Supreme Court Decides Smith v. Spizzirri

On May 16, 2024, the U.S. Supreme Court decided Smith v. Spizzirri, No. 22-1218, holding that federal courts have no discretion under Section 3 of the Federal Arbitration Act (FAA) to dismiss a case once the court has ruled that the claims properly belong in arbitration and the party moving to compel arbitration has requested a stay.

A group of delivery drivers for an on-demand delivery service brought a wage and overtime suit in state court, alleging their employers violated federal and state law by misclassifying them as independent contractors, failing to pay them required wages, and failing to provide sick leave. The employers removed the case to federal court and moved to compel arbitration and dismiss the suit. The district court issued an order compelling arbitration and dismissed the action without prejudice. The court noted that “the text of 9 U.S.C. § 3 suggests that the action should be stayed,” but that Ninth Circuit precedent allowed a district court to either stay the litigation or dismiss it outright if all claims are subject to arbitration. The Ninth Circuit affirmed, concluding that it was bound by Circuit precedent recognizing a district court’s discretion to dismiss.

The Supreme Court reversed and remanded in a unanimous decision. The Court explained that the plain text of Section 3 requires a court to stay the proceeding upon request because “[t]he statute’s use of the word ‘shall’ creates an obligation impervious to judicial discretion.” Although the employers argued that “stay” means only that the court must stop parallel in-court litigation, which they insisted could be achieved through dismissal, the Supreme Court disagreed, observing that the employers’ attempt to read “stay” to include “dismiss” cannot be reconciled “with the surrounding statutory text, which anticipates that the parties can return to federal court if arbitration breaks down or fails to resolve the dispute.” The Court also commented that the employers’ position conflicted with Section 16 of the FAA, which authorizes an immediate interlocutory appeal of the denial of an arbitration request, but makes clear that (outside a narrow exception) orders compelling arbitration are not immediately appealable. “If a district court dismisses a suit subject to arbitration even when a party requests a stay,” the Court explained, “that dismissal triggers the right to an immediate appeal where Congress sought to forbid such an appeal.”

Justice Sotomayor delivered the Opinion for a unanimous Court.