Posts Tagged ‘Stay Pending Arbitration’

When Arbitration-Fee Nonpayment Derails the Process: Tenth Circuit says the Default Lifts the Section 3 Stay, Allowing Litigation to Proceed | Myers v. Papa Texas, LLC, ___ F.4th ___, No. 25-2020, slip op. (10th Cir. Feb. 12, 2026)

February 18th, 2026 Arbitration Fees, Arbitration Law, Arbitration Practice and Procedure, Default in Proceeding with Arbitration, FAA Chapter 1, FAA Section 3, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Section 3 Default, Stay of Litigation, Stay of Litigation Pending Arbitration, Uncategorized, United States Court of Appeals for the Tenth Circuit, Waiver of Arbitration No Comments »

Introduction: a Section 3 Default in Case Where Arbitration Proponent Failed to Pay Arbitration Fees 

Default Under FAA Section 3 in Nonpayment of Arbitration Fees CaseDefault in the FAA Section 3 context is not limited to litigation conduct that establishes waiver of arbitration. In Myers v. Papa Texas, LLC, ___ F.4th ___, No. 25-2020, slip op. (10th Cir. Feb. 12, 2026) the U.S. Court of Appeals for the 10th Circuit made three key points about Section 3 default in a nonpayment of fees case:

  1. A party that fails to pay required arbitration fees and thereby causes the arbitration administrator (here, the American Arbitration Association (the “AAA”) to close the case risks being found “in default in proceeding with such arbitration” under FAA § 3, allowing the district court to lift an the stay of litigation and resume the litigation.
  2. In the Tenth Circuit, the “default” inquiry under § 3 is not the same thing as waiver-by-litigation (the usual “did you litigate too much before seeking arbitration?” question). A party can avoid waiver-by-litigation and still default in arbitration by not performing the steps needed to arbitrate, especially payment of arbitration fees.
  3. If you want arbitration, you must be prepared to fund it, comply with the forum’s rules, and build a record showing any inability to pay or good-faith efforts to make arrangements.

What Happened

Luke Myers brought an action against his employer, Papa Texas, LLC, in federal district court. Papa Texas obtained a stay pending arbitration under FAA § 3, and the case moved toward arbitration administered by the AAA.

But arbitration is not free, particularly for business entity defendants. It runs on process—and fees, which (all too often) can be quite substantial.

The AAA demanded payment. Papa Texas did not tender it. After repeated notices and extensions, AAA closed the arbitration for nonpayment—what would one expect? Myers understandably wanted to proceed to litigation and so he asked the Court to lift the stay. Why? Because, said Myers, Papa Texas had “default[ed] in proceeding with arbitration” within the meaning of Section 3.

The district court agreed and lifted the stay. Papa Texas appealed and the Tenth Circuit affirmed.

What Arbitration-Law Issues did the Tenth Circuit Principally Address?

Myers resolved two closely-related and important FAA issues:

  1. What “default in proceeding with such arbitration” means under FAA § 3 when arbitration is derailed by nonpayment; and
  2. Whether and to what extent that § 3 “default” inquiry differs from waiver-by-litigation-conduct, especially after the U.S. Supreme Court’s instruction that courts must avoid arbitration-specific procedural rules? See Morgan v. Sundance, 596 U.S. 411, 414, 419 (2022).

Discussion

 

FAA § 3: “Default in Proceeding with such Arbitration” is a Real, Independent Off-Ramp for Arbitration Opponents

Most FAA practitioners instinctively think about waiver when a party engages in litigation conduct that is materially inconsistent with their agreement to arbitrate. But FAA § 3 contains specific limiting language that contemplates waiver not only by litigation conduct but other kinds of “default:” a court “shall…stay the trial…until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” 9 U.S.C. § 3.

That last clause is not window dressing or surplusage. The Tenth Circuit treated it as an independent basis to terminate a previously ordered stay and to allow the litigation to proceed. (For more on Section 3 default, see here , here, and here.)

Default is not Limited to “Waiver by Litigation”

Papa Texas tried to reframe the § 3 default question as if it were the familiar waiver framework: multi-factor tests, litigation conduct, and (prior to Morgan) prejudice. But the Tenth Circuit rejected this category error. Default in arbitration is about whether the party who asked the court to halt litigation and send the dispute to arbitration proceeded with arbitration in a manner consistent with the agreement and the forum’s requirements.

