CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT.
Brennan, J., delivered the opinion of the Court, in which White, Marshall, Blackmun, Powell, and Stevens, JJ., joined. Rehnquist, J., filed a dissenting opinion, in which Burger, C. J., and O'connor, J., joined, post, p. 30.
JUSTICE BRENNAN delivered the opinion of the Court.
This case, commenced as a petition for an order to compel arbitration under § 4 of the United States Arbitration Act of 1925 (Arbitration Act or Act), 9 U. S. C. § 4, presents the question whether, in light of the policies of the Act and of our decisions in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), and Will v. Calvert Fire Insurance Co., 437 U.S. 655 (1978), the District Court for the Middle District of North Carolina properly stayed this diversity action pending resolution of a concurrent state-court suit. The Court of Appeals for the Fourth Circuit reversed the stay. 656 F.2d 933, rehearing denied, 664 F.2d 936 (1981). We granted certiorari. 455 U.S. 937 (1982). We affirm.
Petitioner Moses H. Cone Memorial Hospital (Hospital) is located in Greensboro, N. C. Respondent Mercury Construction Corp. (Mercury), a construction contractor, has its principal place of business in Alabama. In July 1975, Mercury and the Hospital entered into a contract for the construction of additions to the Hospital building. The contract, drafted by representatives of the Hospital, included provisions for resolving disputes arising out of the contract or its breach. All disputes involving interpretation of the contract or performance of the construction work were to be referred in the first instance to J. N. Pease Associates (Architect), an independent architectural firm hired by the Hospital to design and oversee the construction project. With certain
stated exceptions,*fn1 any dispute decided by the Architect (or not decided by it within a stated time) could be submitted by either party to binding arbitration under a broad arbitration clause in the contract:
"All claims, disputes and other matters in question arising out of, or relating to, this Contract or the breach thereof, . . . shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof." App. 29-30.
The contract also specified the time limits for arbitration demands.*fn2
Construction on the project began in July 1975. Performance was to be completed by October 1979.*fn3 In fact, construction was substantially completed in February 1979, and final inspections were made that June.
At a meeting in October 1977 (during construction), attended by representatives of Mercury, the Hospital, and the Architect, Mercury agreed, at the Architect's request, to withhold its claims for delay and impact costs (i. e., claims for extended overhead or increase in construction costs due to delay or inaction by the Hospital) until the work was substantially completed. On this record, the Hospital does not contest the existence of this agreement, although it asserts that the Architect lacked authority to agree to a delay in presentation of claims or to entertain claims after the contract work was completed.
In January 1980, Mercury submitted to the Architect its claims for delay and impact costs. Mercury and the Architect discussed the claims over several months, substantially reducing the amount of the claims. According to the Hospital, it first learned of the existence of Mercury's claims in April 1980; its lawyers assumed active participation in the claim procedure in May. The parties differ in their characterizations of the events of the next few months -- whether there were "ongoing negotiations," or merely an "investigation" by the Hospital. In any event, it appears from the record that lawyers for the Hospital requested additional information concerning Mercury's claims. As a result, on August 12, 1980, Mercury gave a detailed presentation of its claims at a meeting attended by Mercury's representatives and lawyers, the Hospital's representatives and lawyers, and representatives of the Architect. Mercury agreed to send copies of its files to an expert hired by the Hospital, and the parties agreed to meet again on October 13.
On October 6, Mercury's counsel telephoned the Hospital's counsel to confirm that the scheduled meeting would go forward. The Hospital's counsel said he would call back the next day. When he did, he informed Mercury's counsel that the Hospital would pay nothing on Mercury's claim. He also said that the Hospital intended to file a declaratory judgment action in North Carolina state court.
True to its word, the Hospital filed an action on the morning of October 8 in the Superior Court of Guilford County, N. C., naming Mercury and the Architect as defendants. The complaint alleged that Mercury's claim was without factual or legal basis and that it was barred by the statute of limitations. It alleged that Mercury had lost any right to arbitration under the contract due to waiver, laches, estoppel, and failure to make a timely demand for arbitration. The complaint also alleged various delinquencies on the part of the Architect. As relief, the Hospital sought a declaration that there was no right to arbitration; a stay of arbitration; a declaration that the Hospital bore no liability to Mercury; and a declaration that if the Hospital should be found liable in any respect to Mercury, it would be entitled to indemnity from the Architect. The complaint was served on Mercury on October 9. On that same day, Mercury's counsel mailed a demand for arbitration.
