In Morgan v. Sundance, Inc., a unanimous opinion written by Justice Elena Kagan, the Supreme Court considered a procedural dispute surrounding a wage-theft case. It held a defendant’s actions could effectively waive a mandatory arbitration provision under the general standards for contracts; federal courts cannot require an additional showing of prejudice in cases about arbitration waivers specifically. The Court no federal policy favors arbitration over litigation.
Sommers Schwartz attorney Jason Thompson cooperated in the appeal to the Supreme Court.
Facts of the Case
Petitioner Robyn Morgan worked at a Taco Bell franchise owned by respondent Sundance, Inc. She was an hourly employee who signed a binding arbitration clause. This boilerplate paperwork required her to use confidential binding arbitration to resolve disputes rather than file a lawsuit.
In response to alleged systemic wage theft practices, Morgan brought a class-action lawsuit against Sundance. Sundance responded by alleging that Morgan’s suit duplicated another collective action, in which different employees filed for the same practices. It asked that the cases be joined or Morgan’s re-filed as an individual action.
When that did not happen, Sundance filed its answer, including fourteen affirmative defenses. Then Sundance settled the other collective action. It asked the Morgan court to stay the litigation and order the parties to engage in confidential binding arbitration.
The District Court denied the request, and Sundance appealed to the 8th Circuit Court of Appeals. The Appellate Court reversed and ordered the case to go to arbitration. Morgan appealed to the Supreme Court.
Holding and Analysis
According to general principles of contract law, a federal court may find that a party has waived a contractual right if it knew of the right and acted inconsistently with that right. The court focuses on the actions of the person who held the right rather than the effects of those actions on the opposing party. Usually, a defendant seeking to enforce a mandatory arbitration agreement moves immediately to do so once a lawsuit is filed. Here, Sundance answered the complaint and engaged in settlement discussions before attempting to enforce its arbitration rights — eight months of litigation.
The 8th Circuit, however, has established precedent that adds a requirement for cases involving mandatory arbitration clauses: a party only waives its contractual right to arbitration if it also prejudices the other party by its inconsistent actions. This additional requirement was adopted by its courts because they believed that the Federal Arbitration Act (FAA) expressed a “federal policy favoring arbitration.” Although the District Court felt Morgan had been prejudiced (and met this additional requirement), the Appellate Court did not.
In overturning the Appellate Court’s decision, the Supreme Court discarded the question of whether Morgan had met this additional burden. Instead, it explicitly contradicted the 8th Circuit’s policy. The Court clarified that the FAA intends to make “arbitration agreements as enforceable as other contracts, but not more so.” Therefore, a lower court “may not devise novel rules to favor arbitration over litigation. The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.”
Effects of the Court’s Decision
Federal courts have tended to enforce mandatory arbitration agreements under the FAA. However, the Morgan ruling clarifies that arbitration agreements are not “super contracts” that enjoy “special, arbitration-preferring procedural rules” like the one created by the 8th Circuit. Instead, they have the same limitations as other contracts.
Championing Workers’ Rights
Sommers Schwartz believes everyone should be paid what they’re owed for honest work. When employers violate minimum wage laws, deny overtime pay, fail to compensate employees for off-the-clock work, and engage in other forms of wage abuse, we fight for their rights—to the U.S. Supreme Court, if necessary. If you’ve been a victim of wage theft, contact us today for a free consultation.
Jason J. Thompson
Jason Thompson is a nationally board certified trial attorney and co-chairs Sommers Schwartz’s Complex Litigation Department. He has a formidable breadth of litigation experience, including class action and multidistrict litigation (MDL), and practices nationwide in both state and federal courts.
