Tuesday, May 24, 2022
Yesterday the Supreme Court issued a unanimous decision in Morgan v. Sundance, Inc. (covered earlier here). At issue is whether the defendant waived its right to insist on arbitration by engaging in litigation before seeking a stay under section 3 of the Federal Arbitration Act (FAA). Justice Kagan’s opinion rejects the view—expressed by many federal appellate courts—that “[a] party can waive its arbitration right by litigating only when its conduct has prejudiced the other side.” She notes that a “special rule” requiring prejudice is not supported by the FAA’s ostensible “policy favoring arbitration.”
Here’s an excerpt, which also highlights a number of issues that the Court’s decision does not resolve:
We decide today a single issue, responsive to the predominant analysis in the Courts of Appeals, rather than to all the arguments the parties have raised. In their briefing, the parties have disagreed about the role state law might play in resolving when a party’s litigation conduct results in the loss of a contractual right to arbitrate. The parties have also quarreled about whether to understand that inquiry as involving rules of waiver, forfeiture, estoppel, laches, or procedural timeliness. We do not address those issues. The Courts of Appeals, including the Eighth Circuit, have generally resolved cases like this one as a matter of federal law, using the terminology of waiver. For today, we assume without deciding they are right to do so. We consider only the next step in their reasoning: that they may create arbitration-specific variants of federal procedural rules, like those concerning waiver, based on the FAA’s “policy favoring arbitration.” Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1, 24 (1983). They cannot. For that reason, the Eighth Circuit was wrong to condition a waiver of the right to arbitrate on a showing of prejudice.