Put differently, a party can “win” the waiver-by-litigation fight but still “lose” under § 3 if it does not move the arbitration forward as required by the agreement and applicable arbitration rules.

Nonpayment that Causes the Administrator to Close the File is Compelling Evidence of Default

The panel relied heavily on practical reality: the AAA closed the case because Papa Texas didn’t pay—despite repeated warnings.

The employer tried to blunt that with alternative glosses (including arguments drawn from other circuits’ approaches and attempts to import broader “totality of the circumstances” standards). But the court viewed the facts as straightforward:

  1. The arbitration forum demanded payment;
  2. The payment obligation was clearly communicated;
  3. The AAA granted extensions;
  4. Nonpayment persisted; and
  5. The forum closed the case.

That sequence supported the district court’s conclusion that the party seeking arbitration had defaulted in proceeding with arbitration.

Ability to Pay can Matter—But You Must Prove it

 A notable aspect of the Tenth Circuit’s analysis is what it emphasized as missing: evidence that Papa Texas could not afford the fees or tried to make alternative arrangements.

That matters for two reasons.

First, courts are understandably reluctant to let a party weaponize arbitration costs—especially when the party invoked arbitration to stop litigation—and then refuse to pay, leaving the opposing party with nowhere to go. That’s the kind of “heads, I win, tails you lose” tactic that waiver or default doctrine abhors. Cf. Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) (party opposing waiver “wanted to play heads I win, tails you lose”).

Second, a genuine inability to pay, documented contemporaneously, could change the equities and sometimes the analysis. But the Tenth Circuit found no record support for that kind of inability here.

The Court Resisted “Arbitration-Specific” Procedural Requirements Without Weakening § 3’s Default Clause

Papa Texas attempted to draw energy from the Supreme Court’s insistence that courts not craft arbitration-specific procedural rules. The panel did not disagree with that principle. Instead, it treated § 3’s default clause as plain statutory text: if you’re the one who asked for the stay, you must not be in default while arbitration is pending.

That framing is doctrinally important. It positions § 3 default as a text-based limit on the stay remedy—not a court-made, arbitration-hostile overlay.

Seen through that lens, Section 3 is not a special judge-made  procedural rule favoring arbitration agreements over other contracts. If anything, it is an FAA procedural rule that neither favors nor disfavors arbitration and simply prescribes the circumstances under which a stay is either unavailable in the first place or subject to early termination.

The Default Argument was not Waived

Papa Texas also tried a different tack: even if nonpayment could support § 3 default, Myers supposedly waived the default argument by not emphasizing it when Papa Texas first sought the stay. According to Papa Texas, Myers waived the default argument by intentionally opting not to make at the first available opportunity.

The Tenth Circuit affirmed the district court’s rejection of that contention, finding that the district court did not abuse its discretion. The Court said that the district court “was well within its discretion to conclude that nothing about Myer’s counsel’s explanation [for having earlier argued waiver rather than default], or Myer’s behavior before raising the default argument[]” evidenced an intentional relinquishment of the default argument. Slip op. at 18.

Practice Considerations for Arbitration Proponents and Arbitration Opponents

 

Arbitration Proponents

If you prefer to arbitrate, budget for it and document any inability to pay.

  1. Assume the court will expect the party who demanded arbitration to pay its share of arbitration fees promptly.
  2. If you cannot, create a record: declare the inability, propose structured payment, request fee relief if the rules permit it, and document pertinent communications.
  3. Do not let the administrator close the case and then argue later that you still want arbitration.

Arbitration Opponents

If the other side doesn’t pay, move fast. If your opponent is stalling arbitration by nonpayment:

  1. Request administrator enforcement (warnings, deadlines, and closure).
  2. Return to court and seek an order lifting the stay under FAA § 3 once default is clear.
  3. Preserve the record: notices, invoices, extensions, closure and other communications.

