Supreme Court to determine if district court may dismiss or stay a case when the underlying dispute is referred to arbitration

Continuing the trend of reviewing arbitration-related cases, on 12 January 2024, the United States Supreme Court granted certiorari in the case of Wendy Smith, et al. v. Keith Spizzirri, et al. This was to resolve a split in the circuit courts regarding whether a district court may only stay a case, as opposed to dismissing the case when the parties have entered into an agreement to arbitrate the underlying dispute. 

In this case, a group of drivers had commenced suit in state court against their employer Intelliserve LLC, a Phoenix-based delivery service, asserting multiple violations of federal and state employment laws. The suit was removed to federal court and the employer sought to compel arbitration under the governing agreement and dismiss the lawsuit. There was no dispute between the parties as to whether the underlying claims were subject to arbitration, but the parties disagreed on whether the pending suit should be dismissed versus simply stayed. Plaintiffs asserted that Section 3 of the Federal Arbitration Act (FAA) required the district court to stay the lawsuit pending arbitration of the underlying claims rather than dismiss it. Section 3 of the FAA Sec. 3 states, in part, that “If any suit or proceeding be brought…the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration shall…stay the trial of the action until such arbitration has been had….”

While on its face the FAA appears to mandate a stay, the Court sided with the employer and granted the motion to dismiss the suit, a decision which was affirmed by the Ninth Circuit on appeal.

Acknowledging a current split in the circuits on this issue, the Ninth Circuit chose to follow the minority of courts in dismissing the suit. The Ninth Circuit has a longstanding exception that allows cases to be dismissed where all claims are subject to arbitration, as does the First, Fifth, and Eighth Circuit Courts of Appeal; these circuits are in the minority. In contrast the majority of the circuits (the Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuit Courts of Appeal) appear to follow the plain language of the FAA, and limit a district court to only stay a case when confronted with a motion to compel arbitration. 

Whether a case is stayed or dismissed is important from a logistical strategy and cost perspective; if a case is dismissed, there is an immediate right to appeal that decision, which arguably could lead to a stay of the proposed arbitration process while the appeal is decided. In turn, the imposition of a stay leads to delay and rising costs, and is antithetical to the principles underlying the FAA which are to foster and support the enforcement of arbitration agreements.

---

Leslie A. Berkoff is a Partner at Moritt Hock & Hamroff LLP and Chair of its Dispute Resolution Practice Group. She concentrates her practice in the areas of Dispute Resolution serving as a mediator and arbitrator, as well as, Corporate Restructuring work working in both arenas nationally and internationally. Leslie is also Regional Chair North America of the GGI Debt Collection, Restructuring & Insolvency (DCRI) Practice Group.