This post first appeared on the Securities Arbitration Alert blog.  The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.

As reported in SAA 2023-36 (Sep. 21), the June 2023 Petition for Certiorari states:

“This case presents a clear and intractable conflict regarding an important statutory question under the Federal Arbitration Act (FAA), 9 U.S.C. 1-16.[] The FAA establishes procedures for enforcing arbitration agreements in federal court. Under Section 3 of the Act, when a court finds a dispute subject to arbitration, the court ‘shall on application of one of the parties stay the trial of the action until [the] arbitration’ has concluded. 9 U.S.C. 3 (emphasis added)…. The question presented is: Whether Section 3 of the FAA requires district courts to stay a lawsuit pending arbitration, or whether district courts have discretion to dismiss when all claims are subject to arbitration.”

The Oral Argument

With a full complement of Justices, the oral argument in this case was audio livestreamed via the SCOTUS Website. The discussion focused squarely on the text of FAA section 3. Petitioner’s Counsel Daniel Geyser framed the issue this way:

“Section 3 unambiguously mandates a stay pending arbitration, and the FAA’s plain text, structure, and purpose confirm that conclusion. Congress directed that a court shall stay the trial of the action until the arbitration is complete. There is no mention of dismissal, and there are no exceptions for cases where all claims are subject to arbitration.”

Respondent’s attorney E. Joshua Rosenkranz, said:

“When Congress directed courts to stay the trial of a case in deference to arbitration, it meant stop the litigation in court. It did not mean you must retain jurisdiction. It did not mean never dismiss, no matter how clear it is that the case will never come back to court. I get that modern lawyers often think of stays and dismissals as two completely distinct animals, but when Congress passed Section 3 a hundred years ago, Congress would not have drawn that stark a distinction. The drafters would have understood that a dismissal was one way to stay a litigation. When Congress intended that a court retain jurisdiction, it used those words in Section 8.”

Questions were posed by all of the Justices, several of whom seemed to be leaning toward a literal reading of section 3. For a comprehensive “chapter-and-verse” analysis, we recommend that readers peruse this April 22 CPR Blog post, Today’s SCOTUS: Does Federal Arbitration Act Sec. 3 on Litigation Stays Allow Dismissal?

(ed: *Based on the questions and comments from the Justices from both wings, we think there will be a strong “literal reading” majority. **We expect a decision in June.)