The U.S. Supreme Court has agreed to decide an issue concerning cases that are subject to arbitration that has divided the federal appeals courts:  when the claims at issue in a federal court suit are subject to arbitration, does the court have authority to dismiss the action, or can it only stay the action pending resolution of the arbitration?  That is the question presented in Smith v. Spizzirri, an appeal from a decision of the United States Court of Appeals for the Ninth Circuit that the Supreme Court agreed to hear by granting the plaintiffs’ petition for a writ of certiorari this month.

Section 3 of the Federal Arbitration Act (“FAA”), 9 U.S.C. 3, provides:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, 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.

Six federal circuits—the Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuits—have ruled that, under this language, a federal district court may only stay, and not dismiss, an action in which the claims are subject to arbitration.  Four circuits, however—the First, Fifth, Eighth, and Ninth Circuits—have ruled that district courts have the discretion to dismiss, rather than stay, an action where all of the claims raised in the action are subject to arbitration.

In Smith, the plaintiffs are current and former delivery drivers who sued their employer in state court in Arizona, alleging multiple violations of federal and state employment laws.  After removing the case to federal court in Arizona, the defendants move to compel arbitration and dismiss the action, claiming that all of the plaintiffs’ claims were subject to mandatory arbitration.

While the plaintiffs conceded that their claims were arbitrable, they argued that the FAA required the court to stay the action pending arbitration, rather than to dismiss it.  The district court granted the defendants’ motion to compel arbitration and dismissed the case, rather than staying it, ruling that Ninth Circuit precedent, notwithstanding the language of the FAA, “‘a district court may either stay the action or dismiss it outright when, as here, the court determines that all of the claims raised in the action are subject to arbitration.’”  Forrest v. Spizzirri, 2022 WL 2191931, at *1 (D. Ariz. June 17, 2022) (quoting Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1074 (9th Cir. 2014)). 

On appeal, the Ninth Circuit affirmed, agreeing with the district court that, under binding Ninth Circuit precedent, the district court had discretion to dismiss the action and rejecting the defendants’ argument that the court had abused its discretion.  Forrest v. Spizzirri, 62 F.4th 1201 (9th Cir. 2023).  Nonetheless, in an unusual concurrence, two of the judges on the three-member appellate panel encouraged the Supreme Court to consider the issue, noting that the circuits were split on the issue, and that the Ninth Circuit’s position seemed to conflict with the plain language of the FAA. 

The plaintiffs filed a petition for a writ of certiorari in June 2023 challenging the Ninth Circuit’s decision and urging the Court to resolve the split among the circuits, as the concurring judges in the Ninth Circuit themselves requested.  The Supreme Court granted the petition on January 12, 2024.  In the Supreme Court, the case is entitled Smith v. Spizzirri, and the docket number is No. 22-1218.