Morgan v. Sundance, Inc.
596 U. S. ____ (2022) (2022)
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Rule of Law:
The Federal Arbitration Act's (FAA) policy favoring arbitration does not authorize federal courts to invent special, arbitration-preferring procedural rules; courts must place arbitration agreements on the same footing as other contracts and may not condition a finding of waiver of the right to arbitrate on a showing of prejudice.
Facts:
- Robyn Morgan was hired as an hourly employee at a Taco Bell franchise owned by Sundance, Inc.
- As part of her employment application, Morgan signed an agreement to resolve any employment disputes through confidential binding arbitration instead of in court.
- Morgan came to believe that Sundance violated the Fair Labor Standards Act by improperly recording her work hours to avoid paying overtime.
- Despite the arbitration agreement, Morgan initiated a nationwide collective action lawsuit against Sundance in federal court to recover the allegedly unpaid wages.
Procedural Posture:
- Robyn Morgan filed a nationwide collective action against Sundance, Inc. in the U.S. District Court for the Northern District of Iowa.
- Sundance moved to dismiss the suit, which the district court denied.
- After the parties engaged in unsuccessful mediation, and nearly eight months after the suit was filed, Sundance moved to stay the litigation and compel arbitration.
- Morgan opposed the motion, arguing Sundance had waived its arbitration right by litigating for so long.
- The District Court denied Sundance's motion, finding that Sundance's delay had prejudiced Morgan and therefore constituted a waiver.
- Sundance (appellant) appealed to the U.S. Court of Appeals for the Eighth Circuit.
- The Eighth Circuit, applying its precedent requiring a showing of prejudice, reversed the District Court, holding that Morgan had not been sufficiently prejudiced.
- The U.S. Supreme Court granted certiorari to resolve a circuit split over the prejudice requirement.
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Issue:
Does the Federal Arbitration Act's policy favoring arbitration authorize federal courts to create an arbitration-specific procedural rule conditioning a finding of waiver of the right to arbitrate on a showing of prejudice to the other party?
Opinions:
Majority - Justice Kagan
No. The Federal Arbitration Act does not authorize federal courts to create an arbitration-specific procedural rule requiring a showing of prejudice to find a waiver of the right to arbitrate. The FAA's 'policy favoring arbitration' is merely an acknowledgment of the Act's commitment to make arbitration agreements as enforceable as other contracts, but not more so. A court must hold a party to its arbitration contract just as it would any other contract, but it may not devise novel rules to favor arbitration over litigation. The ordinary federal rule for waiver is the 'intentional relinquishment or abandonment of a known right,' an analysis which focuses on the actions of the right-holder, not the effect on the opposing party. Furthermore, Section 6 of the FAA directs courts to treat applications to compel arbitration 'in the manner provided by law for the making and hearing of motions,' meaning the usual federal procedural rules must apply. Therefore, requiring prejudice for waiver in the arbitration context is an improper, arbitration-specific rule that contravenes the FAA's text and purpose.
Analysis:
This unanimous decision resolves a long-standing circuit split by eliminating the prejudice requirement for waiver of the right to arbitrate, a standard previously used by nine of the eleven circuits. The ruling clarifies that the FAA's 'policy favoring arbitration' is an equal-treatment directive, not a thumb on the scale for arbitration. This will likely make it easier for parties to successfully argue that an opponent has waived its right to compel arbitration by actively litigating a case. Consequently, parties with arbitration agreements must be more diligent about invoking their arbitration rights early in litigation to avoid being found to have waived them.
