Smith v. Spizzirri, 601 U.S. 472 (2024)
Issue Discussed: Whether federal courts, upon finding that a dispute is arbitrable under the FAA may dismiss, as opposed to stay, a legal proceeding?
Submitted by Michele Jacobson, Haley Schlinger
Date Promulgated: May 16, 2024
In Smith v. Spizzirri, the Supreme Court of the United States held that the Federal Arbitration Act (“FAA”) requires federal courts, upon finding that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration pursuant to Section 3 of the FAA, to stay, as opposed to dismiss, the proceeding. By so holding, the Supreme Court resolved a Circuit split.
Petitioners—current and former employees of Respondents, who owned and operated an on-demand delivery service—originally filed suit in Arizona state court asserting violations of federal and state employment laws. Following removal to the United States District Court for the District of Arizona, Respondents moved to compel arbitration under the FAA and to dismiss the suit. While Petitioners conceded that their claims were arbitrable, they argued that Section 3 of the FAA compelled the court to stay the action rather than dismiss it pending arbitration. Respondents countered that the court’s “inherent authority” permitted it to dismiss the suit in its entirety. Despite the plain language of Section 3, which provides that the court “shall . . . stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement,” the district court granted Respondents’ motion to compel arbitration and dismissed the suit. Petitioners appealed to the Ninth Circuit, which affirmed the district court’s ruling while agreeing that its ruling ran contrary to the plain language of the FAA. In a concurring opinion, two of the Judges urged the Supreme Court to grant certiorari to settle the existing split of authority among the Circuit Courts.
The Supreme Court granted certiorari, and in a unanimous opinion authored by Justice Sotomayor, held that federal courts lack discretion to dismiss a suit pending arbitration. The Court reasoned that the FAA’s text, structure, and purpose compelled federal courts to stay a proceeding pending arbitration when a party requested it and the claims were arbitrable.
First, the Court examined the plain language of Section 3. The statute explicitly provides that when a dispute is subject to arbitration, the court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” The Court explained that the use of the word “shall” obliges the court to “stay” the proceeding and rejected Respondents’ argument that a “stay” could be read to allow dismissal, citing the “long-established legal meaning of the word ‘stay’ as a ‘temporary suspension’ of legal proceedings.” The Court then cited its own precedent from Degen v. United States, in which it held that “the inherent powers of the courts may be controlled or overridden by statute or rule,” to further dispel Respondents’ argument.
Next, the Court turned to the FAA’s structure and purpose. In contrast to Section 16(a)(1)(C), which permits an immediate interlocutory appeal upon the denial of a motion to compel arbitration, the Court explained that Section 16(b) does not authorize an immediate appeal of an order compelling arbitration, absent certification of a controlling question of law. The Court noted that this scheme is consistent with the Congressional purpose of enacting the FAA, which aims to transfer arbitrable disputes from the judicial system as promptly and efficiently as possible.
Finally, the Court determined that its holding is in line with the supervisory role the FAA envisioned for the courts in providing that they may appoint arbitrators, enforce subpoenas issued by arbitrators to compel testimony or produce evidence, and facilitate recovery of an arbitral award. Staying a proceeding is logical in view of the court’s potential ongoing role and avoids the further costs that may result from requiring that a party file a new suit under the FAA.
The Court ultimately reversed and remanded the matter for proceedings consistent with its opinion.
