Decision Alert: Supreme Court Unanimously Holds Courts Must Stay Suits Sent to Arbitration

On May 16, 2024, the Supreme Court unanimously held in Smith v. Spizzirri that when a court finds that a lawsuit involves an arbitrable dispute and a party requests a stay, 9 U.S.C. § 3 of the Federal Arbitration Act (“FAA”) compels the court to issue a stay and the court lacks discretion to dismiss the suit. Justice Sotomayor authored the opinion.

In Spizzirri, delivery driver Wendy Smith and others sued Intelliserve in Arizona state court. They alleged that the company violated employment laws by misclassifying them as independent contractors, thereby failing to pay them minimum and overtime wages and to provide paid sick leave. Intelliserve removed the case to federal court, before moving to compel arbitration and dismiss the case. The parties agreed that all claims were subject to mandatory arbitration, but disagreed on whether the district court had to impose a stay of the court case during the arbitration. The district court dismissed the action without prejudice, the Ninth Circuit affirmed, and the Supreme Court reversed.

The Court’s decision noted that the statutory text, structure, and purpose all support Smith’s position that a court must issue the stay upon request. The FAA states that when any issue in a suit 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.” The Court held that the statute’s use of the word “shall” creates an obligation preventing the court from dismissing the suit. The Court further reasoned that its decision was supported by the FAA’s appealability provisions. An order compelling arbitration is ordinarily not immediately appealable, yet if a suit subject to arbitration could be dismissed, a dismissal would trigger the right to an immediate appeal.

Additionally, staying a suit and keeping it on the court’s docket allows courts with proper jurisdiction to assist parties in arbitration. For example, the FAA provides mechanisms for appointing arbitrators, enforcing subpoenas, and facilitating recovery—all of which would be lost if the suit were dismissed. Similarly, by staying the case instead of dismissing, the parties can readily return to court if arbitration breaks down or fails to resolve the dispute.

Takeaway

• If a motion to compel arbitration is granted, the court cannot dismiss the action if a party asks for a stay.

For more information, please contact Chantel Febus, James Azadian, Cory Webster, Christopher Sakauye, Monika Harris, Puja Valera, or A. Joseph Duffy, IV.