Supreme Court Rejects Prejudice Element Of Waiver Analysis When Enforcing Agreements To Arbitrate

• Published date: 25 May 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Seyfarth Shaw LLP
• Author: Mr James R. Newland, Jr.,

The Supreme Court on May 23, 2022, in its decision in Morgan v. Sundance, Inc., rejected the "arbitration specific waiver rule demanding a showing of prejudice" to the party opposing the petition to enforce the arbitration agreement. That rule had been followed for decades by nine Circuits.¹ Post Morgan, the analysis reverts to the standard contract waiver analysis "focus[ing] on the actions of the person who held the right; ... [rather than] the effects of those actions on the opposing party."² Although the case is an employment matter, the new rule applies whenever a party seeks to stay litigation and send the matter to arbitration under Sections 3 and 4 of the Federal Arbitration Act in essentially all commercial litigation contexts.

Plaintiff/Petitioner Robyn Morgan sued in federal district court on a collective action against Sundance-the owner of the fast food franchise where she worked. Sundance litigated in the court for eight months and its actions included moving to dismiss (it lost), and participating in mediation. Sundance later moved the court for an order staying the litigation and sending the matter to arbitration relying in its motion on FAA Sections 3 and 4. Morgan opposed the motion on the basis that Sundance waived the right to do so because it waited too long to enforce the agreement to arbitrate.

The District Court, applying a well-settled Eighth Circuit test cited in Erdman v. Phoeniz Land, determined Morgan was prejudiced by the late request to enforce the arbitration agreement and denied Sundance's request. Under the Erdman test, a party waives the right to arbitrate if it was aware of the right to arbitrate, "acted inconsistently with that right"; and "prejudiced the other party by its inconsistent actions."³ On appeal, the Eight Circuit held that the Erdman rule applied but disagreed with the District Court's finding that Sundance's actions prejudiced Morgan. Morgan appealed the issue and the Supreme Court granted her petition for review.

The parties raised several arguments in their briefs and at oral argument. Notably, the parties argued over whether the courts should review petitions to enforce arbitration agreements using the rules applicable to "waiver, forfeiture, estoppel, laches, or procedural timeliness."⁴ The Court did not expressly decide those arguments-it did not prescribe the rubric to be applied, because it "assumed without deciding [the lower courts were] right to do so [under the wavier rubric]." But the Court...