Can a Court Dismiss Claims Rather than Stay Them Pending Arbitration?

The U.S. Supreme Court on April 22 heard arguments in a case on whether a federal district court can dismiss claims subject to arbitration or must stay them pending arbitration. The case may affect how often plaintiffs try to do end runs around required arbitration and bring claims subject to arbitration first in court.

We’ve gathered articles on the case from SHRM Online and other outlets.

Background

In Smith v. Spizzirri, delivery drivers sued their employers, alleging the companies misclassified the workers as independent contractors, failed to pay them minimum wage and overtime, and failed to provide paid sick leave.

The plaintiffs argued that the federal district court that dismissed their case should have stayed the case pending arbitration. The 9th U.S. Circuit Court of Appeals ruled that the lower court properly dismissed the case because all parties agreed that all the claims were subject to arbitration. Lower courts are split on whether there must be a stay in this situation.

(SHRM Online)

Parties’ Positions

For the employers, the point of Section 3 of the Federal Arbitration Act is to make sure that once a case is sent to arbitration, it will not move forward in court. Section 3 says that if the court refers the case to arbitration, it “shall on application of one of the parties stay the trial of the action until such arbitration has been had.” Because Section 3 says nothing about dismissal, it should not prevent the court from managing its docket, the employers argued. Moreover, the dismissal was “without prejudice” in this case, meaning the plaintiffs could return to district court if they needed relief in the future. The drivers pointed to the text of the statute and said the language about staying the trial of the action until after arbitration is “mandatory” and “does not allow any exceptions.”

(SCOTUSblog)

Oral Arguments

“What difference does it make to grant a stay here or dismiss without prejudice?” Justice Clarence Thomas asked Daniel Geyser, an attorney with Haynes & Boone in Dallas and Denver.

“It makes a big difference whether we have a seat to come back to,” Geyser said. “The arbitration has now failed. The respondents have not paid their fees. Our clients will have to file new suits, engage in new service, do new case-initiating documents, and waste our time and the court’s time.”

Thomas responded, “But aren’t you also encouraging people to start out in federal court?” Geyser denied that this would be the result.

Justice Ketanji Brown Jackson said the plaintiffs would have an easier case if the statute said the court should, on application of one of the parties, stay the “proceeding” or the “action” pending arbitration, rather than the statute’s wording of stay the “trial.”

“You want us to interpret it to be proceeding or action, but that's not exactly what it says,” she added. 

Geyser said the title said “stay of proceedings” and that Congress always has interpreted this as staying the merits adjudication. He added that the Federal Arbitration Act “is not known for being the world’s most precisely drafted statute.”

Have there been any problems in circuit courts that have followed the rule the plaintiffs support, Justice John Roberts Jr. asked Joshua Rosenkranz, an attorney for the defendants with Orrick in New York City.

The problem is that if they win, plaintiffs will never file an arbitration first, Rosenkranz answered. Then “the court will be a helicopter parent for as long as you want it. Don't worry if there’s zero basis for you to even resist arbitration.”

There are more than 100,000 arbitrations a year, he added. Geyser noted that only 800 of them ever come back to court because they are contested, Rosenkranz said. “So, it is needless activity,” he said.

However, Roberts said it seemed to him that the alternative, filing a new action, would be more burdensome than the case just remaining with the court during a stay.

“It could be, but it may not necessarily be, if there are constant and repeated reports, but we’re not basing our argument on costs.  We're basing our argument on the language of the statute,” Rosenkranz said.

He urged the court to interpret Section 3 in light of the problem that Congress was trying to solve.

“It was the problem that too many courts were not honoring arbitration obligations and were not stopping the litigation when parties violated their arbitration agreements and brought their claims in court,” Rosenkranz said. “There’s no reason to believe that Congress wanted to address that problem by requiring courts to hold on to lawsuits unnecessarily, much less by requiring courts to hold on to them in order to reward plaintiffs like petitioners who violated their contractual obligations to go to arbitration instead of court.”

He added that “stay” means “stop” under Section 3.

Justice Brett Kavanaugh asked if Congress would have wanted to make available an appeal if a case is dismissed rather than stayed.

Congress anticipated that there would be dismissals followed by appeals, Rosenkranz answered.

Geyser responded in rebuttal that Rosenkranz “says that we’re cramming a lot of meaning into the word ‘stay.’ We’re just saying that ‘stay’ means ‘stay.’ ”

Geyser added that to require lower courts to stay rather than dismiss during arbitration is “not overwhelming district courts who can truly say, 'Just let us know whenever the arbitration is finished.’ ”

(Supreme Court oral arguments)