Morgan v. Sundance, Inc.
A court may not condition waiver of the right to arbitrate on a showing that the opposing party was prejudiced; the FAA’s “policy favoring arbitration” places arbitration agreements on equal footing with other contracts and does not authorize arbitration-specific procedural rules.
Morgan v. Sundance, Inc. (2022) 596 U.S. 411
Arbitration
Waiver
No Prejudice Requirement
FAA Equal Footing
U.S. Supreme Court
In brief. A unanimous Court held that federal courts may not apply an arbitration-specific rule that conditions waiver of the right to arbitrate on a showing that the opposing party was prejudiced by the delay in invoking it. The FAA’s “policy favoring arbitration” requires placing arbitration agreements on the same footing as other contracts — not crafting special, arbitration-favoring procedural rules — so ordinary waiver principles, which do not require prejudice, govern. (Morgan v. Sundance, Inc. (2022) 596 U.S. 411, 411, 416–419.)
Facts
Robyn Morgan worked as an hourly employee at a Taco Bell franchise operated by Sundance and had signed an agreement to arbitrate employment disputes. (596 U.S. at pp. 413–414.) She nonetheless brought a nationwide collective action under the Fair Labor Standards Act, alleging Sundance had falsified time records and denied overtime pay. (Ibid.) For roughly eight months, Sundance litigated the case as though no arbitration agreement existed: it moved to dismiss the suit as duplicative of another collective action, filed an answer that raised numerous affirmative defenses but said nothing about arbitration, and participated in an unsuccessful mediation. (Id. at p. 414.) Only then — with the litigation well underway — did it move to compel arbitration and stay the case. (Ibid.)
The governing principle is the FAA’s equal-footing command. Section 2 makes arbitration agreements enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C. § 2), which the Court has long read to place arbitration agreements “on the same footing as other contracts.” (596 U.S. at pp. 411, 418, citing Granite Rock Co. v. Teamsters (2010) 561 U.S. 287.) Layered atop that text is a phrase from the Court’s 1983 decision in Moses H. Cone Memorial Hospital v. Mercury Construction Corp. (1983) 460 U.S. 1 — the “federal policy favoring arbitration” — which lower courts had read expansively for decades. (596 U.S. at pp. 416–418.) Drawing on that phrase, the great majority of the federal courts of appeals had adopted an arbitration-specific waiver test: a party that invoked arbitration belatedly would be found to have waived the right only if its delay had prejudiced the opposing party. (Id. at pp. 414–416.)
Procedural history
The District Court denied Sundance’s motion to compel, finding waiver. A divided Eighth Circuit panel reversed, holding that Morgan was required to show she had been prejudiced by Sundance’s delay and had not done so. (596 U.S. at pp. 414–415.) The Supreme Court granted certiorari to resolve an entrenched circuit split: “[n]ine circuits, including the Eighth,” had grafted a prejudice requirement onto arbitration-waiver analysis, while two had rejected it. (Id. at p. 416.) The Court sided with the minority — “We do too” — and vacated and remanded. (Id. at pp. 416, 419.)
Issue
May a court condition a finding that a party waived its contractual right to arbitrate on a showing that the opposing party suffered prejudice from the delay in asserting it — a requirement courts had justified by reference to the FAA’s “policy favoring arbitration”? (596 U.S. at pp. 414–416.)
Holding
No. The prejudice requirement “is not a feature of federal waiver law generally”; courts had grafted it onto arbitration alone, justified by a supposed policy favoring arbitration. (596 U.S. at pp. 416–417.) But that policy “is merely an acknowledgment of the FAA’s commitment to overrule the judiciary’s longstanding refusal to enforce” arbitration agreements and to place them “on the same footing as other contracts.” (Id. at p. 418.) It does not authorize courts to “create arbitration-specific variants of federal procedural rules . . . based on the FAA’s ‘policy favoring arbitration.’” (Ibid.) Vacated and remanded for the lower court to decide waiver under the usual rules. (Id. at p. 419.)
Reasoning
1. The FAA’s purpose and the limited meaning of its “policy favoring arbitration.” The Court returned the phrase to its origins. Congress enacted the FAA in 1925 to reverse the judiciary’s historic refusal to enforce arbitration agreements and to make them as enforceable as other contracts. (596 U.S. at pp. 416–418.) The “federal policy favoring arbitration,” the Court explained, is simply shorthand for that equalizing purpose — it “is about treating arbitration contracts like all others, not about fostering arbitration.” (Id. at p. 418.) Read correctly, the policy is not a substantive thumb on the scale that licenses courts to invent rules making arbitration easier to compel or harder to lose. (Ibid.)
