Arbitration Waiver in the Wake of Morgan v. Sundance

• Pages: 205-235
• Date: 01 July 2024
• Author: Samuel Agostini,Rachel Canna,Jared Lincoln
• Subject Matter: Derecho Público y Administrativo

205

Arbitration Waiver in the Wake of

Morgan v. Sundance

Samuel Agostini, Rachel Canna & Jared Lincoln*

I. Introduction

In 1925, Congress passed the Federal Arbitration Act (FAA), reflecting an

intent to support non-judicial private dispute resolution.1 Under the FAA,

the courts must stay proceedings in the event that a pending suit involves

issues that are arbitrable pursuant to the agreement between the parties.2

Arbitration offers potential benefits to commercial parties such as stream-

lined resolution, expert oversight, and reduced costs.3 Federal support for

arbitration is often grounded in the principles of autonomy, consent, and

freedom of contract.4

. Hiro N. Aragaki, The Federal Arbitration Act as Procedural Reform, 89 N.Y.U. L. R.

939, 94 (204).

2. 9 u.s.c. § 3; see also Smith v. Spizziri, 44 S. Ct. 73 (2024) (holding Section 3’s instruc-

tion to stay is mandatory).

3. AnneMarie Studer, Alternative Dispute Resolution – Arbitration: Waiver of Federal Arbitra-

tion Right No Longer Requires Showing of Prejudice, 98 N.D. L. R. 59, 62 (2023).

4. Aragaki, supra note , at 94.

*Samuel Agostini (samuelagostini@ulmlawfirm.com) is an associate at Urso, Liguori &

Micklich, P.C. in its Westerly, Rhode Island, office where he focuses his practice on franchise

law and related business matters, as well as on commercial litigation. Rachel Canna (rcanna@

wiggin.com) is an associate at Wiggin and Dana LLP in its New Haven, Connecticut, office

where she focuses her practice on franchise and other complex commercial litigation. Jared

Lincoln (jlincoln@wiggin.com) is a litigation associate at Wiggin and Dana LLP in its New

Haven, Connecticut, office.

Ms. Canna Mr. LincolnMr. Agostini

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206 Franchise Law Journal • Vol. 43, No. 3

In the franchise context, arbitration provisions are typically found in the

various agreements between franchisors and franchisees. Commercial parties

often rely upon arbitration as an alternative to traditional litigation. While

arbitration is seen as an alternative to resolving disputes in the courts, it does

not follow that arbitration is necessarily invoked before any litigation com-

mencing. In a perfect scenario, a party would move to stay proceedings and

compel arbitration at its earliest opportunity. In reality, parties may under-

take other actions before seeking to arbitrate, including moving to dismiss,

filing a responsive pleading, and even conducting limited discovery or fur-

ther action before moving to stay. The interplay between litigation proceed-

ings and arbitration has forced courts to grapple with the question of when

a party waives its right to compel arbitration. These waiver determinations

have yielded varying results in the federal courts,5 with some courts requir-

ing the objecting party to show they were prejudiced by the delay, while

others saw prejudice as a relevant factor in a wider analysis.6

In 2022, the Supreme Court decided Morgan v. Sundance (Morgan), grant-

ing certiorari to resolve the long-standing circuit split on the question of

whether the party opposing arbitration on the basis of waiver is required to

show that it was prejudiced by the actions that effectuated waiver.7 Justice

Kagan, writing for a unanimous court, overturned the Eighth Circuit’s hold-

ing, finding that a showing of prejudice is not required to successfully claim

waiver of a right to arbitrate.8

This article covers federal arbitration waiver analysis nationwide in the

nearly two years post-Morgan and evaluates the practical implications on

franchise law practice. Section II describes federal arbitration waiver juris-

prudence pre-Morgan. The Morgan decision itself is discussed in Section III.

Section IV sets forth key circuit-level decisions since Morgan was decided.

Trends and themes in arbitration waiver decisions post-Morgan, primarily at

the district court level, are explored in Section V. Finally, Section VI contains

practice points for attorneys representing franchisees and franchisors.

II. The Circuit Split

Before delving into Morgan, an analysis of the federal courts’ waiver jurispru-

dence in the context of the FAA is necessary. The prejudice requirement was

first articulated by the Second Circuit in the 1968 case Carcich v. Rederi A/B

Nordie.9 Carcich demonstrates the potential repercussions of delaying moving

for a stay pending arbitration. Longshoremen had brought an action against

5. This article focuses on authority from federal courts.

6. Compare Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir. 968) (finding that

it is “the presence or absence of prejudice which is determinative of the issue” of waiver), with

Nat’l Found. for Cancer Rsch. v. A.G. Edwards & Sons, Inc., 82 F.2d 772, 777 (D.C. Cir. 987)

(holding that “waiver may be found absent a showing of prejudice”).

7. Morgan v. Sundance, 596 U.S. 4 (2022).

8. Id. at 47.

9. Carcich v. Rederi A/B Nordie, 389 F.2d 692 (2d Cir. 968).

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