Arbitration Stays

“When the claims at issue in a federal court suit are subject to arbitration, does the court have authority to dismiss the action, or can it only stay the action pending resolution of the arbitration?”

The U.S. Supreme Court resolved this legal issue that have created different opinions among federal court appeals. 

Section 3 of the Federal Arbitration Act (“F.A.A.”), 9 U.S.C. 3, states: “If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, 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.”

The Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuits have ruled that a federal district court can only stay an action, not dismiss, where the claims are subject to arbitration. The First, Fifth, Eighth, and Ninth Circuits ruled that district courts now have the discretion to dismiss an action if all of the claims are subject to arbitration. 

In Smith v. Spizzirri, the plaintiffs are both current/former delivery drivers who sued their employer through state court in Arizona. The employers have alleged multiple violations of federal and state employment laws.  The defendants took the case to federal Court in Arizona and moved to compel arbitration and dismiss the case, arguing that the plaintiffs’ claims were subject to mandatory arbitration.

The plaintiffs became aware that their claims were arbitrable and argued that the F.A.A. requires the Court to stay in action pending arbitration rather than dismissing it. With ruling from the Ninth Circuit precedent, the district court compelled arbitration and dismissed the case, notwithstanding the F.A.A.,  “a district court may either stay the action or dismiss it outright when, as here, the court determines that all of the claims raised in the action are subject to arbitration.'” Forrest v. Spizzirri, 2022 WL 2191931, at *1 (D. Ariz. June 17, 2022) (quoting Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1074 (9th Cir. 2014)).

On appeal, the Ninth Circuit agreed with the district court’s decision to dismiss the action based on the Ninth Circuit precedent and reject the defendants’ claim of an abuse of discretion. In the case Forrest v. Spizzirri, 62 F.4th 1201 (9th Cir. 2023), two judges on the three-member appellate panel encouraged the Supreme Court to review the issue, highlighting that the circuits were split on the issue and how the Ninth Circuit position created conflict with the plain language of the Federal Arbitration Act (F.A.A.). 

In June of 2023, the plaintiffs filed a petition for a writ of certiorari, which challenged the Ninth Circuit’s decision and argued the Court to resolve the split among the circuits. The Supreme Court granted the petition on January 12, 2024. The case is titled Smith v. Spizzirri, docket number NO. 22-1218.