Only one case today, but it’s worth reading as a follow-up to SCOTUS’s decision last Term on litigation waivers.
Litigation Waiver after Morgan
A number of the cases discussed over the last couple weeks have addressed the implementation of SCOTUS’s holdings in the last arbitration-heavy Term. Carollo v. United Capital Corp., 2022 U.S. Dist. LEXIS 188667 (N.D.N.Y. October 17, 2022), joins that list. In Morgan v. Sundance, Inc., 142 S. Ct. 1708 (2022), SCOTUS considered the appropriate elements for a court to consider in evaluating a litigation waiver claim. In the opinion below, the Court of Appeals had held that one element of a successful waiver claim was proof that the movant’s delay prejudiced the opponent. Under relevant Circuit law, waivers in non-arbitration cases did not include such a prejudice component. SCOTUS held that adding such an element only in arbitration cases violated the Federal Arbitration Act’s policy that arbitration contracts should be on the same footing as other agreements. In its remand, the Court provided only scant guidance as to the appropriate standard:
“Stripped of its prejudice requirement, the Eighth Circuit’s current waiver inquiry would focus on Sundance’s conduct. Did Sundance, as the rest of the Eighth Circuit’s test asks, knowingly relinquish the right to arbitrate by acting inconsistently with that right? . . . On remand, the Court of Appeals may resolve that question, or (as indicated above) determine that a different procedural framework (such as forfeiture) is appropriate. . . Our sole holding today is that it may not make up a new procedural rule based on the FAA’s “policy favoring arbitration.
The Second Circuit has not yet elucidated a post-Morgan standard. In Carollo, Judge Hurd reviews two tests which “sister courts” have adopted. One line applies the Second Circuit’s former test, removing only the element of prejudice. See Stadium & Exposition District v. Merrill, Lynch, Pierce, Fenner & Smith Inc., 626 F. 3d 156 (2nd Cir. 2010). Those courts consider the time lapse between commencement of the litigation and the filing of the request to arbitrate and at the amount of litigation and discovery prior to that request. See De Jesus v. Gregorys Coffee Management, LLC, 2022 U.S. Dist. LEXIS 138970 (E.D.N.Y. August 4, 2022), The second test applies “traditional contract waiver analysis” and considers whether the moving party intended to relinquish a known right to arbitrate. See Herrera v. Manna 2nd Ave. LLC, 2022 U.S. Dist. LEXIS 127431 (S.D.N.Y. July 18, 2020). Judge Hurd adopts the De Jesus test and denies the motion to compel. The opinion cites at length the litigation which occurred before the filing of the application to compel arbitration, placing particular emphasis on discovery as to absent class members which “would likely be unavailable during arbitration.” The case is full of valuable citations on both when the clock starts for computing delay and the amount of delay upon which the courts based a finding of waiver. It is one of those “notebook” cases that arbitration litigators should keep handy for future use.
Have a good weekend. Hopefully we get something more exciting next week.
David A. Reif, FCIArb