This Report summarizes an opinion issued on November 22, 2021 (Part I); and cases granted review on November 15 and 24, 2021 (Part II).
Cases Granted Review: Morgan v. Sundance, Inc., 21-328
Morgan v. Sundance, Inc., 21-328. At issue is “whether a party asserting waiver of the right to arbitrate through inconsistent litigation conduct must prove prejudice, and if so, how much.” Petitioner Robyn Morgan filed a nationwide Federal Labor Standards Act collective action on behalf of all similarly situated hourly employees of Taco Bell franchises owned by respondent Sundance, Inc. Although Morgan’s employment agreement with Sundance contained an arbitration clause, Sundance litigated the case for nearly eight months before moving to compel arbitration. During those eight months, Sundance filed a motion to dismiss and an answer, and participated in mediation. The district court held that Sundance had waived its right to arbitrate through its litigation conduct, but a divided panel of the Eighth Circuit reversed. 992 F.3d 711. The Eighth Circuit majority found the question close as to whether Sundance had committed enough actions inconsistent with its right to arbitrate, but ultimately found waiver lacking because of “the absence of a showing of prejudice to Morgan.” Specifically, the court found that Morgan would not have to duplicate efforts in arbitration because the dispute over Sundance’s motion to dismiss did not go to the merits of her claims.
Morgan argues that the circuits and state high courts are divided, with some not requiring any showing of prejudice, some requiring a weak showing of prejudice, and some (like the Eighth Circuit here) which “consider prejudice the crucial, dispositive facet of the analysis.” On the merits, she contends that the Federal Arbitration Act requires that arbitration clauses be placed on equal footing with other contractual provisions. And the general rule for the waiver of contractual provisions, including implied waiver by litigation conduct, is that no showing of prejudice is needed. In contrast to estoppel, because “the analysis focuses on the intent and actions of the waiving party, prejudice is not normally required to establish waiver.” According to Morgan, “[b]ecause the FAA-derived equal-treatment principle requires that arbitration agreements be subject to the same contract law as other contracts, and ordinary contract law does not impose a prejudice requirement for waiver of a contractual right, prejudice should not be required to demonstrate waiver through litigation conduct of the right to arbitrate.”