As outlined by the United States Supreme Court, the petitioner, Robyn Morgan, worked at a Taco Bell franchise owned by respondent Sundance. When applying for a job, Morgan signed an agreement to arbitrate any employment dispute. Despite that agreement, Morgan filed a class action asserting that Sundance had violated federal law regarding overtime payment. Sundance initially defended against the lawsuit as if no arbitration agreement existed, filing a motion to dismiss and engaging in mediation. Some eight months after Morgan filed the lawsuit, Sundance moved to stay the litigation and compel arbitration under the Federal Arbitration Act (FAA). Morgan opposed, arguing that Sundance had waived its right to arbitrate by litigating for so long. “The courts below applied precedent, under which a party waives its right to arbitration if it knew of the right; ‘acted inconsistently with that right’; and ‘prejudiced the other party by its inconsistent actions.’”
The Supreme Court held that the FAA made no provision for prejudice. From the decision’s syllabus—“Section 6 of the FAA provides that any application under the statute—including an application to stay litigation or compel arbitration—“shall be made and heard in the manner provided by law for the making and hearing of motions” (unless the statute says otherwise). A directive to treat arbitration applications ‘in the manner provided by law’ for all other motions is simply a command to apply the usual federal procedural rules, including any rules relating to a motion’s timeliness. Because the usual federal rule of waiver does not include a prejudice requirement, Section 6 instructs that prejudice is not a condition of finding that a party waived its right to stay litigation or compel arbitration under the FAA.” Waiver is the “intentional relinquishment or abandonment of a known right” and in considering that, “the court focuses on the actions of the person who held the right” not the actions of the opposing party. As such, prejudice would be irrelevant. “Stripped of its prejudice requirement, the Eighth Circuit’s current waiver inquiry would focus on Sundance’s conduct. Did Sundance, as the rest of the Eighth Circuit’s test asks, knowingly relinquish the right to arbitrate by acting inconsistently with that right?”
Interestingly, when considering issues concerning arbitration, courts across the country routinely discuss how agreements to arbitrate, and arbitration, are favored. Yet, the court here noted that “federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” In that light, contract or procedural rules are not to be modified for arbitrations.
This dramatic outcome will impact a party that sat on its right to compel arbitration as prejudice is no longer relevant to waiver.
Morgan v. Sundance, Inc.