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SCOTUS: Waiver of right to arbitrate
does not require
proof of prejudice |
Morgan v. Sundance, Inc. (US
Supreme 05/23/2021)
http://case.lawmemo.com/us/morgan1.pdf
Sent to Custom Alerts™ subscribers on 05/23/2022
Robyn
Morgan signed an agreement to arbitrate any employment dispute she
might have with her employer. Even so, she went to court with a
collective action asserting a violation of federal law regarding
overtime payment.
The employer waited almost eight months
before making a motion to compel arbitration – filing a motion to
dismiss (which the trial court denied) and engaging in mediation
(which was unsuccessful). Morgan argued that this was a waiver of
the employer's right to arbitrate, but the trial court and the 8th
Circuit said there was no waiver because Morgan did not prove that
she suffered any harm from the delay.
The US Supreme Court
– unanimously – reversed, holding that the employee need not prove
she was prejudiced by the delay.
This case arose under the
Federal Arbitration Act (FAA). The courts below applied 8th
Circuit 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 prejudice requirement is not a feature of
federal waiver law generally. The 8th Circuit adopted that
requirement because of the "federal policy favoring arbitration."
The Supreme Court said: "Outside the arbitration context, a
federal court assessing waiver does not generally ask about
prejudice. Waiver, we have said, 'is the intentional
relinquishment or abandonment of a known right.' To decide whether
a waiver has occurred, the court focuses on the actions of the
person who held the right; the court seldom considers the effects
of those actions on the opposing party. That analysis applies to
the waiver of a contractual right, as of any other." Thus, the 8th
Circuit applied a rule that applies only to arbitration.
Courts that have required a showing of prejudice have relied on
the "federal policy favoring arbitration." However, that policy,
the Court said, "is merely an acknowledgment of the FAA's
commitment to overrule the judiciary's longstanding refusal to
enforce agreements to arbitrate and to place such agreements upon
the same footing as other contracts."
The "federal policy
favoring arbitration." is to make arbitration agreements as
enforceable as other contracts, but not more so. Accordingly, a
court must hold a party to its arbitration contract just as the
court would to any other kind. But a court may not devise novel
rules to favor arbitration over litigation.
Interestingly,
the Court assumed, without deciding, that it was proper for the
8th Circuit to resolve cases like this one as a matter of federal
law, using the terminology of waiver rather than forfeiture,
estoppel, laches, or procedural timeliness. In the end, the Court
said, "Our sole holding today is that it may not make up a new
procedural rule based on the FAA’s 'policy favoring arbitration.'"
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