SCOTUS on the Federal Arbitration Act: Stay Means Stay, Not Dismissal

SCOTUS on the Federal Arbitration Act: Stay Means Stay, Not Dismissal

Josiah Contarino

On May 16, 2024, the United States Supreme Court ruled it contrary to the language of the Federal Arbitration Act (“FAA”) to dismiss a case because its claims are subject to arbitration. Smith v. Spizzirri, 601 U.S. ___, 2024 WL 2193872, at *2 (2024). Instead, a trial court that finds a lawsuit subject to arbitration in lieu of court can only stay the court action. Id.

Despite the clear statutory language—i.e., that the court “shall on application of one of the parties stay the trial of the action until such arbitration has been had,” FAA § 3—there was conflict in the federal courts of appeal whether trial court judges had discretion to dismiss the court action instead of just staying it. Smith, 2024 WL 2193872 at *2.

The Court focused on the “shall” language of Section 3 and captured the ruling in this pithy sentence: “Just as ‘shall’ means ‘shall,’ ‘stay’ means ‘stay.’” Id. at *3.

It also looked to the FAA’s structure and purpose. When arbitration is denied, the FAA authorizes an immediate interlocutory appeal. Id. at *4. But when arbitration is compelled, that decision is not immediately appealable. Id. Yet if the trial court compels arbitration and dismisses the court action, the decision is immediately appealable. Id. The time and expense required to appeal an order compelling arbitration undercuts the FAA’s purpose: to resolve disputes through arbitration as quickly and easily as possible. Id.

Finally, the Court reasoned that keeping the court action on the docket (but stayed) during the arbitration supports the “supervisory role that the FAA envisions for the courts.” Id. This allows the court to offer discrete relief, when necessary, to assist the arbitration process.

This decision tracks with the FAA’s text and helps clear up confusion in the lower courts surrounding this issue. It also will have little practical effect on the parties. The party seeking and obtaining an order compelling arbitration will now not have to worry about an immediate appeal of that order as it would have if the court dismissed (instead of stayed) the court action. The party resisting arbitration can be comforted in having an open line to the court in case discrete relief is needed during the arbitration process.

Josiah Contarino is a senior associate at Dhillon Law Group Inc. where he practices commercial litigation, First Amendment, Second Amendment, defamation, and election law matters in state and federal courts.

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