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Posts Tagged ‘Unconscionability’

Oxford Health Plans LLC v. Sutter—SCOTUS Reaffirms FAA Section 10(a)(4) Manifest Disregard of the Agreement Outcome Review Standard and Elaborates on Its Scope: Part II.C

August 19th, 2013 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, Practice and Procedure, Unconscionability, United States Supreme Court Comments Off on Oxford Health Plans LLC v. Sutter—SCOTUS Reaffirms FAA Section 10(a)(4) Manifest Disregard of the Agreement Outcome Review Standard and Elaborates on Its Scope: Part II.C

Part II.C

Does Oxford Portend Judicial Reconsideration of

Whether Class-Arbitration Consent is a Question of Arbitrability?      

In Stolt-Nielsen and Oxford the parties voluntarily submitted the class-arbitration-consent question to arbitrators because a four-Justice plurality ruled in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), that the class-arbitration-consent issue was not a question of arbitrability for the court to decide.   While “courts assume that the parties intended courts, not arbitrators” to decide certain “gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy,” the Court found that the issue did not fall into “this narrow exception.” 539 U.S. at 452 (citations omitted).  According to the Court, “the relevant question . . . is what kind of arbitration proceeding the parties agreed to:”

That question does not concern a state statute or judicial procedures. It concerns contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question. Given these considerations, along with the arbitration contracts’ sweeping language concerning the scope of the questions committed to arbitration, this matter of contract interpretation should be for the arbitrator, not the courts, to decide.

539 U.S. at 452-53 (citations omitted).

Bazzle was well received by the lower courts, and even though it was only a plurality opinion, many courts, parties and practitioners apparently thought that the arbitrability of consent-to-class-arbitration was a foregone conclusion after Bazzle even though the plurality’s rationale was endorsed by only four justices – a hat-tip to Associate Justice Stephen G. Breyer’s clearly and persuasively written plurality opinion. Some also apparently thought that Associate Justice John Paul Stevens’ concurring opinion was, for all intents and purposes, an endorsement of the plurality’s rationale, and that accordingly, Bazzle established precedent binding on the lower courts.

In 2003, prompted in part by Bazzle, the American Arbitration Association promulgated its Supplementary Rules for Class Arbitrations, Rule 3 of which directs the arbitrator or panel to “determine as a threshold matter, in a reasoned, partial, final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class.  .  .  .”  AAA Supplementary Rules, Rule 3.  The “Clause Construction” awards in Stolt-Nielsen and Oxford were made under Rule 3 of the AAA Supplementary Rules.

In light of Bazzle and the AAA Supplementary Rules, class-arbitration-consent-related disputes in cases where the relevant arbitration agreements did not expressly prohibit class arbitration – e.g., cases not involving class-arbitration waivers – were generally submitted to arbitration, usually pursuant to the AAA Supplementary Rules.  Most of the class-arbitration-related litigation concerned challenges to class arbitration waivers, rather than the arbitrability of class-arbitration-consent-related issues.

But Stolt-Nielsen explained that Bazzle did not establish binding precedent on any issue—including class-arbitration-consent arbitrability—because it “did not yield a majority decision.  .  .  .” See Stolt-Nielsen, 130 S. Ct. at 1772.  The Court said that “[u]nfortunately the opinions in Bazzle appear to have baffled the parties in this case at the time of the arbitration proceeding[,]” because “[f]or one thing, the parties appear to have believed that the judgment in Bazzle requires an arbitrator, not a court, to decide whether a contract permits class arbitration.”  Stolt-Nielsen, 130 S. Ct. at 1772 (citation omitted).  The Court did “not revisit that [allocation of decision-making power] question [in Stolt-Nielsen] because the parties’ supplemental agreement expressly assigned this issue to the arbitration panel, and no party argues that this assignment was impermissible.”  Id.

