The Supreme Court unanimously ruled that the Federal Arbitration Act (“FAA”) requires courts to stay, not dismiss, lawsuits subject to arbitration. In doing so, the Supreme Court resolved a split amongst lower courts.

In the matter at issue, the defendants moved to compel arbitration and dismiss the case. The District Court issued an order compelling arbitration and dismissing the case without prejudice noting that it had the “discretion to dismiss.”

The Supreme Court ruled that the FAA provided no such discretion. Rather, it highlighted the mandatory nature of the word "shall" in Section 3 of the FAA, which mandates that courts must stay trials until arbitration is complete, reflecting an obligatory action with no room for judicial discretion. This directive ensures that the legal proceedings are temporarily suspended—not terminated—allowing the possibility for parties to return to court if arbitration does not fully resolve the dispute.

Additionally, the Supreme Court pointed out that dismissing a case could prevent the oversight and facilitative role envisioned by the FAA for courts in the arbitration process, including appointing arbitrators and enforcing arbitration decisions. The ruling clarifies that the only scenario where a court may dismiss a case is for reasons unrelated to the arbitration agreement, such as lack of jurisdiction. The interpretation supports the FAA's goal of efficiently moving disputes from court to arbitration while preserving the potential for judicial intervention if necessary.

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If you have questions or would like additional information, please contact our Labor & Employment attorneys or the primary EGS attorney with whom you work.