The Supreme Court recently resolved a Circuit split addressing how district courts should proceed when they have found that all claims in a dispute should be compelled to arbitration.  Smith v. Spizzirri, No. 22-1218, --- S.Ct. ----, 2024 WL 2193872 (U.S. May 16, 2024).  The Federal Arbitration Act (“FAA”) provides that, once a court has referred a matter 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.”  9 U.S.C. § 3.  In other words, once the district court has ordered a matter to arbitration, that court should stay the action in court until the arbitration has been completed if any party requests a stay.  Id.

However, many Circuit Courts of Appeal – including the First, Fifth, Eighth, and Ninth Circuits – had interpreted this language as allowing a district court to completely dismiss the entire dispute once the court had ordered that all claims were subject to arbitration.  The Supreme Court has now expressly overruled these holdings, adopting the position taken by the Second, Third, Sixth, Tenth, and Eleventh Circuits.  (The Seventh Circuit’s position went one step beyond Smith by ordering a stay under Section 3 even when no party had requested a stay and one party had requested dismissal.)

The Court based its reasoning on the plain language of Section 3, which states that a court shall stay the action upon a request by a party.  Smith v. Spizzirri, 2024 WL 2193872 at *3 (citing 9 U.S.C. § 3).  The court concluded that, “as in other contexts, the use of the word ‘shall’ creates an obligation impervious to judicial discretion” and further concluded that “[j]ust as ‘shall’ means ‘shall,’ ‘stay’ means ‘stay’” – i.e., a “temporary suspension of legal proceedings.”  Id. (citations and some internal marks omitted). 

Smith’s holding mainly affects the appealability of orders compelling cases to arbitration.  When a dispute is compelled to arbitration and stayed, the order compelling arbitration is not immediately appealable.  See id. at *4; see also 9 U.S.C. § 16(b).  However, when a court fully dismisses an action and compels arbitration, “that dismissal triggers the right to an immediate appeal.”  Smith, 2024 WL 2193872 at *4.  The court noted this distinction and reasoned that its holding was “consistent with Congress's purpose in the FAA to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible” rather than allowing for an immediate appeal of an order compelling arbitration.  Id. at *4 (citation and internal marks omitted). 

Finally, the Court concluded that its holding “comports with the supervisory role that the FAA envisions for the courts” because keeping a lawsuit on the court’s docket makes it easier for the court to assist the parties with the various tasks envisioned by the FAA, including appointing an arbitrator, enforcing subpoenas, and facilitating recovery after an arbitral award has been entered.  Id.  

The Smith opinion does not address what should occur when neither party requests a stay of the lawsuit.  This leaves open the opportunity for parties that have successfully compelled arbitration to request a stay and prevent an immediate appeal of the order compelling arbitration.