The Court underscored that same point in Oxford, noting that it “would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called ‘question of arbitrability,’” an issue “Stolt-Nielsen made clear that [the Supreme Court] has not yet decided.  .  .  .”  Oxford, Slip op. at 4 n.2.    But Oxford gave the Court “no opportunity to do so because Oxford agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures.”  Id Oxford submitted the issue to arbitration “not once but twice—and the second time after Stolt-Nielsen flagged that it might be a question of arbitrability.”  Id. Continue Reading »

SCOTUS Decides AT&T Mobility LLC v. Concepcion!

April 27th, 2011 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Class Action Arbitration, Class Action Waivers, Practice and Procedure, Unconscionability, United States Court of Appeals for the Ninth Circuit, United States Supreme Court Comments Off on SCOTUS Decides AT&T Mobility LLC v. Concepcion!

This morning the United States Supreme Court handed down its long-awaited decision in AT&T Mobility LLC v. Concepcion, No. 09-893, slip op. (April 27, 2011).  The Court held that the Federal Arbitration Act preempts California’s Discover Bank rule, which deems unconscionable class waivers in adhesive contracts under certain circumstances, because it “‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.  .  .  .'”  Slip op. at 18 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).  (The majority, concurring and dissenting opinions are here.)    

Associate Justice Antonin Scalia wrote the majority opinion, joined by Chief Justice John G. Roberts and Associate Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito, Jr.  Justice Thomas wrote a concurring opinion and Associate Justice Stephen G. Breyer dissented, joined by Associate Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan.  

Stay tuned for more….

AT&T Mobility, LLC v. Concepcion: What Would Cousin Vinny Have to Say About The Ninth Circuit’s Interpretation of the Equal Footing Principle?

December 10th, 2010 Arbitration Agreements, Arbitration Practice and Procedure, California State Courts, Class Action Arbitration, Class Action Waivers, Practice and Procedure, United States Court of Appeals for the Ninth Circuit, United States Supreme Court Comments Off on AT&T Mobility, LLC v. Concepcion: What Would Cousin Vinny Have to Say About The Ninth Circuit’s Interpretation of the Equal Footing Principle?

One of my favorite scenes from the movie My Cousin Vinny (1992) is Vincent Laguardia Gambini’s (a/k/a “Vinny’s”) opening statement in the criminal trial of his cousin and cousin’s friend, both of whom were arrested and mistakenly charged for murder and robbery while driving through Alabama.  Vinny (played by Joe Pesci) — a native New Yorker who is as out of place in a rural Alabama courtroom as I suppose anyone could be — dozes off during the prosecution’s opening statement only to be jarred awake by his cousin — who is facing the death penalty — so that he can deliver an opening statement.  He saunters over to the jury, and says, gesturing at the prosecutor, “Everything that guy just said is bull$#!+.  Thank you.”  Then he returns to the defense table.  (Watch the scene here, which begins approximately three minutes and 33 seconds into the clip.)     Continue Reading »

AT&T Mobility LLC v. Concepcion: What is the Scope of Federal Preemption in Class Waiver Cases?

September 30th, 2010 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Class Action Arbitration, Class Action Waivers, Practice and Procedure, Unconscionability, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off on AT&T Mobility LLC v. Concepcion: What is the Scope of Federal Preemption in Class Waiver Cases?

Part II

Introduction

Part I of this two-part post (here) briefly discussed the background of  AT&T Mobility LLC v. Concepcion, No. 09-893, a case pending before the United States Supreme Court that will be argued on November 9, 2010.  We now delve into the details of the preemption questions before the Court and take a guess at the outcome. 

Federal Arbitration Act Preemption

The Federal Arbitration Act does not preempt all state law applicable to arbitration agreements, but it expressly preempts state law that conflicts with Section 2, and impliedly preempts all state law that “stands as an obstacle to the accomplishment and execution of the full purposes of Congress”  embodied in the Federal Arbitration Act.  See Shroyer v. New Cingular Wireless Serv., Inc., 498 F.3d 976, 988 (9th Cir. 2007) (citations and quotation omitted). 

Does Section 2 of the Federal Arbitration Act Expressly Preempt the Discover Bank Rule?

