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Following a "bright-line" rule recognized by the Tenth Circuit and D.C. Circuit, the United States District Court for the Southern District of Texas held that a party may only seek interlocutory review of a denial to stay litigation pending arbitration when the requested stay was "mandatory" under Section 3 of the Federal Arbitration Act, 9.U.S.C. §3.
In Halliburton Energy Services, Inc. v. NL Industries, Civil Action No. H-05-4160, 2007 WL 268492 (S.D. Tex. Jan. 26, 2007), Halliburton Energy Services, Inc. (Halliburton) sued NL Industries and a series of companies affiliated with Tremont, LLC (collectively, the "Tremont Parties"), asserting cost recovery and contribution claims related to mineral interests. The Tremont Parties requested a stay of litigation pending arbitration under Section 16 of the Federal Arbitration Act, 9 U.S.C. §16, which would apply to claims asserted by non-signatories of an arbitration clause, as well as claims by the signing party, Halliburton. Halliburton objected to the stay of any lawsuit involving claims that were not "referable to arbitration."
The Court sided with Halliburton, finding that the applicable law did not warrant a stay on claims asserted by non-signatories of Halliburton's arbitration agreement. In arriving at this decision, the Court applied a "bright-line approach" employed by the Tenth Circuit and D.C. Circuit, which reasoned that an interlocutory appeal of a denial to stay litigation would only be available if the stay was "mandatory" under Section 3 of the FAA, 9 U.S.C. §3. In re Universal Service Fund Telephone Billing Practice Litigation v. Sprint Communications Co. L.P., 428 F.3d 940 (10th Cir. 2005); DSMC Inc. v. Convera Corp., 349 F.3d 679 (D.C. Cir. 2003).
Under this "bright-line" approach, a stay of the non-signatories' claims was improper. The Tremont Parties failed to demonstrate: (1) that the major operative facts underlying the signatories' claims were identical to those underlying the claims in arbitration; (2) that the signatories' arbitration and litigation claims were "inseparable," and (3) that allowing the litigation to proceed would "substantially" impact the arbitration. Waste Management, Inc. v. Residuous Industrials Multiquam, 372 F.3d 339, 345 (5th Cir. 2004). Since Halliburton's arbitration proceedings would not conflict with its litigation proceedings involving parties not subject to arbitration, the Court refused the Tremont Parties' request to stay all litigation proceedings.
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