Wendy Smith and others are are current and former delivery drivers for anon-demand delivery service operated by Keith Spizzirri and his co-defendants. The Plaintiffs sued Defendants in Arizona state court, alleging violations of federal and state employment laws.

Plaintiffs claimed that defendants misclassified them as independent contractors, failed to pay required minimum and overtime wages, and failed to provide paid sick leave. After removing the case to federal court, Defendants moved to compel arbitration and dismiss the suit.

Plaintiffs conceded that all of their claims were arbitrable, but they argued that §3 of the Federal Arbitration Act (FAA) required the District Court to stay the action pending arbitration rather than dismissing it entirely.

The District Court issued an order compelling arbitration and dismissing the case without prejudice. The court noted that “the text of 9 U. S. C. §3 suggests that the action should be stayed,” but that Circuit precedent “instructed that ‘notwithstanding the language of §3, a district court may either stay the action or dismiss it outright when, . . . the court determines that all of the claims raised in the action are subject to arbitration.’ “

Because “all claims raised [were] subject to arbitration,” the District Court concluded that it “retain[ed]discretion to dismiss the action.”

The Ninth Circuit affirmed. While that court likewise acknowledged that “the plain text of the FAA appears to mandate a stay,” the court explained that it was bound by Circuit precedent recognizing the District Court’s “discretion to dismiss.” Forrest v. Spizzirri, 62 F. 4th 1201, 1203, 1205 (2023).

Judge Graber, joined by Judge Desai, concurred, asserting that the Ninth Circuit’s position was wrong and urging U.S. Supreme Court “to take up this question,which it has sidestepped previously, and on which the courts of appeals are divided.”

The U.S. Supreme Court granted certiorari to answer the question it previously left open and resolve the Circuit split.

The US Supreme Court, in a unanimous decision on May 16, 2024, ruled in favor of Smith in Smith v. Spizzirri. The court decided that federal courts are obligated to stay lawsuits, not dismiss them, when both parties agree to arbitration and one party requests a stay. This applies to cases where the court has already ruled that the claims belong in arbitration.

“In this statutory interpretation case, text, structure, and purpose all point to the same conclusion: When a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration, the court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration.”

Here the FAA provides when any issue in a suit is subject to arbitration, the 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, providing the applicant for the stay is not in default in proceeding with such arbitration.”

“Here, as in other contexts, the use of the word ‘shall’ creates an obligation impervious to judicial discretion.“

“Finally, staying rather than dismissing a suit comports with the supervisory role that the FAA envisions for the courts. The FAA provides mechanisms for courts with proper jurisdiction to assist parties in arbitration by, for example, appointing an arbitrator, see 9 U. S. C. §5; enforcing subpoenas issued by arbitrators to compel testimony or produce evidence, see §7; and facilitating recovery on an arbitral award, see §9.”

“Keeping the suit on the court’s docket makes good sense in light of this potential ongoing role, and it avoids costs and complications that might arise if a party were required to bring a new suit and pay a new filing fee to invoke the FAA’s procedural protections. District courts can, of course, adopt practices to minimize any administrative burden caused by the stays that §3 requires.”