On May 23, 2022, the Supreme Court unanimously held that a party opposing arbitration is not required to demonstrate prejudice to show that the other party has waived its contractual arbitration rights. 

Before today’s decision, nine federal courts of appeals had adopted the rule that a “party can waive its arbitration right by litigating only when its conduct has prejudiced the other side.”  Morgan v. Sundance, 596 U.S. __ (2022).  Two other circuits had held no showing of prejudice was required.

The Court resolved the split in Morgan v. Sundance, Inc., an appeal from an Eighth Circuit decision reversing the denial of an arbitration motion based on waiver because the plaintiff failed to make a showing of prejudice.  Judge Colloton dissented from the panel’s decision on the basis that the plaintiff had met the court’s modest prejudice requirement, but he also questioned the prejudice requirement itself, which he noted is not imposed outside the arbitration context.  The Supreme Court agreed with him on this latter point, citing in its decision his observation that “a contractual waiver ‘normally is effective’ without proof of ‘detrimental reliance,’” and holding that the courts of appeals “may not make up a new procedural rule based on the FAA’s ‘policy favoring arbitration.’”  The Court observed that its prior references to such a policy were intended only to mean that arbitration contracts should be enforced under the same rules applicable to ordinary contracts. 

The Court remanded the case to the Eighth Circuit to determine whether a waiver had occurred in the absence of a prejudice requirement.

The significance of this decision remains to be seen, as most decisions on waiver of arbitration rights turn on the preliminary question of whether the defendant has acted in a manner inconsistent with its arbitration rights; decisions turning solely on the prejudice consideration have been relatively rare.  However, going forward companies hoping to enforce their arbitration agreements should keep in mind that behavior deemed inconsistent with arbitration rights may alone be sufficient to create a waiver, regardless of whether there has been prejudice to the opposing party.

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Photo of Sonya Winner Sonya Winner

A litigator with three decades of experience, Sonya Winner handles high-stakes civil cases for clients in a wide range of industries, including banking, pharmaceuticals and professional sports.  She has handled numerous antitrust and consumer disputes, many of them class actions, in state and…

A litigator with three decades of experience, Sonya Winner handles high-stakes civil cases for clients in a wide range of industries, including banking, pharmaceuticals and professional sports.  She has handled numerous antitrust and consumer disputes, many of them class actions, in state and federal courts across the country.

Sonya’s cases typically involve difficult technical issues and/or complex legal and regulatory schemes. She is regularly able to resolve cases before the trial phase, often through dispositive motions. But when neither summary judgment nor a favorable settlement is an option, she has the confidence of her clients to take the case all the way through trial and on appeal. Her recent successes have included a cutting-edge decision rejecting a “true lender” challenge to National Bank Act preemption in a class action involving interest rates on student loans, as well as the outright dismissal of a putative antitrust claim against the National Football League and its member clubs asserting an unlawful conspiracy to fix cheerleader compensation. 

Sonya has been recognized as a leading trial lawyer by publications like Chambers and the Daily Journal. She is chair of the firm’s Class Action Litigation Practice Group.

Photo of Andrew Soukup Andrew Soukup

Andrew Soukup is a co-chair of the firm’s Class Action Litigation Practice Group. Andrew specializes in representing heavily regulated businesses in class actions, multidistrict litigation, and other high-stakes disputes. Recognized for achieving “big wins in his class action practice,” Andrew has defeated a variety…

Andrew Soukup is a co-chair of the firm’s Class Action Litigation Practice Group. Andrew specializes in representing heavily regulated businesses in class actions, multidistrict litigation, and other high-stakes disputes. Recognized for achieving “big wins in his class action practice,” Andrew has defeated a variety of advertising, consumer protection, privacy, and product defect and safety claims ranging in exposure from millions to billions of dollars.

Andrew’s clients include those in the consumer products, life sciences, financial services, technology, automotive, and media and communications industries. He has helped his clients prevail in litigation in federal and state courts across the country against putative class representatives, government agencies, state attorneys general, and commercial entities.

With a long history of representing companies subject to extensive federal regulation and oversight, Andrew provides a unique ability to help courts understand the complex environment that governs clients’ businesses. Clients turn to Andrew because of his successful outcomes at all stages of litigation, his responsiveness and attention to their matters, his understanding of their businesses, and his creative strategies.

Andrew’s recent successes include:

  • Leading the successful defense of several of the world’s leading companies and brands from claims that they engaged in deceptive marketing or sold defective products, including claims brought under state consumer protection and unfair deceptive acts or practices statutes.
  • Delivering wins in multiple nationwide class actions on behalf of leading financial institutions related to fees, disclosures, and other banking practices, including the successful defense of numerous financial institutions accused of violating the Paycheck Protection Program’s implementing laws, which contributed to Covington’s recognition as a “Class Action Group of the Year.”
  • Helping one of the world’s largest seafood companies defeat ESG-related claims accusing the company of misrepresenting its environmental-friendly production practices.

Andrew has also obtained favorable outcomes for numerous clients in commercial and indemnification disputes raising contract, fraud, and other business tort claims. He helps companies navigate contractual and indemnification disputes with their business partners. And he advises companies on their arbitration agreements, and has helped numerous clients avoid multi-district and class-action litigation by successfully enforcing their arbitration agreements.

Watch: Andrew provides insights on class action litigation, as part of our Navigating Class Actions video series.

 
Photo of Marianne Spencer Marianne Spencer

Marianne Spencer is an associate in the firm’s Washington, DC office, where her practice focuses on class actions and complex civil litigation. She has defended clients in the financial services, sports, pharmaceutical, and technology industries against class actions in state and federal courts…

Marianne Spencer is an associate in the firm’s Washington, DC office, where her practice focuses on class actions and complex civil litigation. She has defended clients in the financial services, sports, pharmaceutical, and technology industries against class actions in state and federal courts across the country.

Marianne previously served as a law clerk to the Honorable Steven M. Colloton on the Eighth Circuit Court of Appeals. She maintains an active pro bono practice focused on civil rights and housing issues.