On June 15, 2016, in Tillman v. Tillman, the US Court of Appeals for the Ninth Circuit reversed the district court's dismissal of a legal malpractice case following the termination of an arbitration because the former client could not pay for her share of the arbitration fees ( (9th Cir. June 15, 2015)).

Renee Tillman filed a malpractice suit against a law firm she retained. The retainer agreement contained an arbitration clause, and the district court granted the law firm's motion to compel arbitration. The court also stayed the litigation for the duration of the arbitration, as it is required to do under the Federal Arbitration Act (FAA).

The arbitration proceeded under the rules of the American Arbitration Association (AAA) until Tillman ran out of funds to pay for it, at which point the arbitrator terminated it without issuing an award. The law firm moved for the district court to lift its stay and dismiss the case under Federal Rule of Civil Procedure (FRCP) 41(b) for failure to comply with the court's order to arbitrate. The district court lifted the stay but made a factual finding that Tillman was indeed unable to pay the costs of the arbitration and refused to dismiss the case under FRCP 41(b). However, it dismissed the case on other grounds, reasoning that the FAA deprived it of authority to proceed with the claims that would have been subject to the arbitration agreement because the AAA's rules required the parties to share the arbitration costs equally and permitted the arbitrator to suspend the arbitration. Tillman appealed.

The Ninth Circuit reversed, holding that while the district court properly lifted the stay, it erred in dismissing the case. The FAA requires district courts to stay litigation on issues subject to arbitration "until such arbitration has been had in accordance with the terms of the agreement" (9 U.S.C. § 3). The court agreed with the district court's refusal to dismiss under FRCP 41(b) because the arbitration had been "had" under the agreement, although the arbitrator terminated the proceedings without issuing a judgment or award due to Tillman's inability to pay the arbitration fees. However, the court reversed the district court's dismissal under the FAA, holding that nothing in the FAA requires dismissal of claims where a party is lacking the resources to proceed with arbitration. Recognizing the federal policy favoring arbitration, reflected in the FAA, the Ninth Circuit clarified that its ruling does not mean that parties may refuse to arbitrate by choosing not to pay for arbitration. Because Ms. Tillman was unable afford to continue the arbitration, the court allowed her case to proceed in the district court as it was the only way for her claims to be adjudicated.