As you hopefully know from posted articles, arbitration is a creature of contract. Stated differently, there must be a contractual basis to have a dispute resolved through binding arbitration. The Federal Arbitration Act (FAA) applies to transactions involving interstate commerce. Oftentimes, lawsuits are filed despite an arbitration provision in a contract because parties can, if they desire, waive their rights to have their dispute resolved through binding arbitration.

In what should not be a shocker, the United States Supreme Court in Smith v. Spizzirri, 144 S.Ct. 1173, 1178 (2024), held that when a federal “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.”  Dismissing the lawsuit should not be the option.  Staying the lawsuit should.

[S]taying rather than dismissing a suit comports with the supervisory role that the FAA envisions for the courts. The FAA provides mechanisms for courts with proper jurisdiction to assist parties in arbitration by, for example, appointing an arbitrator; enforcing subpoenas issued by arbitrators to compel testimony or produce evidence; and facilitating recovery on an arbitral award. Keeping the suit on the court’s docket makes good sense in light of this potential ongoing role, and it avoids costs and complications that might arise if a party were required to bring a new suit and pay a new filing fee to invoke the FAA’s procedural protections.

Smith, supra, at 1178 (internal citations omitted).

If you have questions or concerns regarding an arbitration provision, the best time to ask is before you sign the contract that includes binding arbitration as the method to resolve disputes.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.