Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.
The Supreme Court has granted certiorari in Smith v. Spizzirri, No. 22-1218 following the request from two Ninth Circuit judges to weigh in on whether a district court must stay or dismiss a suit after the court has granted a motion to compel arbitration. See Forrest v. Spizzirri, 62 F.4th 1201 (9th Cir. 2023). If the court denies the motion to compel arbitration, as explained below, that decision would be immediately appealable and the procedural implications of such a ruling have recently been clarified by the Supreme Court.
While litigants are often most focused on the district court’s ruling as to whether the dispute belongs in arbitration or not, the granting of such a motion is not the end of the federal district court’s work. It must decide whether to stay the court case pending the outcome of the arbitration or dismiss the case altogether. Currently, the Courts of Appeals are split as to what the Federal Arbitration Act (FAA) requires in this situation. A majority of circuits (Second, Third, Sixth, Seventh, Tenth, and Eleventh) hold that Section 3 of the FAA mandates a stay of the federal court case. That provision (9 U.S.C. § 3) states:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
The remaining circuits (First, Fifth, Eighth, and Ninth) have ruled that a district court has inherent authority to dismiss a case when all issues must go to arbitration.
Importantly, this issue is not merely academic. If, after granting the motion to compel arbitration, the district court stays the case and does not dismiss it, the FAA forbids an interlocutory appeal by the party opposing the motion to compel arbitration who desires to remain in court. See 9 U.S.C. § 16(b)(2). In such a situation, the district court retains jurisdiction over the case and the parties need not initiate an entirely new suit to move for court confirmation or vacatur of an eventual arbitration award. If the district court dismisses the case outright, however, that would be a final order that could be immediately appealed. Since the case would be closed, a party seeking to confirm or vacate the arbitral award would need to file a new action in district court.
As mentioned above, the procedural implications of the denial of a motion to compel has recently been clarified. In June 2023, the Supreme Court addressed such procedural issues when a motion to compel arbitration is denied, confirming that such a decision by the District Court is immediately appealable and holding that during the appeal of the denial of a motion to compel arbitration all litigation in the District Court is automatically stayed. Coinbase, Inc. v. Bielski, 599 U.S. 736 (2023). [July 2023 FTU]
Now, the Supreme Court is likely to resolve this procedural dispute arising from the granting of motions to compel arbitration, as it recently granted certiorari in Smith v. Spizzirri, No. 22-1218 (appeal from Forrest v. Spizzirri, 62 F.4th 1201 (9th Cir. 2023)). The Smith petitioners, current and former delivery drivers, sued respondent delivery service operators for violations of Arizona and federal employment law. The District of Arizona granted a motion to compel arbitration, as petitioners later conceded that their claims were arbitrable under their contracts with respondents. The District Court denied petitioners’ request to stay proceedings and dismissed the case entirely. The Ninth Circuit, in an opinion authored by Judge Mark J. Bennett, affirmed dismissal, citing its own precedent and concluding that, “notwithstanding the language of [section three],” a district court has discretion to stay or dismiss a case where all issues are subject to arbitration. 62 F.4th at 1204-05. Notably, Judges Susan P. Graber and Roopali H. Desai concurred and separately urged the Supreme Court to weigh in on this issue, observing the circuit split. Id. at 1206.
Both sides have strong arguments. Petitioners will argue, as they did in their initial petition, that the wording of Section 3 (“shall on application of one of the parties stay the trial”) does not leave room for judicial discretion. Retaining jurisdiction would also allow parties to seek assistance from the district court should it be needed (e.g., enforcement of a subpoena and confirmation or vacatur of the arbitral award). Further, dismissing a case bound for arbitration—and, in so doing, allowing for immediate appeal—would violate the overall structure of the FAA, which otherwise forbids appealing the grant of a motion to compel arbitration. See 9 U.S.C. § 16.
On the other hand, respondents could argue that the text of the FAA allows for dismissal and does not upset a district court’s inherent authority to control its docket. According to respondents, the FAA does not mandate a stay of all proceedings but rather just a stay of a trial. As the argument goes, Section 3’s stay language refers to situations where some issues may not be subject to arbitration, but others are. In these cases, the court “shall . . . stay” a trial on the issues that are appropriately before a court while the arbitration on the remaining issues proceeds. Thus, in cases such as Smith, where all issues are subject to arbitration, there is no trial to stay, and thus the district court may choose to dismiss. Respondents will also likely minimize the potential harm of a dismissal; since the parties can refile a case to confirm or vacate an arbitration award.
Regardless of the outcome of the case, a decision from the Supreme Court will clarify a practical open issue for arbitration practitioners. This case bears watching as it could impact litigants’ decisions to test the scope of arbitration clauses. The argument has not yet been scheduled.