Section 2 of the Federal Arbitration Act declares that arbitration agreements within its scope “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  9 U.S.C. § 2.  Section 2 establishes substantive federal law that expressly preempts all conflicting state law, except for state law that permits “the revocation of any contract” or governs the formation, interpretation, or construction of contracts generally. 

The exception to federal preemption is exceedingly narrow, for it saves from preemption only state laws that apply equally across the board to all contracts.  The United States Supreme Court summarized it well when it said:

States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause ‘upon such grounds as exist at law or in equity for the revocation of any contract.  What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause.  The Act makes any such state policy unlawful, for that kind of policy would place arbitration clauses on an unequal footing, directly contrary to the Act’s language and Congress’s intent.

Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281 (1995) (citations and quotations omitted; emphasis in original).   Continue Reading »

AT&T Mobility LLC v. Concepcion: What is the Scope of Federal Preemption in Class Waiver Cases?

September 30th, 2010 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Class Action Arbitration, Class Action Waivers, Practice and Procedure, United States Court of Appeals for the Ninth Circuit, United States Supreme Court Comments Off on AT&T Mobility LLC v. Concepcion: What is the Scope of Federal Preemption in Class Waiver Cases?

Part I

Introduction

In our recent feature “What to Make of the Second Circuit Voiding a Class Action Waiver Under California’s Discover Bank Rule,” we briefly discussed AT&T Mobility LLC v. Concepcion, No. 09-893, a case which asks the United States Supreme Court to determine whether the Federal Arbitration Act preempts California’s Discover Bank rule.  The Discover Bank rule deems unconscionable class action and class arbitration waivers in adhesive contracts in circumstances where a consumer alleges that a party with superior bargaining power has committed widespread but small-dollar fraud.  Petitioner AT&T Mobility LLC (“AT&T Mobility”) has filed its brief (here); various organizations, including the Chamber of Commerce of the United States of America, have filed an impressive stack of amicus curiae briefs supporting AT&T Mobility (here); Vincent and Liza Concepcion (the “Concepcions”) have filed their brief, which was posted online earlier today (here); and AT&T will presumably submit a reply brief.  The Court has scheduled argument for November 9, 2010. 

AT&T Mobility is an extremely important case because it will decide whether the Federal Arbitration Act preempts certain state law unconscionability and public-policy-based rules that are principally directed at class arbitration and class action waivers.  This issue has spawned a number of conflicting decisions in the state and federal courts, including Feeney v. Dell, Inc. 454 Mass. 192 (2009), a case we blogged back in 2009 (posts here and here). 

This two-part feature takes a closer look at AT&T Mobility, considers the principal issues before the Court, and ventures a guess on what the outcome will be.   This Part I discusses the background of the case, and Part II (here) outlines Federal Arbitration Act preemption rules, analyzes and explains why we believe the Federal Arbitration Act expressly and impliedly preempts the Discover Bank rule, and provides our best guess as to what the Supreme Court will conclude.     Continue Reading »

What to Make of the Second Circuit Voiding a Class Action Waiver Under California’s Discover Bank Rule?

July 23rd, 2010 Arbitration Practice and Procedure, California State Courts, Class Action Arbitration, Class Action Waivers, Practice and Procedure, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off on What to Make of the Second Circuit Voiding a Class Action Waiver Under California’s Discover Bank Rule?

After deciding Stolt-Nielsen, S.A. v. AnimalFeeds, Inc. and Rent-A-Center West v. Jackson, the United States Supreme Court left federal arbitration law at a crossroads.  In both cases the Court adhered quite faithfully to its prior Federal Arbitration Act jurisprudence, under which it enforces arbitration agreements according to their terms, without regard to other considerations.  In Rent-A-Center the Court implicitly reaffirmed that these pro-enforcement rules apply equally to contracts of adhesion. 

