Morgan v. Sundance, Inc.

Public Justice is co-counsel in Morgan v. Sundance, Inc., an overtime and wage theft case on behalf of former Taco Bell employee Robyn Morgan against Sundance Inc., a company that owns more than 150 Taco Bell franchises throughout the country. Co-Director of the Access to Justice Project Karla Gilbride will argue for the plaintiff before the U.S. Supreme Court in 2022.

Morgan worked at a Taco Bell franchise operated by Sundance for several months in 2015. In September 2018, she filed a complaint under the Fair Labor Standards Act in the Iowa federal district court, alleging that Sundance failed to pay her and similarly-situated workers for all their work, including overtime premiums.

The complaint alleges that Sundance’s wage and hour practices violate federal law by keeping employees from earning overtime pay, including a scheme in which the company had a policy of “shifting” hours to ensure that the total number of recorded hours in any given week would never exceed 40. Furthermore, Sundance regularly instructed workers to clock out and continue working off the clock meaning that Morgan and other crewmembers were not paid for all of the hours they worked, including overtime pay for when they worked more than 40 hours in a single week.

Although Sundance’s employment agreement form contains an arbitration provision, the company did not invoke that provision at the “earliest feasible” point in the case, as Eighth Circuit precedent requires. Instead, it filed a motion to dismiss Morgan’s collective action under the first-filed rule, arguing that it should give way to another FLSA collective action, Wood v. Sundance (a 2016 case already pending in the Eastern District of Michigan), and that if the court dismissed the collective claims, Morgan could “refile her claim on an individual basis before this court.” After the district court denied Sundance’s motion to dismiss, the company filed an answer listing fourteen affirmative defenses, none of which mentioned arbitration. Only after an unsuccessful mediation session—which if successful, would have allowed Sundance to settle both cases—did Sundance first invoke its arbitration provision and move to compel Morgan’s claims into individual arbitration.

Morgan argued that Sundance had never mentioned arbitration, and that if it wanted to compel arbitration, it should have done so before proceeding with litigation inconsistent with its right to arbitrate. The district court agreed, ruling that Sundance’s moving to dismiss and otherwise participating in the litigation for over eight months, waived any right to arbitrate. However, in March 2021, the U.S. Court of Appeals for the Eighth Circuit reversed the lower court, ruling that the company’s motion to dismiss was not directed to the merits of the case and that because no discovery had occurred and no dispositive rulings had been made, Morgan failed to show that Sundance’s delay in moving to compel arbitration prejudiced her or the crewmembers. Three federal courts of appeal and supreme courts of at least four states do not include prejudice as an essential element of proving waiver of the right to arbitrate.

Pointing to this circuit split, Public Justice filed a cert petition with the U.S. Supreme Court in August 2021, challenging the arbitration-specific waiver doctrine and arguing that arbitration should be treated like any contractual right where a showing of prejudice is ordinarily not required. Sundance argued that because all courts consider prejudice to be a factor, there was in fact no circuit split that needs to be resolved.

In November 2021, the Supreme Court granted certiorari and will settle the circuit courts’ split over the standard for waiver of the rights to arbitrate under the FAA in 2022.

In December 2021, the legal team filed its opening brief. In March 2022, Access to Justice Co-Director Karla Gilbride argued before the Supreme Court. In May 2022, the Supreme Court issued its opinion, ruling unanimously in favor of Robyn Morgan and holding that prejudice was not a requirement for the waiver of arbitration agreements.

This case builds on Public Justice’s past work regarding arbitration waiver issues and raises several important issues that will be considered before the Supreme Court, including the role of prejudice in determining waiver of the right to arbitrate and whether the requirement to show prejudice violates the equal treatment principle under the Federal Arbitration Act, in which arbitration agreements are on “equal footing” with all other contracts and should be treated no differently.

Public Justice is participating in this case as part of its Access to Justice work in ensuring employees’ rights aren’t violated when it comes to corporate and government wrongdoing. Given the frequency with which this sort of corporate gamesmanship occurs, winning this case would send a strong message to corporations and corporate defendants that arbitration clauses will be treated like all other contracts and not given most-favored contract status to obtain a strategic advantage in litigation. A favorable Supreme Court ruling would also lessen significant delays in reaching the merits of cases by removing the additional hurdle of proving prejudice in cases involving arbitration clauses that don’t occur in other types of contractual waivers.