Conclusion

Myers is a clean, practitioner-facing reminder that arbitration is not self-executing. The FAA favors arbitration, but it does not require courts to keep cases on pause while the party who demanded arbitration refuses to do what the arbitration agreement requires.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094. PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

SmartSky: Fourth Circuit Says No Jurisdictional Anchor Post Badgerow

March 23rd, 2024 Application to Compel Arbitration, Application to Confirm, Application to Stay Litigation, Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Award Confirmed, Confirmation of Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Diversity Jurisdiction, Enforcing Arbitration Agreements, FAA Chapter 1, FAA Chapter 2, FAA Section 10, FAA Section 11, FAA Section 3, FAA Section 4, FAA Section 9, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 207, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Motion to Compel Arbitration, New York Convention, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Modify Award, Petition to Vacate Award, Section 10, Section 11, Section 6, Section 9, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Court of Appeals for the Fourth Circuit 4 Comments »

SmartSky

 

Introduction

This post discusses the U.S. Court of Appeals for the Fourth Circuit’s recent decision in SmartSky Networks, LLC v. DAG Wireless, Ltd., ___ F.4th ___, No. 22-1253, slip op. (4th Cir. Feb. 13, 2024). SmartSky held that, under Badgerow v. Walters, 596 U.S. 1, 142 S. Ct. 1310 (2022), if a party makes a motion to confirm, vacate, or modify an award in an action over which the Court has federal-question subject matter jurisdiction, then it must nevertheless demonstrate that the Court would have had subject matter jurisdiction had the motion been brought as a standalone petition to confirm, vacate, or modify. That is so even if the Court has under Federal Arbitration Act (“FAA”) Section 3 stayed the action pending arbitration.

Suppose:

  1. A and B, both New York citizens, entered a contract containing an arbitration agreement;
  2. A and B become embroiled in a dispute that is governed by a federal statute;
  3. A sues B in federal court, properly invoking the federal court’s federal- question jurisdiction, 28 U.S.C. § 1331;
  4. B demands arbitration, and moves to compel arbitration under Section 4 and for a stay of litigation pending arbitration under Section 3;
  5. A unsuccessfully opposes the motion, the Court compels arbitration and grants a Section 3 stay of litigation pending arbitration.
  6. B ultimately obtains a $100,000 (exclusive of costs and interest) award in its favor and moves in the stayed action to confirm the award.
  7. A opposes the motion on the ground the court has no subject matter jurisdiction to confirm the award.

SmartSky would require the Court to dismiss A’s motion for lack of subject matter jurisdiction, even though A made the motion in an action over which the Court had subject matter jurisdiction, the Court had compelled the arbitration that resulted in the award, and the Court had stayed the action pending arbitration under Section 3.  There is no federal-question jurisdiction, and because both A and B are citizens of New York, no diversity jurisdiction.

According to SmartSky, the dismissal of the motion to confirm would be required by Badgerow.

Badgerow 

In Badgerow the Supreme Court of the United States (“SCOTUS”) held that a basis for subject-matter jurisdiction—independent from the FAA itself—must appear on the face of a standalone, petition to confirm or vacate an arbitration award and that independent basis cannot be established by “looking through” to the underlying arbitration proceeding that resulted in the award. See Badgerow, 142 S. Ct. at 1314, 1320.

Simply petitioning a court for relief under Sections 9, 10, 0r 11 of the Federal Arbitration Act (“FAA”) raises no federal question and does not confer on a court federal-question subject-matter jurisdiction, as strange as that might sound to the uninitiated. In the absence of a federal question appearing on the face of the freestanding petition—such as a claim for relief falling under Chapter Two of the FAA, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), see 9 U.S.C. §§ 202, 203; 28 U.S.C. § 1331, or one falling under Chapter Three, which implements or Inter-American Convention on International Commercial Arbitration (the “Inter-American Convention”), see 9 U.S.C. §§ 301, et seq.; 28 U.S.C. § 1331—the only possible basis for federal subject-matter jurisdiction over such a standalone petition is diversity of citizenship. See 28 U.S.C. § 1332(a).

If there is no diversity jurisdiction, and if the action does not concern an award falling under the New York or Inter-American Conventions, then the substantive provisions of Chapter One still apply but enforcement must be sought in state court. See Vaden v. Discover Bank, 556 U.S. 49, 59 (2009) (“Given the substantive supremacy of the FAA, but the Act’s nonjurisdictional cast, state courts have a prominent role to play as enforcers of agreements to arbitrate”).

