Plaintiffs Win Big for Defendants in High Court Arbitration Case

The plaintiffs in the Smith v. Spizzirri employment law case prevailed 9-0. But in virtually all cases, it’s defendants who will benefit from the US Supreme Court’s May 16 holding—that Section 3 of the Federal Arbitration Act requires a stay of pending litigation when the underlying dispute is subject to arbitration and a party requests a stay. And that result is fully consistent with the text and structure of the statute.

The reason why the plaintiffs obtained a pro-defendant result in Smith is that the typical alignment of the parties was reversed. The plaintiffs in Smith, despite filing a lawsuit in court, acquiesced to arbitration and requested a stay. In most cases, plaintiffs who file a lawsuit in court oppose arbitration, and they sometimes request dismissal if arbitration is granted so they can immediately appeal that decision.

Some courts freely enter dismissals rather than stays under these circumstances. That practice is inconsistent with the pro-arbitration appellate review provisions in Section 16 of the FAA. When a court denies a request for arbitration, Section 16 expressly authorizes an immediate appeal.

By contrast, Congress didn’t include any authority for immediate appeals of grants of arbitration in accordance with the terms of the parties’ agreement, making clear there shouldn’t be an automatic immediate appeal from such an interlocutory order granting the requested arbitration.

That asymmetry was no accident: The point of the FAA is to move parties to an arbitrable dispute out of court and into the type of arbitration agreed upon by the parties as quickly and easily as possible.

Smith puts a stop to plaintiffs’ lawyers obtaining dismissals as an end-run around the appellate regime crafted by Congress. Defendants who successfully compel arbitration of the claims asserted in a lawsuit in court—in accordance with the parties’ arbitration agreement—no longer must face the delay and expense of an appeal before the dispute moves to arbitration.

The Supreme Court’s opinion also makes it easier for federal courts to resolve any issues related to a pending or completed arbitration. As long as the federal court in which the lawsuit was filed—or to which it was properly removed—has jurisdiction, a stay allows that same court to exercise supervisory functions over the arbitration, such as appointing an arbitrator or enforcing subpoenas issued by arbitrators.

The federal court can also hear any post-arbitration proceedings to confirm, vacate, or modify the arbitration award. By contrast, a federal court that dismissed a case despite a party’s request for a stay may not have had jurisdiction to hear these issues under the Supreme Court’s opinion in Badgerow v. Walters.

Finally, the Supreme Court in Smith erected two important guardrails around its holding. Both should, on balance, also benefit defendants.

First, the Supreme Court was careful to make clear that Section 3’s text mandates a stay only when a stay is requested by one of the parties. Accordingly, courts presumably may still enter dismissals when all parties request the dismissal of a lawsuit—or at minimum when no party requests a stay.

Dismissals under such circumstances may effectuate parties’ early settlement of the matter or a voluntary decision by the plaintiff not to prosecute the claims in either court or arbitration. And defendants that do want a stay should be sure to request one.

Second, the Supreme Court observed that district courts may retain the ability to dismiss lawsuits for reasons unrelated to arbitration—such as a lack of jurisdiction. That caveat should curtail the ability of plaintiffs’ lawyers to shop for inappropriate forums that they nonetheless perceive as favorable—including for issues related to the arbitration.

In short, don’t be fooled by the unusual alignment of the parties in Smith. The holding that Section 3 of the FAA mandates a stay is welcome news for defendants facing disputes filed in court that are subject to the plaintiffs’ contractual obligation to arbitrate.

The case is Smith v. Spizzirri, U.S., No. 22-128, Decided 5/16/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Andrew J. Pincus is partner at Mayer Brown and has won numerous US Supreme Court and appellate court victories involving arbitration agreements and class actions.

Archis A. Parasharami is partner at Mayer Brown and co-leads the firm’s class action practice, defending businesses in class actions and mass arbitrations.

Daniel Jones is partner at Mayer Brown with experience litigating the enforceability of arbitration agreements.

The authors filed an amicus brief in Smith in support of neither party on behalf of the Chamber of Commerce of the United States of America; the brief argued, among other things, that the text of Section 3 requires a stay.

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