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Having just heard argument in this term’s only arbitration-related case on the oral argument docket, SCOTUS on November 15 granted Certiorari in another case involving arbitration.

As reported in SAA 2021-41 (Nov. 4), with a full complement of Justices, oral argument took place November 2 before the Supreme Court in the arbitration-centric Badgerow v. WaltersNo. 20-1143. With no other arbitration-related cases remaining on the “Certiorari granted” docket, the Court on November 15 agreed to review Morgan v. Sundance Inc., 992 F.3d 711 (8th Cir. Mar. 30, 2021).

Case Below: Waiver of Arbitration Rights

Cases involving whether a party has waived its right to compel arbitration typically involve whether that party participated in litigation and waited too long. The basic elements are whether the offending party: 1) had knowledge of its right to demand arbitration; 2) acted inconsistently with that right; and 3) thereby prejudiced the other party. The case below focused on the third element, with the Eighth Circuit majority holding that Sundance did not wait too long to press its arbitration rights and its conduct had not prejudiced Morgan: “The district court found Morgan was prejudiced by having to respond to Sundance’s motion to dismiss over the eight-month span of litigation. We disagree. Four months of the delay entailed the parties waiting for disposition of Sundance’s motion to dismiss. No discovery was conducted. And, the record lacks any evidence that Morgan would have to duplicate her efforts during arbitration. Instead, most of Morgan’s work focused on the quasi-jurisdictional issue, not the merits of the case. For these reasons, we hold Morgan was not prejudiced by Sundance’s litigation strategy. [] In the absence of a showing of prejudice to Morgan, we conclude Sundance did not waive its contractual right to invoke arbitration..”

A Question of Prejudice

The question presented in the August 27 Petition for Certiorari in Morgan v. Sundance, Inc., No. 21-328, is: “Does the arbitration-specific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court’s instruction that lower courts must ‘place arbitration agreements on an equal footing with other contracts?’ [in] AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011).” The Petition notes that there is a multi-faceted split on the issue: “This Court should grant certiorari to resolve a longstanding circuit split on the question whether a party asserting waiver of the right to arbitrate through inconsistent litigation conduct must prove prejudice, and if so, how much. This question not only divides the federal courts of appeals, but divides federal courts from geographically co-located state courts of last resort …”

Judge Steven M. Colloton dissented: “Morgan showed sufficient prejudice to support the district court’s determination of waiver. We concluded in a prior decision that nearly identical conduct by a defendant—waiting eight months to mention arbitration while forcing a plaintiff to defend against a motion to transfer venue to another judicial district—supported a finding of prejudice. Sundance also led Morgan to waste time and money engaging in a fruitless mediation based on an inaccurate premise that the case would be litigated in federal court. These impositions on the plaintiff are enough to satisfy the modest prejudice requirement employed in this circuit” (citation omitted).

(ed: *The case is listed on page 1 of the Order List. **The Court also granted the “motion of Law Professors” for leave to file an Amicus Brief. ***Oral argument is not yet scheduled; we’ll track it. ****The November 15 CPR Blog covers the case in U.S. Supreme Court Adds an Arbitration Issue: Is Proof of Prejudice Needed to Defeat a Motion to Compel?)

This post first appeared on the Securities Arbitration Alert blog.  The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.

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