Should I Stay or Should I Go? The Supreme Court Says “Stay”

In the construction industry, arbitration is a frequently agreed-upon and utilized dispute resolution method. The Federal Arbitration Act (the “FAA”), 9 U.S.C. 1, et seq., provides the underpinning and framework for how courts should handle litigation in connection with arbitration agreements. Where a party asserts that a claim brought in court should be subject to arbitration, Section 3 of the FAA provides that the action should be stayed. However, some courts have entertained a party’s request to dismiss a suit where the claim is subject to an arbitration agreement, creating a circuit split in the federal appeals courts. In Smith v. Spizzirri, 2024 WL 2193872, issued on May 16, 2024, the Supreme Court held that, absent some other defect (such as the lack of personal or subject matter jurisdiction), Section 3 of the FAA requires a court which finds a claim is subject to an arbitration must stay the lawsuit during the arbitration proceedings rather than dismissing the action.[1] In so doing, the Court addressed a question that for years it left unanswered.

While most Circuits held, prior to Smith, that Section 3 requires a court to stay the litigation pending an arbitral award; the First, Fifth, Eighth, and Ninth Circuits each held that a court could dismiss an action in lieu of staying.

In Smith, both parties acknowledged the underlying claims were arbitrable, but when the district court compelled arbitration, the court dismissed the action rather than staying the court proceedings. The Ninth Circuit (relying on its prior precedent) affirmed, with two judges noting that the Ninth Circuit’s approach was incorrect. The Supreme Court granted certiorari and reversed.

Looking to the text of the FAA, the Supreme Court observed that the mandatory nature of the FAA’s text, which provides that a court “shall … stay the trial of the action until such arbitration has been held…” Beyond the literal text of Section 3, the Court also noted that staying the litigation pending completion of the arbitration is in accord with other sections of the FAA. The FAA’s framework envisions litigation only to further arbitration of claims subject to an arbitration agreement. Id. at *4 (noting that interlocutory appeals are allowed for a court denying arbitration, but not for compelling arbitration). Further the FAA envisions the courts’ standby readiness to help enforce arbitration agreements. For example, Section 7 of the FAA permits parties to enlist a court’s assistance to obtain compulsory process for witnesses to appear in the hearing; Section 9 allows a party to confirm an award; and Section 10 allows a court to vacate an arbitrator’s award.

The Supreme Court’s ruling resolves the circuit split and provides for greater predictability and efficiency at the intersection of litigation and arbitration. Staying litigation of claims subject to an arbitration agreement maintains the status quo until the arbitration has run its course and allows either party to seek relief from the court should such assistance become necessary.

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[1] Most cases involving the FAA arise under a federal court’s diversity jurisdiction; the FAA alone does not vest a court with subject-matter jurisdiction. Hall Street Associates, L. L. C. v. Mattel, Inc., 552 U.S. 576 (2008).

Editor Brendan J. Witry is an Associate at Laurie & Brennan LLP. His practice focuses exclusively on representing and advising owners, contractors, and trade contractors in construction disputes at all stages.