In the recent unanimous United States Supreme Court opinion, Morgan v. Sundance, Inc., No. 21-328, 2022 WL 1611788 (2022), issued May 23, 2022, the Court abrogated existing case law and held that prejudice is not a condition of finding that a party, by litigating too long, waived its rights to stay litigation or compel arbitration under the Federal Arbitration Act (“FAA”), 9 U.S.C.A. § 1, et seq. Morgan establishes a showing of prejudice is not required to argue that a party by its actions in either litigation or mediation has waived its rights under an arbitration agreement overruling Fifth Circuit precedent in Miller Brewing Co. v. Fort Worth Distributing Co., Inc., 781 F.2d 494 (5th Cir. 1986). This ruling may have vast implications in the construction industry given the prevalence of arbitration agreements in most commercial construction projects.
Morgan arose in the context of an agreement to arbitrate an employment dispute when Sundance initially defended the lawsuit acting as though no arbitration existed: Sundance filed an unsuccessful motion to dismiss and participated in an unsuccessful mediation. Eight months after initiation of the suit, Sundance moved to stay the case and compel arbitration under the FAA. Morgan opposed arguing Sundance waived its rights to arbitration by its inconsistent actions and had been prejudiced by those inconsistent actions. The Supreme Court held that “[t]he Eight Circuit erred in conditioning a waiver of the right to arbitrate on a showing of prejudice.” Morgan, 2022 WL 1611788, at *1. The Morgan case has been remanded for the appellate court to resolve whether Sundance knowingly relinquished its right to arbitrate by acting inconsistently with that right or “determine whether a different procedural framework (such as forfeiture) is appropriate.” Morgan, 2022 WL 1611788 at *5.
21-328 Morgan v. Sundance, Inc. (05/23/2022) (supremecourt.gov)
Defendants who delay can lose their chance to arbitrate, court rules in 9-0 decision – SCOTUSblog
U.S. Supreme Court Rejects Prejudice Requirement for Waiver of Arbitration Rights – State Bar of Texas Alternative Dispute Resolution Section Newsstand – Powered by Lexology
Supreme Court Holds that Prejudice Is Not Required to Find Waiver of Right to Arbitration – State Bar of Texas Alternative Dispute Resolution Section Newsstand – Powered by Lexology