On May 23, 2022, the Supreme Court unanimously held that a party opposing arbitration is not required to demonstrate prejudice to show that the other party has waived its contractual arbitration rights.

Before today’s decision, nine federal courts of appeals had adopted the rule that a “party can waive its arbitration right by litigating only when its conduct has prejudiced the other side.” Morgan v. Sundance, 596 U.S. __ (2022). Two other circuits had held no showing of prejudice was required.

The Court resolved the split in Morgan v. Sundance, Inc., an appeal from an Eighth Circuit decision reversing the denial of an arbitration motion based on waiver because the plaintiff failed to make a showing of prejudice. Judge Colloton dissented from the panel’s decision on the basis that the plaintiff had met the court’s modest prejudice requirement, but he also questioned the prejudice requirement itself, which he noted is not imposed outside the arbitration context. The Supreme Court agreed with him on this latter point, citing in its decision his observation that “a contractual waiver ‘normally is effective’ without proof of ‘detrimental reliance,’” and holding that the courts of appeals “may not make up a new procedural rule based on the FAA’s ‘policy favoring arbitration.’” The Court observed that its prior references to such a policy were intended only to mean that arbitration contracts should be enforced under the same rules applicable to ordinary contracts.

The Court remanded the case to the Eighth Circuit to determine whether a waiver had occurred in the absence of a prejudice requirement.

The significance of this decision remains to be seen, as most decisions on waiver of arbitration rights turn on the preliminary question of whether the defendant has acted in a manner inconsistent with its arbitration rights; decisions turning solely on the prejudice consideration have been relatively rare. However, going forward companies hoping to enforce their arbitration agreements should keep in mind that behavior deemed inconsistent with arbitration rights may alone be sufficient to create a waiver, regardless of whether there has been prejudice to the opposing party.