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Arbitration Agreements To Be Enforced As Other Contracts; No Prejudice Requirement

In the case of Morgan v. Sundance, Inc., 596 U.S. ____ (2022), the Ohio Supreme Court held that courts are not to create arbitration-preferring procedural rules based on the Federal Arbitration Act’s (FAA) “policy favoring arbitration” when deciding whether a party waived its right to arbitrate, and that the Eighth Circuit erred in conditioning a waiver of the right to arbitrate on a showing of prejudice.

Here, an employee argued that her employer waived its right to arbitrate when it engaged in litigation for eight months before moving to arbitrate instead. The employer argued that it had the right to arbitrate under Sections 3 and 4 of the FAA. The lower courts followed the Eighth Circuit precedent, under which “a party waives it right to arbitration if it knew of the right; acted inconsistently with that right; and prejudiced the other party by its inconsistent actions.” Morgan v. Sundance, syllabus. The Ohio Supreme Court granted certiorari to resolve whether federal courts may adopt an arbitration-specific waiver rule demanding a showing of prejudice and held that the federal courts cannot.

In support of its decision, the Ohio Supreme Court reasoned that in assessing waiver of a right, a court does not generally ask about prejudice, but instead focuses on the actions of the person who held the right. The Ohio Supreme Court further explained that the FAA’s “policy favoring arbitration” does not authorize federal courts to create arbitration-preferring procedural rules, but instead acts to enforce arbitration agreements the same as other contracts. Section 6 of the FAA provides that any application under the statute “shall be made and heard in the manner provided by law for the making and hearing of motions,” which the Ohio Supreme Court interpreted to mean for courts to apply the usual federal procedural rules. Id. The Ohio Supreme Court thus held that since the usual federal rule of waiver does not include a prejudice requirement, Section 6 of the FAA also states that prejudice is not a condition of finding that a party waived its right to arbitrate, and thus remanded this case back to the lower courts to decide whether the employer waived its right to arbitrate in accordance with this opinion.

To read this case, click here.

Authors: Matthew John Markling and the McGown & Markling Team.

Note: This blog entry does not constitute – nor does it contain – legal advice. Legal jurisprudence is like the always-changing Midwestern weather. As a result, this single blog entry cannot substitute for consultation with a McGown & Markling attorney. If legal advice is needed with respect to a specific factual situation, please feel free to contact a McGown & Markling attorney.


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