Morgan v. Sundance, Inc.
The Supreme Court unanimously ruled that federal courts cannot add a special 'show-me-your-harm' requirement to the standard test for whether a company gave up its right to send a dispute to arbitration, closing off a procedural advantage that had let companies litigate for months before retreating to arbitration.
The decision resolves a long-running disagreement among federal appeals courts and means companies that delay invoking arbitration clauses may more easily be found to have given up that right — without the other side needing to prove concrete harm from the delay.
“The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.”
The Court's core explanation of what the FAA's pro-arbitration policy actually means — and does not mean.
How it got here: The district court found prejudice satisfied but the Eighth Circuit reversed and ordered arbitration; the Supreme Court agreed to hear the case to resolve a split among the federal appeals courts.
The Case in Depth
What happened
Robyn Morgan, an hourly worker at a Taco Bell franchise owned by Sundance, had signed an arbitration agreement when she was hired. She nonetheless filed a federal lawsuit claiming Sundance cheated her and other workers out of overtime pay. Sundance spent nearly eight months litigating the case — filing a motion to dismiss, listing fourteen affirmative defenses without mentioning arbitration, and going through mediation — before abruptly asking the court to halt the lawsuit and send the dispute to arbitration instead.
The question before the Court
When a company spends months litigating a lawsuit before suddenly asking to send it to arbitration, can federal courts require the opposing party to show they were actually harmed before finding the company gave up its right to arbitrate?
The Court's answer
No — federal courts cannot add a special rule requiring the opposing party to prove actual harm before finding that a company gave up its right to arbitrate through prolonged litigation. The Federal Arbitration Act's "policy favoring arbitration" means only that arbitration contracts should be treated the same as any other contract — not that they get special procedural protections unavailable in any other legal context. Under ordinary federal waiver law, a court focuses on whether the party intentionally gave up a known right by acting inconsistently with it; whether the other side suffered harm is not part of that analysis, and the FAA cannot be used to invent a stricter standard.
The Court did not decide whether Sundance actually gave up its right to arbitrate in this case. It sent the case back to the Eighth Circuit to resolve that narrower question — whether Sundance's eight months of litigation amounted to knowingly acting inconsistently with its right to arbitrate — and left open whether "waiver" is even the right legal concept, or whether forfeiture or another doctrine might better fit the situation.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Workers and consumers who have signed arbitration agreements but find themselves in lengthy court battles may now have an easier time arguing the other side gave up its right to arbitrate. Companies that routinely delay invoking arbitration clauses will face a stricter standard and can no longer point to the absence of demonstrable harm as a shield against losing those rights.
What changes now
The case returns to the Eighth Circuit, which must now decide whether Sundance waived its right to arbitrate using the ordinary waiver standard — without the prejudice requirement. The appeals court may also decide that a different legal framework, such as forfeiture, is more appropriate than waiver. For future cases nationwide, federal courts may no longer add a harm-to-the-other-side requirement when deciding whether a party gave up its arbitration rights by litigating too long.
What this does not decide
The Court did not decide whether Sundance actually gave up its right to arbitrate, whether "waiver" is the correct legal concept for this type of dispute, or what role state law might play. It also left open whether forfeiture, estoppel, laches, or procedural timeliness might be more appropriate frameworks than waiver.
How the Court got there
The legal reasoning, step by step
- Most federal appeals courts had developed a rule specific to arbitration: a party could only be found to have given up its right to arbitrate if (1) it knew of the right, (2) acted inconsistently with it, AND (3) its delay actually prejudiced — that is, harmed — the other side. This last element, courts said, was required by the FAA's strong 'policy favoring arbitration.'
- The Court assumed, without deciding, that ordinary federal waiver doctrine — not state law or some other theory like forfeiture — was the right framework for asking when a party's litigation conduct results in losing its contractual right to arbitrate. It then focused solely on whether courts may add a prejudice requirement to that framework.
- Outside arbitration, the standard federal definition of waiver is simply the intentional giving up of a known right. Courts look at what the party holding the right actually did; they do not ask whether the other side was harmed. Even for contractual rights specifically, 'detrimental reliance' is not required to show a waiver has occurred.
- The Court held that the FAA's 'policy favoring arbitration' authorizes no more than placing arbitration contracts 'on the same footing as other contracts' — it does not empower courts to create special pro-arbitration rules that tilt the legal playing field. Inventing a prejudice requirement that exists nowhere else in waiver law is exactly the kind of arbitration-specific favoritism the FAA does not permit.
- Section 6 of the FAA reinforces this conclusion by requiring that applications to stay litigation or compel arbitration be heard 'in the manner provided by law for the making and hearing of motions' — meaning the same procedural rules that govern every other motion, with no custom additions. Because ordinary waiver law carries no prejudice requirement, Section 6 bars courts from grafting one onto arbitration-related motions.
- Removing the prejudice requirement, the Court sent the case back to the Eighth Circuit to decide on the standard test: did Sundance knowingly and inconsistently abandon its arbitration right? The Court also explicitly left open whether waiver is even the proper doctrine, or whether forfeiture, estoppel, laches, or timeliness principles might be more appropriate.