In a significant turn of events, the plaintiffs have come out endorsing a verdict that will ultimately benefit defendants in most cases. The consequences of the recent decision reached in the case of Smith v. Spizzirri before the US Supreme Court reverberate beyond the confines of the courtroom, ruffling many well-worn patterns in the conduct of legal proceedings.
The court ruled unanimously that Section 3 of the Federal Arbitration Act (FAA) necessitates a pause in ongoing litigation when an underlying dispute is amenable to arbitration and a stay is sought by a party. This may seem paradoxical given that, traditionally, plaintiffs who take legal action in court frequently oppose arbitration. However, in the Smith v. Spizzirri case, the plaintiffs echoed calls for arbitration and requested a stay, reversing the usual alignment of parties.
The practice of courts granting dismissals rather than stays, that we often witness, is inconsistent with the pro-arbitration appellate review stipulations in Section 16 of the FAA. The new ruling has curtailed the ability for plaintiffs’ attorneys to secure dismissals as a way around the appellate regime. This ruling means defendants who successfully move claims to arbitration under the parties’ arbitration agreement no longer have to bear the burden of a time-consuming appeal before the dispute transitions to arbitration. They can more promptly commence with the agreed-upon arbitration procedures.
Another upshot of the decision is its facilitation of federal courts in resolving any pending issues in relation to a proceeding or completed arbitration. As long as the court where the lawsuit was filed—or appropriately moved to—has jurisdiction, it can exert supervisory roles over the arbitration, including appointing an arbitrator or enforcing arbitrator-issued subpoenas. Courts also can hear any post-arbitration proceedings to confirm, vacate, or modify the arbitration award.
In the light of the high court’s ruling in the Badgerow v. Walters case, a federal court may not have had jurisdiction to consider these issues had they dismissed a case contrary to a party’s request for a stay.
The Supreme Court played it safe in Smith by constructing two important safeguards around its ruling. Both should, on the whole, also aid defendants. Section 3’s text mandates a stay only when one is sought by an involved party. Therefore, courts could theoretically still enter dismissals when all parties request dismissal or at the very least when no party seeks a stay. That is unless there are reasons unrelated to arbitration such as a lack of jurisdiction, in which case, it is still possible for lawsuits to be dismissed, per the Supreme Court’s observation.
Despite the unusual alignment in Smith, the ruling—verifying Section 3 of the FAA’s requirement for a stay—is excellent news for defendants confronted with court-filed disputes that are bound to the plaintiffs’ contractual obligation to arbitrate.
For additional detail on the case, visit Smith v. Spizzirri.