Taco Bell Facing Major Lawsuit

The U.S. Supreme Court agreed on Nov. 15 to take on a major case involving Taco Bell franchisee Sundance Inc., which owns over 150 franchises of the fast-food chain nationwide. The case is Morgan v. Sundance Inc., which began as a lawsuit from Robyn Morgan, who worked at an Iowa Taco Bell, and it later became a class action against the company. She accused Sundance of not paying her and her co-workers all they were owed.

Sundance wanted to require Morgan to settle the claims in arbitration, but a district court ruled that Sundance waived the right to do so because it waited too long, explains SCOTUS Blog. The district court ruled Morgan was harmed by waiting and spending time in litigation before that arbitration demand came. If Sundance demanded arbitration sooner, she could have spent that time preparing for it instead. The U.S. Court of Appeals for the 8th Circuit then reversed that decision though, ruling that Morgan was not harmed and said the case could go to arbitration. She then took the case to the Supreme Court in August, in the hopes that they could decide if she had to show prejudice to prove Sundance waived the right to arbitrate earlier.

Morgan does not think Sundance could take the claims to arbitration now because it took eight months after she filed the lawsuit to do so, explains Reuters. The appeals court disagreed in March, ruling that Sundance’s decision to go with mediation before compelling arbitration didn’t prejudice the case. To make matters more confusing, seven appeals courts imposed a similar prejudice standard in other cases, but three others said prejudice is only one factor in deciding if a party waived the right to compel arbitration.

Morgan’s lawsuit began in 2018, when she accused Sundance of violating federal wage laws when it found a way to avoid paying overtime. Sundance first wanted to dismiss the allegations, claiming the lawsuit was precluded by a very similar one in a Michigan federal court. Mediation efforts failed when that motion to dismiss was pending. Four months after the motion was filed, an Iowa federal judge dismissed it. In May 2019, the Iowa federal judge dismissed Sundance’s attempt to compel arbitration, arguing that Sundance “implicitly” waived that right with the motion to dismiss. The 8th Circuit court overturned that ruling because they believed Morgan had not shown she was significantly harmed by Sundance’s delay in demanding arbitration.

In her August filing to the Supreme Court, Morgan said the requirement that plaintiffs show prejudice was a violation of the Federal Arbitration Act, which makes arbitration contracts on “equal footing” as other contracts. According to Morgan, courts should use state contract principles instead of coming up with new federal ones. Sundance argued that all courts use prejudice as a factor, so there was no split among the courts at all that needed to be decided by the Supreme Court.