Courts Must Temporarily Suspend Arbitrable Claims Until Arbitration Ends

The U.S. Supreme Court ruled May 16 that courts must temporarily suspend arbitrable claims until arbitration concludes and don’t have the discretion to dismiss the case instead of issuing a stay.

The court’s decision is more important than it might seem, according to Patrick Bannon, an attorney with Seyfarth in Boston. “The alternative outcome would have allowed a determined party to resist arbitration in court for years,” he said.

The petitioners in the case were delivery drivers for an on-demand delivery service operated by the respondents. The petitioners sued the respondents in Arizona state court, alleging violations of federal and state employment laws. The drivers claimed that the respondents misclassified them as independent contractors, failed to pay required minimum and overtime wages, and failed to provide paid sick leave.

After removing the case to federal court, the respondents moved to compel arbitration and dismiss the lawsuit. The petitioners conceded that all their claims were arbitrable but argued that the Federal Arbitration Act (FAA) required the district court to stay—temporarily suspend—the action rather than dismiss it.

The district court issued an order compelling arbitration and dismissing the case without prejudice, meaning the case could be brought again later in court.

The 9th U.S. Circuit Court of Appeals affirmed, ruling that it was bound by circuit precedent recognizing the district court’s “discretion to dismiss.” Two judges concurred, asserting that the 9th Circuit’s decision was wrong and urging the Supreme Court to “take up this question, which it has sidestepped previously, and on which the court of appeals are divided.”

In the unanimous decision of Smith v. Spizzirri, written by Justice Sonia Sotomayor, the Supreme Court reversed and remanded the case for further proceedings. “When a federal court finds that a dispute is subject to arbitration and a party has requested a stay of the court proceedings pending arbitration, the court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration,” the court stated.

The FAA’s “plain statutory text requires a court to stay the proceeding” pending arbitration, the Supreme Court ruled. “Stay means ‘stay,’ ” the Supreme Court said. Even at the time of the enactment of the FAA, the term “stay” denoted the temporary suspension of legal proceedings, not the conclusive termination of such proceedings, the court stated.

A “return ticket” to a court after arbitration “is not available if the court dismisses the suit rather than staying it,” the Supreme Court said.

“It is no answer to say, as respondents do, that a party can file a new suit in federal court in those circumstances,” the high court noted. Even if that is true as a practical matter—despite potential statute-of-limitations problems—“requiring a party to file a new suit ignores the plain text” of the FAA.

Moreover, the FAA’s structure and purpose confirm that a stay is required, the Supreme Court ruled. It noted that when a court denies a request for arbitration, the FAA authorizes an immediate appeal. By contrast, an order compelling arbitration is not immediately appealable. The choice to provide for immediate interlocutory appeals of orders denying—but not of orders granting motions to compel arbitration—is consistent with Congress’s purpose in the FAA to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible, the Supreme Court wrote.

“If a district court dismisses a suit subject to arbitration even when a party requests a stay, that dismissal triggers the right to an immediate appeal where Congress sought to forbid such an appeal,” the Supreme Court stated.

In addition, staying rather than dismissing a suit comports with the supervisory role the FAA envisions for the courts, the Supreme Court added. Courts with proper jurisdiction have mechanisms under the FAA to assist parties in arbitration by appointing an arbitrator; enforcing subpoenas issued by arbitrators to compel testimony or produce evidence; and facilitating recovery on an arbitral award.

“Keeping the suit on the court’s docket makes good sense in light of this potential ongoing role, and it avoids costs and complications that might arise if a party were required to bring a new suit and pay a new filing fee to invoke the FAA’s procedural protections,” the Supreme Court said.

We’ve gathered articles on the decision from SHRM Online.

Case’s Significance

“The case may sound super technical, but it’s very important practically,” Bannon stated. When courts must stay cases pending arbitration, “employers with arbitration agreements have a more reliable way to get claims into arbitration relatively quickly.”

Had the Supreme Court ruled otherwise and courts had been allowed to dismiss cases that are sent to arbitration, “employers might have to spend additional months litigating about whether the decision to require arbitration was correct,” he said.

(SHRM Online)

Petitioners’ Persuasive 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, during the case’s oral arguments in April.

“It makes a big difference whether we have a seat to come back to,” Geyser said. If the arbitration fails and the case had been dismissed without prejudice, “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 asked, “But aren’t you also encouraging people to start out in federal court?” Geyser denied that this would be the result.

Geyser later stated that the counsel for the respondents “says that we’re cramming a lot of meaning into the word ‘stay.’ We’re just saying that ‘stay’ means ‘stay.’ ”

He 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.’ ”

(SHRM Online)