SCOTUS Rules In Cases On Arbitration Agreements and Habeas Corpus

Despite a large list of argued cases pending decision, the Court decides just two of them today—neither of them Dobbs.

Morgan v. Sundance, Inc., is an important case for any civil litigator, but it is especially significant for those who deal with employment disputes potentially governed by arbitration agreements and for those who draw up such agreements in the first place. As is well known, the Court has, in recent years, frequently upheld the primacy of arbitration agreements pursuant to the Federal Arbitration Act (FAA). In the Morgan case, a unanimous Court does it again. Ms. Morgan was an hourly employee at a Taco Bell franchise who had signed an arbitration agreement intended to govern employment disputes. Notwithstanding the arbitration agreement, Morgan went to federal court to bring a nationwide “collective action” arguing that her employer had violated the Fair Labor Standards Act. Sundance, a franchisee of Taco Bell, initially defended against the lawsuit as if the arbitration agreement didn’t exist—filing a motion to dismiss (which the District Court denied) and engaging in mediation (which was unsuccessful). Next, Sundance moved to stay the litigation and compel arbitration under the FAA—almost eight months after Morgan filed the suit. Morgan then expectedly opposed on grounds of waiver of the right to arbitrate.

The governing precedent in the Eighth Circuit, where the case was litigated below, conditions a finding of waiver of an arbitration agreement on whether the party knew of the right, “acted inconsistently with that right,” and—critical here—“prejudiced the other party by its inconsistent actions.” In deciding that issue, the Court below, as had eight other circuits, invoked “the strong federal policy favoring arbitration” to decide the matter of waiver. Two circuits rejected that rule, and the Supreme Court granted cert. to resolve that split. Justice Kagan, writing for all of the Justices, agreed with those two circuits. Holding that “the FAA’s ‘policy favoring arbitration’ does not authorize federal courts to invent special, arbitration-preferring procedural rules,” and deciding no other issue with respect to merits, the Court remanded the case for further proceedings that focus on the whether the employer relinquished its right to arbitrate by its actions that were inconsistent with it. Whatever the parties might otherwise have preferred (in light of the prior law in most courts of appeals), given the Supreme Court’s holding that any presumption of arbitration and the fact of prejudice are irrelevant, the Morgan case gives clear guidance in several regards, particularly demanding arbitration, if applicable, at the outset of litigation, and resisting any discovery, to the extent possible, until the issue of arbitrability is decided. A defense simply based on prejudice to the opposing party is not going to fly.

If anything, Shinn v. Martinez Ramirez is indicative of the fact that most federal habeas corpus cases are disfavored by the conservative majority of the Court and that any case in which parties have been sentenced to capital punishment is likely to produce a 6-3 conservative/liberal split among the Justices, and 6 beats 3 every time. Mr. Martinez Ramirez and a co-defendant were convicted of capital murder in Arizona state court and were sentenced to death. The cases against both were affirmed by the Arizona Supreme Court, and both were denied state post-conviction relief. Each also filed for federal habeas relief under 28 U. S. C. §2254, arguing that their counsel at trial had rendered ineffective assistance by failing to conduct adequate investigations. On appeal of the federal court’s denial of habeas relief, the Ninth Circuit held that the two defendants were entitled to a hearing at which they could present newly developed evidence not previously presented to the state court in seeking post-conviction relief. In an opinion by Justice Thomas, writing for himself and the other five “conservatives,” the Court held that, as a matter of respecting federal-state dual sovereignty, a federal court may not, under §2254(e)(2), conduct an evidentiary hearing or otherwise consider evidence beyond the state-court record based on the ineffective assistance of state postconviction counsel. In so doing the majority reiterates that federal habeas review is not “a substitute for ordinary error correction through appeal,” but is an “extraordinary remedy” that guards only against “extreme malfunctions in the state criminal justice systems.” The dissent written by Justice Sotomayor focuses on the particular nature of an ineffectiveness-of-counsel claim, which derives from factors over which the defendant has no control, given the fact that the issue necessarily stems from what counsel did or didn’t do at the state court level. She argues that the majority has ignored precedent and the text of the federal habeas statute in applying the Antiterrorism and Effective Death Penalty Act of 1996 to favor state interests over individual constitutional rights.

©2022 Epstein Becker & Green, P.C. All rights reserved.
National Law Review, Volume XII, Number 143

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