Opinion ID: 2630646
Heading Depth: 2
Heading Rank: 4

Heading: Cost Sharing and Arbitration of Tameny Claims

Text: Little argues that the arbitration agreement's silence on the issue of costs means that he would be statutorily compelled to share costs under Code of Civil Procedure section 1284.2, and that the imposition of such costs renders the arbitration agreement unenforceable. Armendariz did not conclude that an arbitration agreement silent on costs was unenforceable. On the contrary, we held we would infer from such silence an agreement that the employer must bear the arbitration forum costs and that [t]he absence of specific provisions on arbitration costs would ... not be grounds for denying the enforcement of an arbitration agreement. ( Armendariz, supra, 24 Cal.4th at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669.) The California Motorcar Dealers Association, amicus curiae on behalf of Auto Stiegler, argues that our holding on costs in Armendariz has been supplanted by the United States Supreme Court's holding in Green Tree, supra, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373. Because the allocation of arbitration costs will be at issue on remand, we address the relationship between Armendariz and Green Tree. In Green Tree, the plaintiff, purchaser of a mobilehome, sued her lender on various federal statutory grounds, including violation of the Truth in Lending Act (TILA) (15 USC § 1601 et seq.) for failing to disclose certain finance charges. ( Green Tree, supra, 531 U.S. at pp. 82-83, 121 S.Ct. 513.) The buyer's agreement with the lender contained a binding arbitration clause that included all statutory claims. The agreement was silent on the issue of who would pay the costs of arbitration. The district court granted the lender's motion to compel arbitration but the court of appeals reversed, holding that the agreement posed the risk that the plaintiffs ability to vindicate her statutory rights would be undone by `steep' arbitration costs, and therefore was unenforceable. ( Id. at p. 84,121 S.Ct. 513.) The United States Supreme Court reversed. It first reaffirmed its longstanding position that statutory claims are arbitrable under the FAA absent the expression of congressional intent to preclude a waiver of judicial remedies for the statutory rights at issue. ( Green Tree, supra, 531 U.S. at p. 90, 121 S.Ct. 513.) Finding no such expression in the TILA, the court proceeded to address the borrower's argument that silence on the matter of arbitration costs created an unacceptable risk that she might have to pay prohibitive costs and therefore not be able to vindicate her statutory rights through arbitration. The court stated: It may well be that the existence of large arbitration costs could preclude a litigant such as Randolph from effectively vindicating her federal statutory rights in the arbitral forum. But the record does not show that Randolph will bear such costs if she goes to arbitration. Indeed, it contains hardly any information on the matter. As the Court of Appeals recognized, `We lack .. . information about how claimants fare under Green Tree's arbitration clause.' [Citation.] The record reveals only the arbitration agreement's silence on the subject, and that fact alone is plainly insufficient to render it unenforceable. The `risk' that Randolph will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement. ( Id. at pp. 90-91, 121 S.Ct. 513, fn. omitted.) The court further explained: To invalidate the agreement on that basis would undermine the `liberal federal policy favoring arbitration agreements.' [Citation.] It would also conflict with our prior holdings that the party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration. [Citations.] We have held that the party seeking to avoid arbitration bears the burden of establishing that Congress intended to preclude arbitration of the statutory claims at issue. [Citations.] Similarly, we believe that where, as here, 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 such costs. Randolph did not meet that burden. How detailed the showing of prohibitive expense must be before the party seeking arbitration must come forward with contrary evidence is a matter we need not discuss; for in this case neither during discovery nor when the case was presented on the merits was there any timely showing at all on the point. The Court of Appeals therefore erred in deciding that the arbitration agreement's silence with respect to costs and fees rendered it unenforceable. ( Green Tree, supra, 531 U.S. at pp. 91-92, 121 S.Ct. 513, italics added, fn. omitted.) Although Green Tree was not an employment case, most courts interpreting it have done so in the employment context. These courts have arrived at divergent meanings of the prohibitively expensive standard. Some courts have interpreted that term narrowly and maintain that it does not affect the validity of the categorical position set forth in Cole, supra, 105 F.3d 1465 that the employer should pay the costs of a mandatory employment arbitration of statutory claims. (See e.g., Circuit City Stores, Inc. v. Adams (9th Cir. 2002) 279 F.3d 889; Cooper v. MRM Inv. Co. (M.D.Tenn.) 199 F.Supp.2d 771, 781; Ball