Supreme Court Rules That Courts Must Stay, Rather Than Dismiss, Lawsuits Sent To Arbitration

CATEGORY: Public Education Matters
CLIENT TYPE: Public Education
DATE: Jun 04, 2024

Current and former delivery drivers for Intelliserve brought a lawsuit alleging that Intelliserve violated employment laws by misclassifying them as independent contractors and failing to pay them minimum wage, overtime wages, and failing to provide paid sick leave.  The delivery driver plaintiffs filed in Arizona state court and then Intelliserve removed the case to federal court.  Intelliserve moved to compel arbitration and dismiss the case.  Both parties agreed that all claims were subject to mandatory arbitration under the Federal Arbitration Act (FAA).  However, plaintiffs argued that section 3 of the FAA required the district court to stay the action pending arbitration, rather than dismiss it.

Section 3 of the FAA, which is located at 9 U.S.C. §3, states 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 [the] arbitration” has concluded.

The district court issued an order compelling arbitration and dismissing the case without prejudice.  The district court noted that “the text of 9 U.S.C. §3 suggests that the action should be stayed,” but Circuit precent “instructed that ‘notwithstanding the language of §3, a district court may either stay the action or dismiss it outright when… the court determines that all of the claims raised in the action are subject to arbitration.”

Plaintiffs appealed the dismissal to the Ninth Circuit Court of Appeals.  The Ninth Circuit affirmed the trial court’s decision to dismiss the case, noting that Circuit precedent gave the district court the discretion to dismiss.  Plaintiffs appealed to the U.S. Supreme Court, which granted certiorari.

The Supreme Court held that the plain language of the FAA required the court stay the proceeding pending arbitration, rather than dismiss it.  Intelliserve had argued that the word “stay” in section 3 only meant that the court had to stop parallel in-court litigation during the arbitration, which could also be accomplished by dismissing the case.  The Supreme Court disagreed and pointed out that the “long-established legal meaning” or “stay” meant a temporary suspension of legal proceedings, not a dismissal.

Intelliserve also argued notwithstanding the statutory language, district courts have the inherent authority to dismiss proceedings that are subject to arbitration.  The Supreme Court again disagreed, pointing out that the statute overrode any inherent discretion a district court might have otherwise had.

The Supreme Court further found that the FAA’s structure and purpose supported that a stay rather than dismissal is required.  The FAA sought to move arbitrable disputes out of the court and into arbitration.  The FAA allows a party to appeal an order denying arbitration.  However, the FAA only allows a party to appeal an order granting arbitration under limited circumstance.  If a court dismisses case that is subject to arbitration, that triggers an immediate right to appeal, which is something the FAA sought to avoid.

Finally, the Supreme Court found that staying rather than dismissing a case better aligns with the supervisory role that the FAA envisioned for the courts.  The FAA allows courts to assist the parties with arbitration, such as by appointing an arbitrator or enforcing subpoenas issued by arbitrators.  This is easier to do if the lawsuit remains on the court’s docket.  Otherwise, the parties would have to file a new suit to enforce the FAA’s procedural protections.

The Supreme Court reversed the Ninth Circuit’s judgement and remanded the case.

Smith v. Spizzirri (2024) ___U.S.___ [___L.Ed.2d___].

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