In a unanimous decision, the United States Supreme Court holds when a district court finds that a lawsuit involves an arbitrable dispute and a party has requested a stay of the court proceeding pending arbitration, §3 of the Federal Arbitration Act (FAA) compels the court to issue a stay. The court lacks discretion to dismiss the suit.
The Court based its conclusion on the statutory text of the FAA, the structure of the FAA, and the purpose of the FAA.
This resolves a circuit split overruling precedent from the First, Fifth, Eighth and Ninth Circuits and agreeing with decisions from the Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuits.
The Court noted its conclusion comports with the supervisory role that the FAA envisions for the Courts. The FAA provides mechanisms for courts to assist parties in arbitration by, for example, appointing an arbitrator (9 U.S.C. §5), enforcing subpoenas issues by arbitrators to compel testimony or produce evidence (§7), and facilitating recovery on an arbitral award (§9). This avoids costs and complications that might rise if a party were required to bring a new suit and pay a new filing fee to invoke the FAA’s procedural protections.
Not mentioned by the Court, some wage and hour disputes under the Fair Labor Standards Act require court approval of settlements which can now be resolved without filing a new lawsuit.
The Court notes this decision has implications for the appealability of district court orders. The FAA prohibits interlocutory appeal of an order directing arbitration to proceed by the party opposing arbitration who desires to remain in court. 9 U.S.C. §16(b)(2). Because district courts must now issue a stay instead of dismissing the case outright, the party opposing arbitration is no longer able to obtain a final appealable order in the form of a dismissal. This means that parties will not be able to obtain appellate review of the district court’s determination whether a case is subject to arbitration until after the arbitration is concluded, the stay has been lifted, and the district court dismisses the case.
The state of Texas has an arbitration statute which does not have a provision similar to Section 3 of the FAA. Litigation under the Texas statute may have a different result.
This decision is not applicable to arbitration of collective bargaining agreements because these contracts are governed by the Labor Management Relations Act, which does not have a provision similar to Section 3 of the FAA.
Smith et. al. v. Spizzirri et. al, No. 22-1218 (May 16, 2024).
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