The End of Arbitration + Dismissal Appeals?

In Smith v. Spizzirri, the Supreme Court held that district courts must stay—not dismiss—an action if the district court orders arbitration and a party requests a stay. The decision resolves a long-standing split over the ability to dismiss actions after ordering arbitration.

The decision also has implications for appellate jurisdiction. As I’ve explained on this site before, parties can appeal from an order that directs arbitration and dismisses an action. But if the district court stays the action, there is normally no immediate appeal from the decision ordering arbitration. With stays now required at a party’s request, we will likely see fewer appeals from decisions ordering arbitration.

One thing Smith didn’t expressly address, however, is what to do if no one asks for a stay.

The Stays-Required Decision

The Supreme Court found support for its holding in the text, structure, and purpose of the Federal Arbitration Act, as well as in the role the Act envisions for district courts.

Text

As for text, the relevant statutory provision (9 U.S.C. § 3) says that the district 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.” Shall, the Court explained, “creates an obligation impervious to judicial discretion.” So under § 3, the district court must stay an action at a party’s request.

Structure & Purpose

As for structure and purpose, stays are necessary to avoid immediate appeals from decisions ordering arbitration.

Although the Federal Arbitration Act permits many appeals from decisions refusing to order arbitration, Congress prohibited most appeals from decisions ordering arbitration. But the Supreme Court has held that a decision directing arbitration and then dismissing the action is an appealable final decision. Given Congress’s intention to rapidly move arbitrable disputes to arbitration, stays are necessary to avoid delay from immediate appeals.

The District Court’s Role

The Supreme Court added that its holding also comported with the supervisory role that the Federal Arbitration Act envisions for district courts. With the action stayed, the parties can return to the district court should the need arise (to, for example, select an arbitrator or enforce an award). They don’t need to file a new action, which a dismissal would require.

Thoughts on Smith

A few thoughts on Smith.

First, long time readers won’t be surprised that I think the Supreme Court got this one right. I argued for the stay-required rule back in 2019 after the Supreme Court decided Lamps Plus, Inc. v. Varela. As I said then, dismissing actions undermines the appellate scheme for arbitration. The stay-required rule avoids that problem.

Second, Smith will probably require reconsideration in some pending cases. For example, in Diaz v. Macys West Stores, Inc.—a Ninth Circuit decision from a couple weeks ago—there was some uncertainty over whether the district court stayed or dismissed an action after ordering arbitration. But the district court had closed the action and said that there were no claims remaining before it. That led the Ninth Circuit to conclude that the district court had dismissed the action. Smith might require reconsideration of that conclusion.

Third and finally is an issue that Smith might have left unresolved: what if no one asks for a stay? The statutory text speaks of a party asking the district court for a stay. And the Supreme Court said that a stay is required when a district court orders arbitration “and a party requests a stay pending arbitration.”

If a district court orders arbitration and no one has asked for a stay, can a district court then dismiss the action? I think not, given the Federal Arbitration Act’s appellate scheme. But Smith doesn’t expressly answer that question.

Smith v. Spizzirri, 2024 WL 2193872 (May 16, 2024), available at the Supreme Court and Westlaw