Historically, a party in Montana asserting that another party waived the right to arbitrate would bear the burden of demonstrating: (1) the other party’s knowledge of the right to arbitrate; (2) acts by the other party that are inconsistent with the right to arbitrate; (3) resulting prejudice.[1]

This framework was recently called into question by the United States Supreme Court’s decision in Morgan v. Sundance, Inc.[2] There, the United States Supreme Court eliminated the prejudice element from the federal waiver-of-arbitration analysis. The Court held that arbitration clauses must be interpreted like any other contractual provision and that, because waiver of contractual rights under federal law does not generally require a showing of prejudice, no such requirement should apply to arbitration agreements. As the Court explained, the FAA’s policy is “to make arbitration agreements as other contracts, but not more so,” and prejudice is therefore not a prerequisite to finding waiver based on litigation conduct.

Following the Morgan decision, the Montana Supreme Court was invited to analyze whether Montana would likewise abandon the prejudice element. In Monarch, a subcontractor resisting a motion to compel arbitration, argued that the Montana Supreme Court should likewise modify Montana law to come in conformity with the United States Supreme Court decision in Morgan. The Montana Supreme Court declined this invitation to modify Montana law holding: “Because we ultimately agree with the District Court's determination that [subcontractor] met its burden under Downey, we need not address Morgan's application to this case, and we decline to consider Monarch's argument on this point.”

Therefore, it would seem it is presently unclear whether prejudice will remain a relevant element under arbitration waiver analysis.

Despite this, Chief Justice Swanson’s dissenting opinion provided significant insight as to how a future Court may rule observing: (1) Montana has consistently followed federal interpretation of the Federal Arbitration Act when interpreting theMontana’s Uniform Arbitration Act; (2) other state courts, following the Morgan, decision have modified their arbitration waiver standards to eliminate the prejudice prong; but, (3) those states whose law does include a prejudice element for contractual waiver generally, have continued to insist on this element post Morgan E.g., (“Idaho maintained a prejudice prong under Idaho Unform Arbitration because, ‘[u]nlike federal law, Idaho law has historically required detrimental reliance in order for a party to succeed in asserting waiver.”).

Building on this analysis Chief Justice Swanson opined that because Montana has historically included waiver as a defense to a contractual right generally, the prejudice element should likewise remain as relevant to arbitration clauses, because doing so what not result in special treatment of arbitration clauses.

Conclusion

For now, prejudice remains a required element for a party resisting a motion to compel arbitration in Montana based on waiver. Despite Morgan, Montana is likely to retain the prejudice element because it aligns with general contractual waiver principles and avoids affording arbitration agreements greater enforceability than other contractual provisions.

For additional information regarding arbitration agreements in Montana or about construction defect litigation in Montana, generally, you can reach Jean Meyer by telephone at (406) 219-8422, or by e-mail at meyer@meyerconstructionlaw.com

Tags: arbitration, builder contracts, Montana construction defects, Montana Supreme Court.

[1] Downey v. Christensen, 251 Mont. 386, 389, 825 P.2d 557, 558 (1992).

[2] Morgan v. Sundance, Inc., 596 U.S. 411, 417, 142 S. Ct. 1708, 1713, 212 L. Ed. 2d 753 (2022).