Today’s SCOTUS: Does Federal Arbitration Act Sec. 3 on Litigation Stays Allow Dismissal?

By Lee Williams & Russ Bleemer

4/22/24

This article was originally published by CPR Speaks, the blog of the CPR Institute.

A U.S. Supreme Court trend of using a plain-text reading of old arbitration law to decide current hot ADR topics looks ready to be continued in the wake of today’s oral arguments in Smith v. Spizzirri, No. 22-1218.

Both sides argued that Federal Arbitration Act Sec. 3’s words won their arguments, but the justices leaned decidedly toward the petitioners’ argument that the 1925 law meant what it said in requiring that courts issue a stay of litigation when a case is sent to arbitration.

The respondents’ attorney tried to argue that a stay also covered the judicial discretion of issuing a dismissal when the FAA was written, and when FAA Sec. 3 was added in 1947.

Discussing the stay requirement at the outset of the respondents’ argument, Justice Clarence Thomas interrupted E. Joshua Rosenkranz, a partner in the New York office of Orrick, Herrington & Sutcliffe, and asked, “What’s unclear about it?”

Rosenkranz replied with a historical argument, noting that Congress meant stopping the litigation under dictionary and drafting interpretations when the law was devised.

But Justice Sonia Sotomayor said, “I can't put aside the language,” adding that the law requires a “stay until such arbitration has been had in accordance with the terms of the agreement," and also, “providing the applicant for the stay is not in default,” quoting FAA Sec. 3.

Sotomayor’s bottom line: “I can't read dismissal into those two conditions,” she said, adding, “If they were going to permit dismissal, they would have put ‘stay the action,’ period.”

“Understood, your honor,” replied Rosenkranz, who spent the respondents’ argument trying to counter a seemingly straightforward issue under statutory text: whether the Federal Arbitration Act  binds the court to stay litigation when a case is sent to arbitration, instead of permitting the court to dismiss the case.

On its face, the answer indeed is easy: The FAA Section 3 language requires in part that any courts hearing a case referable to arbitration “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.” 9 U.S.C. § 3.

But while there is nothing permitting alternative paths in the words, there is a history of federal courts finding wiggle room. In the case, the Ninth U.S. Circuit Court of Appeals used its longstanding exception that allows cases to be dismissed where all claims are subject to arbitration.

And in Smith v. Spizzirri, the Ninth Circuit had dismissed the petitioner-drivers’ claims against their Phoenix-based delivery service employer after the case was sent to arbitration. The successful cert petition--linked above on the Court’s docket page and available directly here--says there is a 6-4 circuit split on stays only versus dismissals' discretion.  

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In the opening argument for the petitioners, Daniel Geyser, a Dallas Haynes and Boone partner, began by detailing the possible issues with dismissing arbitration cases prior to their conclusion, including activating premature rights to appeal and inviting unnecessary litigation between parties over whether a case should be stayed or dismissed.

He argued that the plain language of FAA Section 3 should be upheld and referenced the recent Bissonnette v. LePage Bakeries Park St. LLC, No. 23-51,  decision as support. (For Bissonnette details, see Lee Williams, “Supreme Court Expands Federal Arbitration Act Exemption from ADR,” CPR Speaks (April 12) (available here).)

Geyser said he believed that his adversaries thought that one of their “stronger arguments is . . . to suggest that there's inherent authority for a court to decide what to do when you have an arbitration agreement.”

He said that the argument fails because there is no such inherent authority—"This is effectively a substantive rule of decision,” he said, and even if a court had such authority, “it's obviously been overridden by what we consider to be the fairly unambiguous language of the statute.”

Justice Neil Gorsuch returned to the inherent authority point later, asking whether a court’s powers to deal with other issues beside dismissals might be limited under FAA Sec. 3, using the power to deal with abusive litigation tactics as an example.

Geyser responded that the statute only deals with a case subject to arbitration. It “doesn't preclude the court's ability to access any other source of federal law that would let it do anything else in the case,” he said.

* * *

The case provides another shot at the question of jurisdiction under the FAA, and recalls the two-year-old case, Badgerow v. Walters, 142 S. Ct. 1310 (2022) (available at https://bit.ly/47CVvRG). 

In Badgerow, the plain-text reading argument won, limiting the federal court jurisdiction for FAA Section 9 and 10 claims to enforce and to challenge awards because those sections and actions don’t grant specific federal court jurisdiction. (For more background, see Lee Williams, “Stay or Dismiss? The Supreme Court Grants Cert on Its Third Arbitration Case This Term,” CPR Speaks (Jan. 15) (available here).)

