On November 15, 2021, the U.S. Supreme Court granted certiorari and agreed to hear the petition in Morgan v. Sundance, Inc., Docket No. 21-328, in which the question presented is: “Whether the arbitration-specific requirement that the proponent of a contractual waiver defense prove prejudice violates the Supreme Court’s instruction in AT&T Mobility LLC v. Concepcion that lower courts must ‘place arbitration agreements on an equal footing with other contracts.’”
Supreme Court to Hear Whether Prejudice Is Required to Waive Arbitration
In this case, Robyn Morgan, an employee at an Iowa Taco Bell, brought a proposed Fair Labor Standards Act class action in court against employer Sundance, Inc., a company that owns more than 150 Taco Bell franchises. Morgan alleged in the class action that Sundance did not pay Taco Bell franchise employees for all the hours they worked. Sundance eventually moved to require Morgan to arbitrate her claims. The district court determined that Sundance had waived its right to require arbitration because the company waited too long, and that Morgan was harmed by costs and efforts in defending the court litigation, instead of getting ready for arbitration.
In substance, this dispute involves the question of whether one party arguing that a second party has waived its right to arbitration must show prejudice resulting from the second party’s delay in asserting the right to arbitrate the dispute.
The requirements to be met to show waiver of a right to arbitrate, said the U.S. 8th Circuit Court of Appeals, are: “A party waives its right to arbitration if it: ‘(1) knew of an existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by these inconsistent acts.’”
The court of appeals rejected Morgan’s argument that Sundance waited too long and engaged in too much judicial conduct to effectively waive Sundance’s right to arbitrate the dispute. In doing so, the court of appeals held that Morgan had failed to show prejudice sufficient to succeed on the waiver argument. The appellate panel (in a majority 2–1 decision) disagreed with the lower district court finding of prejudice, concluding that part of the delay was attributable to the time the district court spent deciding Sundance’s motion to dismiss on quasi-jurisdictional grounds, no discovery was conducted and the efforts on the motion to dismiss did not duplicate efforts Morgan would have to spend in the arbitration.
The district court found Morgan was prejudiced by having to respond to Sundance's motion to dismiss over the eight-month span of litigation. We disagree. Four months of the delay entailed the parties waiting for disposition of Sundance's motion to dismiss. No discovery was conducted. And, the record lacks any evidence that Morgan would have to duplicate her efforts during arbitration. Instead, most of Morgan's work focused on the quasi-jurisdictional issue [addressed by Sundance’s motion to dismiss], not the merits of the case. For these reasons, we hold Morgan was not prejudiced by Sundance's litigation strategy.
Morgan then petitioned the U.S. Supreme Court to determine whether she was required to show prejudice to prove that Sundance waived its right to arbitrate, arguing that she would not be required to make such a showing for other types of contracts under applicable law. Morgan has now persuaded the Supreme Court to take up the case for a hearing sometime in 2022.