# United States Court of Appeals **For the Eighth Circuit**

___________________________ No. 14-1567

___________________________ Jose Torres; Guadalupe Clemente; Lu z Walker; Christina Beiter; Antonio Carmona, individually and on behalf of all others similarly situated

lllllllllllllllllllll Plaintiffs - Appellants

v. Simpatico, Inc.; Stratus Franchising, LLC ; Peter Frese, Jr., individually; Dennis Jarrett, individually; Carmen Garcia, i ndividually; David Farrell, individually; Marisa Lather, individually; Alen Su ljanovic, individually; Bob Stapleton, individually; PHSSCH SBS, LLC; Channen Smith, individually; Stratus Building Solutions of Arizona, Inc.; Lupita Galle go, individually; Ed Nunez, individually;

Jason Dowling, individually; Gonzalo Moreno, individually; Mark Bashforth,

doing business as Stratus Building Solutions of San Diego; Mark Bashforth, individually; Jayson Bashforth, doing business as Stratus Building Solutions of San Diego; Jayson Bashforth, individually ; Marvin Ashton, individually; Colorado

Cleaning Partners, Inc., doing business as Stratus Building Solutions of Southern Colorado; James Van Dyke, individua lly; Channen Smith, doing business as

Stratus of Denver; Joshua Fletcher, individually; Mert Smith, individually; Kukamachu, Inc., doing business as Stratus of Honolulu; Aaron Kahaloa, individually; Iowa Building Solutions, LLC, doing business as Stratus of Iowa; Leonard Fazio, individually; Michael Fazio, individually; Amy Lundstrum, individually; Stratus Building Solutions of Kansas, LLC; Gator Greenwill, individually; Luis Morales; Napco Group, Inc., doing business as Stratus Building Solutions of Maryland; Mike Napo litano, individually; Anthony Napolitano, individually; Stratus Building Solutions of Nebraska; Chelley Baack, individually;

Jim Morrison, individually; Shawn Vick, individually; Ariss Rogel, individually; Sunshine Investment Group, Inc., doing business as Stratus of Northern New Jersey; Don Gartner, individually; Stratus Building Solutions of Long Island, Inc.;

Richard Baran, individually; MARRS, LLC , doing business as Stratus Building Solutions of Cincinnati; Mark Stocker, individually; Terry Behrle, individually;

Tom Grassi, doing business as Stratus Building Solutions of Cleveland; TomGrassi, individually; Tim Tilton, doing business as Stratus Building Solutions of Cleveland; Tim Tilton, individually; HolBon Holdings, LLC, doing business as Stratus Building Solutions of Philadelphia; Tom Weiss, individually; John Coleman, individually; Bonnie Coleman, individually; Ralph Sizemore, doing business as Stratus of Upstate Caro lina; Ralph Sizemore, individually; DE Holdings, LLC, doing business as Stratus Building Solutions of Nashville; David

Smith, individually; Ed Lease, individually; Mark Bashforth, doing business as Stratus Building Solutions of Houston; Jayson Bashforth, doing business as Stratus Building Solutions of Houston; Greg Fishman, doing business as Stratus of Austin; Greg Fishman, individually; Tom Baker, doing business as Stratus of Dallas; Dawn Caudill, doing business as Stratus of Dallas; Tom Baker, individually; Dawn Caudill, -individually; Stephen Sheriff, individually; TJM Associates, Inc., doing business as Stratus of Northern Texas; Jacquelyn Mosley, individually; Thomas Mosley, individually; Eleazar Quintana, individually; William Ragsdale, individually; Stratus Building Solutions of Northern Utah; Lori Sealy, individually; SYDDAR, inc., doing business as Stratus Bu ilding Solutions of Salt Lake; Shauna Sharpsteen, individually; Lucero Flores, individually; Emily Thomas, individually; Shea Sealy, individually

lllllllllllllllllllll Defendants - Appellees

____________ Appeal from United States District Court for the Eastern District of Missouri - St. Louis

____________ Submitted: January 15, 2015 Filed: March 25, 2015

____________ Before WOLLMAN, SMITH, and SHEPHERD, Circuit Judges.

____________ WOLLMAN, Circuit Judge.

-2-Jose Torres, Guadalupe Clemente, Luz Walker, Christina Beiter, and Antonio Carmona (the Appellants) app eal from the district court’s 1 order granting appellees’ motion to compel individual arbitration. We affirm.

