SCOTUS: FAA Statutorily Requires Stay, Not Dismissal, in Cases Headed for Arbitration

When a district court finds that a lawsuit involves an arbitrable dispute, and a party requests a stay pending arbitration, Section 3 of the Federal Arbitration Act compels that court to stay the proceeding rather than dismissing it, said the U.S. Supreme Court’s unanimous opinion Thursday (docket 22-1218) in Smith v. Spizzirri, delivered by Justice Sonia Sotomayor.

The “contrary judgment” of the 9th U.S. Circuit Court of Appeals affirming the district court’s dismissal of a case headed toward arbitration is reversed, and the case is remanded for further proceedings “consistent with this opinion,” said that opinion.

Petitioners Wendy Smith, Michelle Martinez and Kenneth Turner argued that Section 3 of the FAA “unequivocally forecloses” a court’s authority to dismiss rather than stay cases subject to arbitration provisions (see 2404150004). The case was being watched closely to determine whether district courts had discretion under the statute to dismiss when all claims are subject to arbitration.

The petitioners are current and former drivers for an on-demand delivery service who sued over alleged violations of federal and state employment laws. The petitioners conceded that all their claims were arbitrable, but they argued that Section 3 required the district court to stay the action pending arbitration rather than dismissing it entirely. The district court nevertheless issued an order compelling arbitration and dismissing the case without prejudice.

In affirming, while the 9th Circuit acknowledged that the plain text of the FAA appears to mandate a stay, it explained that it was bound by circuit precedent that recognized the district court’s discretion to dismiss. SCOTUS granted the petitioners cert to answer the question it previously left open in its 2000 decision in Green Tree Financial Corp.-Alabama v. Randolph, and to resolve the circuit split.

"If there were any doubt," the FAA’s “structure and purpose” confirm that a stay is required, said the court's opinion Thursday. When a court denies a request for arbitration, the act's Section 16 “authorizes an immediate interlocutory appeal,” it said. By contrast, when a court compels arbitration, Congress made clear that, absent certification of a controlling question of law by the district court, the order compelling arbitration “is not immediately appealable,” it said.

Staying rather than dismissing a suit “comports with the supervisory role that the FAA envisions for the courts,” said the opinion. The FAA “provides mechanisms for courts with proper jurisdiction to assist parties in arbitration,” it said. The courts, for example, can appoint an arbitrator, enforce subpoenas issued by arbitrators to compel testimony or produce evidence and facilitate recovery on an arbitral award, it said.

Keeping the suit on the court’s docket “makes good sense in light of this potential ongoing role,” said the opinion. It avoids costs and complications that might arise “if a party were required to bring a new suit and pay a new filing fee to invoke the FAA’s procedural protections,” it said. District courts “can, of course, adopt practices to minimize any administrative burden caused by the stays” that Section 3 requires, it said.