We will find out whether the Court intends to continue down the same path when it decides AT&T Mobility v. Concepcion next term, a case that raises the question whether California’s Discover Bank  unconscionability rule is pre-empted by the Federal Arbitration Act.  That rule deems unconscionable under California law class-action or class-arbitration waivers where:  (a) “the waiver is found in a consumer contract of adhesion in a setting in which the disputes between the contracting parties predictably involve small amounts of damages”; and (b) “it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.  .  .  .”  Discover Bank v. Superior Court, 36 Cal. 4th 148, 162-63 (2005) (citing Cal. Civ. Code § 1668). 

The Discover Bank rule is grounded in a California-law principle – embodied in Cal. Civ. Code § 1668 – that “contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud.  .  .  are against the policy of the law.”   See Cal. Civ. Code § 1668.  If a company is allegedly engaging in fraudulent acts designed to cheat numerous consumers out of small amounts of money, a class action or class arbitration waiver may, if enforced, effectively act as an exculpatory provision that insulates the company from the consequences of its small scale, but widespread fraud, because the individual, allegedly defrauded consumers have little incentive to pursue separate actions or arbitrations to recoup trivial amounts of damages.  See Discover Bank, 36 Cal. 4th at 162-63.  Any contract that had that effect – whether it is a class action waiver in an arbitration clause, an exculpatory agreement or a contract that simply forbids class actions  — would be unconscionable under the rule.  

In Fensterstock v. Education Finance Partners, No. 09-1562-cv, slip op. (2d Cir. July 12, 2010), the United States Court of Appeals for the Second Circuit suggested one path that the United States Supreme Court might take on Discover Bank preemption.  In an interesting opinion, Senior Circuit Judge Amalya Lyle Kearse, joined by Circuit Judges José A. Cabranes and Chester J. Straub, held that the Discover Bank rule was not preempted by the Federal Arbitration Act.  According to the Second Circuit, California’s  Discover Bank rule “’places arbitration agreements on the exact same footing as contracts that bar class action litigation outside the context of arbitration,’” and for that reason the rule is not preempted by the Act.  Slip op. at 16-17 (quoting Shroyer v. New Cingular Wireless Serv., Inc., 498 F.3d 976, 990 (9th Cir. 2007) (emphasis in original)). 

On first blush the Second Circuit’s decision seems reasonable.  But there are some important issues lurking beneath the surface that the Supreme Court will need to address when it decides AT&T MobilityContinue Reading »

Introducing Guest Blogger John (Jay) McCauley

June 23rd, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Guest Posts, Practice and Procedure, Unconscionability, United States Supreme Court Comments Off on Introducing Guest Blogger John (Jay) McCauley

Today we are pleased and honored to feature an article by our good friend John (Jay) McCauley, a distinguished arbitrator, mediator, attorney and professor of arbitration law.  Jay’s article is entitled “A Commercial Arbitrator’s Take on Rent-A-Center v. Jackson,” and can be found here

Jay debunks the media hype surrounding the United States Supreme Court’s recent decision in Rent-A-Center v. Jackson, ___ U.S. ___, slip op. (June 21, 2010), and argues (persuasively) that the case is a reasonable, natural and modest interpretation of the Court’s prior Federal Arbitration Act jurisprudence.  With one minor caveat we agree wholeheartedly with his insightful and pragmatic view of the case.

Our view of the decision may differ very slightly in that we believe that its scope is broader than the holding might suggest.  Jay is absolutely correct when he says that the decision permits parties to challenge delegation agreements (agreements to arbitrate arbitrability) on unconscionability grounds.  He says that there may be “dozens” of grounds on which to make such a challenge, and we think he is right about that, too. 

But we think that it will be very difficult to mount a successful challenge specifically directed at a delegation agreement.  And if we are right about that, then the practical effect of the decision will be that delegation agreements will usually be enforced, enabling arbitrators to decide most unconscionability challenges.  The scope of the decision is, in our view, therefore quite broad. 

We nevertheless agree with Jay that the decision makes perfect sense in light of the Court’s prior Federal Arbitration Act jurisprudence, and apart from our caveat about the decision’s scope, we are otherwise on the same page as Jay.  Of course, it may turn out that challenges to delegation agreements prove more successful than we think they will.

