SCOTUS to address arbitration waiver split in Taco Bell franchisee case

(Reuters) - The U.S. Supreme Court on Monday agreed to settle a split among appeals courts over the standard a plaintiff must meet to show that a defendant has waived its ability to compel arbitration.

The justices granted certiorari to Robyn Morgan, the named plaintiff in a proposed wage-and-hour class action against Taco Bell franchisee Sundance Inc. She says the company cannot send her claims to arbitration because it did not raise the issue for eight months after she sued.

The 8th U.S. Circuit Court of Appeals in March disagreed, finding that Sundance's litigation strategy of pursuing mediation in Morgan's case before moving to compel arbitration had not prejudiced Morgan's case.

The ruling deepened an existing split in which seven appeals courts had imposed a similar prejudice standard while three others have said prejudice is only one factor to be considered when determining whether a party waived the ability to compel arbitration.

Karla Gilbride of Public Justice, who represents Morgan, did not immediately respond to a request for comment. Neither did lawyers at Fisher Phillips who represent Sundance, which operates about 150 Taco Bell locations in several states.

Morgan, who worked at a Sundance-owned Taco Bell in Iowa, accused the company in a 2018 lawsuit of violating federal wage law by shifting hours worked to future work weeks in order to avoid overtime pay obligations.

Sundance moved to dismiss, claiming the lawsuit was precluded by a nearly identical pending class action in Michigan federal court. Mediation efforts in both cases failed while the motion was pending, according to court filings.

An Iowa federal judge denied the motion four months after it was filed, and in May 2019 rejected Sundance's motion to compel arbitration. The judge said that by filing the motion to dismiss, Sundance had implicitly waived its ability to invoke arbitration.

The 8th Circuit reversed in a 2-1 ruling, saying Morgan could not show she was prejudiced by the eight-month delay. No initial scheduling conference had taken place, no discovery had been initiated, and no merits-based motions had been filed when Sundance moved to compel arbitration, the majority found.

Morgan in her August petition told the Supreme Court that a requirement that plaintiffs show prejudice violated the Federal Arbitration Act, which puts arbitration agreements on "an equal footing with other contracts." That means courts must apply state contract principles rather than inventing a federal standard, Morgan said.

Sundance in response argued that because all courts consider prejudice to be a factor in the analysis, there was no actual split to be resolved.

The case is Morgan v. Sundance Inc, U.S. Supreme Court, No. 21-328.

For Morgan: Karla Gilbride of Public Justice

For Sundance: Reyburn Lominack of Fisher Phillips

Our Standards: The Thomson Reuters Trust Principles.