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Authored by Samuel David Dantone
In January, the U.S. Supreme Court granted certiorari in the case of Smith v. Spizzirri, with oral arguments to be heard on April 22, 2024.[1] This case will be the third Federal Arbitration Act (“FAA”) case the Supreme Court has heard this term, marking the Court’s recent interest in arbitration-related issues.[2] The question presented on appeal is whether, under the FAA, a district court has the discretion to dismiss a case when all claims are subject to arbitration or if a court must stay a case.[3]
In the case at bar, current and former delivery drivers sued their “on-demand delivery service” employer in Arizona state court, alleging that the employer violated federal and state employment laws by misclassifying them as independent contractors, failing to pay them required wages, and failing to provide them with paid sick leave.[4] Defendants removed the case to federal court, and subsequently moved to compel arbitration and to dismiss the case.[5] While the Plaintiffs agreed that their claims were subject to arbitration, they argued that the district court was required to stay the case pending arbitration under § 3 of the FAA.[6] The district court disagreed with the Plaintiffs, and in doing so, granted the defendant’s motion to compel arbitration and dismissed the claims without prejudice.[7] On appeal, the Ninth Circuit reviewed the district court’s interpretation of the FAA and the order compelling arbitration de novo.[8]
The delivery drivers advanced four arguments in favor of staying the case, rather than dismissing them. First, the plaintiffs distinguished their case from the Ninth Circuit’s precedent as a case where a party to the suit requested a stay, unlike the precedent,where a stay was never requested by either of the parties.[9] The plaintiffs argued that this result is consistent with § 3 because the stay is only required “on application of one of the parties.”[10] Second, the plaintiffs argued that the FAA’s plain text should control, even in light of the Ninth Circuit’s precedent to the contrary.[11] Third, the plaintiffs argued that Badgerow v. Walters, a recent Supreme Court decision, abrogated Ninth Circuit precedent, permitting the court to look to the plain text of § 3 instead.[12] Finally, the plaintiffs argued that the district court abused its discretion in disregarding the potential administrative benefits that would have come from the action being stayed rather than dismissed.[13] The Ninth Circuit admitted that “the plain text of the FAA appears to mandate a stay,” however the Ninth Circuit sided with its own binding precedent and the minority of circuit courts, establishing that district courts may dismiss suits when all claims are subject to arbitration.[14] In affirming the district court below, the Ninth Circuit rejected all the plaintiff’s arguments.
Section three of the FAA provides that, if any issue is referable to arbitration, the court “shall on application of one of the parties stay the trial of the action” until such arbitration is completed.[15] Statutory interpretation of § 3 has led to a close split among the circuits. Indeed, the concurring opinion in Forrest v. Spizzirri, identifies the split in asking for the Supreme Court to take up the question.[16] The majority of circuit courts interpret § 3 as mandating a stay of proceedings when the issues are arbitrable.[17] The minority of circuit courts permit district courts to dismiss a case when all issues in the action are subject to arbitration.[18] While characterized as a clean split, the question is not as simple as it may seem. Some courts that side with the majority mandatory-stay approach have stated that where no party has requested a stay, dismissal may be appropriate.[19] Further, the Sixth Circuit recognized that “a situation in which both parties request a dismissal” may be another circumstance that permits the district court to stray away from the plain text of § 3.[20] Thus, “on application of one of the parties” may become a necessary phrase to interpret § 3. In granting certiorari, the Supreme Court will receive another opportunity to resolve the increasingly irreconcilable split in circuit precedent. The Court will have to decide whether federal courts have discretion to dismiss an action or if they must stay an action when the claims are arbitrable, and if the former, in what circumstances a district court may dismiss the action.
How the Supreme Court interprets § 3 of the FAA has many legal and practical consequences for litigators navigating claims potentially subject to arbitration. First, a decision to adhere to either approach would affect cases’ appealability. 9 U.S.C. § 16 sets out the appeal structure for the FAA.[21] Section 16 of the Act prohibits appeals of orders in favor of arbitration, such as an order granting a stay under § 3 and an order refusing to enjoin an arbitration.[22] However, dismissal of an action would permit an objecting party to file an immediate appeal. The Sixth Circuit in Arabian Motors Group. W.L.L. v. Ford Motor Co., shot down the discretion-to-dismiss approach as “undercut[ting] the pro-arbitration appellate-review provisions of the Act,” because allowing an immediate appeal would “sidestep the clear policy preference of the Act.”[23] Despite that, commentators in opposition to the mandatory-stay approach have stated that allowing an appeal of an order to arbitrate would not be in contrast to the goals of the FAA.[24] They state that allowing a party to appeal an order to arbitrate “will adequately protect the rights of the parties by not subjecting them to the arbitral forum if they should not be bound to do so.”[25] Thus, should the district court have a requirement to stay when requested, a litigator would have to fight the arbitrability of the claims before an arbitration forum rather than before a federal appellate court. However, whether or not the arbitration panel would be permitted to come to a different conclusion on arbitrability than the court is still a question left open.[26] The FAA does not address whether the question of arbitrability should be decided by the arbitration panel rather than the court.
Additionally, issuing a stay rather than dismissal may allow the courts to be more effective in their ongoing involvement with the arbitration proceedings.[27] The FAA contains several provisions that enable the court to assist in arbitration. Section 5 of the Act allows district courts to appoint arbitrators.[28] Another provision, § 7, allows district courts to compel the attendance of witnesses before arbitrators.[29] Finally, the court may confirm, vacate, modify, or correct an award made pursuant to arbitration.[30] When the case is stayed, jurisdiction is retained by the district court where the action was filed or removed. A litigator seeking confirmation, vacatur, or modification of an award would need only file a petition in the stayed action, rather than needing a separate basis for subject-matter jurisdiction. A dismissal, in contrast, would most likely require the parties to file a new action, potentially in front of a different judge unfamiliar with the case.[31] Filing a new action could lead to increased costs due to the need to serve process again.