The Appellants are current or former unit franchisees of Stratus Franchising, LLC, a commercial cleaning business. Stratus Franchising sells master franchises, which grant a master franchiser the exclusiv e right to sell Stratu s unit franchises in a particular regional market. Each Appellant entered into a standard unit-franchise agreement (Agreement) that included a broa d, standard-form arbitration provision. The Appellants filed this putative class-ac tion suit against their respective master franchisers and other individuals and entitie s associated with the Stratus franchise system (Stratus Group), alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961- 1968. Applying Missouri contract law, the district court granted the Stratus Group’ s motion to compel individual arbitration under the terms of the Agreement. In reachi ng that conclusion, the court rejected the Appellants’ argument that the arb itration provision was unenforceable as unconscionable and that members of the Stratus Group who were not signatories to their respective Agreements could not i nvoke or enforce the arbitration provision. 2

We review de novo the district court’s decision regarding the validity and scope of the arbitration clause, and we review for clear error any factual findings made in support of that decision. See Faber v. Menard, Inc. , 367 F.3d 1048, 1051 (8th Cir. 2004).

1 The Honorable Catherine D. Perry, Chief Judge, United States District Court for the Eastern District of Missouri.

2 The individuals and entities who were not signatories to the Appellants’ respective Agreements includeSimpatico, Inc.; Stratus Franchising, LLC, which, as of April 2008, owns the assets of Stratu s Building Solutions; Stratus Franchising CEO, Dennis Jarrett, and COO, Pete Frese; and other current and former master franchisers. We refer to these parties collectively as the Non-Signatory Parties.

-3-The “principal purpose” of the Federa l Arbitration Act (FAA), 9 U.S.C. §§ 9- 14, is to “ensur[e] that private arbitrati on agreements are enfor ced according to their terms.” AT&T Mobility LLC v. Concepcion , 131 S. Ct. 1740, 1748 (2011) (quoting Volt Info. Scis. v. Bd. of Trs. of Leland Stanford Jr. Univ. , 489 U.S. 468, 478 (1989)) (holding that FAA preempted California judi cial rule that deemed unconscionable all class-arbitration waivers in consumer cont racts because the rule was an obstacle to FAA’s purposes). The FAA thus reflect s “a liberal federal policy favoring arbitration,” id. at 1745 (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24 (1983)), and such agr eements are “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.

Because “arbitration is a matter of contr act,” whether an arbitration provision is valid is a matter of state contract law, and an arbitration provision may be “invalidated by ‘generally applicable cont ract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact th at an agreement to arbitrat e is at issue.” Concepcion , 131 S. Ct. at 1745-46 (quoting Docto r’s Assocs., Inc. v. Casarotto , 517 U.S. 681, 687 (1996)). If a valid and enforceable arbitration agreement exists under state-law contract principles, any dispute that falls within the scope of that agreement must be submitted to arbitration. SeeFaber , 367 F.3d at 1052. We ask only whether the arbitration agreement is valid and whether the dispute falls within the terms of that agreement. 3 Id.

Under Missouri law (which the parties do not dispute applies in this case), “arbitration agreements are tested through a le ns of ordinary state-law principles that

3 The district court conclude d that “[b]ecause plaintiffs ’ RICO claims allege that they were defrauded, in part, by operation of the [Agreement], the arbitration agreement encompasses those claims.” D. Ct . Order of Feb. 3, 2014, at 10. The Appellants do not challenge this determination on appeal.

-4-govern contracts, and consideration is give n to whether the arbitration agreement is improper in light of generally applicable contract defenses . . . . such as fraud, duress, or unconscionability.” Robi nson v. Title Lenders, Inc. , 364 S.W.3d 505, 515 (Mo. 2012). But “no state-law rule that is ‘an obstacle to the accomplis hment of the FAA’s objectives’ should be applied to invalid ate an arbitration agreement.” Id. (quoting Concepcion , 131 S. Ct. at 1748). In Brew er v. Missouri Title Loans , 364 S.W.3d 486, 492 n.3 (Mo. 2012), the Missouri Supreme Court noted that Missouri courts have traditionally viewed unconscionability in th e context of procedural unconscionability, i.e. , the formalities of making the contr act, and substantive unconscionability, i.e. , the terms set forth in the contract. But because Concepcion “dictate[d] a review” limited to “whether state law defenses su ch as unconscionability impact the formation of a contract,” the court’s analysis would no longer focus on the traditional distinction between procedural and substantive uncons cionability and would instead be “limited to a discussion of facts relating to uncons cionability impacting the formation of the contract.” 4Id. The court went on to instruct that in future cases, Missouri courts “shall limit review of the defense of unconsci onability to the contex t of its relevance to contract formation.” Id.

