Reuters Legal News
Morgan v Sundance : how Taco Bell could impact waiving arbitration
By Martin Gusy , Esq ., Camille M . Ng , Esq ., and Jadranka Jakovcic , Esq ., Bracewell LLP MARCH 1 , 2022
Companies in the process of determining their dispute resolution policies should keep a close eye on an upcoming U . S . Supreme Court case . On March 21 , 2022 , the Court is set to hear arguments in Morgan v . Sundance , which takes up an important question : Does the waiver of the right to arbitration require a showing of prejudice on top of acts inconsistent with arbitration ?
Summary of the case
The details on the case are technical but important to the question before the Court .
In September 2018 , Robyn Morgan brought an action on behalf of herself and all similarly situated individuals against defendant Sundance , the owner of more than 150 Taco Bell franchises nationwide , in the U . S . District Court for the Southern District of Iowa , alleging violations of the Fair Labor Standards Act .
For companies with dispute resolution policies that include a possibility for litigation and arbitration proceedings to be available at the same time , the Court ’ s findings in Morgan v . Sundance may have significant ramifications beyond class-litigation and / or arbitration .
Sundance filed a motion to dismiss two months later , claiming that a lawsuit previously filed in the Eastern District of Michigan barred Morgan ’ s Iowa lawsuit on the basis of the “ first-to-file rule .” The Iowa District Court denied Sundance ’ s motion in March 2019 , finding that Morgan ’ s action involved nationwide claims and that the Michigan action was a Michigan-only collective action .
Sundance then answered the complaint involving affirmative defenses but did not mention its right to arbitration . The parties attempted a class-wide mediation involving the Michigan plaintiffs , which succeeded as to the Michigan action but failed as to
Morgan ’ s . Then , in May 2019 , the Taco Bell franchisor moved to compel arbitration .
Did Sundance waive the right to arbitration because it had invoked the “ litigation machinery ”? It did , said the Iowa District Court in the opinion denying Sundance ’ s motion . The 8th U . S . Circuit Court of Appeals reviewed the opinion de novo and reversed the ruling in a split decision .
The Eighth Circuit questioned whether Sundance had in fact invoked the “ litigation machinery ,” as the motion to dismiss focused on the “ quasi-jurisdictional ” first-to-file rule and not the merits of the dispute . In light of the four-month period during which the Iowa District Court considered Sundance ’ s motion to dismiss and the parallel mediation considered an alternative to litigation , the Eighth Circuit concluded that the parties spent minimal time in active litigation and no time addressing the merits of the case .
The Eighth Circuit stated that Sundance did not materially prejudice Morgan — even if Sundance had acted inconsistently with its right to arbitration and that it did not waive its right to arbitration . The Eighth Circuit noted that Sundance ’ s eight-month delay in moving to compel arbitration was not excessive . Half of that time consisted of the parties waiting for the Iowa District Court to dispose of Sundance ’ s motion to dismiss . No discovery had been conducted , and no duplication of efforts was likely .
In his dissent in the Eight Circuit decision , Judge Steven Colloton found that Sundance had waived its right to arbitration because , among other things , Sundance failed to move to compel arbitration in response to Morgan ’ s complaint , submitted an answer on the merits that enumerated affirmative defenses but did not mention arbitration , and engaged in mediation within the context of litigation .
Judge Colloton further emphasized Sundance ’ s gamesmanship . Specifically , he argued , Sundance pursued litigation to avoid the risk of collective arbitration and reversed course only when its arbitration prospects had improved . With the caveat that “[ p ] rejudice is a debatable prerequisite ,” Judge Colloton found that Sundance had caused sufficient prejudice to Morgan by forcing her to defend against a motion to dismiss and then mediation that was inaccurately premised on the alternative of federal litigation .
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