Supreme Court on Arbitration

The United States Supreme Court, in a rare unanimous decision, in Morgan v. Sundance reversed the Eighth Circuit. The Court explained that the Eighth Circuit erred by creating an arbitration-specific waiver rule that favored arbitration. Federal waiver law does not require a showing of prejudice. Parties can waive their ability to force lawsuits into arbitration without proving their conduct prejudices their adversaries.

The Supreme Court held that waiver of the right to arbitrate does not require a showing that the other party was prejudiced.  This is a big deal, and shows the lack of special preference for arbitration agreements. The archaic Federal Arbitration Act’s pro-arbitration policy “is about treating arbitration contracts like all others, not about fostering arbitration.”

The policy allegedly favoring arbitration “make[s] ‘arbitration agreements as enforceable as other contracts, but not more so.’” Holding that “the FAA’s ‘policy favoring arbitration’ does not authorize federal courts to invent special, arbitration-preferring procedural rules.”

The Supreme Court insists that the FAA requires courts to put arbitration contracts on “equal footing” with other kinds of contracts including any contractual defenses to the arbitration agreement. A party’s conduct inconsistent with the right to arbitrate will constitute a waiver of that right.