A Stay Pending Arbitration Doesn't Mean Dismissal
When a federal district court finds that a lawsuit involves an arbitrable dispute under the Federal Arbitration Act (“FAA”), and a party requests a stay pending arbitration, the FAA, 9 U.S.C.S. § 3, compels the court to stay the proceeding. The court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration.
Section 3 of the FAA directs a court to stay the proceeding “until such arbitration has been had in accordance with the terms of the agreement,” and only so long as “the applicant . . . is not in default in proceeding with the arbitration.” Section 3 therefore “ensures that the parties can return to federal court if arbitration breaks down or fails to resolve the dispute. That return ticket is not available if the court dismisses the suit rather than staying it.”
As the Court explained, the inherent authority of courts to dismiss proceedings subject to arbitration is overridden by the statutory text of the FAA that says a proceeding “shall” be stayed. The directive is mandatory, not discretionary. The the statutory structure of the FAA also supports a mandatory stay in that an interlocutory appeal is allowed if arbitration is denied whereas no interlocutory appeal is available if arbitration is granted. The staying instead of dismissing of proceedings “comports with the supervisory role that the FAA envisions for the courts.” The FAA includes provisions for assisting the parties with arbitration such as appointing an arbitrator, enforcing subpoenas, and assisting in the recovery of an arbitral award.
In the end, the Court unanimously reversed the decision of the Court of Appeals for the Ninth Circuit and remanded the case for further proceedings.