To Stay Or Not To Stay, That Is No Longer The Question

Resolving a split of authority in federal courts, the U.S. Supreme Court has unanimously decided that arbitrable disputes under the Federal Arbitration Act filed in federal courts must be stayed, not dismissed. Heretofore, the circuit courts had divided views on whether a district court ordering that a case be arbitrated had authority to simply dismiss the action, or whether it was required to retain jurisdiction and stay the case while the arbitration proceeded. Giving strict interpretation to Section 3 of the Act, Justice Sotomayor’s opinion focused on the language of the statute that the united court found to be clear and straightforward: “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.” Some courts had reasoned that since the dispute was to be resolved through arbitration anyway, they could simply dismiss the action, clearing their dockets, but also affording an aggrieved party resisting arbitration the opportunity to immediately appeal the final order of dismissal. Not so, says the supreme court. ‘Shall” means shall. No discretion, no appeal.

The court noted cogent reasons that staying the case and retaining jurisdiction is the sensible path, since the Act contemplates that the district court could be called upon to appoint an arbitrator or enforce a subpoena. So, if the party resisting arbitration wants to appeal a decision compelling that arbitration, it must first proceed before the arbitrator and await an appealable order, such as a court order enforcing the arbitration award. Unanswered questions awaiting resolution include, what happens if neither party moves to compel arbitration of an arbitrable lawsuit, since the Act appears to compel a stay only “on application of one of the parties.” Stay tuned.

The case is Smith v. Spizzirri, 601 U.S. ____ (2024).