STAY OF LITIGATION PENDING COMPLETION OF ARBITRATION

Smith v. Spizzirri, 601 U.S. 472

The defendants moved to compel arbitration and dismiss the plaintiffs’ class action. The plaintiffs did not oppose the motion to compel but opposed the motion to dismiss, arguing that Section 3 of the FAA required a stay. The district court granted the motion to dismiss without prejudice and the Ninth Circuit affirmed, holding that a district court has discretion to dismiss when the only issue is whether the matter is arbitrable. Plaintiffs’ writ of certiorari was granted.

The Supreme Court reversed and remanded. Section 3 provides that, when any issue in a suit is subject to arbitration, the court “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.”
Use of the word “shall” “creates an obligation impervious to judicial discretion.” Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U. S. 26, 35 (1998). That plain statutory text requires a court to stay the proceedings. See Maine Community Health Options v. United States, 590 U. S. 296, 310 (2020). When §3 says that a court “shall . . . stay” the proceeding, the court must do so. Just as “shall” means “shall,” “stay” means “stay.”
The defendants argued that “stay” in §3 “meant only that the court must stop parallel incourt litigation, which a court can achieve by dismissing without retaining jurisdiction. The Supreme Court held that there were, however, two significant problems with that argument. First, it disregarded the long-established legal meaning of the word “stay.” That term denotes the “temporary suspension” of legal proceedings, not the conclusive termination of such proceedings. Second, the defendants’ attempt to read “stay” to include “dismiss” cannot be squared with the surrounding statutory text. By directing a court to stay the proceeding “until such arbitration has been had in accordance with the terms of the agreement,” and only so long as “the applicant . . . is not in default in proceeding with the arbitration,” §3 ensured that the parties can return to federal court if arbitration breaks down or fails to resolve the dispute. That return ticket would not be available if the court dismissed the suit rather than staying it.

Defendants also suggested that, notwithstanding the statute, district courts have inherent authority to dismiss proceedings subject to arbitration. The Court responded that even if that were true, the inherent powers of the courts may be controlled or overridden by statute or rule. Section 3 does exactly that.