The Supreme Court ruled unanimously on May 16 that if a federal court determines that a lawsuit involves an arbitrable dispute and a litigant requests a stay of the proceeding pending arbitration, a federal arbitration law requires the court to grant the stay.
Companies often prefer arbitration to the courts, saying the process resolves cases with greater speed and reduced expense. Some consumer advocates prefer the courts because, in their view, the judicial system provides private citizens and consumers with more options and is less likely to side with the companies being sued.
The petitioners are Wendy Smith, Michelle Martinez, and Kenneth Turner, who are current and former delivery drivers for co-respondent IntelliQuick Delivery, a company active in the Southwest.
The drivers sued in Arizona state court, alleging violations of federal and state employment laws. The drivers claimed that the company misclassified them as independent contractors, failed to pay minimum and overtime wages, and failed to give them paid sick leave.
The company moved the lawsuit to federal district court and then moved to compel arbitration and dismiss the legal action.
The drivers conceded that their claims were arbitrable but argued that Section 3 of the Federal Arbitration Act (FAA) required the district court to stay the action pending arbitration instead of dismissing it. The court ordered the dispute to arbitration and dismissed the lawsuit.
The district court found that even though the text of Section 3 of the FAA suggests that the action should be stayed, the U.S. Court of Appeals for the Ninth Circuit precedent held that the district court may either stay the action or dismiss it when it has determined that “all of the claims raised in the action are subject to arbitration.” The district court found that it retained “discretion to dismiss the action.”
On appeal, a three-judge panel of the Ninth Circuit upheld the ruling, saying the circuit court was bound by its own precedent.
The Supreme Court granted the drivers’ petition for certiorari, or review, on Jan. 12 to resolve the split among the federal courts of appeal.
The statute states that a court “shall stay the trial of the action until the arbitration is complete” and does not mention dismissal, the lawyer said.
“If a court ignores that command and dismisses, it activates a premature right to appeal, contrary to the FAA’s reticulated scheme,“ he said. ”It illuminates the essential backdrop that protects litigant rights if a party compels arbitration but abandons the arbitration process, which has happened in this very case.”
Such an approach “invites wasteful disputes that pointlessly burden parties and courts as litigants fight over whether to stay or dismiss and then take appeals over whether to stay or dismiss,” according to Mr. Geyser.
The company’s attorney, E. Joshua Rosenkranz, told the justices that when Congress passed the FAA directing courts “to stay the trial of a case in deference to arbitration,” it meant to stop the litigation in court.
“It did not mean you must retain jurisdiction. It did not mean never dismiss, no matter how clear it is that the case will never come back to court,” he said.
Courts generally enjoy discretion to dismiss cases even when no one is seeking dismissal and another forum is already in the process of adjudicating the case, according to Mr. Rosenkranz.
“If Congress wants to revoke that inherent power, it’s got to do it clearly, and ... Congress did nothing clearly in this statute,” he said.
Congress passed Section 3 “to enforce contractual obligations to arbitrate and to avoid parallel litigation in court, not to encourage parallel litigation and reward plaintiffs who violate their contracts by suing in court,” Mr. Rosenkranz said.
“When a district court finds that a lawsuit involves an arbitrable dispute, and a party requests a stay pending arbitration, [Section] 3 of the FAA compels the court to stay the proceeding,” the justice wrote.
In this case, the “text, structure, and purpose all point to the same conclusion: 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 the claims are subject to arbitration.”
Section 3 states that a federal district court referring a case to arbitration “shall on application of one of the parties stay the trial of the action until such arbitration has been had,” she wrote.
“[Section 3] overrides any discretion a district court might otherwise have had to dismiss a suit when the parties have agreed to arbitration,” Justice Sotomayor wrote.
The Supreme Court reversed the judgment of the Ninth Circuit and remanded the case to that court “for further proceedings consistent with this opinion.”
