On May 16, 2024, the U.S. Supreme Court unanimously held that district courts must stay cases that they refer to arbitration, rather than dismissing those cases. Smith v. Spizzirri, No. 22-1218, 2024 WL 2193872 (U.S. May 16, 2024). The Court’s decision resolved a Circuit split over the issue, emphasizing that the goal of the Federal Arbitration Act (FAA), “to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible,” was best served by a mandatory stay. Such stays, unlike dismissals, are not subject to immediate appeal, allowing the parties to proceed to arbitration without costly and time-consuming appeals in U.S. courts.
Background
This case stems from a suit by a group of current and former delivery drivers (Drivers) against their employer, IntelliQuick and its president, Keith Spizzirri (Employers), alleging violations of federal and state employment laws. The Drivers initially filed suit in state court, but the Employers removed the dispute to federal court and requested that the federal district court refer the Drivers’ claims to arbitration. The Drivers did not object to arbitration. They argued, however, that the FAA required the district court to stay the action pending arbitration, rather than dismissing it. At the center of the parties’ dispute lay Section 3 of the FAA, which provides that when an issue in a suit is subject to arbitration, a court “shall on application of one of the parties stay the trial of the action until such arbitration has been had . . .” 9 U.S.C. §3 (emphasis added). According to the Employers, Section 3 of the FAA required only that courts halt parallel litigation, which the court could achieve either through a stay or dismissal. By contrast, the Drivers argued that the FAA’s language required the court to stay proceedings, with no discretion to dismiss the action pending arbitration.
Siding with the Employers, the United States District Court for the District of Arizona issued an order compelling arbitration and dismissed the case. The court noted that although the text of Section 3 of the FAA requires a stay, controlling precedent from the Court of Appeals for the Ninth Circuit indicated that courts had discretion to either stay or dismiss the action if all of the claims raised in the case were subject to arbitration. See Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1074 (9th Cir. 2014).
The Drivers then appealed the dismissal to the Ninth Circuit which affirmed the District Court’s holding. In rendering its decision, the Ninth Circuit acknowledged that its conclusion was contrary to the text of Section 3 of the FAA and the decisions of other Courts of Appeal but explained that it was bound by its earlier interpretation of Section 3, with two judges writing separately to urge the Supreme Court to resolve the Circuit split. The Supreme Court granted certiorari to answer the question of whether Section 3 of the FAA requires courts to stay a lawsuit pending arbitration, or whether courts have discretion to dismiss the proceedings.
The Supreme Court’s Decision
In a unanimous decision authored by Justice Sonia Sotomayor, the Court held that Section 3 of the FAA mandates district courts to stay proceedings that they refer to arbitration, leaving the courts with no discretion to dismiss those suits until arbitration has concluded. In a succinct six-page opinion, the Justices found that the statutory text, structure, and purpose of the FAA all clearly required a stay.
The Court dismissed arguments by the Employers that the district courts have the discretion to stay or dismiss suits that they refer to arbitration. Quoting its 1998 opinion in Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35 (1998), the Court wrote that “[t]he statute’s use of the word ‘shall’ ‘creates an obligation impervious to judicial discretion,’” highlighting the mandatory nature of the obligation to stay proceedings. Likewise, the Court noted that “[j]ust as ‘shall’ means ‘shall,’ ‘stay’ means ‘stay,’” referencing the “long-established” legal meaning of “stay” which requires a “temporary suspension of legal proceedings,” not a “conclusive termination.”
In addition to the plain language of the statute, the Court held that the “FAA’s structure and purpose confirm that a stay is required.” In Section 16 of the FAA, Congress explicitly stated that when a court denies a motion to compel arbitration, the parties have an immediate right to interlocutory appeal. By contrast, when the court compels arbitration, the FAA does not provide for interlocutory appeal. The Court noted that this deliberate choice is consistent with the broad aims of the FAA to move litigants with arbitrable claims out of district courts and into arbitration as “quickly and easily as possible.” Allowing discretionary dismissal would be contrary to these aims because dismissal triggers a right to an immediate appeal of the decision to compel arbitration.
The Court also recognized that their decision “comports with the supervisory role that the FAA envisions for the courts,” under which litigants sent to arbitration may petition the courts for assistance in appointing an arbitrator, enforcing subpoenas, or facilitating the recovery of arbitral awards. By staying proceedings but keeping the litigation on the courts’ docket, litigants and courts can avoid the “costs and complications” of bringing new litigation when in need of the courts’ assistance in arbitration. In response to the Employers’ argument that litigants could simply initiate a new suit if needed, the Justices expressed concerns during oral argument regarding the burden of initiating new lawsuits and observing statutes of limitations.
Key Takeaways
- This case continues the Supreme Court’s pro-arbitration jurisprudence and is a win for parties seeking to compel arbitration of cases wrongly brought in court. By confirming that Section 3 of the FAA requires that district courts stay suits that are referred to arbitration, the Court has ensured that a district court’s ruling ordering a stay is not subject to an immediate appeal. This means that once a district court finds that a dispute should be arbitrated, the case may swiftly move out of court and into arbitration without being disrupted by a costly and time-consuming appeal.
- The decision also affirms the district courts’ supervisory role in arbitrations. By requiring that district courts stay, rather than dismiss, cases that are referred to arbitration, the opinion ensures that the parties to such suits can seek the district courts’ assistance with matters such as the enforcement of arbitral subpoenas and awards without the delay and costs of initiating a new lawsuit or concerns that their claims may be barred by the applicable statute of limitations.
