In a unanimous decision, the Supreme Court holds a party does not have to show prejudice to establish that an opposing party has waived its right to arbitrate. Morgan v. Sundance, Inc. No. 21-328 (May 23, 2022).
Plaintiff Robyn Morgan filed a nationwide collective action asserting that Defendant Sundance violated federal overtime law. Morgan had previously signed an agreement to arbitrate employment disputes. After losing a motion to dismiss the lawsuit, Sundance filed an answer to the lawsuit asserting 14 affirmative defenses – but not mentioning the arbitration agreement between the parties. Thereafter the parties mediated but failed to come to an agreement.
After eight months of litigation in federal court, Sundance moved to compel arbitration of the dispute. Morgan opposed the Motion arguing Sundance waived the right to arbitration by engaging in litigation in court for eight months before filing the motion to arbitrate. Sundance addressed Morgan’s opposition to the motion arguing Morgan could not show any prejudice by the initial court proceedings.
The question framed by the Supreme Court is whether Sundance knowingly relinquished the right to arbitrate by acting inconsistently with that right.
Nine federal circuit courts have agreed with Sundance’s position that Morgan had to establish she was prejudiced by the delay to request arbitration. Two circuits have disagreed with that position.
The Supreme Court resolved this circuit split holding Morgan did not have to show she was prejudiced by Sundance’s delay in requesting arbitration.
Waiver is the intentional relinquishment or abandonment of a known right. The inquiry should be on the conduct of the person who held the right, not the effect of that conduct on the opposing party. Sundance acted inconsistent with its right to arbitration by litigating in federal court for eight months prior to filing the motion to compel arbitration, Morgan does not have to show she was prejudiced by Sundance’s delay to establish that Sundance waived its entitlement to arbitration.
The Supreme Court remanded the case to the Eighth Circuit Court of Appeals to determine the waiver issue disregarding whether the plaintiff could show prejudice.
This opinion applies only to waiver of rights under federal law. What influence this decision may have on state courts enforcing arbitration agreements under state law remains to be seen.
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