On May 16, 2024, the U.S. Supreme Court unanimously held that where a district court is presented with a motion to stay and/or dismiss on the basis of an arbitration agreement, the plain language of the Federal Arbitration Act (“FAA”) compels the court to issue a stay. A district court has no discretion to dismiss the lawsuit. The Court’s opinion in Wendy Smith, et al. v. Keith Spizzirri, et al. (No. 22–1218) delivered by Justice Sotomayer resolves a longstanding split in the U.S. Circuit Courts of Appeal as discussed in a prior Legal Alert last January.
The Case Below
The case arose from an Arizona state court when delivery drivers (“Petitioners”) sued their employers, an on-demand delivery service, and related companies (“Respondents”), for violations of federal and state employment laws.1 After removal to federal court, Respondents moved to compel arbitration and dismiss the lawsuit in light of an arbitration agreement.2
Petitioners agreed that their claims were arbitrable, but argued that the plain language of the FAA required the district court to stay the lawsuit pending arbitration rather than dismiss it.3 The U.S. District Court of Arizona dismissed the lawsuit and compelled arbitration.4 Petitioners appealed.5 The Ninth Circuit affirmed.6
In affirming, the Ninth Circuit framed the only question before it as, “whether the [FAA] requires a district court to stay a lawsuit pending arbitration, or whether a district court has discretion to dismiss when all claims are subject to arbitration.”7 The Court examined the split in authority within the U.S. Circuit Courts of Appeal and acknowledged that its decision on the issue aligns with the minority approach, which allows district courts the discretion to dismiss lawsuits in the face of arbitration agreements rather than stay lawsuits pending arbitration.8 The Ninth Circuit is joined by the First, Fifth, and Eighth Circuit Courts of Appeal.9 The Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuit Courts of Appeal permit district courts to only stay a case in the face of a valid arbitration agreement.10
The SCOTUS Opinion
In resolving the circuit split the U.S. Supreme Court focused on the use of the word “shall” in Section 3 of the FAA and its interpretation of “shall” in prior opinions:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, 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.11
The Court wrote, “Here, as in other contexts, the use of the word ‘shall’ creates an obligation impervious to judicial discretion.”12 The Court further explained, “the use of ‘shall’ in neighboring sections of the FAA created a mandatory obligation that left ‘no place for the exercise of discretion by a district court.’”13
The Court rejected Respondents’ argument that notwithstanding the FAA’s language, district courts retained an inherent authority to dismiss cases.14 “Even assuming district courts have this inherent authority, ‘the inherent powers of the courts may be controlled or overridden by statute or rule.’”15
The Court also noted that the FAA contains procedural mechanisms for courts to assist parties engaged in arbitration such as appointing an arbitrator,16 enforcing subpoenas issued by arbitrators,17 and facilitating recovery on an arbitral award.18 “Keeping the suit on the court’s docket makes good sense in light of this potential ongoing role, and 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.”19
Finally, the Court noted that the FAA plainly seeks to narrow the rights of appeal.20 The FAA authorizes an immediate interlocutory appeal when a court denies a request for arbitration.21 Contrastingly, absent certification of a controlling question of law by the district court under 28 U. S. C. § 1292(b), an order compelling arbitration is not immediately appealable.22 Accordingly, providing for immediate interlocutory appeals of orders denying motions to compel arbitration but not of orders granting is consistent “with Congress's purpose in the FAA ‘to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.’”23
The Takeaways:
- Litigators will certainly welcome the news that the U.S. Supreme Court resolved the circuit split and created a uniform rule in the U.S. regarding the issue of stays versus dismissals in the face of an arbitration agreement.
- More importantly, the Spizzirri opinion ensures that companies employing arbitration agreements to resolve disputes may do so more efficiently and cost effectively now that the threat of immediate appeals after a dismissal order (and a possible stay of arbitration) has been eliminated.
- Finally, SCOTUS opinions such as Spizzirri are a reminder for companies to review their arbitration agreement language periodically to ensure that it clearly and fully reflects the latest case law regarding arbitration.
Footnotes:
1. Forrest v. Spizzirri, 62 F.4th 1201, 1203 (9th Cir. 2023), cert. granted sub nom. Smith v. Spizzirri, No. 22-1218, 2024 WL 133822 (U.S. Jan. 12, 2024). [Back]
2. Id. at 1204. [Back]
3. Id. [Back]
4. Id. [Back]
5. Id. at 1203. [Back]
6. Id. [Back]
7. Id. [Back]
8. Id. at 1205 n. 4. [Back]
9. Id. [Back]
10. Id. [Back]
11. Smith v. Spizzirri, No. 22-1218, 2024 WL 2193872, at *3 (U.S. May 16, 2024) (citing 9 U. S. C. §3) (emphasis added). [Back]
12. Id. (quoting Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35 (1998)). [Back]
13. Id. (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985)). [Back]
14. Id. [Back]
15. Id. (quoting Degen v. United States, 517 U.S. 820, 823 (1996)). [Back]
16. Id. (citing 9 U. S. C. §5). [Back]
17. Id. (citing 9 U. S. C. §7). [Back]
18. Id. (citing 9 U. S. C. §9). [Back]
19. Id. [Back]
20. Id. [Back]
21. Id. (citing 9 U. S. C. §16). [Back]
22. Id. [Back]
23. Id. (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983)). [Back]
