FLORIDA: An Introduction to Litigation: General Commercial: Highly Regarded

By: Beth-Ann Krimsky, Greenspoon Marder LLP  

Mantra for Arbitration -- Preserve, Preserve, Preserve – Early and Often

Arbitration remains a sought after alternative to using our state and Federal court system. However, to make use of that bargained for contract right, the United States Supreme Court has stressed, and now unanimously confirmed in May 2022, it is the party who seeks to arbitrate who must act in accordance with that chosen right to preserve it. It is more important than ever to act early to not waive that right to arbitrate.

Many businesses or individuals pursue arbitration for varying reasons, including (1) privacy so they can address and resolve legal disputes in a confidential forum with far less public exposure and filings (unless, of course, an award must be confirmed or is challenged); (2) the potential to limit discovery, and therefore the cost to address the dispute; (3) having a say in who the arbitrator(s) will be as compared to a randomly assigned Judge; and (4) the potential for an expedited process (which at times may not always be achieved).

To achieve these goals however, you must follow the rules to preserve the right to arbitrate. In Morgan v. Sundance, Inc., 142 S. Ct. 1708 (2022), the United States Supreme Court very recently added another reminder that when parties have an agreement to arbitrate, the parties still must preserve and not waive that right. Morgan, 142 S. Ct. at 1709. In Morgan, the court reminds us that while the Federal Arbitration Act at 9 U.S.C. § 3 sets forth a distinct and specified policy favoring arbitration, that policy is enforced because the policy actually is stated in the statute and it is not for any court to devise “novel rules to favor arbitration over litigation.” Id. at 1713 (citing Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218–221 (1985)). Thus, the Court reasoned that its role was to enforce the Federal Arbitration Act (“FAA”) that says arbitration is to be favored, while not treating arbitration contracts in a manner any different than any other contract. The case came to the United States Supreme Court after the trial court had applied Eighth Circuit law that conditioned a waiver on showing that the other party seeking to avoid arbitration had been prejudiced by that waiver. The United States Supreme Court unanimously held that the Federal Courts, including the Eighth Circuit, could not add a “prejudice,” or any other condition to whether or not a waiver had occurred. Thus, the only question the Morgan Court said needed to be addressed was whether a party knowingly relinquished the right to arbitrate by acting inconsistently with that right.

The facts in Morgan related to claims brought by an hourly employee at a Taco Bell franchise owned by the Defendant Sundance. The employee had agreed to a confidential binding arbitration in her initial employment agreement, yet filed a Federal lawsuit addressing alleged Fair Labor Standards Act allegations regarding overtime pay. Sundance litigated the case in court for nearly eight months by answering the complaint, asserting many affirmative defenses (none of which mentioned the arbitration agreement), attending a collective mediation, and addressing a proposed schedule for the rest of the case. It was not until eight months in that Sundance moved to stay the litigation and compel arbitration. Morgan opposed that motion and while the trial court agreed with Morgan’s waiver argument, Sundance argued on appeal to the Eighth Circuit that it could not have waived that arbitration right unless Sundance’s allegedly inconsistent actions prejudiced the other party. Thus, while the trial court found the prejudice requirement had in fact been satisfied and denied the motion to stay and compel arbitration, the Court of Appeals disagreed and directed that the case be arbitrated. The United States Supreme Court addressed the nine circuits, including the Eighth Circuit who relied on the federal policy to favor arbitration as set forth in the FAA to support an additional requirement to show prejudice before a waiver could be found. Only two Circuits had rejected the prejudice requirement, the Seventh Circuit in St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Products Co., Inc., 969 F.2d 585, 590 (7th Cir. 1992) and the DC Circuit Court of Appeals in Nat'l Found. for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 (D.C. Cir. 1987). The United States Supreme Court expressed that its decision was based on the applicable law as stated in the FAA. Specifically, it found that Federal courts could not add a requirement that is not set forth in the statute. Thus, the Supreme Court did not actually address in detail the conduct of the parties in Morgan as to what they might have done to preserve or otherwise not have waived their right to arbitration. Instead, the Court focused on the heart of what a Court is to examine to consider the issue of waiver. The Court reasoned “to decide whether a waiver has occurred, the court focuses on the actions of the person who held the right; the Court seldom considers the effect of those actions on the opposing party. That analysis applies to the waiver of a contractual right, as of any other.” Morgan, 142 S. Ct. at 1713. The Court went on to say, “the FAA’s ‘policy favoring arbitration’ does not authorize federal courts to invent special arbitration-preferring procedural rules.” Id. (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). The Court concluded by vacating the judgment of the Eighth Circuit Court of Appeals and remanding the proceedings while noting that the only question to determine is whether the defendant in that case, Sundance, “knowingly relinquished the right to arbitrate by acting inconsistently with that right.” Thus, the Supreme Court confirmed that the actual waiver of a right to arbitrate is based on the conduct of a person who has that right and not the impact on the other contracting party.

Practice Point. The practical reality is no matter where a case is filed, to the extent your clients have and want to enforce a right to arbitrate, that right must be asserted in the first instance. For example, as soon as a case filed in state court presents itself, even if the client is considering removal to Federal court, in that initial removal process you should note in the filings that you are not waiving your right to arbitrate and you are only following the statutory guidelines rules while preserving that right. The same goes for the initial motion for extension of time, waiver of service, or any other filing. If there is any doubt whatsoever, you should file a motion to stay the action and compel arbitration as quickly as you can while not waiving your other rights. In addition, to the extent a plaintiff or adversary pursues early discovery or seeks to engage in the litigation process, you should again assert arbitration rights either in whatever response you have filed, or by considering a motion for protective order that again asserts the right to arbitration but explains to the court why you are not able to respond for fear of waiving that right.

Take the message from the unanimous United States Supreme Court in May of 2022 to heart—the way not to waive is to preserve, preserve, preserve; as early and as often as you can.