Arbitration Waiver Post Morgan

The United States Court of Appeals for the Fifth Circuit recently issued a significant per curiam opinion in Dayana Garcia v. Fuentes Restaurant Management Services Incorporated, No. 24-10699 (June 24, 2025), reaffirming and refining the standard for waiving the right to arbitrate in the wake of the Supreme Court's decision in Morgan v. Sundance, Inc., 596 U.S. 411 (2022).  This ruling provides guidance for practitioners navigating the interplay between litigation conduct and the enforceability of arbitration agreements.

Background of the Dispute

Dayana Garcia, a former server at Gloria's, a Latin-themed restaurant chain, initiated a putative collective action under the Fair Labor Standards Act (FLSA), alleging failure to pay minimum wage.  The defendants, Fuentes Restaurant Management Services Incorporated and related entities (collectively, the "Restaurant Defendants"), engaged in initial litigation steps.  They filed an answer that omitted any mention of arbitration, participated in Rule 26(f) conferences, exchanged discovery, and, critically, filed a joint status report stating they had "no intent to arbitrate" the suit.  Five months after the complaint was filed, and after unsuccessful mediation, the Restaurant Defendants moved to compel arbitration.

The district court denied the motion, finding that the Restaurant Defendants had waived their right to arbitrate.  The Restaurant Defendants appealed, arguing, inter alia, that Morgan v. Sundance eliminated the presumption against a finding of waiver, and that ordinary contract principles should apply.

The Evolution of Arbitration Waiver Jurisprudence Post-Morgan

The Fifth Circuit's analysis commences by acknowledging the "sea change" in arbitration waiver law ushered in by Morgan.  Prior to Morgan, the Fifth Circuit, like many other circuits, applied a two-pronged test for waiver: (1) whether the party seeking arbitration substantially invoked the judicial process, and (2) whether this invocation was to the detriment or prejudice of the other party.  See Miller Brewing Co. v. Fort Worth Dist. Co., Inc., 781 F.2d 494, 497 (5th Cir. 1986).  The prejudice prong derived from the FAA's policy favoring arbitration.

Morgan, however, repudiated this arbitration-specific procedural rule.  The Supreme Court clarified that the FAA's policy of favoring arbitration merely places arbitration agreements "upon the same footing as other contracts," 596 U.S. at 418 (quoting Granite Rock Co. v. Teamsters, 561 U.S. 287, 302 (2010)).  Consequently, federal courts are not authorized to "invent special, arbitration-preferring procedural rules." Id. at 418.  Waiver, in this context, must align with its ordinary definition: "the intentional relinquishment or abandonment of a known right." Id. at 417 (quoting United States v. Olano, 507 U.S. 725, 733 (1993)).

The Garcia court explicitly revisited its pre-Morgan test for waiver of an arbitration agreement.  While "substantial invocation of the judicial process" remains a key consideration, the prejudice prong is no longer viable.  The Fifth Circuit reasoned that simply excising the prejudice prong would still "devise novel rules to favor arbitration over litigation" by limiting the ways waiver could be proven.  Id. at 418.  Instead, the court adopted the Morgan-sanctioned definition, asking "whether the party 'knowingly relinquish[ed] the right to arbitrate by acting inconsistently with that right.'" Id. at 419.  Substantial invocation of the judicial process is thus framed as one way of demonstrating this knowing relinquishment.

Application to the Restaurant Defendants' Conduct

The Fifth Circuit conducted a de novo review of the district court's waiver determination, recognizing that the inquiry is necessarily fact-intensive and "a bright-line rule is inappropriate." In re Mirant Corp., 613 F.3d 584, 589 (5th Cir. 2010).  The court considered the totality of the circumstances, evaluating the Restaurant Defendants' litigative acts in conjunction with their explicit statements and failure to preserve the arbitration defense.

The district court highlighted several acts, all of which the Fifth Circuit affirmed as contributing to waiver:

1. Joint Status Report: The most compelling factor was the Restaurant Defendants' unambiguous statement in the mandatory joint status report that they were "not considering arbitration to resolve this litigation" and were "not aware of any arbitration agreements." This constituted an "overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration." Nicholas v. KBR, Inc., 565 F.3d 904, 907 (5th Cir. 2009).

2. Participation in Discovery: While minimal discovery generally does not weigh heavily in favor of waiver, the fact that discovery occurred after the Restaurant Defendants disclaimed arbitration lent weight to the finding of waiver.

3. Mediation: Although attempts at settlement do not typically preclude the right to arbitrate, Walker v. J.C. Bradford & Co., 938 F.2d 575, 578 (5th Cir. 1991), the court found that mediation, undertaken "in accordance with a judge's wishes and... instead of possible arbitration," was not merely neutral in this context.

4. Filing an Answer Without Arbitration Defense: The Restaurant Defendants filed an answer asserting thirty-one affirmative defenses, yet omitted any mention of an arbitration agreement.  This failure to preserve the defense "corroborates their later statement that they had no intent to arbitrate."

5. Delay in Moving to Compel: Five months elapsed between the complaint's filing and the motion to compel.  While delay alone is rarely dispositive post-Morgan, the delay, coupled with the intervening litigative activity and the explicit disclaimer of arbitration, evidenced an intent to remain in court.  The court noted that it "frown[s] upon attempts 'to switch judicial horses in midstream' due to 'poor judgment . . . or poor foresight.'" Walker, 938 F.2d at 577.

   
   

Conclusion for Practitioners

The Garcia decision firmly establishes that the Fifth Circuit's arbitration waiver analysis aligns with Morgan's directive.  The focus is now squarely on whether a party "knowingly relinquished the right to arbitrate by acting inconsistently with that right." Prejudice is no longer a prerequisite.  No single act is necessarily determinative.  Courts will analyze the cumulative effect of a party's litigation conduct, objective manifestations of intent, and any delay in asserting the right to arbitrate.