A “Jurisdictional Anchor” Post-Badgerow?

The author explained in a recent Arbitration Law Forum post—Philip J. Loree Jr., Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards, Arbitration Law Forum (Nov. 13, 2023) (the “Jurisdictional Anchor Post”)— that Badgerow leaves unanswered an important question. It arises when—in a preexisting action over which the Court already has federal-question subject matter jurisdiction—a Court grants a motion made under Sections 4 and 3 of the FAA to compel arbitration and stay litigation, and a party subsequently moves in the same, stayed action to confirm, vacate, or modify an award resulting from the compelled arbitration. Does the Court in the stayed action have continuing subject matter jurisdiction to hear the parties’ motions to confirm or vacate the award, even though there is no independent basis for federal question or diversity jurisdiction? Can the existing but stayed federal-question lawsuit provide a “jurisdictional anchor” for the motions to confirm or vacate even though the Court would not, under Badgerow, have subject matter jurisdiction over those motions if either were brought as an independent, freestanding petition to confirm or vacate an award?

SmartSky, as we’ve seen, says the answer to those questions is no: the parties moving to confirm or vacate must establish an independent basis for subject matter jurisdiction even when the motion is brought in a pre-existing but stayed lawsuit over which the Court undisputedly had federal question  jurisdiction.

SmartSky has flatly rejected the “jurisdictional anchor” theory (a/k/a “anchor jurisdiction”), under which the answer would be yes: the parties do not have to establish an independent basis for subject matter jurisdiction because they are filing their motions in a preexisting  stayed action over which the Court has subject matter jurisdiction.

SmartSky Caused a Circuit Split Concerning the Viability of Anchor Jurisdiction 

SmartSky‘s conclusion directly conflicts with the only other post-Badgerow U.S. Circuit Court of Appeals decision to address anchor jurisdiction, Kinsella v. Baker Hughes Oilfield Operations, LLC, 66 F.4th 1099 (7th Cir. 2023). If we count pre-Badgerow cases, SmartSky also conflict with the pro-anchor-jurisdiction holdings of the Second, Fifth, Eighth, Ninth, Tenth, and Eleventh Circuits. Dodson Int’l Parts v. Williams Int’l Co., 12 F.4th 1212, 1227-28 (10th Cir. 2021) (citing cases).

SmartSky’s Petition for Rehearing and Rehearing En Banc

Arbitration proponent SmartSky has added to its legal team SCOTUS ace Daniel L. Geyser, Esq., Chair of Haynes and Boone, LLP‘s U.S. Supreme Court Practice,  and, with Mr. Geyser’s assistance, prepared and submitted a very well-written and persuasive Petition for Rehearing and Rehearing En Banc, which among other things, pointed out the Circuit conflicts which SmartSky has created with both pre- and post-Badgerow decisions and explained why SmartSky believes the Fourth Circuit misconstrued Badgerow and failed to adhere to settled subject-matter-jurisdiction principles. SmartSky, No. 22-1253, Dk. 77.

The Petition also pointed out that, even if SmartSky correctly construed Badgerow, there is an independent basis for jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) because two of the parties are foreign citizens, DAG Wireless LTD (“Wireless”) and David D. Gross.

Both of these persons are, according to SmartSky, identified on the face of the petition as Israeli citizens (Wireless was identified as an Israeli company and D. Gross as an Israeli resident).  Smartksy points out that the award therefore falls under the Convention and its enforcement raises a federal question. See 9 U.S.C. §§ 202, 203, & 207; 28 U.S.C. § 1331; 22-1253, Dk. 77 at 13-16.

On March 13, 2024, the Fourth Circuit denied the petition. 22-1253, Dk. 80. That raises the possibility that SmartSky might petition SCOTUS for certiorari, something that wouldn’t surprise the author given that Mr. Geyser has joined its team.  If SmartSky petitions for certiorari, SCOTUS will presumably have to consider whether the current split in the circuits warrants certiorari or whether it should wait until more circuits have ruled on the issue post-Badgerow.  

The author plans to submit to an ADR trade publication an article analyzing and critiquing  SmartSky in some detail. For now, we briefly summarize what transpired in SmartSky and the reasons the Court gave for its ruling. Continue Reading »