Opinion ID: 2998170
Heading Depth: 3
Heading Rank: 2

Heading: Costs of Arbitration

Text: Ms. James also contends that the arbitration clause should not be enforced because the high up-front costs of arbitration prohibit her from pursuing a remedy in that forum. Ms. James relies on Green Tree, 531 U.S. at 81, in which the Supreme Court recognized that “the existence of large arbitration costs may well preclude a litigant . . . from effectively vindicating” statutory rights in arbitration. Ms. James’ reliance on Green Tree is misplaced. In Green Tree, the Court was concerned with whether the existence of a federal statutory right under the Truth In Lending Act (“TILA”), 15 U.S.C. § 1608 et seq., evinced Congress’ intent to supersede the FAA when necessary to provide access to a legal forum. 531 U.S. at 80-81. It remains unclear whether the rationale of Green Tree applies to situations that do not involve the assertion of federal statutory rights. See Richard M. Alderman, Pre-Dispute Mandatory Arbitration in Consumer Contracts: A Call for Reform, 28 Hous. L. Rev. 1237, 1253 (2001); see also Brown v. Wheat First Sec., Inc., 257 F.3d 821, 825 (D.C. Cir.), cert. denied, 534 U.S. 1067 (2001) (declining to extend to non-statutory claims a prior holding prohibiting an employer from requiring an employee to arbitrate all disputes relating to the employment relationship as a 12 No. 04-2383 condition of employment and also to require the employee to bear all or part of the costs of arbitration). The cases relied on by Ms. James similarly involve federal statutory claims. See Appellant’s Br. at 15-18. Without deciding whether Green Tree extends to common law or state law claims, we note that, in any event, Ms. James has not made a showing that the expenses that she necessarily and definitely would incur would make arbitration prohibitive. “[A] party seeking to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive bears the burden of showing the likelihood of incurring such costs.” Green Tree, 531 U.S. at 81. Ms. James relies on the affidavit of Michael Eiben, who is a member of the Panel of Neutrals for the American Arbitration Association (“AAA”), to establish the costs of arbitration. Eiben estimated that Ms. James would have to pay $38,000 to $80,000 in fees and service costs before arbitration commenced in order to pursue her claims. See R.28, Ex.2 at 1. Ms. James filed a sworn affidavit stating that she does not have the financial resources to advance those fees. See R.28, Ex.1 at 2. The AAA’s Commercial Rules contain provisions to protect parties from prohibitive expenses. The Eighth Circuit has recognized that the AAA . . . 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 [plaintiff] never fully explored the AAA’s fee waiver procedures because [he] 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. No. 04-2383 13 Dobbins v. Hawk’s Enters., 198 F.3d 715, 717 (8th Cir. 1999); see also American Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 712 (5th Cir. 2002), cert. denied, 537 U.S. 1106 (2003) (“[T]he rules of the AAA provide . . . sufficient avenues to request fee-paying relief, if necessary.”). Ms. James has submitted no evidence indicating how her financial situation would be factored into an assessment of the arbitration costs under 4 this hardship provision. Furthermore, Ms. James has not provided any evidence concerning the comparative expense of litigating her claims. The cost differential between arbitration and litigation is evidence highly probative to Ms. James’ claim that requiring her to proceed through arbitration, rather than through the courts, will effectively deny her legal recourse. See Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir. 2001) (applying a case-bycase analysis in the employment discrimination context focused on “ability to pay the arbitration fees and costs, the 4 We are not persuaded, in contrast, by McDonald’s submission that, if the arbitrator imposes burdensome costs on Ms. James, she can return to the district court and seek review of the cost allocation. See DeGroff v. Masotech Forming Techs.-Fort Wayne, Inc., 179 F. Supp. 2d 896, 912 (N.D. Ind. 2001) (“[S]hould [plaintiff] appeal any arbitration award, the reviewing court could assess whether unreasonable arbitration fees were imposed.”). Ms. James maintains that she cannot afford to pursue arbitration in the first instance. A review of the allocation of costs conducted after the arbitration would be of little help to her. Also, we find little relevance to McDonald’s claim that it offered to pay Ms. James the costs of arbitration, if she would be willing to conduct the arbitration according to the AAA’s Consumer DisputeRelated Rules. These rules have a truncated procedure and apply to claims that do not exceed ten thousand dollars. Ms. James believed her claim was worth at least one million dollars, the purported value of her game card, plus interest and costs. Therefore, she was under no obligation to accept McDonald’s limiting offer. 14 No. 04-2383 expected cost differential between arbitration and litigation in court, and whether the cost differential is so substantial as to deter the bringing of claims”).