Motion to compel arbitration is not a Get-Out-Of-Discovery-Free card, says NM Court of Appeals

In Weiss v. THI of New Mexico at Valle Norte, LLC, the New Mexico Court of Appeals has held that the mere filing of a motion to compel arbitration does not automatically stay a party’s discovery obligations.

I think the Court’s holding on that point was correct, because otherwise a party would have the ability to unilaterally bring a halt to litigation.  On the other hand, I think the Court’s interpretation of the Uniform Arbitration Act went too far in the other direction, and incorrectly implied that a trial court may only stay discovery if it finds that the motion to compel arbitration should be granted.  Let’s take a look…

The plaintiff filed a wrongful death lawsuit against a nursing home and several of its affiliates, and asked for documents in discovery. Not satisfied with the defendants’ production of documents, the plaintiff persuaded the trial court to enter an order compelling discovery.

The defendants then moved to send the case to arbitration, and argued that their motion automatically stayed the proceedings, thereby excusing them from complying with the discovery order. At a later hearing, the district court disagreed, and imposed $25,000 in sanctions.

On appeal, the defendants argued, among other things, that the New Mexico Uniform Arbitration Act automatically stayed the proceedings upon the filing of a motion to send a case to arbitration.  One section of the Act, NMSA 1978, § 44-7A-8(f), provides that “[i]f a party makes a motion to the court to order arbitration, the court on just terms shall stay any judicial proceeding that involves a claim alleged to be subject to the arbitration until the court renders a final decision under this section.”

As the Court of Appeals correctly recognized, this language does not mean that a stay of proceedings comes about automatically. The phrase “on just terms” implies that a trial court has the ability to define the scope of a stay in order to prevent any possible injustice. Allowing the mere filing of motion to compel to bring the stay into place automatically would be absurd, because it would place a unilateral power to stop litigation into one party’s hands.

But the Court of Appeals went further, saying that “the stay is not triggered automatically but requires the court, ‘on just terms,’ to assess whether the claim is subject to arbitration,” and that “before staying the proceedings, a district court must utilize its reasonable discretion to determine whether the case is arbitrable.” Weiss, ¶ 25.

These statements imply that a trial court may only order a stay under Section 44-7A-8(f) if it finds that the claim is in fact arbitrable, but here I think the Court of Appeals is mistaken. Section 44-7A-8(f) provides that a district court “shall” stay the proceedings “until the court renders a final decision under this section” — i.e. a decision either compelling arbitration or denying the motion to compel.

Section 44-7A-8(f) therefore does not intend to allow a stay of proceedings only when a motion to compel is ultimately granted, but rather requires a stay of proceedings (not automatically, but upon “just terms”) in order to preserve the status quo until the motion to compel arbitration is decided. This makes sense, because plaintiffs sometimes seek burdensome and expensive discovery, and a defendant should not be required to answer that discovery until its motion to compel arbitration has been decided. One of the benefits of arbitration is the streamlined procedures that it provides, and by requiring a defendant to answer discovery while a motion is pending, the defendant will have been deprived of that benefit.  (Of course, I recognize that the defendants in this case did not move to compel arbitration until after the order compelling discovery had already been entered).

My interpretation of Section 44-7A-8(f) also makes sense because the very next provision, Section 44-7A-8(g), provides that “[i]f the court orders arbitration, the court on just terms shall stay any judicial proceeding that involves a claim subject to the arbitration.”  Thus, if Section 44-7A-8(f) really meant that a district court could only order a stay of proceedings once a case is ordered to arbitration, then Section 44-7A-8(g) would be superfluous. It is to be hoped that the Court of Appeals will correct this mistaken dicta on rehearing, or that the Supreme Court will correct it on certiorari.