2. An arbitration-specific prejudice rule violates the equal-footing principle. Outside the arbitration context, federal courts do not require a showing of prejudice to find waiver of a contractual or procedural right; waiver ordinarily turns on “the intentional relinquishment or abandonment of a known right,” a question that “focus[es] on the actions of the person who held the right” rather than on the effects on his opponent. (596 U.S. at pp. 417, 419.) The nine circuits had departed from that baseline only for arbitration, and only because of the misread Moses H. Cone policy. (Id. at pp. 415–417.) Stripping away that justification, the Court held, leaves nothing to support the special rule: “a court must hold a party to its arbitration contract just as the court would to any other kind. But a court may not devise novel rules to favor arbitration over litigation.” (Id. at p. 418.)
3. The Court resolved a clean legal question and left the rest to remand. The decision was deliberately narrow. It held only that prejudice is not required, leaving for the Eighth Circuit on remand whether Sundance’s eight months of litigation amounted to waiver under the ordinary standard. (596 U.S. at p. 419.) The Court also declined to specify the precise doctrinal label, expressly reserving whether the inquiry is best framed as “waiver, forfeiture, estoppel, laches, or procedural timeliness,” while making clear that whatever the rubric, it may not carry an arbitration-only prejudice element. (Id. at pp. 416, 419.) The opinion was unanimous — a notable feature given the Court’s frequent 5–4 divisions in arbitration cases — signaling broad agreement that the FAA neither disfavors nor specially favors arbitration when courts set the procedural rules of decision.
4. A correction with broader reach. Although the holding is confined to waiver, the reasoning trims a rhetorical device that had done heavy lifting across arbitration doctrine. By insisting that the “policy favoring arbitration” means only equal treatment, Morgan undercuts the analytical move — common in the expansive readings that produced AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 and Epic Systems Corp. v. Lewis (2018) 584 U.S. 497 — of invoking a free-floating pro-arbitration policy to resolve close questions in arbitration’s favor. (596 U.S. at pp. 417–418.) The decision thus supplies a tool for litigants resisting other judge-made, arbitration-specific rules that rest on the same premise. (Ibid.)
Significance
Morgan trimmed a judicial thumb that had long tilted the scale toward arbitration, holding that the FAA demands equal treatment, not procedural favoritism. Practically, it makes it markedly easier for an employee to establish that an employer waived arbitration by litigating first, since the employee need no longer prove concrete harm from the delay. Doctrinally, it is significant for its method: a unanimous Court read the FAA’s “policy favoring arbitration” narrowly, cabining a phrase that for decades had been used to expand arbitration’s reach. Its most direct consequence for California practice was Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, in which the California Supreme Court relied on Morgan to abrogate its own arbitration-specific prejudice requirement from St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187. Together, Morgan and Quach close a long-standing escape hatch for employers who litigate in court and only later demand arbitration, and they situate waiver doctrine within the broader, post-Concepcion recognition that the equal-footing principle runs in both directions. See the Review’s coverage of the arbitration line and Quach.
Key quotes
The prejudice requirement “is not a feature of federal waiver law generally.” (Morgan, supra, 596 U.S. at p. 417.)
The FAA’s policy favoring arbitration “is about treating arbitration contracts like all others, not about fostering arbitration”; “a court may not devise novel rules to favor arbitration over litigation.” (Id. at p. 418.)
Practice pointer
When an employer litigates before moving to compel, press waiver under Morgan (and, in California, Quach) without having to prove prejudice. Document every act inconsistent with an intent to arbitrate — motions to dismiss, answers that omit an arbitration defense, written discovery, depositions, mediation, and trial-setting participation — and argue a knowing relinquishment of the right that “focus[es] on the actions of the person who held the right.” Move promptly to oppose any belated motion to compel. The rule is a two-way caution: counsel who intend to arbitrate should assert the right at the threshold, plead it as an affirmative defense, and avoid substantive litigation conduct, because under Morgan and Quach delay alone can forfeit it even absent harm to the other side. Beyond waiver, keep Morgan’s narrowing of the “policy favoring arbitration” in your toolkit when resisting other arbitration-specific procedural rules an opponent defends only by reference to that policy.
Open questions
Morgan rejected the prejudice requirement but deliberately left the contours of waiver to the lower courts: how much litigation activity, and of what kind, manifests the intent to relinquish, and whether particular fact patterns are better analyzed as “forfeiture, estoppel, laches, or procedural timeliness” rather than waiver. (596 U.S. at p. 416.) Its narrowing of the FAA’s “policy favoring arbitration” may also bear on other arbitration-specific doctrines — for example, rules governing the timing of arbitration demands, the treatment of delegation clauses, and how courts construe ambiguous agreements — that lower courts had justified on the now-cabined policy. Those implications are still being worked out in the federal courts and, following Quach, in California.