Transportation Law Update: United States Supreme Court Rules on Arbitration Case
Recently, the Court ruled on Morgan v. Sundance, Inc., 21-328, 2022 WL 1611788 (U.S. May 23, 2022). The case arose from an employment dispute in the Southern District of Iowa and was reviewed by the United States Court of Appeals for the Eighth Circuit. The Eighth’s Circuit’s decision was reversed. As a result of the import of arbitration to the transportation industry, the case is noteworthy for people involved in the industry. We have previously commented on the case.
SUPREME COURT OPINION
The Supreme Court vacated and remanded the decision by the Eighth Circuit Court of Appeals. The Court first noted that the prejudice requirement is not an element of general federal waiver law. Further, the Federal Arbitration Act’s (FAA) policy of favoring arbitration did not permit federal courts to create unique procedural rules for arbitration related cases. Lastly, the text of the FAA prohibits courts from creating unique arbitration procedural rules like the one in this case.
The Court determined that the Eighth Circuit’s prejudice requirement was inconsistent with general federal waiver law. The Eight Circuit’s prejudice requirement came from an older Second Circuit decision concerning the FAA, wherein the Circuit stated, “[T]here is an overriding federal policy favoring arbitration.” Cabinetree of Wisconsin, Inc. v Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995). The Circuit went on to say “’Mere delay’ in seeking a stay of litigation, ‘without some resultant prejudice’ to the opposing party, ‘cannot carry the day.’” Morgan v. Sundance, Inc., 21-328, 2022 WL 1611788 (U.S. May 23, 2022).
Yet, this approach is not used in any other context concerning waiver. When determining whether wavier occurred, courts focus on the action of the person who has the right of waiver, not the impact on the opposing party.
Even with the FAA’s policy of favoring arbitration, the law does not give federal courts the ability to create “special, arbitration-preferring procedural rules.” Morgan, 21-328, at 6. The Court has stated in a previous opinion that the FAA’s policy is to make “arbitration agreements as enforceable as other contracts, but not more so.” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 935, 404 n.12 (1967). The Supreme Court concluded that a court cannot create new rules to favor arbitration over litigation.
The text of the FAA precludes courts from creating novel procedural rules like the prejudice requirement. Section 6 of the FAA states that any application under the statute “shall be made and heard in the manner provided by law for the making and hearing of motions.” (unless a statute says otherwise). Morgan, 21-328, at 7. This directive is a command to use existing federal procedural rules and bar custom-made rules by courts to favor or disfavor arbitration. The typical federal rule of waiver does not have the prejudice requirement. Consequently, the case was remanded to the district court for further proceedings.
For more information
Contact John F. Fatino for more information about trucking and transportation matters at 515-288-6041. Drake University Law School J.D. candidate, Nathan R. Britton, assisted in the preparation of these materials.