Jay is an American-Arbitration-Association certified arbitrator and mediator, and serves on the AAA’s Large Complex Case Panel.  He is a Fellow of the College of Commercial Arbitrators and a Distinguished Fellow of the International Academy of Mediators.   He offers arbitrator and mediator services through Judicate West and Professional Mediation Associates

Jay also serves as an adjunct professor of arbitration law at Pepperdine Law School, the University of Missouri-Kansas City Law School and the Werner Institute of Creighton Law School.  An AV-rated attorney, he is a member of the California bar and is admitted to practice before the United States Supreme Court.  He is listed in “Best Lawyers in America” for ADR, and in “Southern California Super Lawyers,” also for ADR.  You can visit his website here.

We hope you enjoy Jay’s article.

Guest Post: A Commercial Arbitrator’s Take on Rent-A-Center v. Jackson

June 23rd, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Practice and Procedure, Unconscionability, United States Supreme Court Comments Off on Guest Post: A Commercial Arbitrator’s Take on Rent-A-Center v. Jackson

By John (Jay) McCauley

Despite all the alarmist reaction already showing up in the press, the holding in Rent-A-Center v. Jackson, ___ U.S. ___, slip op. (June 21, 2010) is both modest and predictable.   Arbitration agreements always do one thing:  take decisions from judges and give them to arbitrators.  Ever since 1925, such agreements have always been enforced to exactly the same extent as any other agreement is enforced.   Not less so, but also not more so.  Are they enforced even when the decision in question is the “gateway” decision of whether the parties must arbitrate their dispute?  Yes, as long as the agreement delegating even that decision to the arbitrator is explicit and unmistakeable.  Is that news? No. See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (dictum).

Should it matter that this delegation language is physically located within the challenged arbitration agreement itself?  No.  (If the answer were “Yes,” any contract drafter could “solve” the problem by plucking out the delegation provision and pasting it onto another sheet of paper to be separately executed as the “delegation agreement.”)  What does matter is whether the challenge brought against the arbitration agreement is the kind that goes to the enforceability of the delegation provision itself.  Are there such challenges in theory?  Sure, dozens of them.  Does that fact put severe brakes on the implications of the Rent-a-Center holding for other cases?  Yes, that’s the point.  Were there any such challenges in the Rent-a-Center case?  No.  None whatsoever.  As the Court noted, the party challenging arbitration in this particular case did not even attempt to raise one.  Would the Court have been open to listening to such a challenge?  Yes.  Not just by implication.  It expressly said it would.

Some of the alarmist commentary stands on the cynical premise that law is pure politics, such that the statement “the outcome of this case is pro-business” is thought to serve as a principled basis the court should have used to distinguish the precedent it is required to honor.  Some of these commentaries, remarkably enough, even come from lawyers.

The more sophisticated of the alarmist commentaries made a more sophisticated mistake.  They took the way Justice Scalia framed the issue in the first sentence of the decision, and leaped to the conclusion that that sentence could serve as the entire holding.

Justice Scalia said:  “We consider whether.  .  .  a district court may decide a claim that an arbitration agreement is unconscionable, where the agreement explicitly assigns that decision to the arbitrator.”

His answer (the holding) was not exactly “It may not.”  His answer was really, “It may not, unless, of course, the provision assigning the decision to the arbitrator is itself subject to any challenge whatsoever  (including unconscionability) recognizable to anyone familiar with the common law of contracts.

To which I would only add the not very dramatic commentary:  “Nothing very remarkable about that.”

 

EDITOR’S NOTE: John (Jay) McCauley is an American-Arbitration-Association certified arbitrator and mediator, and serves on the AAA’s Large Complex Case Panel.  He is a Fellow of the College of Commercial Arbitrators and a Distinguished Fellow of the International Academy of Mediators.   He offers arbitrator and mediator services through Judicate West and Professional Mediation Associates

Jay also serves as an adjunct professor of arbitration law at Pepperdine Law School, the University of Missouri-Kansas City Law School and the Werner Institute of Creighton Law School.  An AV-rated attorney, he is a member of the California bar and is admitted to practice before the United States Supreme Court.  He is listed in “Best Lawyers in America” for ADR, and in “Southern California Super Lawyers,” also for ADR.  You can visit his website here.

