Courts must temporarily stay arbitration claims until the arbitration ends

The U.S. Supreme Court ruled on May 16 that courts must temporarily stay arbitration claims until the arbitration is complete and that they do not have the discretion to dismiss the case rather than grant a stay.

According to Patrick Bannon, an attorney at Seyfarth in Boston, the court’s decision is more important than it seems. “The alternative outcome would have allowed a determined party to resist arbitration in court for years,” he said.

The plaintiffs in the present case were delivery drivers for an on-demand delivery service operated by the defendants. The plaintiffs sued the defendants in Arizona state court for violations of federal and state labor laws. Drivers said respondents 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, the defendants moved to compel arbitration and dismiss the lawsuit. The plaintiffs acknowledged that all of their claims were arbitrable, but argued that the Federal Arbitration Act (FAA) required the district court to stay, or temporarily stay, the lawsuit rather than dismiss it.

The district court entered an order forcing arbitration and dismissing the case without prejudice, meaning the case could later be retried in court.

The 9th U.S. Circuit Court of Appeals affirmed, ruling that it was bound by precedent that recognized the district court’s “discretion to dismiss.” Two justices agreed, claiming the 9th Circuit’s decision was wrong and asking the Supreme Court to “take up this issue that it has previously sidestepped and on which the Court of Appeals is divided.”

In the unanimous decision of Smith vs. Spizzirri, authored by Justice Sonia Sotomayor, the Supreme Court reversed and remanded the case for further proceedings. “If a federal court finds that a dispute is subject to arbitration and a party has requested a stay of litigation pending arbitration, the court has no discretion to dismiss the action on the basis that all claims are subject to arbitration,” the court explained .

The Supreme Court ruled that the “clear language of the FAA requires a court to stay proceedings” until arbitration is initiated. “(S)tay means ‘stay,'” the Supreme Court said. Even at the time the FAA came into force, the term “stay” meant the temporary stay of legal proceedings and not the final termination of such proceedings, the court explained.

A “return ticket” to court after arbitration “is not available if the court dismisses the action instead of staying it,” the Supreme Court said. The Supreme Court stated: “It is not an answer to say, as defendants do, that a party can file a new action in federal court in these circumstances.” Even if this is true in practice – despite possible statute of limitations problems – “ignores the claim of one party to file a new lawsuit, the plain language” of the FAA.

Furthermore, the structure and purpose of the FAA confirmed that a stay was necessary, the Supreme Court ruled. It noted that if a court denies a request for arbitration, the FAA authorizes an immediate appeal. In contrast, an order requiring arbitration cannot be immediately appealed. The decision to provide for immediate interim appeals of denial orders—but not orders granting motions to compel arbitration—is consistent with Congress’s goal in the FAA to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible to bring , wrote the Supreme Court. “When a district court dismisses a claim subject to arbitration, even if a party requests a stay, that dismissal triggers the right to an immediate appeal if Congress intended to prohibit such an appeal,” the Supreme Court explained.

Furthermore, staying rather than dismissing a lawsuit is consistent with the oversight role that the FAA provides for the courts, the Supreme Court added. Courts of appropriate jurisdiction have mechanisms under the FAA to assist parties in arbitration by appointing an arbitrator; Enforcing subpoenas issued by arbitrators to compel testimony or production of evidence; and facilitating the recovery of an arbitration award.

“Given this potential ongoing role, leaving the lawsuit in court makes sense and avoids the costs and complications that could arise if a party had to file a new lawsuit and pay a new filing fee to invoke the FAA’s procedural protections appointed,” the Supreme Court said.

We have compiled articles about the decision by SHRM Online.

Importance of the case

“The case may sound very technical, but in practice it is very important,” Bannon said. If courts are required to stay cases pending arbitration, “employers with arbitration agreements have a more reliable opportunity to move claims into arbitration relatively quickly.” Had the Supreme Court ruled differently and courts would have been allowed to dismiss cases that were referred to arbitration “Employers may have to spend additional months arguing whether the decision to seek arbitration was the right one.”

(SHRM Online)

Convincing oral arguments from the plaintiffs

“What difference does it make between granting him a stay here or releasing him without prejudice?” Judge Clarence Thomas asked Daniel Geyser, an attorney with Haynes & Boone in Dallas and Denver, during oral argument in the case in April.

“It makes a big difference if we have a seat to go back to,” Geyser said. If the arbitration fails and the case is dismissed without prejudice, “our clients will have to file new lawsuits, obtain new services, prepare new proceedings-initiating documents, wasting our time and that of the court.”

Thomas asked, “But aren’t you encouraging people to start in federal court?” Geyser denied that would be the result.

Geyser later explained that respondent’s attorney “says that we give a lot of meaning to the word ‘stay.’ We just say that ‘stay’ means ‘stay.’ ”

He added that requiring lower courts to stay rather than dismiss during arbitration “doesn’t overwhelm the district courts that can really say, ‘Just let us know when the arbitration is complete.'”

(SHRM Online)