In a unanimous decision, the Supreme Court 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. Smith et. al. v. Spizzirri et. al, No. 22-1218 (May 16, 2024).
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 notes 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 a district court’s order. 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 as to 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.
Shortly after Smith issued, a federal district court addressed the issue whether a district dismissing an already stayed case pending arbitration is no longer permissible. Yanez v Dish Network, LLC, No EP-21-CV-00129-FM (W.D. Texas June 14, 2024). In Yanez, a motion to compel arbitration was granted and the matter was stayed pending arbitration. Over roughly two years, a series of show cause orders were entered but the parties did not provide updates. Ultimately an order provided, “[t]he next status update, regardless of when appointment of an arbitrator is resolved, is due on September 7, 2023 and every ninety days after until stay is lifted. Failure to timely meet court deadlines will result in the dismissal of this action for failure to prosecute”. Nevertheless the parties failed to timely a status update on March 5,2024. On March 7, 2024, the Court issued a notice dismissing the case without prejudice because the parties failed to adhere to the court’s orders and failed to prosecute their case in arbitration. The Court denied Yanez’s Motion for New Trial and/or Motion to Alter or Amend Judgment.
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