Pro-Arbitration Policy Should Be Dead. Courts May Need Reminders

Those who work with arbitration will be familiar with the routine espousal of a “liberal policy in favor of arbitration” by courts and defense counsel.

They also may be aware of the US Supreme Court’s shift on this policy in Morgan v. Sundance Inc. a few years ago—and may be surprised to still see it cited by courts and advocates. What is this policy, what changed after Morgan, and why are courts continuing to rely on a doctrine that the Supreme Court gutted?

Before Morgan, multiple courts of appeals had interpreted the voluminous Supreme Court cases espousing a “liberal policy in favor of arbitration” as permitting a special arbitration-favoring rule of waiver, requiring an additional element unique to arbitration.

Why the mistake? The Supreme Court had spent a generation interpreting the Federal Arbitration Act in a manner that gave arbitration an air of exceptional deference.

It had written, inter alia, that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration” and even that “there is a presumption of arbitrability” and “only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail.” The law seemed to indicate that arbitration agreements aren’t like other contracts; they are favored.

Given this “liberal policy,” the tie often went to the party seeking arbitration. In short, the policy did things. But in Morgan, the Supreme Court responded with a paradigm-shifting reassessment of the policy’s legal status. This gutted so much of the court’s jurisprudence on the issue that there arguably is nothing left.

Contrary to requiring a “presumption in favor of arbitration,” the court stated that the policy “does not authorize federal courts to invent special, arbitration-preferring procedural rules” and that it is instead “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.” According to Morgan, “[t]he policy is to make arbitration agreements as enforceable as other contracts, but not more so.”

After Morgan, the “liberal policy” no longer does anything—it can’t be relied on to resolve an arbitration dispute, even as a tiebreaker. Morgan’s plain language is clear that the days of giving favor or privilege to arbitration agreements are over.

Yet courts are still citing the policy in support of arbitration-favoring orders. The recent case of Elec. Solidus, Inc. v. Proton Mgmt. Ltd. is illustrative. The first sentence of the opinion’s “Legal Standard” section espouses the “policy” before quoting a pre-Morgan case for the Morgan-violating proposition that ambiguities must be resolved in favor of arbitration.

This arbitration-favoring interpretative rule doesn’t survive Morgan, but the introductory invocation of the “liberal policy” opens the door to the outdated approach. As another example, a federal court in Fox v. Experian Info. Sols., Inc. cited Morgan’s holding on the impropriety of the waiver rule, but still relied on the “any doubts” language of Moses H. Cone and an “emphatic federal policy in favor of arbitral dispute resolution.”

More than 40 cases have referred to both the “liberal policy” and the resulting “presumption in favor of arbitration” since Morgan eviscerated both concepts. These outdated espousals do particular harm in cases requiring application of discretion, such as Saeedy v. Microsoft Corp., which concerned an unconscionability challenge. In such cases, the existence of such an interpretive bias can be dispositive.

There are a million miles between the two conceptions of the “policy,” despite the Supreme Court’s attempt to portray Morgan as a minor correction. In minimizing its ruling, the court arguably fostered the misunderstanding of this crucial element of arbitration law.

There is no reasonable way to reconcile the conception of the FAA as manifesting a “presumption in favor of arbitration” with a conception of the FAA as requiring neutrality. By downplaying the seismic shift that Morgan entailed, the Supreme Court left lower courts in the unenviable predicament of needing to transform an interpretive practice without the benefit of clear guidelines.

In today’s litigation landscape, the concern that motivated the passage of the FAA—judicial skepticism of arbitration agreements—has given way to an opposite concern. Courts are so used to granting motions to compel arbitration that they assume they have little or no leeway in considering challenges to such motions. Or, as in Morgan, they believe they must invent special pro-arbitration rules to favor arbitration.

A century ago, courts needed reminding not to disfavor arbitration agreements. After generations of Supreme Court pro-arbitration rulings, courts today may need the same reminder in the opposite direction.

The law is clear. Arbitration agreements are no more enforceable than any other contract, and the “liberal policy favoring arbitration” is dead. Parties practicing in this space have the difficult task of helping courts follow this new approach in the wake of Morgan.

The case is Morgan v. Sundance Inc., U.S., 21-328, decided 5/23/22.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Caleb L.H. Marker is a managing partner at Zimmerman Reed with focus on consumer protection, wildfire recoveries, and employment cases.

Ryan J. Ellersick is a partner at Zimmerman Reed with focus on complex litigation, working with the public client, consumer protection, antitrust, and privacy practice groups.

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