead allegedly caused by the hospital’s delay or inaction; the hospital refused to pay.
- The hospital filed a North Carolina state-court declaratory judgment action against Mercury and the architect seeking declarations that arbitration was unavailable, that the hospital had no liability to Mercury, and that any liability would be indemnified by the architect.
- The hospital obtained an ex parte state-court injunction temporarily barring Mercury from pursuing arbitration; the injunction was later dissolved.
- Mercury filed a federal diversity action under FAA § 4 to compel arbitration.
- The federal district court stayed the federal action pending resolution of the state case, reasoning both suits presented the same arbitrability issue.

## Issues

1. Whether the district court’s stay of the federal action pending a parallel state action was immediately appealable under 28 U.S.C. § 1291 (including under the collateral-order doctrine).
2. Whether the stay was permissible under Colorado River abstention principles governing deference to parallel state proceedings.
3. Whether the FAA required the federal court to proceed to decide arbitrability and compel arbitration notwithstanding the ongoing state litigation and potential for piecemeal proceedings.

## Decision

- The Supreme Court affirmed the court of appeals’ reversal of the stay.
- The stay order was appealable because it effectively put Mercury “out of court” on the only substantive federal issue (arbitrability), functioning as a practical dismissal; alternatively, it qualified under the collateral-order doctrine.
- The district court abused its discretion by staying the federal case; the circumstances were not “exceptional” enough to justify surrendering jurisdiction to the state court.
- The federal court was required to proceed under the FAA to determine arbitrability and, if appropriate, compel arbitration; consolidation concerns and parallel state litigation did not justify delaying enforcement of the arbitration agreement.

## Legal Principles

- A stay may be treated as a “final decision” under § 1291 when its practical effect is to end federal-court litigation by deferring the sole substantive issue to state court, leaving the federal plaintiff effectively out of court; such an order may also be appealable under the collateral-order doctrine.
- Federal courts have a “virtually unflagging obligation” to exercise jurisdiction; abstention in favor of parallel state proceedings is permitted only in exceptional circumstances under Colorado River.
- In evaluating Colorado River stays, courts consider factors including forum inconvenience, piecemeal litigation, comparative progress of the cases, the source of governing law, and the adequacy of the state forum; the balance is heavily weighted toward exercising federal jurisdiction.
- The FAA embodies a liberal federal policy favoring arbitration; doubts about the scope of arbitrable issues, including defenses such as waiver or delay, are resolved in favor of arbitration.
- The FAA requires enforcement of arbitration agreements even if it results in piecemeal resolution and prevents consolidation of related disputes involving non-signatories.

## Conclusion

The Court held that a stay deferring a federal FAA action to a parallel state suit was immediately appealable and improper absent exceptional Colorado River circumstances, and it required the federal court to proceed to enforce the arbitration agreement under the FAA.


Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)