Does the FAA require a party resisting arbitration on the grounds of waiver to show they suffered prejudice from a failure to compel arbitration sooner?

The Case: Morgan v. Sundance Inc.

The Court: California Superior Court

The Case No.: 142 S.Ct. 1708

Plaintiff in the Case: Morgan v. Sundance Inc.

The plaintiff in the case, Plaintiff Robyn Morgan, worked at a Taco Bell franchise owned by Sundance Inc. Morgan signed an agreement stating any employment dispute would be argued direction with the defendant. However, Morgan later filed a nationwide collective action alleging that Sundance violated federal overtime pay laws.

Defendant in the Case: Morgan v. Sundance Inc.

The defendant in the case, Sundance, Inc., ran the Taco Bell franchise where Morgan worked. When Morgan filed suit, the defendant initially defended against the suit, filing a motion to dismiss, and cooperating with mediation. After eight months, Defendant moved to stay litigation and compel arbitration under the Federal Arbitration Act (FAA). Plaintiff argued that Defendant waived the right to arbitration by engaging in litigation. The court denied the defendant’s motion. However, the Court of Appeals for the Eighth Circuit reversed the finding because the plaintiff did not show prejudice, so the defendant did not waive its right to compel arbitration.

The Case: Morgan v. Sundance Inc.

To resolve a circuit split, the United States Supreme Court granted certiorari regarding whether federal courts may adopt an arbitration-specific waiver rule demanding a showing of prejudice (similar to the Eighth Circuit, and a number of other circuits). When considered by the United States Supreme Court, the case was vacated and remanded with the court noting that outside the arbitration context, federal courts assessing waivers generally do not consider prejudice. While the FAA’s policy favors arbitration, it does not go so far as to allow federal courts to create arbitration-specific variants of federal laws and procedural rules (like the procedural rules regarding the waiver). The court held that the federal policy being considered intends to treat arbitration contracts like all other contracts - not foster arbitration. The case was remanded to the California court so they could decide if the Defendant waived their right to seek arbitration.

If you have questions about how to file an overtime class action or PAGA lawsuit, please contact Blumenthal Nordrehaug Bhowmik DeBlouw LLP. Experienced employment law attorneys are ready to assist you in various law firm offices located in San Diego, San Francisco, Sacramento, Los Angeles, Riverside, and Chicago.