On May 16, 2024, the Supreme Court of the United States (“SCOTUS”) unanimously held that when a district court finds that when a lawsuit involves an arbitrable dispute and a party has requested a stay of the court proceeding pending arbitration, the Federal Arbitration Act (“FAA”) compels the court to issue a stay and the court does not have discretion to dismiss the action. Smith v. Spizzirri, 601 U.S. 472 (May 16, 2024) (citing 9 U. S. C. §3).
The FAA sets forth procedures for enforcing arbitration agreements in federal court. Id. SCOTUS has previously stated that by enacting the FAA, Congress declared “a national policy favoring arbitration.” Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). Congress’s intent as it concerns the FAA is “[t]o move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.” Id. at 7.
Section 3 of the FAA, titled “Stay of proceedings where issue therein referable to arbitration,” informs what courts should do when a dispute is subject to arbitration. Section 3 states, the court:
“[S]hall 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.”
9 U.S.C. § 3.
Previously, the circuit courts were split on this issue with a minority of circuits holding that courts have the discretion to dismiss lawsuits with arbitrable claims. Compare Lloyd v. HOVENSA, LLC., 369 F.3d 263, 269 (3d Cir. 2004) (“Here, the plain language of § 3 affords a district court no discretion to dismiss a case where one of the parties applies for a stay pending arbitration.”) with Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992) (“The weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration.”); Sparling v. Hoffman Const. Co., 864 F.2d 635, 637—638 (9th Cir. 1988); Dancu v. Coopers & Lybrand, 778 F.Supp. 832, 835 (E.D. Pa. 1991); Hoffman v. Fidelity and Deposit Co. of Md., 734 F.Supp. 192, 195 (D.N.J. 1990); Sea–Land Service, Inc. v. Sea–Land of P.R., Inc., 636 F.Supp. 750, 757—758 (D.P.R. 1986).
Delivering the opinion of the Court, Justice Sotomayor explained that “statutory text, structure, and purpose” all point to the conclusion that courts should not dismiss the cases while the arbitration is proceeding. Smith v. Spizzirri, 601 U.S. 472, (May 16, 2024). Justice Sotomayor reasoned that “[t]he statute’s use of the word ‘shall’ ‘creates an obligation impervious to judicial discretion.’” Id. Next, reading the word “stay” to include “dismissal” would disregard the long-established legal meaning of the word “stay,” which is, “temporary suspension”. Id. at 477 (citing Black’s Law Dictionary 1109 (2d ed. 1910) (“Stay of proceedings”)). Further, an “attempt to read ‘stay’ to include ‘dismiss’ cannot be squared with the surrounding statutory text, which anticipates that the parties can return to federal court if arbitration breaks down or fails to resolve the dispute.” Id. at 472.
SCOTUS further noted that “Section 16(a)(1)(C) of the FAA authorizes an immediate interlocutory appeal of the denial of an arbitration request. By contrast, Congress made it clear in § 16(b) that, outside of a narrow exception . . . an order compelling arbitration is not immediately appealable.” Id. at 473. Therefore, if a district court could dismiss a lawsuit subject to arbitration even when a party requests a stay, that dismissal would trigger the right to an immediate appeal where Congress sought to forbid such an appeal. Id. This decision is not the most anticipated one of the term, but it brings needed clarity to the lower courts on the correct procedure for staying a case pending arbitration.
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