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Supreme Court Reverses Ninth Circuit Decision Dismissing Matter Pending Arbitration and Requires a Temporary Stay of Proceedings Instead of Dismissal
Posted in Arbitration

The United States Supreme Court recently reversed a decision of the Ninth Circuit Court of Appeals that held lower courts may dismiss a case when a party requests a stay pending arbitration. Smith v. Spizzirri, 144 S. Ct. 1173 (2024). Smith and other plaintiffs were current and former drivers for a delivery service operated by Spizzirri. Smith and other plaintiffs brought claims against Spizzirri, alleging that Spizzirri violated state and federal employment law. Pursuant to the Federal Arbitration Act (FAA), which states that courts “shall . . . stay” proceedings until the conclusion of arbitration, Spizzirri moved to compel arbitration and dismiss the suit. Though Smith did not dispute that all her claims were arbitrable, she argued that the FAA requires courts to temporarily stay the proceedings rather than dismiss them entirely.

The Supreme Court agreed with Smith, reversing the decisions of the district court and the Ninth Circuit that interpreted the “shall . . . stay” provision of the FAA as allowing courts to dismiss the proceedings. With respect to the word “shall,” the Court reasoned that the FAA’s use of shall indicates an obligation and a lack of discretion, meaning that courts’ only option under the FAA is to stay the proceedings. Respecting the word “stay,” the Court offered several reasons why stay means a temporary suspension of the proceedings, not a conclusive termination. First, this interpretation of the word stay comports with the long-standing legal meaning of stay. Next, if stay meant dismissal, it would allow litigants to appeal orders compelling arbitration, which would contradict the intent of the FAA. Additionally, interpreting stay to mean temporary suspension aligns with the understanding that courts remain involved in the arbitration by enforcing arbitrators’ subpoenas, facilitating recovery on the arbitral award, and, if the arbitration fails, allowing the parties to return to court. Finally, the Supreme Court rejected the argument that courts have the inherent authority to dismiss rather than stay the proceedings because Congress statutorily overrode the courts’ inherent powers by enacting the FAA.

*Carson Cargill is a Summer Associate for Lathrop GPM who contributed to the writing of this post.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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