Summary
The Supreme Court held that federal courts may not impose an arbitration-specific waiver rule requiring a showing of prejudice based on the Federal Arbitration Act’s policy favoring arbitration. Applying the FAA’s requirement that arbitration applications be handled like other motions, the Court vacated and remanded for consideration of whether Sundance knowingly relinquished its arbitration right under ordinary procedural principles.
Topics
Practice areas
Questions Presented
- Whether the Federal Arbitration Act permits federal courts to adopt an arbitration-specific waiver rule requiring a showing of prejudice.
- Whether the Eighth Circuit erred by conditioning waiver of the right to arbitrate on prejudice to the opposing party.
Holdings
- The Federal Arbitration Act does not authorize federal courts to create arbitration-specific procedural rules that favor arbitration over litigation. Because the ordinary federal waiver rule does not require prejudice, prejudice is not a condition of finding that a party waived its right to stay litigation or compel arbitration under the FAA.
- The Eighth Circuit may determine on remand whether Sundance knowingly relinquished its right to arbitrate by acting inconsistently with that right, or whether a different procedural framework, such as forfeiture, applies. The Supreme Court did not decide whether Sundance actually waived or forfeited arbitration.
Key quotations
“The policy is about treating arbitration contracts like all others, not about fostering arbitration.” (at 6)
“Our sole holding today is that it may not make up a new procedural rule based on the FAA’s “policy favoring arbitration.”” (at 7)
“The Supreme Court has made clear” that the FAA’s policy “is based upon the enforcement of contract, rather than a preference for arbitration as an alternative dispute resolution mechanism” (at 6)
Factual background
Robyn Morgan, an hourly Taco Bell employee, signed an agreement to use binding arbitration for employment disputes. She later brought a nationwide collective action against Sundance under the Fair Labor Standards Act, alleging that Sundance manipulated recorded workweeks to avoid overtime obligations. Sundance initially litigated as though no arbitration agreement existed, filing a motion to dismiss, answering without asserting arbitration, participating in mediation, and discussing case scheduling before moving nearly eight months after filing to compel arbitration.
Procedural history
The District Court denied Sundance's motion to dismiss, and Sundance answered and participated in mediation without invoking arbitration. Sundance later moved to stay the litigation and compel arbitration. The District Court found the Eighth Circuit's prejudice requirement satisfied, but the Eighth Circuit disagreed regarding prejudice and sent the case to arbitration. The Supreme Court vacated the judgment and remanded.
Remand instructions
The case was remanded to the Eighth Circuit for further proceedings consistent with the opinion, including application of the ordinary waiver inquiry without a prejudice requirement or determination whether another procedural framework, such as forfeiture, applies.