A unanimous Supreme Court held May 23 that a party’s waiver of its arbitration right does not require showing prejudice to an opposing party, because the Federal Arbitration Act (“FAA”) prohibits arbitration-specific rules.
Franchisor Sundance litigated employee Morgan’s collective wage and hour claim for eight months before moving to compel arbitration. The courts below applied the majority rule and rejected Morgan’s waiver argument because she showed inadequate prejudice from Sundance’s delay.
The Supreme Court reversed and remanded. The Court assumed without deciding that, among many contenders (waiver, estoppel, timeliness, or state vs federal), the federal procedural waiver rubric was appropriate. Federal procedure does not additionally require “prejudice” to establish waiver, i.e., a party’s relinquishment of a known right.
The narrow opinion held that “a court may not devise novel rules to favor arbitration over litigation.” Slip Op. at 6. The “FAA makes clear that courts are not to create arbitration-specific procedural rules like the one we address here.” Id. at 7. Thus, the FAA “policy favoring arbitration” (on which lower courts had based the extra requirement) really means “not disfavoring arbitration.”
Morgan v. Sundance, Inc., 596 U.S. ____, No. 21-328 (May 23, 2022) is here.
Tom Potter is a Partner in the firm's Nashville office and has over 35 years of experience representing business interests in securities, corporate and intellectual property disputes.
Tom represents broker-dealers and ...