In granting a motion to stay litigation pending the arbitration of a case, an Illinois federal district court held that according to Seventh Circuit precedent, section three of the Federal Arbitration Act (FAA) requires courts to issue a stay pending the outcome of arbitration instead of ordering an outright dismissal of the case for improper venue.

In General Electric Co. v. Guiney Delivery Service, Inc., No. 08-CV-1618, 2008 WL 4790391 (N.D. Ill. Oct. 23, 2008), General Electric (GE) and Guiney Delivery Service (Guiney) entered into a contract that contained an arbitration agreement. GE later sued Guiney for breach of contract, and Guiney moved to dismiss, transfer venue, or stay the litigation pending arbitration.

In its motion, Guiney argued that dismissal was the most appropriate remedy because GE sued in an improper venue. GE argued that section three of the FAA required the Court to stay the litigation, rather than dismiss it.

The Court agreed with GE and stayed the case pending the outcome of arbitration. First, the Court cited the plain language of FAA section three to support its holding. Section three, titled "Stay of proceedings where issue therein referable to arbitration," states that if a suit is governed by a valid arbitration agreement, the court "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 agreement."

Furthermore, citing Volkswagen of America, Inc. v. Sud's of Peoria, Inc., 474 F.3d 966 (7th Cir. 2007) and other Seventh Circuit cases, the Court held that "the Seventh Circuit has held that the FAA requires a mandatory stay of district court proceedings until arbitration is complete."

Guiney argued that several courts in the Seventh Circuit have dismissed similar arbitration cases under Rule 12(b)(3) of the Federal Rules of Civil Procedure. The Court rejected Guiney's argument, however, holding that in those cases, neither party asked the court to stay the proceedings pursuant to FAA section three. In this case, GE requested that the matter be stayed pending arbitration, so the Court granted GE's motion to stay and denied Guiney's motion to dismiss.