Today begins a run of commentary on the busy arbitration calendar before the U.S. Supreme Court.
There are several annual gatherings of the Arbitration Tribe, such as New York Arbitration Week and California Arbitration Week. Starting Monday, we will see SCOTUS Arbitration Weeks I and II, as the Court hears four arbitration cases over the next thirteen days. This Arbitration Nerds’ Delight kicks off Monday, with Morgan v. Sundance, Inc., Dkt. 21-328.
The case centers on the elements which a party opposing arbitration must establish in order to prove waiver. The lower court required that Morgan prove, in support of her claim that Sundance waived any right to send her to arbitration, that Defendant’s delay in moving to compel prejudiced her. Morgan argues that a showing of prejudice is not an element of waiver as to other contract-based rights and that bolting that requirement onto the elements of waiver only in arbitration cases violates the mandate of AT&T Mobility, Inc. v. Concepcion, 563 U.S. 333 (2011), that contracts related to arbitration be treated like any other agreement between the parties. In her brief, Morgan asserts that the six Circuit Courts and the state courts adopting the prejudice requirement blurred the difference between two sets of principles – waiver on the one hand and laches and estoppel on the other. The latter two, she agrees, require that the party seeking to avoid a contractual obligation prove that it was prejudiced by the counterparty’s conduct. However, she maintains that waiver focuses solely on the actions of the allegedly waiving party, irrespective of any prejudice to its counterparty. Since a party asserting waiver in non-arbitration litigation need not establish prejudice, adding that element to arbitration waivers violates the mandates of Concepcion for equal treatment of all contracts. As a policy argument, Morgan contends requiring a showing of prejudice encourages gamesmanship, as the party seeking arbitration is encouraged to see how far it can push the benefits of litigation, such as broad discovery, without giving up the right to eventually force the opposing party into arbitration.
Sundance, the restaurant franchisee who employed Morgan, maintains that Plaintiff errs by focusing on Section 2 of the FAA, rather than Section 3. The latter provision, it claims, requires that a court compel arbitration unless the party seeking that relief is “in default.” Thus, the court should not focus on prejudice at all, but merely keep its eye on the existence of any default. Here, Sundance argues, there was no such default, and the court properly granted the motion to compel arbitration. Further, citing to a broad range of cases, Sundance argues that Morgan overstates the difference between estoppel and waiver; rather, it argues, the two terms are frequently used interchangeably. Therefore, cases addressing the elements of estoppel or laches may, in fact, really be speaking of waiver. Finally, Defendant falls back on the rubric that arbitration is a favored procedure; therefore, doctrines that move the parties in that direction, such as the prejudice requirement, should be encouraged.
Amici line up on the anticipated industry and plaintiff/defendant spectrum. The American Association of Justice, f/k/a The Association of Trial Lawyers of America; the National Academy of Arbitrators; groups of law professors and states; and Public Citizen have filed in support of Morgan. The Washington Legal Foundation, the Restaurant Law Center (which describes itself as the largest food service trade group in the world), and the U.S. Chamber of Commerce back Sundance.
I will try to monitor the arguments on Monday and report on them in “Highlights” on Tuesday. For a full set of briefs, see Scotusblog.com. Also, check the terrific podcast Strict Scrutiny to see if the panel addresses arguments in the case.
Delegation of arbitrability and the relevance of time; sealing
Tyson Foods, Inc. v. Costco Wholesale Corporation, 2022 U.S. Dist. LEXIS 46829 (W.D. Wash. March 16, 2022)(Coughenour, J.), demonstrates the problem with a court sealing the documents upon which it relies in compelling arbitration. Costco claims that Tyson and other poultry companies acted collusively in inflating the price of their product. (According to on-line sources, Costco sold 101 million of the roasted birds in 2020 and keeps prices low to attract traffic for other products). Costco filed an arbitration demand to resolve the issue. Tyson brought this action seeking to enjoin that proceeding, claiming that it had not agreed to arbitrate all the issues as to which Cosco seeks arbitration. At issue, in part, is the delegation of arbitrability questions to the arbitral tribunal. That question, in turn, hinges on which of two contracts governs – the parties’ “current standard terms,” (the “2019 terms”), which include delegation, or the earlier “standard terms in place at the time that the time the parties entered into their current agreement.” (the “2014 terms”), which do not. (Emphasis in the opinion). The court takes the now-common approach that incorporation of the AAA rules provides a clear manifestation that the parties intended to delegate such gateway issues. Judge Coughenour, then, opines that “the 1994 Terms clearly provide this [reference to the AAA rules].” That statement may well be true. The problem is that, at the parties’ request, the court redacts all the contract language, stating merely “[TEXT REDACTED BY THE COURT].” Therefore, one considering the opinion can neither judge the correctness thereof nor decide if it is distinguishable based on differences between the Tyson agreement and the contract which a later court may have before it. The opinion is simply too opaque to serve as precedent.
Turning to the merits, Tyson argues that the AAA’s rule giving the arbitrator the right to decide his or her own jurisdiction did not become effective until 2000. Thus, “it [Tyson] could not have possibly agreed to delegate this issue when it entered into its 1995 agreement. . . .” The court looks to AAA Rule 1 as it was in effect in 1995, which provided that “any amendment [of the AAA rules] shall apply in the form obtaining at the time the demand for arbitration . . . is received by the AAA,” quoting McKellar v. Mithril Capital Management, LLC, 2020 WL 1233855, slip op. at 4 (N.D. Cal. March 13, 2020)(brackets and elisions in opinion). Since the delegation provision was in the Commercial Rules when the demand for arbitration was filed in December 2021, the absence thereof in earlier versions is irrelevant.
Have a good weekend. Highlights may not appear until Tuesday next week in order to pick up the arguments in Morgan. Have a good weekend.
David A. Reif, FCIArb