FAA Require Courts to Stay, Not Dismiss, Cases under Section 3, Pending Arbitration
Smith v. Spizzirri, 601 U.S. 472, 144 S. Ct. 1173 (2024)
In a significant decision impacting arbitration procedures under federal law, the U.S. Supreme Court recently clarified the obligations of federal courts when a party seeks to enforce an arbitration agreement. In Smith v. Spizzirri, 601 U.S. 472 (2024), the Court addressed a key procedural question under Section 3 of the Federal Arbitration Act (FAA): whether courts have the discretion to dismiss a case once arbitration has been ordered. The Court’s unanimous ruling provides clarity on a circuit split and reaffirms the statute’s plain language and legislative purpose.
The Smith case follows a line of SCOTUS decisions holding that various FAA provisions preempt state court laws regulating arbitration. For an interesting and comprehensive discussion of the issue see State Courts and the Federalization of Arbitration Law, 134 Harv. L. Rev. 1184 (2021)
https://harvardlawreview.org/print/vol-134/state-courts-and-the-federalization-of-arbitration-law/
“The United States Supreme Court determined that courts do not have discretion to dismiss a case instead of issuing a stay, once they have determined that the dispute is subject to arbitration and a party has requested a stay under § 3 of the Federal Arbitration Act (FAA). The petitioners, delivery drivers employed by respondents, sued the respondents in Arizona. Petitioners alleged that the respondents misclassified them as independent contractors, failed to pay required minimum and overtime wages, and failed to provide paid sick leave. The respondents removed the case to federal court and moved to compel arbitration and dismiss the case. Although the plaintiffs agreed to arbitration, they argued that FAA § 3 requires courts to stay cases pending arbitration, not dismiss them. The district court compelled arbitration and dismissed the case without prejudice, and the Ninth Circuit affirmed. The Supreme Court granted certiorari to resolve a split among the circuits on this issue.
The Supreme Court unanimously agreed with the petitioners and held that under the FAA, when a party requests a stay pending arbitration, the district court must stay the case and does not have the discretion to dismiss it. The opinion by Justice Sotomayor emphasized the plain language of FAA § 3, concluding that “shall” imposes a mandatory obligation, and “stay” means to suspend legal proceedings, not end them. The Court further reasoned that this interpretation aligns with the FAA's structure and purpose, which aims to facilitate quick arbitration without allowing immediate appeals from orders compelling arbitration. The Court stated that dismissing a case would subvert this purpose by triggering the right to an immediate appeal, contrary to congress's intent.”
Read the full case here: https://www.supremecourt.gov/opinions/23pdf/22-1218_5357.pdf