US Supreme Court decides underlying lawsuit must be stayed once claims are compelled to arbitration
Leslie A. Berkoff
by Leslie A. Berkoff
On 16 May 2024 the US Supreme Court issued a unanimous decision in Smith v. Spizzirri, 144 S.Ct. 1173 (2024) reversing the Ninth Circuit decision of Forrest v. Spizzirri, 62 F.4th 1201 (9th Cir. 2023) which had dismissed claims after determining that the claims should be arbitrated. The Supreme Court held that when a district court finds a lawsuit involves an arbitrable dispute and a party has requested a stay of the court proceeding pending arbitration, Section 3 of the Federal Arbitration Act (FAA) compels the court to issue a stay, and the court lacks discretion to dismiss the suit. Smith v. Spizzirri, 144 S.Ct. at 1174. This decision resolves a split in the circuits concerning whether Section 3 of the FAA contains a clear mandate staying litigation in such circumstances.
In the instant case, at the District Court, plaintiffs had brought wage-and-hour claims against their former employer for allegedly misclassifying them as independent contractors. The dispute was referred to arbitration but plaintiffs asked that the litigation be stayed and not dismissed so that their rights were duly preserved while the arbitration was pending. The Ninth Circuit, on appeal, affirmed the district court’s decision to dismiss the claims without prejudice.
The Supreme Court, however, found that the use of the word “shall” in the text of Section 3 of the FAA is “plain statutory text [that] requires a court to stay the proceeding.” Id. at 1177. The Court pointed to other sections of the FAA and other decisions where the Court had found the use of “shall” to be a mandatory directive.
Used in conjunction with the word “stay” (i.e. “shall stay”), the Court found no ambiguity in what had to occur, and determined that attempts to achieve a similar result by dismissing without prejudice were in conflict with such a statutory reading. The Court even turned to the definition of “stay” in Black’s Law Dictionary, which defines the word as a temporary suspension of legal proceedings, to support its finding that a mandatory stay is not the same as an outright dismissal. Id.
Further, the Court looked to other sections of the FAA to buttress this conclusion. In Section 16 of the FAA, Congress included an automatic interlocutory appeal of a denial of a motion to compel arbitration, but did not do so for grants of motions to compel arbitration. As such, the Court concluded that Congress intended to ensure that arbitrable disputes did not linger in courts. Given that a dismissal triggers the right to an immediate appeal, this would then generate additional litigation contrary to the goal of moving an arbitrable matter into the arbitration process swiftly.
This is the second case within the past year wherein the Supreme Court has addressed issues involving the status of an underlying litigation while arbitration related proceedings continue. In Coinbase v. Bielski, the Court determined that district court litigation be automatically stayed pending an appeal of a decision denying a motion to compel arbitration. Coinbase v. Bielski, 599 U.S. 736 (2023). These decisions continue to underscore the deference given to arbitration and arbitration-related proceedings.
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Leslie A. Berkoff is a Partner at Moritt Hock & Hamroff LLP and Chair of its Dispute Resolution Practice Group. She concentrates her practice in the areas of Dispute Resolution serving as a mediator and arbitrator, as well as, Corporate Restructuring work working in both arenas nationally and internationally. Leslie is also Regional Chair North America of the GGI Debt Collection, Restructuring & Insolvency (DCRI) Practice Group. Contact Leslie.