Nevertheless, the Brewercourt also noted that “the purpose of the unconscionability doctrine is to guard agains t one-sided contracts, oppression[,] and unfair surprise,” which may “occur during th e bargaining process” or when a later dispute reveals “the objectively unreasonable terms.” Id. at 492-93. Thus, courts may be called upon to “consider whether the term s of an arbitration agreement are unduly harsh,” that is, “whether the contract term s are so one-sided as to oppress or unfairly surprise an innocent party or . . . refl ect an overall imbalance in the rights and obligations imposed by the c ontract at issue.” Id. at 489 n.1. In either event, the court reasoned, “it is at formation that a party is required to agree to the objectively

4 The Missouri Supreme Court observed that this analysis was also applied in its ruling in Robinson v. Title Lenders, Inc. , 364 S.W.3d 505, 515 (Mo. 2012), a decision issued on the same day as the decision in Brewer

. -5-unreasonable terms.” Id. at 493. Keeping these principles in mind, we now turn to the facts presented in this appeal.

The Appellants contend that the arb itration provision is unconscionable and should not be enforced because the pr ohibitively high costs associated with an individual arbitration proceeding prevent th em from pursuing their claims. In support of this argument, they point to terms inthe arbitration provision requiring them to prepay filing and other fees and to reim burse Stratus Group’s costs and expenses if Stratus Group prevails in an individual arbitration proceeding. The Appellants bear the burden of showing that individual arb itration would be prohibitively expensive, and that it is likely, as opposed to merely speculative, that the prohibitive costs will actually be incurred. SeeGreen Tree Fin. Corp.-Ala. v. Randolph , 531 U.S. 79, 92 (2000). In addition, to “overcome the federal policy favoring arbitration,” the Appellants must establish more than a “ hypothetical inability to pay” the costs of arbitration. Faber , 367 F.3d at 1053. Rather, they mu st present “specific evidence of likely arbitrators’ fees” and evidence of their own financial inability to pay those fees so that the court can determine whether the arbitral forum is accessible. See id. at 1054. If this burden is not met, “the di strict court must honor the arbitration agreement and compel arbitration.” Id.

The Appellants’ evidence included (1) anAmerican Arbitration Association (AAA) general schedule of filing fees fo r claims under $10,000 ($775) and for claims between $10,000 and $75,000 ($975) ; (2) a AAA study of average daily rates charged by commercial arbitrators in Chicago, Illinois ($1800); Colorado ($1442); Hamilton County, Ohio ($1442); and Indiana ($1308) ; and (3) the Appellants’ counsel’s affidavit estimating that an individual heari ng would take three days to complete, that the average loss among all putative class members was approximately $6100, that the cost of arbitration would exceed the amountof any class member’s claim, and that none of the Appellants nor any member of th e putative class could afford the costs to individually arbitrate a claim. App’x of Appellants at 60-62.

-6-This evidence does not constitute the “sp ecific evidence” necessary to establish that individual arbitration is cost prohibitiv e and thus that the arbitration provision is unconscionable. As the district court f ound, the average daily arbitrator fee quoted by the Appellants does not necessarily reflect the likely cost to arbitrate because, by definition, some arbitrator fees are belo w that average. Moreover, none of the Appellants reside in the four geographic areas for which average daily arbitrator rates were provided, so it is difficult to discern how these rates are relevant. The Appellants do not provide fee data for Missouri, New York, Texas, or Arizona—the states in which they reside. See Green Tree , 531 U.S. at 90 n.6 (concluding that list of fees incurred in other arbitrations did not estab lish that plaintiff w ould, in fact, incur substantial costs in arbitration and that “unsupported statements provide no basis on which to ascertain the actual costs and fees” of arbitration). And, the district court noted, the arbitration provision specifically gran ts the arbitrator “the right to award . . . any relief which he or sh e deems proper,” including disc retion to allocate costs and expenses between the parties. A pp’x of Appellants at 132; see also Cicle v. Chase Bank USA , 583 F.3d 549, 556 (8th Cir. 2009) (noting that cost-sharing and cost-shifting provisions in the arbitration agreement saved it from being unconscionable on its face).

