U.S. Supreme Court Rules Stay Pending Arbitration Does Not Permit Dismissal

The Federal Arbitration Act (FAA) creates the procedures for enforcing arbitration agreements. In Smith v. Spizzirri, the Supreme Court of the United States considered whether the FAA "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." It was undisputed that the claims were subject to arbitration. The question was whether after compelling arbitration the district court was required to stay the case "rather than dismissing it entirely."

The Supreme Court acknowledged a circuit split on this point. It concluded the FAA's statutory text was clear though, and required a stay, but a stay does not include a dismissal. "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."