In July 1975, Moses H. Cone Memorial Hospital, located in Greensboro, North Carolina, entered into a contract with Mercury Construction Corporation, whose principal place of business is in Alabama, for the construction of additions to the Hospital building. The contract included a broad arbitration clause requiring that all claims, disputes, and other matters arising out of or relating to the contract or its breach be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. Construction began in July 1975 and was substantially completed in February 1979.
At an October 1977 meeting during construction, Mercury agreed at the Architect's request to withhold its claims for delay and impact costs until the work was substantially completed. In January 1980, Mercury submitted its claims to the Architect, and the parties discussed them over several months. On August 12, 1980, Mercury gave a detailed presentation of its claims at a meeting attended by representatives and lawyers for both parties and the Architect. On October 6, 1980, the Hospital's counsel informed Mercury's counsel that the Hospital would pay nothing on the claim and intended to file a declaratory judgment action in North Carolina state court.
On October 8, 1980, the Hospital filed an action in the Superior Court of Guilford County, North Carolina, naming Mercury and the Architect as defendants. The complaint sought a declaration that there was no right to arbitration, a stay of arbitration, and declarations regarding the Hospital's liability and potential indemnity from the Architect. The complaint was served on Mercury on October 9, 1980, the same day Mercury mailed a demand for arbitration. On October 15, 1980, the Hospital obtained an ex parte injunction from the state court forbidding Mercury from taking steps toward arbitration, which was dissolved on October 27, 1980.
Immediately after the injunction was lifted, Mercury filed an action in the United States District Court for the Middle District of North Carolina, seeking an order compelling arbitration under § 4 of the United States Arbitration Act, 9 U.S.C. § 4. Jurisdiction was based on diversity of citizenship. On the Hospital's motion, the District Court stayed Mercury's federal suit pending resolution of the state-court suit. Mercury sought review by notice of appeal and petition for mandamus. The Court of Appeals for the Fourth Circuit, sitting en banc, held it had appellate jurisdiction under 28 U.S.C. § 1291, reversed the stay order, and remanded with instructions to enter an order to arbitrate. The Supreme Court granted certiorari.