Smith v. Spizzirri: Supreme Court to Consider Whether Federal Courts May Dismiss a Lawsuit Subject to Arbitration

Smith v. Spizzirri: Supreme Court to Consider Whether Federal Courts May Dismiss a Lawsuit Subject to Arbitration

Legal Sidebari

Smith v. Spizzirri: Supreme Court to Consider
Whether Federal Courts May Dismiss a
Lawsuit Subject to Arbitration
March 4, 2024
In Smith v. Spizzirri, the Supreme Court will consider whether Section 3 of the Federal Arbitration Act
(FAA) permits federal trial courts to dismiss a lawsuit, rather than stay the case, when all of the claims are
subject to arbitration. Federal courts of appeals have split on this issue, and the Supreme Court’s eventual
decision could affect the availability of significant procedural rights in disputes involving arbitration
agreements. This Legal Sidebar provides background on the FAA and Section 3’s stay provision,
examines the lower court’s ruling in Spizzirri and the circuit split, and discusses considerations for
Congress.
Background
In general, the FAA requires courts to treat written arbitration agreements as “valid, irrevocable, and
enforceable,” and requires courts to “rigorously” enforce the agreements according to their terms. The
Supreme Court has characterized the FAA as establishing a “national policy favoring arbitration” and
reflecting Congress’s intent “to move the parties to an arbitrable dispute out of court and into arbitration
as quickly and easily as possible.” Under Section 3 of the FAA, a party to an arbitration agreement faced
with a federal lawsuit may request a stay of the court case pending arbitration. A stay pauses the judicial
proceeding, but the court retains jurisdiction over the case. Relatedly, under Section 4, a party may seek to
compel an adversary to resolve the dispute in binding arbitration pursuant to the agreement.
Staying a court case pending arbitration rather than dismissing it has a number of potential procedural
consequences. Perhaps most significantly, when a court stays a case and orders the parties to arbitrate the
dispute, the party opposing arbitration does not have the right to an immediate appeal of that interlocutory
(i.e., non-final) order compelling arbitration. Instead, a party seeking to challenge the order compelling
arbitration generally has to wait until the arbitration concludes, unless the district court and appellate
court both agree to permit a discretionary appeal under 28 U.S.C. § 1292(b). In contrast, when a court
dismisses a lawsuit rather than staying it, the court’s dismissal order is a final decision subject to
immediate appeal.
Congressional Research Service
https://crsreports.congress.gov
LSB11122
CRS Legal Sidebar
Prepared for Members and
Committees of Congress

Congressional Research Service
2
Spizzirri and the Circuit Split
While Section 3 of the FAA states that district courts “shall on application of one of the parties stay the
trial of the action until such arbitration has been had,” the U.S. Court of Appeals for the Ninth Circuit
ruled in Spizzirri that district courts nonetheless have discretion to dismiss a lawsuit instead of staying it.
Observing that this issue has divided the federal courts of appeals, the appellate panel explained that
“although the plain text of the FAA appears to mandate a stay pending arbitration upon application of a
party,” the Ninth Circuit “has long carved out an exception if all claims are subject to arbitration.” The
court unanimously affirmed a district court’s discretion to dismiss notwithstanding Section 3, but it
emphasized that binding Ninth Circuit precedent dictated the outcome of the case. In a concurring
opinion, two of the judges suggested that they disagreed with the precedent and urged the Supreme Court
to resolve the circuit split.
Although the Spizzirri court did not elaborate on underlying reasons for reading an exception into Section
3, other courts recognizing the exception have provided a number of reasons for doing so. The most
commonly invoked justification appears to be judicial efficiency. Courts dismissing lawsuits pending
arbitration have stated that staying a case when all the claims must be arbitrated would “serve no
purpose” and “waste judicial resources.” Some courts and legal scholars have also made a textual
argument for the exception. Focusing on Section 3’s reference to staying “the trial of the action,” the
argument posits that there is no “trial of the action” to stay once a court has determined all claims in a
lawsuit must be submitted to arbitration, and that Section 3 therefore does not apply in such
circumstances.
In contrast, a number of federal courts of appeals have held that Section 3 leaves no discretion for district
courts to dismiss a suit pending arbitration when a party requests a stay. These courts have generally
concluded that Section 3’s plain language, as well as the structure and purpose of the FAA, require
staying a case pending arbitration. For example, in ruling that Section 3 does not permit discretionary
dismissals when a party requests a stay, the Second Circuit explained that “it is axiomatic that the
mandatory term ‘shall’ typically ‘creates an obligation impervious to judicial discretion.’” The Second
Circuit further explained that it viewed the FAA’s structure and purpose as supporting that conclusion.
The FAA expressly permits interlocutory appeals of orders denying motions to stay court proceedings or
compel arbitration, but it expressly prohibits interlocutory appeals of orders granting those motions
(except for discretionary appeals under 28 U.S.C. § 1292(b)). In the Second Circuit’s view, allowing
judges to “convert[] an otherwise-unappealable interlocutory stay order into an appealable final dismissal
order” would thus “empower them to confer appellate rights expressly proscribed by Congress.”
According to the Second Circuit, a mandatory stay is also consistent with the FAA’s underlying policy of
expediting arbitration, insofar as a stay “enables parties to proceed to arbitration directly, unencumbered
by the uncertainty and expense of additional litigation.”
Considerations for Congress
Spizzirri is the third case arising under the FAA that the Supreme Court has agreed to hear this term. In
Bissonnette v. LePage Bakeries Park St., LLC, the Court will consider the scope of the FAA’s exemption
for transportation workers, and in Coinbase, Inc. v. Suski, the Court will consider whether an arbitrator or
a court should decide certain arbitration issues.
If Congress disagrees with the Supreme Court’s eventual decision in Spizzirri, it may enact legislation to
amend the FAA in response. As discussed above, some appellate courts have determined that mandatory
stays under Section 3 further the FAA’s pro-arbitration purposes by moving arbitrable claims out of
litigation more expeditiously than a dismissal subject to immediate appeal. The FAA’s legislative history
also reflects that permitting parties to avoid the “delay and expense” of litigation was a primary concern
for Congress when it originally enacted the law. Although there appears to be little information available

Congressional Research Service
3
specifically addressing Section 3’s drafting history, a legal scholar has concluded that “what material is
available is consistent with the mandatory-stay approach.” If Congress prefers mandatory stays, it could
amend Section 3 to clarify that dismissals are not permitted when a party requests a stay. On the other
hand, if Congress prefers to afford federal trial courts discretion to dismiss, so as to give them more
flexibility in managing their congested dockets, it could amend Section 3 to expressly permit judges to
dismiss a lawsuit pending arbitration when all of the claims are subject to arbitration.

Author Information

Bryan L. Adkins

Legislative Attorney

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

LSB11122 · VERSION 1 · NEW