Preview: The Amicus, From Both Sides, on SCOTUS’s April 22 Arbitration Procedures Case

The U.S. Supreme Court will hear oral arguments for Smith v. Spizzirri, No. 22-1218, on April 22.

The issue is whether the FAA binds the court to stay litigation when a case is sent to arbitration, instead of permitting the court to dismiss the case. The language of Section 3 of the Federal Arbitration Act requires that any courts hearing a case referable to arbitration “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.” 9 U.S.C. § 3.

On its face, it would appear that federal district courts must stay suits pending arbitration. The Ninth U.S. Circuit Court of Appeals, however, has a longstanding exception that allows cases to be dismissed where all claims are subject to arbitration.

Other circuits also permit dismissals rather than stays. The successful cert petition--linked above on the Court’s docket page and available directly here--says there is a 6-4 circuit split on stays versus dismissals.  

In Spizzirri, petitioners Wendy Smith, et al., argue that the Supreme Court should mandate an FAA Sec. 3 stay in district court. Respondents Keith Spizzirri, et al., counter that the Ninth U.S. Circuit Court of Appeals should be able to dismiss the district court case as this matter has been designated for arbitration. The Ninth Circuit sided with the respondents in this case, denying all petitioners’ arguments to mandate a stay.

The lower court differentiated FAA Section 3 from other sections in the law, where the Supreme Court used a plain-text approach to their interpretation, such as Badgerow v. Walters, 142 S. Ct. 1310 (2022) (available at https://bit.ly/47CVvRG). For more background, see Lee Williams, “Stay or Dismiss? The Supreme Court Grants Cert on Its Third Arbitration Case This Term,” CPR Speaks (Jan. 15) (available here).

Below are summaries of the amicus parties that submitted briefs. There are three so far. The briefs from the American Association for Justice and the U.S. Chamber of Commerce—usually ideological opposites in arbitration cases, with the AAJ backing consumers and employees and the Chamber behind businesses—were submitted to the nation's top Court on behalf of neither party, but still support the petitioners’ argument to mandate the stay in district court. The third amicus brief from the New England Legal Foundation supports the respondents and encourages the district court’s dismissal of cases that go to arbitration.

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The American Association for Justice is a Washington, D.C.-based national, voluntary bar association established in 1946 to strengthen the civil justice system, preserve the right to trial by jury, and protect access to the courts for those who have been wrongfully injured. The AAJ says it is the world’s largest plaintiffs trial bar.

It states that it is filing the amicus brief “to call attention to important developments in the terms inserted by corporations in arbitration clauses that intentionally keep individual claimants out of court and out of arbitration, blocking the fair and just resolution of disputes between individuals and major corporations.”

The AAJ makes its case with a broad, strident criticism of arbitration practices. It says that despite arbitration’s apparent benefits, and its support by the Supreme Court, many parties also face greater unfairness through arbitration. 

The brief notes, “In the modern marketplace, consumer and employment contracts (and their arbitration ‘agreements’) are, almost universally, contracts of adhesion. They are drafted entirely by corporations who present them to customers and workers on a take-it-or-leave-it basis with no opportunity to alter or negotiate their terms.”

The AAJ goes on to argue that adhesive arbitration agreements “are essentially contracts between hens and foxes—and foxes are not reliable guardians of their own compliance with settled principles of good faith in the creation and performance of contracts.”

The brief says that district courts play an important role in combating this power imbalance and must stay cases, as FAA Section 3 requires, while they are arbitrated. Therefore, the Supreme Court should determine in the case that Section 3 should be read textually and that arbitration cases should be stayed, in accordance with the statute. 

At the same time, the AAJ advocates that the court dismiss the action “where it is clear the arbitration will not occur, allowing for appellate judicial review.”

The brief concluded asking the Court to affirm, but warned that in doing so the Court should be “cautioning district courts against foreclosing district court supervision and appellate judicial review of arbitration agreements or tactics that effectively foreclose the promised of quick and inexpensive resolution of disputes through arbitration.”

The American Association for Justice brief is available on the U.S. Supreme Court website here.

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The U.S. Chamber of Commerce Litigation Center, which advocates on behalf of the world’s largest business federation, based in Washington, urges the Court to act on behalf of the Federal Arbitration Act but doesn’t support either party. 

The Chamber represents about 300,000 direct members and indirectly represents the interests of more than 3 million companies and professional organizations. The Chamber’s members and affiliates, and the business community more broadly, have a strong interest in proper interpretation of the FAA, its brief says. 

It adds that FAA Section 3 furthers that important purpose by clearly stating that, upon a party’s request, a case must be stayed if the court issues an order compelling arbitration. The brief states that the Chamber files the amicus brief “to urge the Court to interpret Section 3 in accordance with its plain language.”

Though it reaches a similar position on Sec. 3 as the AAJ, the Chamber takes a different view of the efficacy of arbitration and doesn't take a position on affirming or rejecting the appeals court view.  It begins by illustrating the scenario where federal courts typically face motions to compel arbitration:

A plaintiff files a lawsuit in court, often as a putative class or collective action. The defendant business responds to the complaint by moving to compel arbitration of the plaintiff’s dispute on an individual basis and requests a stay under Section 3 of the FAA pending the outcome of the arbitration. The plaintiff then opposes arbitration, and (sometimes) requests in the alternative that the court dismiss rather than stay the case so that the plaintiff can take an immediate appeal from the order compelling arbitration—an appeal that would not be available if the case were stayed.

