Fifth Circuit Embraces “Intentional Relinquishment” Test for Arbitration Waiver: Garcia v. Fuentes (2025)

1. Introduction

In Garcia v. Fuentes, No. 24-10699 (5th Cir. June 24, 2025), the United States Court of Appeals for the Fifth Circuit confronted the question of when a litigant waives its contractual right to compel arbitration after the Supreme Court’s landmark decision in Morgan v. Sundance, Inc., 596 U.S. 411 (2022). The plaintiff, Dayana Garcia, a former server at Gloria’s Restaurant, brought a Fair Labor Standards Act (FLSA) collective action alleging failure to pay minimum wages. Defendants (collectively “Restaurant Defendants”) initially litigated the action, expressly told the District Court they were “not considering arbitration,” engaged in discovery, and participated in court-ordered mediation. Five months into the case—after producing an unsigned arbitration agreement and a signed acknowledgment form—they moved to compel arbitration. The District Court denied the motion, finding waiver; the Fifth Circuit affirmed, but, crucially, reformulated its waiver test in light of Morgan.

2. Summary of the Judgment

• The Fifth Circuit jettisoned its historical two-prong waiver test (substantial invocation of the judicial process plus prejudice to the opposing party) derived from Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494 (5th Cir. 1986).
• Relying on Morgan v. Sundance, the court held that “waiver” should be examined under ordinary contract principles: Did the party knowingly relinquish the right to arbitrate by acting inconsistently with that right?
• The “substantial invocation” inquiry remains relevant but is now merely one evidentiary route to demonstrate intentional abandonment; prejudice is no longer required.
• Applying the new standard, the court found that defendants abandoned their arbitration right by:
  • Omitting arbitration in their answer (despite listing 31 affirmative defenses);
  • Stating in a mandatory joint status report that they were unaware of any arbitration agreements and were not considering arbitration;
  • Engaging in discovery and mediation after that representation; and
  • Waiting five months to move to compel, despite having the relevant documents in their own files.
• Accordingly, the appellate court affirmed denial of the motion to compel arbitration.

3. Analysis

3.1 Precedents Cited and Their Influence

The panel’s reasoning is built on a trilogy of authorities:

1. Morgan v. Sundance, 596 U.S. 411 (2022) – Abolished the arbitration-specific prejudice requirement imposed by many circuits, holding that the FAA’s policy “does not authorize federal courts to invent special, arbitration-preferring procedural rules.” It defined waiver as the “intentional relinquishment or abandonment of a known right.”
2. Miller Brewing Co. v. Fort Worth Distrib., 781 F.2d 494 (5th Cir. 1986) – Traditional Fifth Circuit test (substantial invocation + prejudice). Now partially overruled to the extent it required prejudice.
3. Williams v. Cigna Fin. Advisors, 56 F.3d 656 (5th Cir. 1995) and other waiver cases (Tenneco Resins, Walker, etc.) – These decisions provided factors (delay length, discovery, dispositive motions) but are recalibrated post-Morgan.

By canvassing its own waiver jurisprudence, the panel concluded that retaining “substantial invocation” as the only path to waiver would still privilege arbitration, contrary to Morgan. Therefore, it adopted the Supreme Court’s plain contract-law definition and treated prior factors (discovery, mediation, delay) merely as circumstantial evidence of intent.

3.2 The Court’s Legal Reasoning

The court’s logic unfolds in three moves:

1. Step One – Reformulating the Standard. Because Morgan rejects arbitration-specific procedural rules, any test that only recognizes waiver upon “substantial invocation” would artificially shield arbitration rights compared to other contractual rights. The appropriate inquiry is whether the litigant’s conduct shows intentional relinquishment.
2. Step Two – Applying the Standard to the Facts. The Restaurant Defendants’
   • explicit denial of arbitration in the joint report,
   • omission of an arbitration defense,
   • participation in discovery and judge-requested mediation, and
   • delay followed by a tactical pivot
   collectively signaled an overt act in court that evinces a desire to resolve the dispute through litigation. That combination satisfies waiver even absent prejudice to Garcia.
3. Step Three – Rejecting the “Unknown Right” Argument. Defendants contended they first “discovered” the arbitration papers during discovery. The court distinguished Williams v. Cigna, noting that the arbitration agreement here originated from defendants’ own onboarding documents; ignorance of one’s own files does not negate knowledge for waiver purposes.

3.3 Potential Impact of the Decision

• Clarifies Post-Morgan Landscape in the Fifth Circuit. This is the circuit’s first published opinion aligning its waiver test with Morgan. District courts within Texas, Louisiana, and Mississippi must now evaluate waiver under the “intentional relinquishment” framework, without any prejudice requirement.
• Elevates Importance of Early Preservation. Litigants must assert arbitration rights in their first responsive pleadings and in Rule 26 reports. Silence or equivocation, followed by litigation activity, will be risky.
• Discovery/Mediation No Longer Shielded. Although formerly viewed through the prejudice lens, participation in discovery or court-ordered mediation now directly evidences inconsistent conduct.
• Corporate Record-Keeping Highlighted. The decision implicitly chastises defendants for failing to audit their own HR files. Employers should expect courts to impute knowledge of internal agreements.
• Broader FAA Jurisprudence. The opinion adds to a growing chorus (e.g., 1st, 2nd, 7th, 9th Circuits) adopting Morgan’s contract-law approach, signaling eventual uniformity nationwide.

4. Complex Concepts Simplified

Federal Arbitration Act (FAA)

A 1925 statute that makes written arbitration agreements “valid, irrevocable, and enforceable” and allows parties to move for compelled arbitration in federal court.

Waiver

In contract law, the intentional abandonment of a known right. After Morgan, courts treat waiver of arbitration no differently from waiver of any other contractual right.

Substantial Invocation of the Judicial Process

Conduct indicating a preference for litigation (e.g., filing dispositive motions, extensive discovery). Previously required plus a showing of prejudice; now simply one piece of evidence of intent.

Prejudice

Harm suffered by the opposing party because of a late switch to arbitration (duplicative costs, strategic disadvantage). Under the old test, this was mandatory; post-Morgan, it is irrelevant to waiver, though it may still factor into equitable estoppel or laches.

Rule 26(f) Joint Status Report

A court-mandated filing in which parties outline discovery plans and ADR preferences. Statements in this report can bind parties or be used as evidence of intent.

5. Conclusion

Garcia v. Fuentes cements the Fifth Circuit’s post-Morgan methodology: the focus is on conduct, not consequences. Parties who knowingly act inconsistently with an arbitration clause—whether by disclaiming it in court filings, conducting discovery, or delaying a motion—risk forfeiting that right even without demonstrating prejudice. For practitioners, the message is unambiguous: identify and assert arbitration defenses immediately, memorialize them in every procedural document, and avoid sending mixed signals to the court. In the broader scheme, the decision advances uniform FAA application, strips away arbitration-specific privilege, and places ADR agreements squarely on the same contractual footing as any other promise.