Supreme Court asked to clarify arbitration rules in Taco Bell case

(CN) — An Iowa woman’s lawsuit against a Taco Bell franchisee that began as an effort to prove the fast-food chain shortchanged employees like her on overtime pay wound up before the U.S. Supreme Court on Monday in an esoteric discussion of federal arbitration law that could affect similar cases across the nation.

During oral arguments, the justices gave little indication of where they are leaning as they struggled with whether Robyn Morgan’s claims should have been resolved through arbitration and whether the case should be decided under state or federal contract law.

Morgan sued her employer, Sundance Inc., which owns more than 150 Taco Bell franchises throughout the United States. She was employed at an Osceola, Iowa, location for three months in 2015, in which time she claimed the company had a policy of shifting hours employees worked in one week to the following week so the total never exceeded 40 hours. As a result, she argued in a federal class action suit that she and other Sundance Taco Bell workers were paid neither for all the hours they worked nor for overtime.

She rejected Sundance’s offer to settle following mediation, at which point Sundance moved to compel arbitration of Morgan’s claims under the terms of an employment agreement. A federal judge in Iowa held that Sundance had waived its right to arbitration by waiting eight months to assert the right. The St. Louis-based Eighth Circuit reversed, which led to Morgan’s appeal to the U.S. Supreme Court. The high court accepted the case in part because there is a split among federal circuit courts and state supreme courts on the issues raised in the dispute.

In a brief filed with the Supreme Court, Morgan argued the Federal Arbitration Act created streamlined procedures for delaying litigation and requiring arbitration when a party seeks to enforce an agreement to arbitrate.

“This statutory scheme was premised on the assumption that parties to arbitration agreements faced with courtroom litigation would promptly assert their rights under those agreements by availing themselves of the new streamlined procedures the Act created,” the brief states.

In response, Sundance argued in its brief that “what Morgan seeks is precisely the kind of artificial, made-to-defeat-arbitration rule that the FAA was enacted to countermand and that this court has repeatedly rejected.”

Justice Stephen Breyer, in a question posed to Morgan's attorney, Karla Gilbride of Washington-based Public Justice, confessed Monday to being worried that the course Morgan proposes would actually delay justice.

“You have a very logical framework,” he told Gilbride. “But what’s worrying me is this is not an esoteric situation, I don’t think. You had an arbitration agreement. So what you decided to do is bring a lawsuit. Nobody said anything for quite a while, and then the other side said, ‘Let’s go to arbitration.’ And were they too late? And that type of situation I bet arises fairly frequently. We’re starting to create a matrix of rules through your logic that is so complicated that it’s hard for the layperson like me in this area to understand.”  

"Not wanting to muck everything up,” Breyer said, he sought Gilbride’s advice: “What do I do?”

“What you should do, Justice Breyer, is remand for this to be decided under state law," the attorney said in response, agreeing the cases are complicated but “courts deal with fact-intensive, complicated questions all the time.”

In an exchange with Sundance counsel Paul Clement from the Washington office of Kirkland & Ellis, Justice Sonia Sotomayor also expressed concerns about delays in such cases where the goal is to not be in litigation. But this case was delayed, she said, because Sundance didn’t move to go to arbitration to begin with.

“The reason you waited was you wanted to see if the court was going to approve of class actions in arbitration,” she said. “So you were taking a calculated risk by staying in litigation. Why isn’t that a waiver under any normal definition? It prejudiced the other side. It hurt them financially. It hurt them in delay, and you intentionally sat on your rights, waiting to see if you could derive anything.”

“Tell me why that isn’t an intentional relinquishment of a known right,” Sotomayor added.

In response, Clement said, “I think what the parties bargained for here was not just arbitration but bilateral arbitration. And when the other side decides not just to violate the arbitration agreement but to seek a nationwide collective action, I think my client is perfectly within its right – and it’s what I would advise my client to do under the circumstances – is don’t make a motion to compel arbitration because you might get a motion to compel nationwide collective arbitration and pretty much every defendant on the planet agrees that’s the worst of both worlds.”

The court is expected to rule on the case by the end of its current term in July.

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