On May 23, 2022, the U.S. Supreme Court decided Morgan v. Sundance, Inc., No. 21-328, holding that the Federal Arbitration Act (FAA) does not authorize federal courts to create an “arbitration-specific procedural rule.”
The policy that favors arbitration does not authorize federal courts to add procedural requirements that are not generally applicable. The practice of imposing an additional prejudice requirement in analyzing whether a party had waived arbitration had been adopted by nine of the Courts of Appeals; only two had rejected it. The Supreme Court determined that the position of the two Courts of Appeals (for the D.C. and Seventh Circuits) was consistent with the plain language of Section 6 of the FAA and remanded for further proceedings.
Petitioner Robyn Morgan and her employer, Respondent Sundance, Inc., had an agreement to arbitrate any employment disputes. Morgan filed a nationwide collective action instead, challenging the calculation of overtime. After filing a motion to dismiss and engaging in mediation, Sundance moved to stay the litigation and compel arbitration. Morgan opposed the motion, arguing Sundance waived its right to arbitrate by litigating for so long. The District Court denied Sundance’s motion, but the Court of Appeals reversed and sent the action to arbitration.
In deciding whether Sundance waived its right to arbitrate, the lower courts applied the Eighth Circuit arbitration-specific waiver test. Under that test, a party waives its right if it knew of and acted inconsistently with its arbitration right and its actions prejudiced the other party. This is unlike general federal waiver law, which does not require a prejudice determination.
The Supreme Court held that a federal court “cannot condition a waiver of the right to arbitrate on a showing of prejudice.” Such a condition runs afoul of the FAA’s requirement that arbitration contracts “be made and heard in the manner provided by law for the making and hearing of motions.” Thus, because general federal waiver law does not require a prejudice determination, a request to find waiver in the arbitration context does not either.
Justice Kagan delivered the opinion of the Court, which was unanimous.