“When a party who has agreed to arbitrate a dispute instead brings a lawsuit, the Federal Arbitration Act (FAA) entitles the defendant to file an application to stay the litigation. See 9 U.S.C. § 3. But defendants do not always seek that relief right away. Sometimes, they engage in months, or even years, of litigation—filing motions to dismiss, answering complaints, and discussing settlement—before deciding they would fare better in arbitration. When that happens, the court faces a question: Has the defendant’s request to switch to arbitration come too late?”
With that opening paragraph, the U.S. Supreme Court in Morgan v. Sundance, Inc., 142 S.Ct. 1708 (2022), considered whether a waiver of a defendant’s right to insist on arbitration requires a showing of prejudice to the plaintiff resulting from delay in demanding arbitration. Nine of the eleven circuit courts of appeal, including the First Circuit which embraces New Hampshire, had said yes. A unanimous Supreme Court has now said no, and in the process has debunked the common assumption that arbitration agreements are specially favored in federal court – the so-called “presumption of arbitrability.”
Noting that “[o]utside the arbitration context, a federal court assessing waiver does not generally ask about prejudice,” 142 S.Ct. at 1713, Morgan ruled that “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. . . The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” Id. For that reason, the Court concluded that “prejudice is not a condition of finding that a party, by litigating too long, waived its right to stay litigation or compel arbitration under the FAA.” Id. at 1714.
Although Morgan was decided under the Federal Arbitration Act, the relevant state law principles are not materially different. Morgan’s definition of waiver – “the intentional relinquishment or abandonment of a known right,” id. at 1713 – is identical to New Hampshire’s. Demers Nursing Home, Inc. v. R. C. Foss & Son, Inc., 122 N.H. 757, 761 (1982) (“Waiver requires a finding of an actual intention to forego a known right.”). And the “presumption of arbitrability” is a feature of New Hampshire law as well. Grand Summit Hotel Condominium Unit Owners’ Ass’n v. L.B.O. Holding, Inc., 171 N.H. 343, 346 (2018) (“Under both federal and state law, a presumption of arbitrability applies to arbitration clauses.”). How Morgan influences New Hampshire state courts’ take on this remains to be seen, but it is worth noting that early New Hampshire case law on the “presumption of arbitrability,” first introduced in the collective bargaining setting, distilled the presumption entirely from federal law. Appeal of Westmoreland School Board, 132 N.H. 103, 105-06 (1989).
Waiver of a contractual right to demand arbitration by participation in litigation is not restricted to acquiescing defendants; a plaintiff can also be held to have waived arbitration by pursuing litigation. In tossing prejudice out of the equation and abandoning any preference favoring arbitration, Morgan is likely to have an effect here as well. The bare act of filing suit may now be viewed as a decision to forego arbitration – including in state court, where there is already precedent for inferring a plaintiff’s waiver from the institution of litigation despite a valid arbitration clause. Logic Associates, Inc. v. Time Share Corp., 124 N.H. 565, 571 (1984) (“We affirm the master’s recommendation that Logic’s right to arbitration, provided by the license and service agreement’s arbitration clause, was waived when Logic filed a common-law writ for damages in superior court against Time Share.”).
If, however, litigation is instituted in order to seek a prejudgment remedy that is unavailable in arbitration, the inference of waiver is weakened. Thus, bringing a lawsuit as a vehicle for getting a mechanic’s lien attachment – although not the only vehicle that can accomplish this task, as I have mentioned before on this site (#83) – won’t preclude a later demand for arbitration. Pine Gravel, Inc. v. Cianchette, 128 N.H. 460, 465 (1986).
But I wouldn’t include a demand for jury trial in the Complaint!
With that opening paragraph, the U.S. Supreme Court in Morgan v. Sundance, Inc., 142 S.Ct. 1708 (2022), considered whether a waiver of a defendant’s right to insist on arbitration requires a showing of prejudice to the plaintiff resulting from delay in demanding arbitration. Nine of the eleven circuit courts of appeal, including the First Circuit which embraces New Hampshire, had said yes. A unanimous Supreme Court has now said no, and in the process has debunked the common assumption that arbitration agreements are specially favored in federal court – the so-called “presumption of arbitrability.”
Noting that “[o]utside the arbitration context, a federal court assessing waiver does not generally ask about prejudice,” 142 S.Ct. at 1713, Morgan ruled that “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. . . The federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” Id. For that reason, the Court concluded that “prejudice is not a condition of finding that a party, by litigating too long, waived its right to stay litigation or compel arbitration under the FAA.” Id. at 1714.
Although Morgan was decided under the Federal Arbitration Act, the relevant state law principles are not materially different. Morgan’s definition of waiver – “the intentional relinquishment or abandonment of a known right,” id. at 1713 – is identical to New Hampshire’s. Demers Nursing Home, Inc. v. R. C. Foss & Son, Inc., 122 N.H. 757, 761 (1982) (“Waiver requires a finding of an actual intention to forego a known right.”). And the “presumption of arbitrability” is a feature of New Hampshire law as well. Grand Summit Hotel Condominium Unit Owners’ Ass’n v. L.B.O. Holding, Inc., 171 N.H. 343, 346 (2018) (“Under both federal and state law, a presumption of arbitrability applies to arbitration clauses.”). How Morgan influences New Hampshire state courts’ take on this remains to be seen, but it is worth noting that early New Hampshire case law on the “presumption of arbitrability,” first introduced in the collective bargaining setting, distilled the presumption entirely from federal law. Appeal of Westmoreland School Board, 132 N.H. 103, 105-06 (1989).
Waiver of a contractual right to demand arbitration by participation in litigation is not restricted to acquiescing defendants; a plaintiff can also be held to have waived arbitration by pursuing litigation. In tossing prejudice out of the equation and abandoning any preference favoring arbitration, Morgan is likely to have an effect here as well. The bare act of filing suit may now be viewed as a decision to forego arbitration – including in state court, where there is already precedent for inferring a plaintiff’s waiver from the institution of litigation despite a valid arbitration clause. Logic Associates, Inc. v. Time Share Corp., 124 N.H. 565, 571 (1984) (“We affirm the master’s recommendation that Logic’s right to arbitration, provided by the license and service agreement’s arbitration clause, was waived when Logic filed a common-law writ for damages in superior court against Time Share.”).
If, however, litigation is instituted in order to seek a prejudgment remedy that is unavailable in arbitration, the inference of waiver is weakened. Thus, bringing a lawsuit as a vehicle for getting a mechanic’s lien attachment – although not the only vehicle that can accomplish this task, as I have mentioned before on this site (#83) – won’t preclude a later demand for arbitration. Pine Gravel, Inc. v. Cianchette, 128 N.H. 460, 465 (1986).
But I wouldn’t include a demand for jury trial in the Complaint!
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