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Supreme Court Reins In Policy Favoring Arbitration

Arbitration is commonly specified in construction contracts as a means of resolving disputes between the parties. However, disputes still occur concerning the proper scope, application, and enforceability of arbitration clauses which must be first presented to and resolved by a court, whether state or federal.


Arbitration is “favored” under state and federal caselaw.[1] That policy has been frequently used to resolve disputes. For example, the Louisiana Supreme Court has reasoned:


‘Accordingly, even when the scope of an arbitration clause is fairly debatable or reasonably in doubt, the court should decide the question of construction in favor of arbitration.’ Aguillard, 04–2804 at 908 So.2d at 25. ‘The weight of this presumption is heavy and arbitration should not be denied unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation that could cover the dispute at issue.’ Id. Louisiana's statutory provisions echo the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and Louisiana courts look to federal law in interpreting the Louisiana arbitration statutes.[2]

 

However, the United States Supreme Court in Morgan v. Sundance, Inc.,[3] decided in May 2022, appears to take a step back and reverses the long-standing rule from a plethora of cases specific to arbitration holding that “…waiver of the right to arbitrate ‘is not to be lightly inferred’: ‘[M]ere delay’ in seeking a stay of litigation, ‘without some resultant prejudice’ to the opposing party, ‘cannot carry the day.’ ”[4] Prejudice generally need not be shown to prove waiver. The Court went on to explain that this arbitration-specific policy was based upon the justification that there was a liberal national policy favoring arbitration.

            The United States Supreme Court in Morgan reasoned that “the liberal national policy favoring arbitration” was never meant to allow courts to enact arbitration-specific rules, but merely to level the playing field so as not to prejudice arbitration over litigation: “‘Th[e] policy,’ we have explained, ‘is merely an acknowledgment of the FAA's commitment to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the same footing as other contracts.’ Or in another formulation: The policy is to make ‘arbitration agreements as enforceable as other contracts, but not more so.’”[5] Furthermore, the Court reasoned that the FAA bars using “custom-made” rules to “tilt the playing field in favor of (or against) arbitration.”[6]

            Thus, the Court precluded the use of “prejudice” as an additional burden to prove waiver, requiring instead the court consider waiver under the provision of law applicable to contracts and not under specific principles fabricated to favor arbitration. After all, arbitration is contractual in nature and the court must consider whether a valid and enforceable contract exits requiring the parties to arbitrate their disputes before ordering the parties to do so such as by motion to compel or by motion to stay the court proceeding pending an arbitration.

            The decision of the Supreme Court in Morgan has wide-ranging potential implications for requiring courts to make the initial decision on a multitude of contractual issues on the merits based solely upon contract principles rather than by applying a presumption or by deferring the issue to the arbitrator or by requiring the parties to overcome the heavy burden imposed by longstanding precedent favoring arbitration.


Russel W. Wray is an attorney and owner of Wray & Associates (www.wraylaw.com) and practices in Louisiana.


This article is informational and should not be used as legal advice. One should independently consult with an attorney prior to relying on any of the information provided therein.

Wray & Associates © 2023.

 


[1] Potier v. Morris Bart, L.L.C., 2016-0879 (La.App. 4 Cir. 3/15/17), 214 So.3d 116.

[2] Potier v. Morris Bart, L.L.C., 2016-0879 (La.App. 4 Cir. 3/15/17), 214 So.3d 116, 122 (emphasis added), citing Aguillard v. Auction Management Corp., 04-2804, (La. 6/29/05), 908 So.2d 1.

[3] 596 U.S. 411, 417-418 142 S. Ct. 1708, 212 L. Ed. 2d 753 (2022).

[4] Morgan v. Sundance, Inc., 596 U.S. 411, 417-418 (emphasis added, citations omitted).

[5] Morgan v. Sundance, Inc., 596 U.S. 411, 418 (citations omitted).

[6] Morgan v. Sundance, Inc., 596 U.S. 411, 419 (emphasis added).

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