Case Report – Michelle Emeterio (Wendy Smith, et al. v. Keith Spizzirri, et al. (No. 22–1218))

Key takeaways:

When presented with a valid arbitration agreement, district courts are permitted only to stay a case pending arbitration—they cannot simply dismiss the case and compel arbitration.

By doing away with the threat of an immediate right to appeal after dismissal, which could delay arbitration, this holding may discourage gamesmanship and increase efficiency of arbitration proceedings.

Summary:

The FAA 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.” 9 U. S. C. § 3 (emphasis added).

You may have thought that a stay was automatic in this scenario, but there was a circuit split with the Ninth Circuit joining the minority by allowing district courts the discretion to dismiss rather than stay. That is, the Ninth, First, Fifth, and Eighth Circuit Courts of Appeal allowed district courts the discretion to dismiss lawsuits in the face of arbitration agreements, whereas the Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuit Courts of Appeal required district courts to stay a lawsuit pending arbitration. The Supreme Court has now unanimously held that the plain language of the Federal Arbitration Act (“FAA”) compels the courts to issue a stay. 

The Court reasoned that the FAA’s use of the word “shall” leaves no room for discretion. Respondents had argued (1) that “stay” “means only that the court must stop parallel in-court litigation, which a court may achieve by dismissing,” and (2) that regardless of the language of the FAA, courts have inherent authority to dismiss cases. The Court rejected these arguments, noting that an attempt to read “stay” to include “dismiss” does not square with surrounding statutory text allowing the parties to return to federal court if arbitration breaks down, and that even assuming district courts do have the inherent authority to dismiss a case, a court’s inherent powers may nevertheless “be controlled or overridden by statute or rule.”

The Court added that allowing for dismissals would be contrary to the purpose of the FAA which is to move parties out of court and into arbitration as quickly as possible. This is because dismissals trigger an immediate right of appeal whereas the FAA explicitly narrows rights of appeal by allowing for an immediate interlocutory appeal only when an arbitration request is denied. Moreover, keeping the suit on the court’s docket “makes good sense” given that the FAA provides mechanisms for courts to play an ongoing role assisting parties in arbitration such as potentially appointing an arbitrator, enforcing subpoenas issued by arbitrators, and facilitating recovery of an arbitral award. The Court stated that additional costs and complications could arise if a party were required to bring a new suit to invoke these procedural protections of the courts.