Thomson Reuters Attorney Analysis
Why companies are potentially at risk
On Nov . 15 , 2021 , the U . S . Supreme Court granted Morgan ’ s petition for certiorari on the specific question of “[ d ] oes the arbitrationspecific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court ’ s instruction that lower courts must ‘ place arbitration agreements on an equal footing with other contracts ’? AT & T Mobility LLC v . Concepcion , 563 U . S . 333 , 329 ( 2011 ).”
For companies with dispute resolution policies that include a possibility for litigation and arbitration proceedings to be available at the same time , the Court ’ s findings in Morgan v . Sundance may have significant ramifications beyond class-litigation and / or arbitration .
If the Supreme Court goes so far as to strike prejudice as a requirement of the waiver of the right to arbitration , as inferred from the question presented , disputants run the risk of automatically waiving their right to arbitrate by acting inconsistently with such right .
What constitutes an inconsistent act can only be determined on a case-by-case basis . To that end , what ’ s really in question before the Court is when the litigation machinery was triggered . The Eighth Circuit focused on the lack of activity relating to the merits of the dispute . By contrast , the Iowa District Court — as well as Judge Colloton — focused on Sundance ’ s delay in moving to compel or even mention arbitration and the inclusion in its answer of affirmative defenses .
Avoiding inconsistencies , as a general rule , is sound advice . A stricter standard may be at play in the litigation context , as disputants , as a matter of law , will be required to promptly move to compel arbitration and stay litigation . Otherwise , they may be deemed to have waived their right to arbitration . The benefits of the interplay between arbitration and litigation , especially in complex cases — and mediation — cannot be overemphasized .
If , on the other hand , the Supreme Court emboldens the prejudice requirement , disputants still may waive their right to arbitrate if their inconsistent acts cause ( material ) prejudice to the other side . The contours of the prejudice requirement and its relationship to the uncontroversial element of inconsistent acts are colorable . At times , prejudice flows naturally from the inconsistent acts , in various degrees .
Here , the Iowa District Court and the dissenting judge appear to have found prejudice on Morgan merely because she had to be in litigation . But the Eighth Circuit took a different view , finding no material prejudice to Morgan since the merits remained unaddressed : The litigation activity would not result in the duplication of efforts in the succeeding arbitration . The Eighth Circuit appears to have interpreted the requirement of prejudice as a floor that permits certain litigation-related conduct but perhaps not others – and that could be key to the question before the Supreme Court .
Should arbitration agreements be on equal footing with other contracts as framed ? Two additional aspects must be considered .
If the Supreme Court goes so far as to strike prejudice as a requirement of the waiver of the right to arbitration , as inferred from the question presented , disputants run the risk of automatically waiving their right to arbitrate by acting inconsistently with such right .
First , while not addressed in the question presented , the policy against gamesmanship , especially when involving judicial resources , could frame — and potentially influence — the Supreme Court ’ s ruling . In his dissent , Judge Colloton highlighted that Sundance ’ s delay in moving to compel arbitration was a tactical decision . But rather than going to waiver , costs may be an alternative in addressing any undue imbalance there .
Second , a federal policy exists that favors arbitration . The question presented already correctly assumes that the right to arbitration differs from other contractual rights on account of the additional requirement of prejudice for the finding of its waiver . Waiver , of course , can be effected as a unilateral act , without the necessity of showing reliance and thereby prejudice .
The Supreme Court ’ s treatment warrants scrutiny , given that the right to arbitration is a procedural right and not a substantive right , which is also why arbitration agreements are rightfully regarded as severable from the main contract and its container contract . That is especially the case when considered against the backdrop of the pro-arbitration Federal Arbitration Act .
The waiver of any right otherwise enforceable must have a high bar . In Morgan v . Sundance , the Supreme Court may weigh in — if so , with prejudice .
2 | March 1 , 2022 © 2022 Thomson Reuters