By a 6–3 margin, the justices resolved a complicated construction dispute by ruling that a North Carolina hospital had to arbitrate a claim against the Alabama-based company it had hired to build a new wing, even though it meant that it could not consolidate it with ongoing litigation it had brought in state court against the contractor and architect.

Justice William Brennan wrote for the majority that a district court's stay of the contractor's petition to compel arbitration was an "abuse of discretion".

It had not properly applied the Court's prior ruling in Colorado River Water Conservation District v. United States.

William Rehnquist's dissent, joined by Chief Justice Warren E. Burger and Sandra Day O'Connor, accused the majority of misreading the case in order to get the contractor into arbitration.

Those holdings have been challenged, even by some other justices, as fundamentally at odds with the language and legislative history of the FAA, even as the Court has continued to expand its scope since then.

The contract, drafted by the hospital's attorneys, vested most dispute resolution authority, relating to aesthetic matters, in the project's architect, J.N.

Pease Associates of Charlotte, with the opportunity to go to arbitration if the architect did not rule on the dispute within ten days of the evidence being presented, or if they disagreed with its decision.

The hospital contended later it was unaware of these negotiations until April of that year, and that the architect exceeded its contractual powers by delaying and allowing the claims to be presented after completion.

The hospital asked that the copies be mailed to its expert, who was unable to attend the meeting due to a scheduling conflict.

Instead, when he called, it was to inform Mercury's lawyer that the hospital did not intend to pay as its expert found that none of the delays were its fault and was filing for a declaratory judgment in North Carolina state court to the effect that it did not have to arbitrate and owed Mercury nothing (and that even if it did, the architect would owe the hospital the judgment).

The hospital filed the next morning in Guilford County Superior Court, naming Mercury and the architect as defendants, charging negligence and breach of contract, but not alleging a conspiracy between the two.

A week later, the hospital filed ex parte in state court for an injunction, which it received, barring Mercury from proceeding with arbitration.

[1] Judge Donald S. Russell wrote for a majority of seven that Mercury was entitled to its arbitration order based on a variety of precedents.

They pointed out that existing case law in other circuits had required that state courts rule on the arbitrability of issues under dispute.

"The action of the district court is nothing more nor less than the exercising of control of its own docket, in which matter it should be allowed rather wide latitude instead of being strictly circumscribed as the majority would have it", Widener wrote.

It seemed a more reasonable conclusion to Widener that the hospital, distrusting both its architect and contractor, had decided it was better to have all the parties in one forum.

After the 1981 term had intervened, it heard oral arguments on the abstention, appealability and arbitrability questions in November 1982.

Mercury had brought its claim beyond the original time frame of five years from the execution of the contract, so the hospital was not bound to arbitrate that.

He reiterated the facts of the case — his client had been asked to withhold its claims until after completion of the project, and the architect had concluded they were entitled to at least some of them.

Colorado River had a federal statute explicitly requiring state courts to hear cases like the one at issue, actual property interests at stake, and the practical problem of multiple defendants over a large area.

"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", Brennan responded.

[6] Applying Colorado River directly, Brennan found "it is clear that there was no showing of the requisite exceptional circumstances to justify the District Court's stay".

"The remaining factors—avoidance of piecemeal litigation, and the order in which jurisdiction was obtained by the concurrent forums—far from supporting the stay, actually counsel against it.

[10] "In its zeal to provide arbitration for a party it thinks deserving," Rehnquist began, "the Court has made an exception to established rules of procedure.

Stays could occur for a number of reasons, he added–a judge may want a short recess, or a longer period in order that the parties could prepare for additional briefs or argument.

He felt it would invite further interlocutory appeals "in cases which the ingenuity of counsel disappointed by a district court's ruling can analogize to this one."

The trial court denied the defense motion to arbitrate the state-law claims, and the Ninth Circuit upheld since the two actions were based on the same set of facts.

On appeal, Thurgood Marshall wrote for a unanimous Court that, as in Cone, Congress's intent to promote arbitration prevailed over the respondent's desire to avoid bifurcated dispute resolution.

[20] The appeals courts have taken the decision as a clarification and extension of the Colorado River doctrine, sometimes referring to it as the Colorado River-Moses Cone doctrine, governing the "exceptional circumstances" under which a federal district court may decline jurisdiction in the face of parallel state litigation.

Co., which held that the validity of contracts themselves was to be determined by the arbitrator in the first instance unless the arbitration clause itself was at issue, the Court had had to resolve a conflict over the statute created in the years since its passage when Erie Railroad Co. v. Tompkins prohibited federal courts from applying federal common law and Guaranty Trust Co. v. York distinguished between procedural and substantive law.