FAA Requires Courts to Stay Cases After Compelling Arbitration, Says SCOTUS Brief

Petitioners Wendy Smith, Michelle Martinez and Kenneth Turner are asking the U.S. Supreme Court to reverse the 9th U.S. Circuit Appeals Court’s affirmation of the district court’s dismissal of their case after compelling their claims to arbitration, saying the case “presents an important question of statutory construction under the Federal Arbitration Act.” Their opening brief was filed Feb. 26 (docket 22-1218).

The case is being watched closely to determine whether the FAA's Section 3 requires district courts to stay a lawsuit pending arbitration, or whether they have discretion to dismiss when all claims are subject to arbitration.

The three plaintiff-appellants in the 9th Circuit false-advertising appeal against SiriusXM joined with SiriusXM to ask the court Feb. 16 to stay that appeal, pending the outcome of the SCOTUS case (see 2402200002). The plaintiff-appellants are challenging the district court decision compelling their claims to arbitration. SiriusXM's cross-appeal is challenging the district court's ruling to dismiss, rather than stay the case pending he outcome of the arbitration.

The petitioners are current and former IntelliQuick delivery drivers who sued in Arizona for multiple violations of federal and state employment laws. Notwithstanding the petitioners’ “affirmative stay request,” the district court compelled their claims to arbitration and dismissed the case, and the 9th Circuit affirmed.

While six circuits read Section 3’s plain text as mandating a stay after compelling claims to arbitration, four other circuits have carved out an “atextual” exception to Section 3’s stay requirement, said the brief. Those circuits have granted district courts discretion to dismiss, not stay, if the entire dispute is subject to arbitration, it said.

On appeal, the 9th Circuit declared itself “bound by circuit precedent” to affirm the district court’s discretion to dismiss, despite the plain text of the FAA appearing to mandate a stay, said the brief. The 9th Circuit panel “candidly acknowledged” the 6-4 circuit split, and a two-judge concurrence emphasized that the courts of appeals are divided, it said. The concurrence asserted that the 9th Circuit’s position is wrong, and urged SCOTUS to take up the question, it said.

The case presents an important statutory question under the FAA “with a remarkably straightforward answer,” said the brief. Section 3 imposes a strict mandate on district courts to stay the litigation until arbitration has been concluded, it said. The 9th Circuit panel was compelled by binding precedent to reaffirm a judicially created exception to Section 3 that authorized district courts to dismiss, notwithstanding the FAA’s plain language, it said.

But the 9th Circuit’s precedent is wrong, said the brief. The FAA’s text, structure and purpose “confirm that Congress meant exactly what it said,” it said. A court shall issue a stay after compelling claims to arbitration, it said.

This isn’t simply “a minor procedural error,” said the brief. A court’s failure to stay dictates whether parties can immediately appeal an order compelling arbitration, contrary to the FAA’s “reticulated scheme,” it said. It affects “whether federal courts have supervisory authority to enforce the FAA’s other critical safeguards,” consistent with the FAA’s design, it said. It also serves as an “essential back-stop to protect litigant rights if a party compels arbitration but abandons the arbitration process,” as contemplated by the plain language of Section 3 itself, it said.

The contrary position “flouts the FAA’s plain text” and can’t be squared with the FAA’s “structure or purpose,” said the brief. It invites wasteful disputes “that needlessly burden parties and courts as litigants fight over whether to stay or dismiss,” when Congress has already provided the “categorical answer” that a stay is required, it said. Because that contrary view can’t account for any of its “critical shortcomings and is otherwise indefensible,” the 9th Circuit’s judgment “should be reversed,” it said.