by Andrew Flake
In sailing, to “tack” is to turn by making a series of small port-to-starboard moves, back and forth, into the wind. In looking at two very recent Supreme Court options dealing with arbitration, both issued within the past month, that term came to mind. Admittedly, with a sailing trip of my own coming up, I have things nautical on the mind, but taking the two opinions together, we might be seeing a bit of a tack, ever so small, against the very stiff and very pro-arbitration breezes in the District Courts. Here’s a quick recap.
Ahead of most of its other opinions this term, the Supreme Court has just issued two of note for arbitration: one decided June 6, dealing with baggage handling and airline transit, and the other, just a week or so prior, dealing with wage-and-hour arbitration in the restaurant context.
The first opinion is Southwest Airlines Co. v. Saxon, and it is not remarkable for its actual result: While the decision impacts the airline world, as it may invalidate a large number of similar provisions in the industry’s employment documents, it deals with a very specific provision in the Federal Arbitration Act (FAA). Justice Thomas, joined by all of his colleagues except Justice Barrett, who recused, goes through a straightforward textual analysis. The result is that baggage loaders cannot be forced to arbitrate claims because, as a “class of workers engaged in foreign or interstate commerce,” they are exempted by Section 1 of the FAA.
Of interest, though, is how the Court responded when Southwest argued policy, noting the “proarbitration purposes” of the FAA as a reason to read Section 1 narrowly. Text, not policy, won the day. Per Justice Thomas, while the Court has in the past “relied on statutory purpose to inform our interpretation of the FAA…we are not free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal.” The Court declined, in other words, to apply a rule of construction that would favor arbitration.
If that were all, we might miss the tack. One could view Southwest Airlines as just a case of the Court applying plain statutory language and case law to understand what “engaged in commerce” means. But then comes the second case, Morgan v. Sundance, where the Court more explicitly addresses how it understands “pro-arbitration” policy and the FAA.
The arbitration clause in Morgan v. Sundance was in an employment agreement between an hourly employee and employer-franchisor (Sundance owed a Taco Bell franchise). Despite a requirement for “confidential binding arbitration,” Ms. Morgan filed a nationwide collection action under the Fair Labor Standards Act. Sundance then defended the action for about eight months in the ordinary course, without seeking to stay the case or compel arbitration or otherwise invoke the arbitration clause.
In the Eighth Circuit, as in some but not all of the other Courts of Appeals, a party can waive its right to arbitration if it not only acts inconsistently — as Sundance did — but also causes “prejudice” to the other side. And despite what was presumably an expensive eight months for Ms. Morgan, the Eighth Circuit determined there was no prejudice and sent the case to arbitration.
Writing for a unanimous Court, Justice Kagan reversed, deriding the requirement of prejudice as an “arbitration-specific procedural rule” improperly created by the courts and based on an incorrect understanding of the FAA. The FAA was intended to correct historical biases by the courts against commercial arbitration — not as a source of authority for new rules of procedure favoring arbitration or to put arbitration in a place of special privilege compared to the courts:
The policy is to make “arbitration agreements as enforceable as other contracts, but not more so.” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 404, n. 12 (1967). Accordingly, a court must hold a party to its arbitration contract just as the court would to any other kind. But a court may not devise novel rules to favor arbitration over litigation. See Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 218–221 (1985). If an ordinary procedural rule—whether of waiver or forfeiture or what-have-you—would counsel against enforcement of an arbitration contract, then so be it. The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.
The Court here is definitely putting a hand on the rudder. In many arguments in many cases over time, referring to the FAA’s “pro-arbitration policy” has been talismanic, a wand waved to transmute litigation to arbitration. What Morgan v. Sundance suggests, perhaps not coincidentally so soon after Southwest Airlines, is that the Court wants a course correction.
How much of one we get will be something we might see in additional opinions from the Court — and that we’ll almost certainly see in a reframing of the FAA’s policy in party-argument and by the district courts and Courts of Appeals in judicial opinions. Keep a weather eye out.[The cases are Southwest Airlines Co. v. Saxon, __ U.S. __ (decided June 6, 2022) and Morgan v. Sundance, Inc., __ U.S. __ (decided May 23, 2022).]