Our post introducing Jay is here.

The United States Supreme Court Adopts Severability Analysis in Rent-A-Center v. Jackson

June 21st, 2010 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Practice and Procedure, Unconscionability, United States Court of Appeals for the Ninth Circuit, United States Supreme Court Comments Off on The United States Supreme Court Adopts Severability Analysis in Rent-A-Center v. Jackson

Yesterday the United States Supreme Court decided Rent-A-Center West v. Jackson, ___ U.S. ___, slip op. (June 21, 2010).  Rent-A-Center raised the question whether “a district court may decide a claim that an arbitration agreement is unconscionable, where the agreement explicitly assigns that decision to the arbitrator.”  The United States Court of Appeals for the Ninth Circuit had said “yes,” but the Supreme Court said “no.”

In a 5-4 opinion by Associate Justice Antonin Scalia, joined in by Chief Justice John G. Roberts, Jr. and Associate Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito, Jr , the Court held that the employee had to arbitrate its claim that certain provisions of an arbitration agreement were allegedly unconscionable because the parties clearly and unmistakably agreed to arbitrate arbitrability questions, and the employee did not specifically claim that that agreement was unconscionable.  The Court said that the parties’ clear and unmistakable agreement to arbitrate arbitrability was, as a matter of federal law, severable from the other provisions of the arbitration agreement, including the ones the employee said were unconscionable.  

Prior to the decision we had advocated in the Forum (here and here), and in our cover story published in the March 2010 issue of Alternatives to the High Cost of  Litigation (blogged here), that the Court should resolve the case in favor of Rent-A-Center using a severability analysis of sorts derived from Buckeye Check Cashing v. Cardegna, 546 U.S. ___ (2006) and Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).   And that’s exactly what happened, even though neither side advocated or addressed the severability argument before the Court, a point made by Associate Justice Stevens’ dissenting opinion, which was  joined in by Associate Justices Ruth Bader Ginsburg, Stephen G. Breyer and Sonia Sotomayor.  See Dissenting Op. at 1.  (The district court’s analysis, however, which was reversed by the Ninth Circuit, was, according to the Court, consistent with the Buckeye Check Cashing and Prima Paint severability principle.  See Slip op. at 9.)  Continue Reading »

When Do Cost Provisions in an Arbitration Agreement Effectively Deny a Party a Forum in Which to Vindicate Statutory Rights?

April 6th, 2010 Arbitrability, Authority of Arbitrators, Employment Arbitration, New York Court of Appeals, United States Supreme Court Comments Off on When Do Cost Provisions in an Arbitration Agreement Effectively Deny a Party a Forum in Which to Vindicate Statutory Rights?

Introduction

Under the federal Federal Arbitration Act statutory claims are generally arbitrable if they fall within the scope of the arbitration agreement, but arbitrator and arbitration-service-provider fees that may impose undue financial burdens on employees or other individuals seeking to vindicate those rights.   Cost provisions in arbitration agreements allocate these fees and costs, and even when the allocation is 50-50, disputes may arise concerning whether they are so burdensome as to effectively deny one of the parties a forum in which to pursue his or her claims.   

In Green Tree Financial Corp v Randolph, 531 U.S. 79 (2000), the United States Supreme Court acknowledged that “the existence of large arbitration costs could preclude a litigant from effectively vindicating her federal statutory rights in the arbitral forum.”  531 U.S. at 90.  And it said that “where, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring costs that would deter the party from arbitrating the claim.”  531 U.S. at 92.   While the Court did not purport to enunciate the standards courts should apply in evaluating challenges to cost provisions, it held that the “risk” of  “prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.”  531 U.S. at 91. Continue Reading »