In a 9-0 unanimous decision authored by Justice Kagan, the Supreme Court held on May 23, 2022, that the Federal Arbitration Act’s “policy favoring arbitration” does not authorize federal courts to create special, arbitration-preferring procedural rules, such as requiring a showing of prejudice from a litigant asserting waiver in defense of a motion to arbitrate. Morgan v. Sundance, Inc., No. 21-328, 2022 WL 1611788 (May 23, 2022).
FAA’s Policy Doesn’t Authorize Special Rules
The underlying wage-and-hour dispute involved the failure to timely invoke arbitration by the respondent Sundance, who employed the petitioner Morgan at one of its Taco Bell franchise restaurants. When Sundance moved to compel arbitration pursuant to the terms of its employment application nearly eight months into the litigation, Morgan opposed the stay, asserting that Sundance had waived its right to do by the delay. Applying the majority federal legal standard on arbitration waiver at the time, the Eighth Circuit held that the parties’ failure to commence formal discovery or engage in any substantial contested matters on the merits doomed Morgan’s ability to show that Sundance’s delay “prejudiced the other party by its inconsistent actions” and, accordingly, sent Morgan’s case to arbitration.
The Supreme Court reversed, holding that the Eighth Circuit’s “prejudice” requirement constituted an impermissible addition to the established federal standard on waiver, which typically does not consider “the effects of those [dilatory] actions on the opposing party.” In so holding, the Court cautioned against the judicial development of “special, arbitration-preferring procedural rules” under a liberal national policy favoring arbitration. That policy, according to the Court, extends only as necessary to treat the arbitration contracts like all other, and not in the Court’s view, create procedural requirements for the sake of “fostering arbitration.” Putting the matter succinctly, the Court stated that the “federal policy is about treating arbitration contracts like all others, [and] not about fostering arbitration.” The Court remanded the case back to the Eight Circuit to conduct a more limited analysis on Sundance’s purported relinquishment of its right to demand arbitration.
The Court’s invalidation of the prejudice requirement should cause litigants to invoke their right to arbitration more promptly instead of “waiting to see” how the litigation is going before asserting their right to have the dispute decided in arbitration.