v. SFX Broadcasting, Inc. (N.D.N.Y.) 165 F.Supp.2d 230.) Other courts have held that Green Tree represents a departure from Cole's categorical position, and requires a case-by-case analysis based on such factors as the employee's ability to pay the arbitration fees and the differential between projected arbitration and litigation fees. (See, e.g., Blair v. Scott Specialty Gases (3d Cir.2002) 283 F.3d 595, 609 ( Blair); Nelson v. Insignia/ESG, Inc. (D.D.C.2002) 215 F.Supp.2d 143; Bradford v. Rockwell Semiconductor Systems, Inc. (4th Cir.2001) 238 F.3d 549 ( Bradford ).) Still other courts have held the information presented by the employee before arbitration was too speculative to warrant invalidation of the arbitration agreement, while retaining jurisdiction to reconsider the cost issue after arbitration. (See, e.g., Mildworm v. Ashcroft (E.D.N.Y.2002) 200 F.Supp.2d 171; Boyd v. Town of Hayneville, AL. (M.D. Ala. 2001) 144 F.Supp.2d 1272.) Armendariz and Green Tree agree on two fundamental tenets. First, silence about costs in an arbitration agreement is not grounds for denying a motion to compel arbitration. Second, arbitration costs can present significant barriers to the vindication of statutory rights. Nonetheless, there may be a significant difference between the two cases. Although Green Tree did not elaborate on the kinds of cost-sharing arrangements that would be unenforceable, dicta in that case, and several federal cases cited above interpreting it, suggest that federal law requires only that employers not impose prohibitively expensive arbitration costs on the employee ( Green Tree, supra, 531 U.S. at p. 92, 121 S.Ct. 513), and that determination of whether such costs have been imposed are to be made on a case-by-case basis. Armendariz, on the other hand, categorically imposes costs unique to arbitration on employers when unwaivable rights pursuant to a mandatory employment arbitration agreement are at stake. Assuming that Green Tree and Armendariz pose solutions to the problem of arbitration costs that are in some respects different, we do not agree with amicus curiae that the FAA requires states to comply with federal arbitration cost-sharing standards. As reviewed in the previous part of this opinion, Armendariz's cost-shifting requirement is not preempted by the FAA. It is not a barrier to the enforcement of arbitration agreements, nor does it improperly disfavor arbitration in comparison to other contract clauses. Rather, it is derived from state contract law principles regarding the unwaivability of certain public rights in the context of a contract of adhesion. We do not discern from the United States Supreme Court's jurisprudence on FAA preemption a requirement that state law conform precisely with federal law as to the manner in which such public rights are protected. Furthermore, we considered and rejected in Armendariz a case-by-case approach to arbitration costs similar to that suggested by courts interpreting Green Tree based on the differential between projected arbitration and litigation fees. ( Blair, supra, 283 F.3d at p. 609; Bradford supra, 238 F.3d at p. 556.) As we stated: To be sure, it would be ideal to devise a method by which the employee is put in exactly the same position in arbitration, costwise, as he or she would be in litigation. But the factors going into that calculus refuse to admit ready quantification. Turning a motion to compel arbitration into a mini-trial on the comparative costs and benefits of arbitration and litigation for a particular employee would not only be burdensome son the trial court and the parties, but would likely yield speculative answers. ( Armendariz, supra, 24 Cal.4th at p. 111, 99 Cal.Rptr.2d 745, 6 P.3d 669.) The individualized consideration of employees' ability to pay arbitration costs that courts interpreting Green Tree contemplate (see Blair, supra, 283 F.3d at p. 609; Bradford, supra, 238 F.3d at p. 556) would further complicate the case-by-case calculation of prohibitive expense. We also rejected in Armendariz the notion that there [would] be an advantage to apportioning arbitration costs at the conclusion of the arbitration rather than at the outset. Without clearly articulated guidelines, such a postarbitration apportionment would create a sense of risk and uncertainty among employees that could discourage the arbitration of meritorious claims. ( Armendariz, supra, 24 Cal.4th at p. 111, 99 Cal.Rptr.2d 745, 6 P.3d 669.) We see no reason to reevaluate these conclusions in light of Green Tree and its progeny. In short, for reasons stated above, we do not believe that the FAA requires state courts to adopt precisely the same means as federal courts to ensure that the vindication of public rights will not be stymied by burdensome arbitration costs. We continue to believe that Armendariz represents the soundest approach to the problem of arbitration costs in the context of mandatory employment arbitration. We therefore conclude that on remand the court compelling arbitration should require the employer to pay in this case all types of costs that are unique to arbitration. ( Armendariz, supra, 24 Cal.4th at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669.)