Dive Brief:

• Federal courts can’t dismiss a case after it’s been sent to arbitration but must keep it on the docket until the matter is settled, the U.S. Supreme Court ruled Thursday in the latest of several cases involving the Federal Arbitration Act.
• “The plain text of [the FAA] requires a court to stay the proceeding upon request,” Associate Justice Sonia Sotomayor says in the unanimous opinion for Smith v, Spizzirri. “The statute’s use of the word ‘shall’ creates an obligation impervious to judicial discretion.”
• The decision “secures a necessary backstop that protects litigant rights if an arbitration falls through,” said Daniel Geyser, chair of the Supreme Court practice at Haynes and Boone that represented the petitioners in the case.

Dive Insight:

Although the FAA is clear that a case is to be stayed while it’s in arbitration, district courts in the 9th Circuit have relied on a precedent giving them discretion to dismiss a case if it’s determined that all of the claims are arbitrable.  

In the case leading up to this one, the district court determined that all of the claims made by delivery drivers who were challenging their status as independent contractors are arbitrable and dismissed the case after moving it to arbitration. 

The 9th Circuit affirmed but it also acknowledged the precedent was a problem and sought clarity from the Supreme Court

In addition to saying the plain text of the FAA requires cases to be stayed and not dismissed, with “stay” meaning temporary, as long understood under the law, the top court also said the structure of the law would be frustrated if dismissals were allowed. 

Under the law, parties have a right to appeal only if a court refuses to send a case to arbitration; if a court instead sends a case to arbitration, that right to appeal goes away. Permitting courts to dismiss rather than stay a case would upset this arrangement.

“If a district court could dismiss a suit subject to arbitration even when a party requests a stay, that dismissal would trigger the right to an immediate appeal where Congress sought to forbid such an appeal,” Sotomayor says. 

What’s more, the law envisions a court’s continued involvement in a case when it’s in arbitration so it can exercise supervisory duties such as enforcing subpoenas and compelling testimony. That becomes complicated if a case is dismissed. 

“Keeping the suit on the court’s docket makes good sense in light of this potential ongoing role,” Sotomayor says, “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.”

The decision is one of several by the top court recently that look at the application of the FAA. In a case decided last month, the court ruled the exception from mandatory arbitration for transportation workers engaged in foreign or interstate commerce could apply to delivery drivers, not just those in the transportation industry. The determinant isn’t the industry they’re in but the job they do.