SCOTUS Decides Spizzirri. Under FAA Section Three, Stay Means Stay
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By George H. Friedman, SAA Publisher & Editor-in-Chief

A unanimous Court holds in Smith v. Spizzirri, No. 22-1218, that under Federal Arbitration Act (“FAA”) section three, courts compelling arbitration must stay but cannot dismiss the underlying litigation.

As reported in SAA 2024-18 (May 9), the Court heard oral argument April 22. The audio is here and the transcript can be found here.

Certiorari Petition

As reported in SAA 2023-36 (Sep. 21), the June 2023 Petition for Certiorari states:

“This case presents a clear and intractable conflict regarding an important statutory question under the Federal Arbitration Act (FAA), 9 U.S.C. 1-16.[] The FAA establishes procedures for enforcing arbitration agreements in federal court. Under Section 3 of the Act, when a court finds a dispute subject to arbitration, the court ‘shall on application of one of the parties stay the trial of the action until [the] arbitration’ has concluded. 9 U.S.C. 3 (emphasis added).... The question presented is: Whether Section 3 of the FAA requires district courts to stay a lawsuit pending arbitration, or whether district courts have discretion to dismiss when all claims are subject to arbitration.”

The Oral Argument

With a full complement of Justices, the oral argument in this case was audio livestreamed via the SCOTUS Website. The discussion focused squarely on the text of FAA section 3. Petitioner’s Counsel Daniel Geyser framed the issue this way:

“Section 3 unambiguously mandates a stay pending arbitration, and the FAA's plain text, structure, and purpose confirm that conclusion. Congress directed that a court shall stay the trial of the action until the arbitration is complete. There is no mention of dismissal, and there are no exceptions for cases where all claims are subject to arbitration.”

Respondent’s attorney E. Joshua Rosenkranz, said:

“When Congress directed courts to stay the trial of a case in deference to arbitration, it meant stop the litigation in court. It did not mean you must retain jurisdiction. It did not mean never dismiss, no matter how clear it is that the case will never come back to court. I get that modern lawyers often think of stays and dismissals as two completely distinct animals, but when Congress passed Section 3 a hundred years ago, Congress would not have drawn that stark a distinction. The drafters would have understood that a dismissal was one way to stay a litigation. When Congress intended that a court retain jurisdiction, it used those words in Section 8.”

Unanimous Court Opts for Strict Statutory Construction

We commented presciently in no. 18 that: “Based on the questions and comments from the Justices from both wings, we think there will be a strong ‘literal reading’ majority. Justice Sotomayor’s unanimous opinion rejects the argument that Courts have discretion under FAA section 3 to dismiss the underlying litigation:

“The Federal Arbitration Act (FAA) sets forth procedures for enforcing arbitration agreements in federal court. Section 3 of the FAA specifies that, when a dispute is subject to arbitration, the court ‘shall on application of one of the parties stay the trial of the action until [the] arbitration’ has concluded. 9 U. S. C. §3. The question here is whether §3 permits a court to dismiss the case instead of issuing a stay when the dispute is subject to arbitration and a party requests a stay pending arbitration. It does not.”

Courts’ Supervisory Role

The opinion notes that the FAA envisions that courts retain a supervisory role:

“Finally, staying rather than dismissing a suit comports with the supervisory role that the FAA envisions for the courts. The FAA provides mechanisms for courts with proper jurisdiction to assist parties in arbitration by, for example, appointing an arbitrator, see 9 U. S. C. §5; enforcing subpoenas issued by arbitrators to compel testimony or produce evidence, see §7; and facilitating recovery on an arbitral award, see §9. Keeping the suit on the court’s docket makes good sense in light of this potential ongoing role, 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.”

In a footnote, Justice Sotomayor notes that: “That is not to say that the court is barred from dismissing the suit if there is a separate reason to dismiss, unrelated to the fact that an issue in the case is subject to arbitration. If, for example, the court lacks jurisdiction, §3 is no bar to dismissing on that basis.”

(ed: *The Supreme Court heard oral argument February 28 in Coinbase v. Suski, No. 23-3, the remaining case involving arbitration to be decided. The June 2023 Certiorari Petition raised this issue: “Whether, where parties enter into an arbitration agreement with a delegation clause, an arbitrator or a court should decide whether that arbitration agreement is narrowed by a later contract that is silent as to arbitration and delegation.” **For an excellent analysis, see this May 16 CPR blog post, More Plain Text: Scotus Says FAA Sec. 3 Requires Litigation Stays.)