More Plain Text: Scotus Says FAA Sec. 3 Requires Litigation Stays

By Lee Williams & Russ Bleemer

In a plain text reading of the Federal Arbitration Act, the U.S. Supreme Court this morning ruled that FAA Section 3 compels a court to stay litigation proceedings—and not dismiss the case.

Smith v. Spizzirri, No. 22-1218, reverses the Ninth U.S. Circuit Court of Appeals case that provided a discretionary option under FAA Sec. 3 that allowed lower courts to dismiss the case.

The result is that the lower court will have continuing jurisdiction in a case and not require parties to refile for confirm or vacate an arbitration decision under FAA Sections 9 and 10. even as a case is arbitrated.

“Keeping the suit on the court’s docket makes good sense in light of this potential ongoing role,” writes Justice Sonia Sotomayor for a unanimous Court, “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.”

Imre Szalai, a law professor at Loyola University New Orleans who closely watches arbitration in the courts, says that with the Smith v. Spizzirri decision, "The Court recognizes that the judiciary has a supervisory role regarding arbitration, and the mandatory stay from Section 3 helps support that supervisory role." For more Szalai background, see his article at "To Stay or Not to Stay: Scotus Continues Fine Tuning the Federal Arbitration Act," 42 Alternatives 37 (March 2024) (available here or by request from Alternatives@cpradr.org). 

Sotomayor reassured judges that powers to dismiss remain "if there is a separate reason to dismiss, unrelated to the fact that an issue in the case is subject to arbitration."  But, she writes, "text, structure, and purpose all point to the same conclusion: When a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration, the court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration."

FAA Sec. 3, titled,“Stay of proceedings where issue therein referable to arbitration,” states that, 

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 decision is available on the U.S. Supreme Court’s website here.

For full background information on the oral arguments, see CPR Speaks’ coverage at Lee Williams and Russ Bleemer, “Today’s SCOTUS: Does Federal Arbitration Act Sec. 3 on Litigation Stays Allow Dismissal?” CPR Speaks (April 22) (available here).

Today's brief six-page decision continues a clear Supreme Court trend of adhering strictly to the words in the Federal Arbitration Act.  It doesn't cite  Badgerow v. Walters, 142 S. Ct. 1310 (2022) (available at https://bit.ly/47CVvRG), but resembles it closely, following in that case's plain-text reading on FAA jurisdiction under FAA Sections 9 and 10 dealing with, respectively, confirming and vacating arbitration awards. Badgerow allowed federal district court jurisdiction over enforcing an arbitration agreement in FAA Sec. 4, but said that the law does not automatically provide federal court jurisdiction over enforcing the awards themselves under the later sections. CPR Speaks coverage of Badgerow can be found here. 

In today's decision, the Court resolved a circuit split in which some jurisdictions have read into Sec. 3 a power to dismiss a case along with the textual stay requirement.  In addition to the Ninth Circuit, Sotomayor cites three other circuits that had the same Ninth Circuit practice, noting that the circuit split had deepened since the Court "previously reserved" the question decided today.

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Lee Williams, a second-year student at the Howard University School of Law in Washington, D.C., is a full-year CPR intern as part of CPR’s consortium program with Howard Law’s ADR Program. Russ Bleemer edits Alternatives to the High Cost of Litigation for the CPR Institute

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