Supreme Court holds federal courts cannot outright dismiss cases subject to arbitration

The Federal Arbitration Act creates a separate system of justice to resolve disputes outside of court. As many litigators know, courts have broadly interpreted the FAA to permit arbitration of nearly every dispute imaginable, including employment discrimination cases. This case before the Supreme Court asks what happens when someone files a motion to compel arbitration after the plaintiff filed suit in federal court. Is the federal action stayed pending resolution of the arbitration, or is the case dismissed?

The case is Smith v. Spizzirri, issued in May 16. Under the FAA, when a dispute is subject to arbitration, the court “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.” The issue before the Court: whether this section "permits a court to dismiss the case instead of issuing a stay when the dispute is subject to arbitration and a party requests a stay pending arbitration." 

The case is stayed, not dismissed, a unanimous Supreme Court says. While the Ninth Circuit reached a different conclusion, the Supreme Court does not think this is a difficult issue. Justice Sotomayor writes that the language of the FAA, the structure of the statute, and the purpose of the statute all point in the same direction:

When a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration, the court does not have discretion to dismiss the suit on the basis that all claims  are subject to arbitration.

While the Court thinks is not a complicated issue, the lower federal courts were in disagreement. Of interest to Second Circuit people, that Circuit had foreshadowed the holding in this case nearly a decade ago, in Katz v. Cellco Partnership, 794 F.3d 341 (2d Cir. 2015).