The Iowa Supreme Court held that where a nursing home continued to litigate for seven months after its arbitration demand and the plaintiff’s refusal to arbitrate, it waived its contractual right to arbitrate; the court also found that the Federal Arbitration Act (FAA) preempted Iowa law establishing an arbitration-specific two-part test requiring the party claiming waiver to show the other party’s conduct prejudiced them. Cole v. Arbor Court Healthcare, LLC, No. 25–0285 (Iowa May 8, 2026).
Betty Cole was a resident of Arbor Court Healthcare, LLC (Arbor Court), a skilled nursing care facility. Betty died 12 days after signing an arbitration agreement that Arbor Court had presented to her covering disputes arising out of the care it provided to her. Betty’s husband, Larry Cole, filed suit against Arbor Court alleging a variety of claims, including negligence, gross negligence, wrongful death, and dependent abuse. Arbor Court litigated the case for nearly one year before moving to compel arbitration. Larry opposed the motion, asserting that it was procedurally unconscionable and that Arbor Court had waived its contractual right to arbitration. The district court granted Arbor Court’s motion. The Iowa Supreme Court granted Larry’s motion for an interlocutory appeal.
The Iowa Supreme Court noted that the parties had correctly agreed that the FAA, 9 U.S.C. §§ 1–16, applied. However, the court found that the district court and the parties had incorrectly relied on a two-part test applicable to waiver of arbitration set forth in Wesley Ret. Servs., Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d 22, 29 (Iowa 1999) and Mod. Piping, Inc. v. Blackhawk Automatic Sprinklers, Inc., 581 N.W.2d 616, 619 (Iowa 1998), overruled in part on other grounds by Wesley Ret. Servs., Inc. v. Hansen Lind Meyer, Inc., 594 N.W.2d 22 (Iowa 1999). Those cases provided that waiver of arbitration requires both conduct or activity inconsistent with arbitration and prejudice to the party claiming that arbitration was waived.
The court found that the test set forth in those cases was inapplicable. In Morgan v. Sundance, Inc., 596 U.S. 411 (2022), the United States Supreme Court held that the FAA preempts arbitration-specific waiver tests, such as those set forth in Wesley Retirement Services and Modern Piping. In Morgan, the US Supreme Court held that the FAA requires federal courts to enforce arbitration contracts in the same way they enforce other contracts and may not “devise novel rules” that favor or disfavor arbitration over litigation. Morgan v. Sundance, Inc., 596 U.S. at 419.
The court found that the same principle applies to state courts. Under the equal treatment principle set forth in section 2 of the FAA, a court may not invalidate an arbitration agreement based on legal rules that apply only to arbitration or derive their meaning from the fact that an arbitration agreement is at issue. Therefore, the court held that the FAA preempts any state rule that, on its face, discriminates against arbitration. See Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 581 U.S. 246 (2017).
The court recognized that under Iowa contract law, waiver is generally defined as the voluntary or intentional relinquishment of a known right. The two-step rule set forth in Wesley Retirement Services and Modern Piping also imposed an arbitration-specific prejudice requirement on parties seeking to establish waiver; thus, the rule was preempted by the FAA.
Applying Iowa’s generally applicable contract principles, the court examined whether Arbor Court had impliedly waived its contractual right to arbitrate. The court found that (1) based on the terms of the arbitration agreement, a contractual right to arbitrate the claims Larry asserted existed; (2) Arbor Court had knowledge of that right; and (3) Arbor Court’s conduct—for example, continuing to litigate and employ discovery processes for seven months after its demand for and Larry’s refusal to arbitrate—demonstrated its intention to relinquish its contractual right to arbitrate.
The court held that it was unnecessary for it to address Larry’s assertion that the arbitration agreement was procedurally unconscionable.
The court reversed the district court’s order granting Arbor Court’s motion to compel arbitration and remanded the case for further proceedings.
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