Likewise, the estimates set forth in couns el’s affidavit regarding the theoretical cost and length of an individual arbitrati on proceeding do not suffice to establish the likely cost of arbitration for the Appellants. Counsel’s affidavit declares that neither Appellants nor any member of the putative class can afford the costs of individual arbitration, but that declaration is mere conjecture. None of the Appellants provided declarations or affidavits attesting to his or her particular inability to pay the costs of arbitration. The Appellants failed to carry their burden to show that the costs of individual arbitration “are so high as to make access to the fo rum impracticable” or to prevent them from effectively vindicating their rights in the arbitral forum. Am. Express Co. v. Italian Colors Rest. , 133 S. Ct. 2304, 2310-11 (2013); see also Green Tree , 531 U.S. at 90 (“The ‘risk’ that [Responde nt] will be saddled with prohibitive

-7-costs is too speculative to justify the inva lidation of the arbitration agreement.”). Given the Appellants’ failure to carry thei r evidentiary burden, we need not opine on whether in a particular case the expenses involved in an individual arbitration might be so high as to render access to an arbitral forum impractical. See Green Tree , 531 U.S. at 910.

The Appellants also argue that the arbitration agreement is unconscionable because it includes a waiver of the punitive or exemplary damages and attorney’s fees that might otherwise be available in a successful RICO action. This argument is unavailing. “Questions about remedy are . . . outside our scope of review because they do not affect the validity of th e agreement to arbitrate.” Faber , 367 F.3d at 1052. More specifically, “[w]hether a prospectiv e waiver of punitive damages violates the public policy underlying RICO’s treble damages provision is a matter for the arbitrators in the first instance when fa shioning an appropriate remedy if a RICO claim is proven to the arbitrator’s satisfac tion . . . .” Larry’s United Super, Inc. v. Werries , 253 F.3d 1083, 1086 (8th Cir. 2001); see also Arkcom Digital Corp. v. Xerox Corp. , 289 F.3d 536, 539 (8th Cir. 2002) (“[I]ssues of remedy go to the merits of the dispute and are for the arbitrator to resolve in the first instance.”).

The Appellants next argue that even if the arbitration provision is enforceable, it can be invoked and enforced only by the ma ster franchisers w ho actually signed the respective Agreements and not by the Non-Signatory Parties. “[S]tate contract law governs the ability of nonsignatories to enforce arbitration provisions.” Donaldson Co. v. Burroughs Diesel, Inc. , 581 F.3d 726, 732 (8th Cir. 2009) (citing Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 630-31 (2009)). Under Missouri law:

Only parties to a contract and any th ird-party beneficiaries of a contract have standing to enforc e that contract. To be bound as a third-party beneficiary, the terms of the contr act must clearly express intent to benefit that party or an identifiable class of which the party is a member. In cases where the contract lacks an express declaration of that intent,

-8-there is a strong presumption that the third party is not a beneficiary and that the parties contracted to benefit only themselves. Furthermore, a mere incidental benefit to the third party is insufficient to bind that party.

Verni v. Cleveland Chiropractic Coll. , 212 S.W.3d 150, 153 (Mo. 2007) (quotations and citations omitted). The Appellants argue that the language in the Agreement did not “clearly express intent to benefit” th e Non-Signatory Parties. We disagree.

The arbitration provision set forth in the Agreement states that “all controversies, disputes, or claims between us and our affiliate s, and our and their respective members, officers, managers, ag ents, and/or employees, and you . . . must be submitted for binding arbitration.” App’ x of Appellants at 131-32. The Agreement further provides that the arbitration provisi on is “intended to be nefit and bind certain third party non-signatories.” Id. at 132. The Agreement requires that the Appellants purchase insurance policies na ming Stratus Franchising, LLC (a Non-Signatory Party) as an additional insured, and it provides for the indemnity of the master franchiser and “its shareholders, directors, officers, employees, affiliates, agents and assignees, Stratus [Franchising, LLC,] and other Stratu s franchisees.” Id. at 123-24. It also includes a termination provision, which states that Stratus Franchising, LLC “has the right, but not the obligation, to assume the rights and obligations” covered in an Agreement after that Agreement expires or is terminated. Id. 125-26. In sum, Stratus Franchising, LLC and the mast er franchisers, none of whic h were signatories to the Appellants’ respective Agreements, are neve rtheless named beneficiaries of those Agreements. Moreover, the language of the Agreement is sufficiently broad and inclusive to express an intent to benef it not only the actual signatories and named beneficiaries, but also the other Non-Signatory Parties, all of whom are owners, operators, agents, officers, or employees of the master franchisers or of Stratus Franchising, LLC. The district court did not err in concluding that the Non-Signatory Parties, as third-party beneficiaries of the Agreement, could invoke and enforce the

-9-arbitration provision. In light of this holding, we need not address Stratus Group’s alternative arguments on this issue.

The judgment is affirmed.

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