Opinion ID: 1830345
Heading Depth: 2
Heading Rank: 6

Heading: whether the claimant is effectively locked out of instituting arbitration due to the high costs of exercising such a mechanism.

Text: ¶ 53. Parkerson further asserts that her inability to pay the costs of arbitration effectively leaves her without a forum in which to bring her suit. She claims she would be forced to hurdle many financial barriers such as the arbitrator's fee, the initial filing fee of at least $500, plus court reporting costs, transcription fees, witness expenses, and hearing room fees. In her affidavit she claims she does not have the funds to pay all of these fees. [5] In effect, she is claiming that the arbitration agreement is substantively unconscionable. ¶ 54. While procedural unconscionability goes to the formation of the contract, substantive unconscionability goes to its actual terms. Plaintiff may prove substantive unconscionability if she prove the terms of the arbitration clause were oppressive. Smith v. EquiFirst Corp., 117 F.Supp.2d 557, 560 (S.D.Miss.2000). ¶ 55. It is important to note that the Commercial Rules of the American Arbitration Association, which the contract signed by Parkerson specifically states shall apply, contain a provision for the reduction or deferment of the fees in the event of extreme hardship. § 176:48 Administrative fees. . . . . . . The filing fee shall be advanced by the initiating party or parties, subject to final apportionment by the arbitrator in the award. The AAA may, in the event of extreme hardship on the part of any party, defer or reduce the administrative fees. ¶ 56. While Parkerson claims that she was unable to afford the arbitration fees, there is no indication that she ever made an effort to avail herself of the benefits of this provision in the Rules. ¶ 57. Next, while it does not appear this Court has specifically dealt with the issue of the alleged inability of a party to afford the arbitration costs as a reason to find substantive unconscionability, courts in other jurisdictions have. ¶ 58. In Doctor's Assocs., Inc. v. Stuart, 85 F.3d 975, 980 (2nd Cir.1996), two Subway franchisees sought to invalidate an arbitration clause in their contract, claiming it was unconscionable due to the high cost of pursuing their claim via arbitration. In rejecting this argument, the Second Circuit said, the purpose of the unconscionability doctrine is to prevent unfair surprise and oppression, ... [they] were on notice that they were at least liable for their own costs in the arbitration proceedings,... Certainly they could have inquired about the typical fees charged by the AAA and its arbitrator. Id. at 980-81. ¶ 59. In Doctor's Assocs., Inc. v. Hamilton, 150 F.3d 157, 159 (2nd Cir.1998), once again a Subway franchisee challenged an arbitration clause because of, inter alia, its alleged prohibitive cost. The court held that, there was nothing unconscionable about the arbitration clause because it clearly explained both the parties' responsibility for their own costs, which the franchisee was free to investigate before entering into the agreement. ... Id. at 163. ¶ 60. However, other circuits have looked at the inability of the plaintiff to pay the cost of arbitration differently. In Shankle v. B-G Maint. Mgmt. of Col., Inc., 163 F.3d 1230, 1232 (10th Cir.1999), Shankle, a former employee of B-G, brought an action under Title VII, the Americans with Disability Act, and the Age Discrimination in Employment Act. B-G filed a motion to compel arbitration. Id. In affirming the district court's denial of the motion, the Tenth Circuit held: In this case, Mr. Shankle signed the Agreement as a condition of continued employment. The Agreement requires Mr. Shankle to arbitrate all disputes arising between he and his former employer. In order to invoke the procedure mandated by his employer, however, Mr. Shankle had to pay for one-half of the arbitrator's fees. Assuming Mr. Shankle's arbitration would have lasted an average length of time, he would have had to pay an arbitrator between $1,875 and $5,000 to resolve his claims. Mr. Shankle could not afford such a fee and it is unlikely other similarly situated employees could either. The Agreement thus placed Mr. Shankle between the proverbial rock and a hard place  it prohibited use of the judicial forum, where a litigant is not required to pay for a judge's services, and the prohibitive cost substantially limited use of the arbitral forum. Essentially, B-G Maintenance required Mr. Shankle to agree to mandatory arbitration as a term of continued employment, yet failed to provide an accessible forum in which he could resolve his statutory right. Id. at 1234-35 (citations omitted). See also Cole v. Burns Int'l. Sec. Servs., 105 F.3d 1465, (D.C.Cir.1997) (it would undermine Congress's intent to prevent employees who are seeking to vindicate statutory rights from gaining access to a judicial forum and then require them to pay for the services of an arbitrator when they would never be required to pay for a judge in court); Rollins, Inc. v. Foster, 991 F.Supp. 1426, 1437 (M.D.Ala.1998) (When a party who is in such an inferior bargaining position, ... is compelled to assert her claims in arbitration, thus precluding a remedy in the less expensive public fora, and the costs of the arbitral forum render the party unable to pursue her claim, the clause is oppressive and one-sided and therefore unconscionable.). ¶ 61. In Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054, 1056 (11th.Cir.1998), a case similar to Shankle, a former employee brought a Title VII action against her former employer. The employer then filed a motion to stay proceedings and compel arbitration, which the district court denied. Id. In affirming the decision, the Eleventh Circuit noted that employees may be liable for at least half the hefty cost of an arbitration and must, according to the American Arbitration Association rules the [arbitration] clause explicitly adopts, pay steep filing fees (in this case $2000). Id. at 1062. We consider costs of this magnitude a legitimate basis for a conclusion that the clause does not comport with statutory policy. Id. Further: Arbitration ordinarily brings hardships for litigants along with potential efficiency. Arbitral litigants often lack discovery, evidentiary rules, a jury, and any meaningful right to further review. In light of the strong federal policy favoring arbitration, these inherent weaknesses should not make an arbitration clause unenforceable. [Citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991)]. But a clause such as this one that deprives an employee of any hope of meaningful relief, while imposing high costs on the employee, undermines