On October 15, without notice to Mercury, the Hospital obtained an ex parte injunction from the state court forbidding Mercury to take any steps directed toward arbitration. Mercury objected, and the stay was dissolved on October 27. As soon as the stay was lifted, Mercury filed the present action in the District Court, seeking an order compelling arbitration under § 4 of the Arbitration Act, 9 U. S. C. § 4.*fn4 Jurisdiction was based on diversity of citizenship. On the Hospital's motion, the District Court stayed Mercury's federal-court suit pending resolution of the state-court suit because the two suits involved the identical issue of the arbitrability of Mercury's claims. App. to Pet. for Cert. A-38.
Mercury sought review of the District Court's stay by both a notice of appeal and a petition for mandamus. A panel of the Court of Appeals for the Fourth Circuit heard argument in the case, but before the panel issued any decision, the court informed the parties that it would consider the case en banc. After reargument, the en banc court held that it had appellate jurisdiction over the case under 28 U. S. C. § 1291. It reversed the District Court's stay order and remanded the case to the District Court with instructions for entry of an order to arbitrate.
Before we address the propriety of the District Judge's stay order, we must first decide whether that order was appealable to the Court of Appeals under 28 U. S. C. § 1291.*fn5
Mercury sought appellate review through two alternative routes -- a notice of appeal under § 1291, and a petition for mandamus under the All Writs Act, 28 U. S. C. § 1651.*fn6 Mercury expressly stated that its appeal was based only on § 1291, and not on 28 U. S. C. § 1292 (relating to interlocutory appeals). The Hospital contends that the order appealed from was not a "final [decision]" within § 1291. We
disagree and hold that the stay order was final for purposes of appellate jurisdiction.
Idlewild Liquor Corp. v. Epstein, 370 U.S. 713 (1962), is instructive in this regard. There the plaintiff brought a federal suit challenging the constitutionality of a state statute. The District Judge declined to convene a three-judge court and stayed the federal suit under the Pullman abstention doctrine.*fn7 We held that the District Court's action was final and therefore reviewable by the Court of Appeals, stating:
"The Court of Appeals properly rejected the argument that the order of the District Court 'was not final and hence unappealable under 28 U. S. C. §§ 1291, 1292,' pointing out that '[appellant] was effectively out of court.'" 370 U.S., at 715, n. 2.*fn8
Here, the argument for finality of the District Court's order is even clearer. A district court stay pursuant to Pullman abstention is entered with the expectation that the federal litigation will resume in the event that the plaintiff does not obtain relief in state court on state-law grounds.*fn9 Here, by contrast, the District Court predicated its stay order on its conclusion that the federal and state actions involved "the identical issue of arbitrability of the claims of Mercury Construction Corp. against the Moses H. Cone Memorial Hospital." App. to Pet. for Cert. A-38. That issue of arbitrability was the only substantive issue present in the federal suit. Hence, a stay of the federal suit pending resolution of the state suit meant that there would be no further litigation in the federal forum; the state court's judgment on the issue would be res judicata.*fn10 Thus, here, even more surely than in Idlewild, Mercury was "effectively out of court." Hence, as the Court of Appeals held, this stay order amounts to a dismissal of the suit.*fn11
In any event, if the District Court order were not final for appealability purposes, it would nevertheless be appealable within the exception to the finality rule under Cohen v. Beneficial Loan Corp., 337 U.S. 541 (1949). The factors required to show finality under this exception have been summarized as follows:
"To come within the 'small class' of decisions excepted from the final-judgment rule by Cohen, the order must conclusively determine the disputed question, resolve an important issue completely separate from the merits of the action, and be effectively unreviewable on appeal
from a final judgment." Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978) (footnote omitted).*fn12
There can be no dispute that this order meets the second and third of these criteria. An order that amounts to a refusal to adjudicate the merits plainly presents an important issue separate from the merits.*fn13 For the same reason, this order would be entirely unreviewable if not appealed now. Once the state court decided the issue of arbitrability, the federal court would be bound to honor that determination as res judicata.
The Hospital contends nevertheless that the District Court's stay order did not meet the first of the criteria, namely that it "conclusively determine the disputed question." But this is true only in the technical sense that every order short of a final decree is subject to reopening at the discretion of the district judge.*fn14 In this case, however, there is
no basis to suppose that the District Judge contemplated any reconsideration of his decision to defer to the parallel state-court suit. He surely would not have made that decision in the first instance unless he had expected the state court to resolve all relevant issues adequately. See Part IV-E, infra. It is not clear why the judge chose to stay the case rather than to dismiss it outright; for all that the record shows, there was no reason other than the form of the Hospital's motion. Whatever the reason, however, the practical effect of his order was entirely the same for present purposes, and the order was appealable.
We turn now to the principal issue to be addressed, namely, the propriety of the District Court's decision to stay this federal suit out of deference to the parallel litigation brought in state court. Colorado River Water Conservation District v. United States, 424 ...