Ninth Circuit Reaffirms District Courts’ Discretion to Dismiss When All Claims Are Subject to Arbitration

The Ninth Circuit Court of Appeals considered whether the Federal Arbitration Act (FAA) requires a district court to stay a lawsuit pending arbitration, or whether a district court has the discretion to dismiss when all claims are subject to arbitration.

The plaintiffs were current and former employees of Intelliserve, an on-demand delivery service. The plaintiffs sued Intelliserve in Arizona state court, arguing that they were improperly classified as contractors rather than employees. Intelliserve removed the lawsuit to federal court and then moved to compel arbitration. Both parties ultimately agreed that the lawsuit was subject to arbitration but disagreed as to whether the action should be dismissed or stayed by the federal trial court pending the completion of the underlying arbitration. The trial court dismissed the case without prejudice, rejecting the plaintiffs’ argument that the FAA itself mandated that the case be stayed rather than dismissed. The plaintiffs appealed the trial court’s dismissal.

On appeal, the Ninth Circuit acknowledged that section 3 of the FAA expressly provides that where all claims in a lawsuit are subject to arbitration, the trial court “shall” stay the action pending arbitration. However, the court noted that long-standing Ninth Circuit precedent provides that, notwithstanding section 3 of the FAA, “a district court may either stay the action or dismiss it outright when, as here, the court determines that all of the claims raised in the action are subject to arbitration.” The court rejected each of the plaintiffs’ attempts to distinguish such Ninth Circuit precedent, which the court found to be binding on the panel, and rejected the argument that the district court abused its discretion by relying on such precedent. The Ninth Circuit affirmed the district court’s dismissal of the action accordingly.

Forrest v. Spizzirri, No. 22-16051 (9th Cir. Mar. 16, 2023).