Matthew H. Mues | Davis Wright Tremaine
The question is often raised whether to file a lawsuit in court if claims are subject to arbitration. There are myriad reasons (statutory requirements, statute of limitations/repose, subpoena powers of courts, etc.) why a party may want to first file a lawsuit in court and then stay (or put on hold) that lawsuit, when a contract requires the parties to arbitrate their claims. However, until the U.S. Supreme Court weighed in this year, there was uncertainty as to whether a federal court had discretion to dismiss a lawsuit if all claims were subject to arbitration under the Federal Arbitration Act (FAA).
In an unanimous decision issued by the Supreme Court on May 16, 2024, the court resolved that uncertainty and held that when a “federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration, the court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration,” citing the requirements of Section 3 of the FAA that, when any issue in a suit is subject to arbitration, the court “shall on the 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.“ Smith v. Spizzirri, 601 U.S. 472, 475-76, 144 S. Ct. 1173, 1176-77 (2024) (internal quotations and citations omitted).
The Supreme Court dismissed the argument that, notwithstanding the statutory language, district courts retain inherent authority to dismiss proceedings subject to arbitration, explaining that “[t]his attempt to evade the plain meaning of the text also falls short” and that “[e]ven assuming district courts have this inherent authority, ‘the inherent powers of the court may be controlled or overridden by statute or rule.'” Id. at 477 (internal citations omitted). The court held that Section 3 of the FAA “does exactly that” (i.e., overrides any discretion a district court might otherwise have).
The court further explained the benefit of staying rather than dismissing a lawsuit, noting that the FAA provides mechanisms for a court with proper jurisdiction to assist parties in arbitration by, for example, appointing an arbitrator, enforcing subpoenas issued by arbitrators, and facilitating recovery of an arbitration award. Id. at 478.
Some form construction contracts require the parties to arbitrate per the requirements of the FAA. If yours does not, or if you have questions about arbitration requirements in construction contracts, please contact our government contracts and construction group.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.