A Badgerow-derived argument in Spizzirri by petitioners Wendy Smith, et al., that the Supreme Court should mandate an FAA Sec. 3 stay in district court had failed. Respondents Keith Spizzirri, et al., countered that the Ninth U.S. Circuit Court of Appeals should be able to dismiss the district court case as this matter has been designated for arbitration. The Ninth Circuit sided with the respondents in this case, denying all petitioners’ arguments to mandate a stay.

The lower court had differentiated FAA Section 3 from other sections in the law where, like in Badgerow, the Supreme Court used a plain-text approach to their interpretation.

While backing a plain-text reading of the law, Dan Geyser also wrote off the Badgerow need for an independent grant of jurisdiction for FAA Section 3. He said the precedent involved an arbitration and then “a freestanding lawsuit filed simply to confirm or to vacate the arbitration award.”

In Smith v. Spizzirri, “you don't need more jurisdiction or extra jurisdiction,” he explained, adding, “Once a court has power to decide the case, they can decide the case.” (Geyser represented the winning petitioner in Badgerow.)

* * *

Orrick’s Joshua Rosenkranz faced more pointed questions on his arguments. He began by differentiating the meaning of “stay” from what the petitioners alleged. He argued that at the time Congress enacted FAA Section 3, “stay” simply meant stop, and nothing else.

Rosenkranz asserted that as long as the court stopped litigating, the statute was satisfied. even if the case was dismissed. “In 1925, the word ‘stay’ was just not categorically inconsistent with a dismissal,” he explained, adding, “The lead definition of ‘stay’ in Black's Law Dictionary at the time was ‘stopping.’”

That’s when Justice Sotomayor pushed back, hard.

But Rosenkranz countered that Black’s Law Dictionary aided his clients, not the petitioners. He also emphasized that the durational aspect of Section 3 is separate from “stay,” and the durational limit was put in place to dictate when the matter could return to court: after arbitration.

Rosenkranz was adamant that Section 3 does not command district courts to keep jurisdiction over the whole case, referencing jurisdictional language in FAA Section 8 on admiralty proceedings (which is absent in Sec. 3) to strengthen his argument. Because there is jurisdictional language in other FAA sections, that must speak to Congress’s intent to allow courts to use discretion when deciding to dismiss under Section 3, he argued.

Court resources used or saved by stays and dismissals were present in both arguments. Rosenkranz asserted that Congress would not force district courts to keep cases open because it would be a “burden on the district court in just having the case sitting there.” He cited that there are about 100,000 arbitration cases a year, adding—and echoing Dan Geyser—that only about 800 return to court.

Chief Justice John G. Roberts Jr. and Justice Ketanji Brown Jackson appeared to disagree with Rosenkranz, suggesting that re-filing the cases would be more burdensome than merely court-kept lists of stayed cases that would not be touched unless one of the cases returned to court. Justice Jackson explained that the burden of dismissal is on a plaintiff that filed in court and would require the party to refile, paying more money, if a case is not stayed. 

While Rosenkranz attempted to argue that the court suffered more of a burden, the justices exchanged skeptical looks.

Joshua Rosenkranz concluded by pointing out that “petitioners are trying to cram a lot of meaning into the word ‘stay’” and Congress’s intent and FAA ambiguity supported the respondents.

* * *

In his rebuttal, Daniel Geyser rejected his adversary's argument that Black’s Law Dictionary defined “stay” differently than the petitioners’ interpretation. “At the time in 1925,” countered Geyser, “if you look to Black's Law Dictionary, stay was a stay of proceedings, which is what this is, [and] was defined as a temporary suspension of the case. It's exactly what Section 3 is doing.” 

Geyser argued that Justices Jackson and Sotomayor were correct in questioning Joshua Rosenkranz’s argument because the respondents’ interpretation would result in complications and burdensome litigation.

* * *

Today’s case was heard after the controversial Grants Pass v. Johnson, No. 23-175, a case surrounding the criminalization of homelessness. (Transcript and audio available here.) The lengthy arguments in Grants Pass may have served to help streamline the Spizzirri arguments, as they only lasted about 45 minutes. The transcript to the Smith v. Spizzirri argument is available here; the audio recording is posted by the Supreme Court here. Today's cases are expected to be decided before the current terms concludes at the end of June.

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Williams, a second-year student at the Howard University School of Law in Washington, D.C., is a full-year CPR intern as part of CPR’s consortium program with Howard Law’s ADR Program. Bleemer edits Alternatives to the High Cost of Litigation for the CPR Institute.

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