Supreme Court: Courts Can’t Dismiss Claims After Stay Request

The Supreme Court has just unanimously held that under Section 3 of the Federal Arbitration Act district courts have no discretion to dismiss claims subject to arbitration when a party makes a stay request.

The May 16 decision resolves a circuit split but also leave avenues for dismissal open, which may result in future disputes, Lawrence M. Prosen and Katlyn Slough write in an article on the Cozen O’Connor website.

The Supreme Court decision came in Smith v. Spizzirri, in which pizza delivery drivers alleging violations of federal and state employment laws brought suit against the delivery service in Arizona state court. Respondents got the case moved to federal court, then moved to dismiss and compel arbitration.

The district court dismissed without prejudice and ordered arbitration. It noted that the text of the Act “suggests the action should be stayed,” but Ninth Circuit precedent gave the district court discretion to either stay or dismiss if all claims are subject to arbitration.

The Ninth Circuit affirmed, acknowledging that while the text of the Act appears to mandate a stay, binding court precedent recognized the district court’s discretion to dismiss. The Supreme Court granted certiorari to resolve the circuit split and determine whether a district court had discretion under the Act to dismiss or stay.

The attorneys write that the decision resolved a longstanding and growing circuit split, and that proceedings will be more efficient without the threat of immediate appeals after a dismissal. It also eliminates concerns that statutes of limitations will expire during arbitration, since a stay reserves the statute of limitations.

The attorneys advise parties to seek a stay when compelling arbitration. They also suggest that parties remove any state court cases to federal court when possible, until it is clear whether state courts will adopt a similar rule.