To stay or to go (from the docket)? For decades, federal courts of appeal have disagreed on a fundamental procedural question: when a dispute filed in federal district court is subject to arbitration, should the court dismiss the action or stay it pending the outcome of the arbitration? On May 16, 2024, the Supreme Court answered this question by unanimously holding that Section 3 of the Federal Arbitration Act (the “FAA”) compels the court to stay—not dismiss—the proceeding. Smith v. Spizzirri, 601 U.S. ____ (2024).

Section 3 of the FAA provides that “[i]f 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 in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, 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 (emphasis added). But the federal courts of appeal have reached different conclusions regarding the application of this provision. The Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuits all held that Section 3 mandated a stay of district court proceedings if properly requested by a party. By contrast, the First, Fifth, Eighth, and Ninth Circuits determined that the district courts had the discretion to dismiss the proceedings rather than ordering a stay. 

The Supreme Court’s decision in Smith put an end to the circuit split in a short, unanimous opinion by Justice Sotomayor. First and foremost, the Court held that the plain text of Section 3 created only one option for a lower court—it must stay an arbitrable dispute pending arbitration. In reasoning applicable to many federal statutes, the Court emphasized that the term “shall” created an “obligation impervious to judicial discretion.”[1] Section 3 thus created a mandatory obligation to stay the proceeding, and that obligation left “no place for the exercise of discretion by a district court.”[2] The Court further rejected the respondent’s creative reading of the term “stay” to encompass dismissals, because a “stay” means a “temporary suspension of legal proceedings, not the conclusive termination of such proceedings.”[3] In short: “Just as ‘shall’ means ‘shall,’ ‘stay’ means ‘stay.’” 

Although the Court did not place great reliance on the purpose of the FAA in reaching its decision, there are practical consequences to its decision in Smith that are tied to the overall intent of the FAA. Lower courts retaining jurisdiction and staying arbitrable disputes “avoid costs and complications” that arise from a dismissal, and it provides for the lower courts’ supervisory role over the arbitral process (including the court’s power to appoint an arbitrator or enforce a subpoena issued by an arbitrator), as envisioned by the FAA. Parties are no longer forced to file a new action if the arbitration either breaks down or fails to resolve the dispute for any reason. And a lower court retaining jurisdiction avoids a potential statute of limitations problem that could arise if, for example, an arbitrator decides a particular claim is not subject to arbitration and yet that same claim was previously dismissed from a federal court action in favor of arbitration. In all events, Smith provides long-overdue clarity on a simple but potentially important issue of arbitration procedure and avoids unnecessary motion practice over the age-old question: to stay or to go (from the docket)? 

[1] Slip Op. at 4 (quoting Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35 (1998))

[2] Slip Op. at 4 (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 218 (1985)).

[3] Slip Op. at 4 (internal quotation marks and citation omitted).