Morgan v. Sundance, Inc.

When a party to litigation participates in substantial court proceedings before moving to compel arbitration under what they, belatedly, claim is an applicable arbitration agreement, the question arises whether that party has waived its right to arbitrate. Many federal courts of appeals considering the waiver question in cases governed by the Federal Arbitration Act (FAA) have held that the party can be found to have waived its right to arbitrate only if its delay prejudiced the opposing party. Many state courts, however, have applied general contract law principles to hold that waiver may be found in the absence of a showing of prejudice.

In this case, the Eighth Circuit held that prejudice was required, and the Supreme Court granted certiorari to consider the question. Public Citizen filed an amicus brief arguing that the waiver issue has both federal-law and state-law dimensions: Federal law determines whether a party has waived its statutory right to invoke the procedures of the FAA. State law determines whether a party has waived its contract rights that, in turn, determine whether, under the FAA procedures, the court may compel arbitration. Accordingly, if state law does not require prejudice for a showing of waiver of contract rights, the FAA requires that that law be given effect. Agreeing, the Supreme Court unanimously held that the Eighth Circuit erred in conditioning a waiver of the right to arbitrate on a showing of prejudice. The Court explained that the federal policy is about treating arbitration contracts like other contracts, not about fostering arbitration.