The brief then made a distinction with Smith v. Spizzirri:  “Petitioners—the plaintiffs asserting the underlying claims—have acquiesced to arbitration despite filing a lawsuit. They are the parties requesting a stay rather than a dismissal.” This is opposite from the usual scenario, the Chamber states.

Despite the reversal of roles, the Chamber argues that FAA Section 3 should still be applied as it is read: “Congress’s unambiguous mandate overrides any discretion courts might otherwise have to dismiss cases pending on their dockets.”

The brief adds that without applying Section 3’s plain language and requiring a mandatory stay, FAA Section 16, which covers appeals (and says an appeal may be taken from an order refusing a stay under Section 3) would be undermined. It states that “a mandatory stay gives effect to Congress’s decision in Section 16 not to authorize an immediate appeal from a district court order that compels arbitration in accordance with the terms of the arbitration agreement and stays the case under Section 3.  . . . If a court compelling arbitration were not required to issue a stay, and could instead dismiss the lawsuit, the plaintiff would be able to appeal immediately.” (Emphasis in the brief; citation omitted.)

The Chamber added that when the underlying case is filed in or removed to federal court, a stay preserves the availability of the federal forum for proceedings related to the arbitration. Those proceedings can include FAA-authorized judicial intervention in connection with the arbitration, such as appointing an arbitrator or compelling witnesses to attend the arbitration. They can also include post-arbitration proceedings to confirm, vacate, or modify the arbitration award.

In conclusion, the Chamber urges the Court to apply FAA Section 3 as it reads and mandate stays upon party request in district court. Not only do mandatory stays apply to all relevant matters as evidenced by Congress’s inclusion of FAA Section 16 appellate procedures, but they streamline arbitration by preserving the availability of the federal forum for arbitration-related proceedings.

The Chamber of Commerce brief is available on the U.S. Supreme Court website here.

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The New England Legal Foundation is a nonprofit, public interest law firm, incorporated in Massachusetts in 1977 and headquartered in Boston. Its  membership of corporations, law firms, individuals, and others back the organization’s conservative, free-market mission.

NELF “seeks to uphold the mandate of the Federal Arbitration Act . . . that arbitration agreements should be enforced according to their terms. Therefore, when the parties’ agreement has delegated all of the issues in a lawsuit to arbitration, a court should dismiss the suit and compel arbitration,” the amicus brief states.

Unlike the AAJ and the Chamber of Commerce, NELF backs the respondent-employer in Smith v. Spizzirri, and urges the Court to uphold the lower courts’ decision to dismiss the case rather than issue a stay.

NELF argues that FAA Section 3 does not apply in every arbitration. It applies “only when an arbitration agreement is partial in scope and, therefore, bifurcates the issues between arbitration and a ‘trial of the action’ in court.”

According to NELF, the language of Section 3 indicates that a court will adjudicate the merits of the parties’ nonarbitrable claims after the parties have resolved their arbitrable claims.  Since Section 3 does not apply when the whole suit belongs in arbitration, the FAA leaves undisturbed a federal court’s power to dismiss the suit and compel arbitration.

NELF also distinguishes FAA Section 3 from Section 4, the latter of which was explored in Badgerow, where the Supreme Court backed a plain-text reading. In Badgerow, the Court held that a party seeking to confirm or vacate an arbitral award under the FAA—Sections 9 and 10--must establish a jurisdictional basis on “the face of the application itself.”  That jurisdictional analysis contrasted from Section 4’s “distinctive language” allowing the court to “look through” a pending case about the arbitration to the underlying action for jurisdiction.

But when a court has stayed a suit under FAA Section 3 and has submitted the entire underlying controversy to arbitration, the court has relinquished its jurisdiction to decide that arbitrable controversy. So, NELF states, FAA Section 4  interpretation isn’t required for Section 3—that is, “Section 3 ensures the orderly resolution of arbitrable and nonarbitrable claims in a bifurcated suit,” and doesn’t require the court to maintain jurisdiction.

“This pointed textual difference,” the brief states, “must mean that a Section 3 stay does not apply when the parties’ ‘full-bodied controversy’ is arbitrable." Quoting Badgerow, the brief noted, “We have no warrant to redline the FAA, importing Section 4’s consequential language into provisions containing nothing like it.” Badgerow, 596 U.S. at 11. If the Court allows dismissal of cases under Section 3, it will not conflict with Badgerow.

Therefore, NELF concludes that the Supreme Court should allow dismissal of cases despite Section 3’s language on stays because it only applies in cases where an arbitration agreement is partial in scope, and the Court’s decision in Badgerow on jurisdiction will not be undermined.

The New England Legal Foundation brief is available on the U.S. Supreme Court website here.

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The author, a second-year student at the Howard University School of Law in Washington, D.C., is a full-year CPR intern as part of CPR’s consortium program with Howard Law’s ADR program.

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