Earlier today, the U.S. Supreme Court held that district courts must stay, rather than dismiss, cases when the underlying claims are subject to mandatory arbitration. The Court issued its decision in Smith v. Spizzirri, an employee misclassification case brought by delivery drivers against their employer.
The Court premised its ruling, which resolved a circuit split, on the plain language of the Federal Arbitration Act, 9 U.S.C. § 3. The Act provides that once a court has determined that a claim is subject to arbitration, it “shall on the 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.” The Court reasoned that the use of “shall” and “stay” removed any discretion to dismiss a case pending arbitration: “When §3 says that a court ‘shall . . . stay’ the proceeding, the court must do so.”1
As a practical matter, defendants seeking to invoke arbitration clauses should view the Court’s opinion as a positive development. If a motion to compel arbitration is denied, the movant can immediately appeal that decision under 9 U.S.C. § 16. But if the motion to compel arbitration is granted, Smith’s requirement that the case be stayed rather than dismissed leaves the opposing party little appellate recourse, at least in the short term. And if the arbitration clause delegates threshold issues of arbitrability to the arbitrator through a valid delegation clause, then even preliminary questions of arbitrability would be referred to the arbitrator, allowing the movant to avoid costly litigation while the arbitration proceeds.
1 Slip. op. at 4.
