SCOTUS Stays Arbitrations: No Dismissals Under the FAA When Arbitration Is Ordered

In another important clarification of the Federal Arbitration Act (FAA), the United States Supreme Court has unanimously ruled that courts must stay proceedings, not dismiss them, when a dispute is referred to arbitration. The decision in Smith v. Spizzirri, No. 22-1218 (U.S. May 16, 2024), underscores the binding nature of the FAA’s procedural requirements and resolves a longstanding circuit split on whether federal courts have discretion to dismiss cases once arbitration has been compelled.

This decision carries implications for both litigants and courts, reaffirming the intent of Congress in structuring arbitration under the FAA and shaping the correct procedural posture of cases during arbitration.

Background: The Facts Behind Smith v. Spizzirri

The case arose from a familiar fact pattern in employment law: a group of delivery drivers filed suit, alleging they were misclassified as independent contractors when they were in fact employees entitled to wage and hour protections. The plaintiffs originally brought the action in state court, but the employers removed the case to federal court and moved to:

1. Compel arbitration, citing arbitration clauses in the drivers’ agreements

2. Dismiss the federal court case, asserting that once arbitration was compelled, the court should no longer retain jurisdiction

The district court granted both motions, compelling arbitration and dismissing the case without prejudice. On appeal, the Ninth Circuit affirmed, holding that district courts had discretion to dismiss or stay proceedings depending on the circumstances.

That discretion has long been recognized in the Ninth and First Circuits, while other circuits—including the Second, Third, Seventh, and Tenth—have held that a stay is mandatory under Section 3 of the FAA. With Smith, the Supreme Court has brought uniformity to this issue, siding with the latter group of circuits.

The FAA’s Language: A Plain Reading

Section 3 of the FAA states that:

“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… shall on application of one of the parties stay the trial of the action until such arbitration has been had…”

This language has long been interpreted to require a stay when arbitration is compelled. However, several courts, particularly in the Ninth Circuit, treated this as permissive, allowing dismissal as a matter of judicial efficiency. That approach, though arguably pragmatic, has now been rejected by the nation’s highest court.

In unambiguous terms, the Supreme Court ruled that a stay is mandatory when a court finds that the underlying dispute is subject to arbitration. Dismissing a case—especially over a party’s objection—frustrates the congressional framework of arbitration and risks disrupting a party’s procedural rights under the FAA.

The Supreme Court’s Rationale

Justice Sonia Sotomayor authored the opinion for a unanimous Court, and her reasoning centered on the plain text of the FAA. The opinion emphasized several key points:

1. Statutory Command: The FAA does not say “may stay”—it says “shall stay.” That creates a mandatory duty, not judicial discretion.

2. Protecting Appellate Rights: If a court dismisses rather than stays a case, it can inadvertently trigger appeal rights not intended by the FAA. Staying the case preserves the statutory bar on interlocutory appeals in arbitration matters.

3. Avoiding Prejudice: A stay ensures that the court retains jurisdiction and can assist with enforcement issues or confirm the award. Dismissal may lead to unnecessary re-filing or litigation over procedural technicalities.

4. Preserving Uniformity: A stay ensures consistency in how courts nationwide treat arbitration-related proceedings, avoiding confusion across circuits.

Practical Consequences for Litigants

The ruling provides clarity and stability for parties engaged in arbitration. When a motion to compel arbitration is granted, federal courts must stay the proceedings. This ruling:

• Eliminates discretionary dismissals once arbitration is ordered

• Maintains the court’s supervisory role, allowing it to confirm or vacate awards

• Prevents premature appeals that could otherwise disrupt the arbitral process

• Assures parties that procedural protections under the FAA will be consistently applied

In employment cases, consumer disputes, and commercial litigation, the court’s continued involvement—via a stay—may actually help facilitate smoother resolution of post-arbitration issues, especially if confirmation or enforcement becomes necessary.

Strategic Considerations Going Forward

Attorneys drafting or litigating arbitration agreements should consider the implications of Smith when navigating disputes:

• Anticipate that litigation will remain pending, though stayed, during arbitration

• Use the stay to preserve procedural flexibility, including the court’s assistance if discovery or interim relief is required

• Recognize that a court-ordered stay signals ongoing judicial oversight, which may shape how arbitration proceeds

• Avoid arguing for dismissal unless both parties agree, as courts are now bound to issue stays under the FAA

Uniformity at Last: Resolving the Circuit Split

One of the most valuable outcomes of this decision is the elimination of the circuit divide that previously left parties subject to dramatically different rules depending on where a case was filed.

The Supreme Court’s decision in Smith v. Spizzirri means that:

• In all federal courts, a stay is now required when arbitration is ordered

• Parties can no longer rely on circuit-specific interpretations of the FAA’s Section 3

• The arbitration process will proceed under a more predictable, nationally consistent framework

Conclusion: Courts Stay, Not Dismiss, When Arbitration Is Ordered

The Supreme Court’s decision in Smith reinforces the principle that arbitration is not an off-ramp from the judicial system, but rather a parallel track governed by statute. By mandating that courts stay litigation once arbitration is ordered, the Court has protected both parties' procedural rights and upheld the integrity of the arbitration process.

It also confirms what experienced ADR practitioners have long known: arbitration is most effective when built on a clear procedural foundation, with courts and neutrals working in tandem to respect and enforce the parties’ agreement.

Nationwide ADR: Clarity, Consistency, and Craftsmanship in Arbitration

Whether addressing questions of arbitrability, forum selection, or FAA compliance, Nationwide ADR brings a deep understanding of arbitration law and court procedure. With a focus on business disputes, tort matters, employment claims, and consumer arbitration, services are designed to deliver clarity, balance, and resolution.

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To learn more about how Nationwide ADR supports litigants and counsel in arbitration-related matters—including procedural guidance, early dispute resolution, and award enforcement—visit NationwideADR.com.