the policies that support Title VII. It is not enforceable. Id. ¶ 62. Finally, in Randolph v. Green Tree Fin. Corp.Alabama, 178 F.3d 1149, 1150 (11th Cir.1999), the purchaser of a mobile home appealed the district court's order compelling arbitration of her claim against the company that had financed that purchase. The Eleventh Circuit reversed, finding the arbitration clause unenforceable because: This clause says nothing about the payment of filing fees or the apportionment of costs of arbitration. It neither assigns an initial responsibility for filing fees or arbitrators' costs, nor provides for a waiver in cases of financial hardship.... It does not say whether the rules of the American Arbitration Association, which provide at least some guidelines concerning filing fees and arbitration costs, apply to the proceeding, whether some other set of rules applies, or whether the parties must negotiate their own set of rules. Id. at 1158. On appeal, the Supreme Court reversed because the Court of Appeals erred in deciding that the arbitration agreement's silence with respect to costs and fees rendered it unenforceable. Green Tree Fin. Corp.Alabama v. Randolph, 531 U.S. 79, 92, 121 S.Ct. 513, 523, 148 L.Ed.2d 373 (2000). However, the Supreme Court went on to say: 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. ... 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 90-91, 121 S.Ct. at 522. Thus the Supreme Court conceded that the cost of arbitration could render a arbitration clause unenforceable, but held that the record in that case did not reveal enough information to make such a determination. However, concerned that some parties might be unable to afford the costs associated with arbitration, courts have responded. ¶ 63. In Dobbins v. Hawk's Enters., 198 F.3d 715, 716 (8th Cir.1999), the purchasers of a mobile home that was allegedly delivered with substantial damage filed suit in the United States District Court for the Eastern District of Arkansas, claiming damages under multiple legal theories, including the Truth in Lending Act. The defendants filed a motion to stay the federal court proceeding and compel arbitration, which the district court granted. Id. The Dobbins filed a motion to lift the stay on the basis that the fees imposed by the AAA, and their inability to pay those fees prevented them from effectively asserting their claims. Id. After an evidentiary hearing, the district court lifted the stay, reopened the case, and found that the arbitration fees precluded the Dobbins from availing themselves of the arbitral forum. Id. The defendants appealed and the Eighth Circuit reversed and remanded with instructions: As the district court noted in its order, courts across the country have begun to recognize the potential that arbitration fees will make an arbitration agreement unconscionable. We agree with those courts that the potential is present. However, whether or not arbitration fees make the agreement to arbitrate unconscionable is something that must be determined on a case-by-case basis in light of the state law governing unconscionability. In this case, the Dobbinses claim that the final fee determination they received from the AAA was $23,000. The district court found this fee to be oppressive and therefore granted the stay. The AAA, however, has a fee waiver procedure. It decides whether or not to waive, in whole or in part, a fee on the basis of a claimant's financial situation. It is clear, however, from our reading of the evidentiary hearing transcript, that the Dobbinses never fully explored the AAA's fee waiver procedures because Mr. Dobbins refused to provide his family's financial information to the AAA. This is an important step that must be taken before an unconscionability determination can be made. Therefore, in an effort to foster the policy in favor of arbitration, we reverse and remand this case with directions to order the Dobbinses to present a reduced demand for damages and to seek a diminution or a waiver of fees from the AAA. The district court also should retain jurisdiction over the case to determine if the fee, if not waived all together, is lowered to a reasonable amount. If the district court finds that the fee is unreasonable given the current financial situation of the Dobbinses, the district court should accept the appellant's offer to pay the arbitration fees. Id. at 717. ¶ 64. I find the rationale and remedy of the Dobbins court persuasive. While Mississippi has joined the rest of the nation in embracing a policy favoring arbitration, an arbitration agreement that would effectively leave a consumer without a forum to effectively redress his or her grievances should not be embraced. However, the determination as to whether or not an arbitration clause in a contract is substantively unconscionable, because it is cost prohibitive, can only be made on a case-by-case basis. While Parkerson claims, on appeal, she is unable to afford the fees associated with arbitration, she did not make such a claim in her initial complaint or amended complaint. Parkerson did file an affidavit with the circuit court claiming she did not have the funds with which to pay the costs associated with arbitration. However, the trial judge failed to make findings of facts on this issue, nor did he discuss this issue in his final order. Therefore, the evidence in the record is insufficient for this Court to make such a determination as well. ¶ 65. In Quinn v. EMC Corp., 109 F.Supp.2d 681, 685-86 (S.D.Tex.2000), the United States District Court for the Southern District of Texas stated: Even if the Court were convinced that Plaintiff cannot afford to pay for the arbitration proceeding, the better solution would be to nullify the fee provisions of the arbitration agreement and have Defendant EMC shoulder the expense. Plaintiff's proposed solution-abrogation of the entire arbitration agreement-is unnecessarily radical. [6] ¶ 66. I agree, and therefore would remand on this issue, with directions to the circuit court to order Parkerson to first seek a deferment or reduction of fees from the AAA. The circuit court should retain jurisdiction over this case, as was done in Dobbins, supra. Upon ascertaining the actual cost of the arbitration to be conducted in this case, the trial judge should then make a determination, on the record, as to whether the cost of arbitration, in light of Parkerson's financial situation, still prevents her from affording arbitration. If the circuit court so determines, it may consider ordering Town & Country and Champion to pay part or all of the fees, or it may find that the arbitration clause is unenforceable due to the unconscionability of the cost of arbitration.