Third, and finally, dismissing a case, rather than issuing a stay, could toll the statute of limitations of the action. Staying the case generally will not toll the statute of limitations.[32] If the action remains stayed in court, the claimant may return to court without the statute of limitations running if the arbitrator declines to hear the case. However, if the action is dismissed, the arbitrators decline to hear the case, and the statute of limitations runs in that time, the claim may be barred completely if a new action is filed. This consideration may not be as strong for litigators since courts may start to condition dismissal, assuming they have the discretion to do so, on the defendant waiving any statute of limitations defense.[33]
How the Supreme Court will navigate the interpretation of FAA § 3 remains a mystery, but there are many practical consequences for litigators to consider, whether courts are granted the discretion to dismiss or not. Litigators should be aware of how the Supreme Court’s ruling will affect the appealability of their claims, the court’s involvement in the arbitration of their claims, and whether they will have statute of limitations issues arise.
[1] Forrest v. Spizzirri, 62 F.4th 1201 (9th Cir. 2023), cert. granted, Smith v. Spizzirri, No. 22-1218, 2024 WL 133822 (2024).
[2] See Bissonnette v. LePage Bakeries Park St., LLC, 49 F.4th 655 (2nd Cir. 2022), cert. granted, Bissonnette v. LePage Bakeries Park St., LLC., No. 23-51, 2023 WL 6319660 (U.S. 2023); Suski v. Coinbase, Inc., 55 F.4th 1227 (9th Cir. 2022), cert. granted, Coinbase, Inc. v. Suski, No. 23-3, 2023 WL 7266998 (U.S. 2023).
[3] See Forrest, 62 F.4th at 1206 (Graber, J., concurring) (“But I encourage the Supreme Court to take up this question, which it has sidestepped previously . . . .”).
[4] Id.at 1203-04.
[5] Id. at 1204.
[6] Id.; see 9 U.S.C. § 3.
[7] Forrest, 62 F.4th at 1204.
[8] Id.
[9] Id. at 1205.
[10] Id.; see 9 U.S.C. § 3.
[11] Forrest, 62 F.4th at 1205.
[12] Id.; see Badgerow v. Walters, 596 U.S. 1, 4 (2022).
[13] Forrest, 62 F.4th at 1206.
[14] Id. at 1203, 1204-05 (citing Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1074 (9th Cir. 2014) (“[T]his court has long carved an exception if all claims are subject to arbitration.”).
[15] 9 U.S.C. § 3. (emphasis added).
[16] Forrest, 62 F.4th at 1206 (Graber, J., concurring) (“[A]nd on which the courts of appeals are divided . . . .”).
[17] Id. at 1206 n. 4 (“[T]he Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuits require a stay upon application of a party.”); see Katz v. Cellco P’ship, 794 F.3d 341, 345 (2nd Cir. 2015) (citing cases from both approaches).
[18] Forrest, 62 F.4th at 1206 n. 4 (“[T]he Ninth, First, Fifth, and Eighth Circuits permit district courts to dismiss actions subject to arbitration . . . .”); see also Choice Hotels Intern., Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir. 2001) (“Notwithstanding the terms of § 3, however, dismissal is a proper remedy when all of the issues presented in a lawsuit are arbitrable.”).
[19] Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 797 (10th Cir. 1995) (“However, in the case before us [where no stay was requested by the parties], we are not faced with a district court’s erroneous failure to enter a requested stay.”); United Steel, Paper and Forestry, Rubber, Mfg., Energy, Allied Indus. v. Wise Alloys, LLC, 807 F.3d 1258, 1268 (11th Cir. 2015) (“The record here contains no indication that either party requested a stay of this action.”).
[20] Arabian Motors Group W.L.L. v. Ford Motor Co., 19 F.4th 938, 942 (6th Cir. 2021) (dicta) (“There may be situations in which a dismissal remains permissible . . . .”).
[21] See 9 U.S.C. § 16.
[22] Id. § 16(b).
[23] 19 F.4th at 942.
[24] Richard A. Bales & Melanie A. Goff, An Analysis of an Order to Compel Arbitration: To Dismiss or Stay?, 115 Penn St. L. Rev. 539, 556 (2011).
[25] Id. at 556-57 (“[A]llowing a party to appeal the order to arbitrate protects that party’s interest in the arbitral forum.”).
[26] See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (“[T]he court should give considerable leeway to the arbitrator, setting aside his or her decision only in certain narrow circumstances.”).
[27] See Lloyd v. Hovensa, LLC, 369 F.3d 263, 270 (3d Cir. 2004) (“[T]he District Court has a significant role to play under the FAA even in those instances in which the District Court orders the arbitration of all claims.”).
[28] 9 U.S.C. § 5.
[29] Id. § 7.
[30] Id. §§ 9-11.
[31] Forrest, 62 F.4th at 1206 (“Plaintiffs could file a new action to confirm or vacate any arbitration award.”).
[32] See Zarecor v. Morgan Keegan & Co., Inc., 801 F.3d 882, 889 (8th Cir. 2015) (“We conclude that pursuit of arbitration did not toll the federal statute of limitations.”).
[33] Stewart v. Acer Inc., No. 22-CV-04684-VC, 2023 WL 1463413, at *1 (N.D. Cal. Feb. 1, 2023) (“[I]n an abundance of caution, the case will be stayed unless Acer files something on the docket within 7 days of this order waiving any statute of limitations defense . . . .”).
American Journal of Trial Advocacy 
