Background
Betty Ann Cole was a resident at Arbor Court, a skilled nursing care facility. She signed an arbitration agreement with Arbor Court twelve days before her death. Her husband, Leroy Cole, individually and as executor of Betty’s estate, filed suit in Iowa district court against Arbor Court and related entities alleging negligence, gross negligence, wrongful death, and dependent adult abuse. Cole filed his petition in June 2023.
Arbor Court filed an answer with affirmative defenses but did not plead arbitration as an affirmative defense. It participated in a trial scheduling conference, served initial disclosures, and propounded interrogatories and document requests on Cole—obtaining discovery responses—before its counsel sent a letter in October 2023 demanding that the claims be submitted to arbitration. Cole’s counsel refused the following day. Rather than immediately move to compel, Arbor Court continued litigating: it served supplemental disclosures, additional interrogatories, and further document requests, while leaving Cole’s own discovery requests unanswered.
Only in May 2024—eleven months after the petition was filed, seven months after Cole explicitly rejected arbitration, and just as Cole was preparing to move to compel discovery responses—did Arbor Court file its motion to compel arbitration. The district court granted the motion, finding the facts more closely resembled a prior Iowa case in which waiver had not been found and concluding that prejudice to Cole was limited. Cole sought and was granted interlocutory appeal.
The Court’s Holding
The Iowa Supreme Court reversed, holding that Arbor Court waived its contractual right to compel arbitration. Writing for a unanimous court, Justice McDonald first addressed the threshold legal framework. Because the parties agreed the Federal Arbitration Act (FAA) applied—the arbitration agreement contained an interstate-commerce provision and Arbor Court demonstrated it was engaged in interstate commerce—the Court held that Iowa’s prior two-part arbitration-waiver test, which required both conduct inconsistent with arbitration and prejudice to the opposing party, was preempted by the FAA. Applying Morgan v. Sundance, Inc., 596 U.S. 411 (2022), the Court held that a state rule imposing a prejudice requirement unique to arbitration agreements discriminates against arbitration on its face and is therefore preempted under the FAA’s equal-treatment principle.
In place of the preempted test, the Court applied Iowa’s general implied-waiver standard: voluntary or intentional relinquishment of a known right, as set forth in Scheetz v. IMT Insurance (Mutual), 324 N.W.2d 302 (Iowa 1982). Under that standard, the undisputed facts established all three elements. Arbor Court possessed the arbitration agreement and knew of the right no later than October 2023. Yet after Cole rejected arbitration, Arbor Court did not move to compel—instead continuing to use the district court’s litigation machinery for seven additional months, obtaining discovery while leaving Cole’s requests unanswered, and filing supplemental discovery requests weeks before finally moving to compel.
The Court concluded that Arbor Court’s objective litigation conduct, regardless of its asserted subjective intent to investigate the agreement’s enforceability, demonstrated an intention to resolve the dispute through litigation rather than arbitration. Arbor Court “could have had no other intent than to relinquish its contractual right” to compel arbitration. The Court reversed the order compelling arbitration and remanded for further proceedings, declining to reach Cole’s alternative argument that the agreement was procedurally unconscionable.
Key Takeaways
- Iowa’s prior arbitration-waiver test—requiring a showing of both inconsistent conduct and prejudice—is preempted by the FAA wherever the FAA applies, following the U.S. Supreme Court’s decision in Morgan v. Sundance, Inc.
- Under the now-controlling general implied-waiver standard, a party that demands arbitration but then continues to litigate for months—serving and obtaining discovery while deferring a motion to compel—may be found to have waived its arbitration right without any showing of prejudice to the opposing party.
- Sending a demand letter asserting the arbitration right is not sufficient to preserve it; a party must act consistently with that demand and move promptly to compel arbitration when the demand is refused.
- Parties drafting or litigating arbitration clauses in Iowa (and other states with similar prejudice-based waiver tests) must now account for the FAA’s preemptive reach over arbitration-specific procedural rules.
Why It Matters
This decision brings Iowa into alignment with a growing body of state courts—including Alabama, California, Nebraska, and Texas—that have retooled their arbitration-waiver analysis following Morgan v. Sundance. By eliminating the prejudice requirement when the FAA governs, the court raises the practical stakes for defendants who hold arbitration agreements: a party can no longer litigate extensively and then fall back on arbitration, confident that it can defeat a waiver claim simply by showing the other side was not materially harmed by the delay.
For healthcare and nursing home defendants in Iowa—who routinely include arbitration clauses in admission agreements—the decision is particularly significant. It signals that courts will scrutinize litigation conduct closely and that any substantial use of district court processes, especially discovery, after an arbitration demand has been refused will risk forfeiture of the arbitration right. Defendants who wish to preserve that right must move promptly to compel, not treat arbitration as a fallback option to be invoked if litigation becomes inconvenient.