Opinion ID: 1780860
Heading Depth: 2
Heading Rank: 2

Heading: were the arbitration fees unconscionable?

Text: ¶ 64. On appeal, the Gatlins cite the recent U.S. Supreme Court decision regarding potentially exorbitant arbitration fees, in which 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.... 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. Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90-91, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). ¶ 65. We first note that Randolph did not address unconscionability; the term does not even appear in that opinion's text. Rather, Randolph addressed whether the existence of a statutory right implied a Congressional intent to supersede the FAA where necessary to preserve access to a legal forum. See id. at 92, 121 S.Ct. 513; Camacho v. Holiday Homes, Inc., 167 F.Supp.2d 892, 896 n. 2 (W.D.Va.2001) (Randolph did not evaluate the arbitration clause in issue under the equitable doctrine of unconscionability, but rather asked whether the plaintiff had established `that arbitration would be prohibitively expensive,' thereby precluding her from `effectively vindicating her federal statutory rights in the arbitral forum' (citations omitted)). Thus, Randolph is not directly relevant to an inquiry into unconscionability under Mississippi law. Because Randolph is not applicable here, this Court is not limited to that opinion's focus on the costs of the arbitral forum, but may also consider Mr. Gatlin's own financial situation. See Randolph, 531 U.S. at 91 n. 6, 121 S.Ct. 513; Ball v. SFX Broad., Inc., 165 F.Supp.2d 230, 239-40 (N.D.N.Y.2001) (Randolph's analysis, which focuses on the likelihood of substantial arbitration costs, is readily distinguishable from the analysis ... focusing on the financial situation of the particular plaintiff). ¶ 66. Where presented with arbitration clauses that impose egregious financial burdens on a party seeking redress, courts have responded by striking down such clauses, or the contracts containing them. See, e.g., Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 894 (9th Cir.2002) (holding fee-splitting clause unconscionable under California law); Cole v. Burns Int'l Sec. Servs., Inc., 105 F.3d 1465, 1483-89 (D.C.Cir.1997); BankAmerica Hous. Servs. v. Lee, 833 So.2d 609, 619 (Ala.2002) (recognizing unconscionability with respect to the imposition of excessive filing fees and arbitration costs on a claimant, when considered in the full context of the particular claimant's situation, including the claimant's financial resources); Armendariz v. Found. Health Psychcare Servs., 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669, 687 (2000) (where arbitration imposed as condition of employment, majority of jurisdictions to consider this issue hold that no type of expense not required by court proceedings may be required of employee); Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 700 N.E.2d 859, 866 (1998) (prepayment of fees likely to discourage party from seeking remedy); [13] State ex rel. Dunlap v. Berger, 211 W.Va. 549, 567 S.E.2d 265, 281 (2002) (generally holding unconscionable clauses of adhesion which would impose unreasonably burdensome costs upon or would have a substantial deterrent effect upon a person seeking to ... obtain statutory or common-law relief and remedies that are afforded by or arise under state law that exists for the benefit and protection of the public). [14] ¶ 67. Considering a consumer's claim under the Consumer Protection Act, another court put the issue succinctly: If the up front costs of arbitration have the practical effect of deterring a consumer's claim, the arbitration agreement should not be enforced. Mendez v. Palm Harbor Homes, Inc., 111 Wash.App. 446, 45 P.3d 594, 607 (2002) (citations omitted). ¶ 68. Summing up the views of the federal circuits, the Fourth Circuit found it undisputed that fee splitting can render an arbitration agreement unenforceable where the arbitration fees and costs are so prohibitive as to effectively deny the employee access to the arbitral forum. Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 554 (4th Cir.2001) (citations omitted). I agree. ¶ 69. There is nothing inherently unconscionable about fee-sharing. The unconscionable aspect arises only when the employee is effectively denied both judicial and arbitral redress by the combination of binding arbitration and exorbitant arbitration fees. Because the party challenging arbitration has the burden of showing it to be unconscionable, most courts have held that the alleged unconscionability must be determined on a case-by-case basis, and that evidence based on other parties' experiences with arbitration or on average costs of arbitration is too speculative. See, e.g., Bradford, 238 F.3d at 556 n. 5.1 agree with this approach. However, I would not adopt the Fourth Circuit's holding that the challenger must also prove the expected cost differential between arbitration and litigation in court, and whether that cost differential is so substantial as to deter the bringing of claims. Id. at 556. This requirement reintroduces the speculative element against the challenger after having disallowed similar speculation in his favor. Obviously, litigation costs are difficult to estimate in advance. Rather, it should be for the courts to determine on a case-by-case basis whether the actual cost of arbitration is so egregious that it shocks the judicial conscience. ¶ 70. My conscience is shocked by a plaintiff's being billed $11,000 or more, simply to obtain a hearing (exclusive of attorney fees). A country in which legal redress was available only at such costs would deserve the criticism that Edward Gibbon directed at the Roman Empire's system of justice: The expense of the pursuit sometimes exceeded the value of the prize, and the fairest rights were abandoned by the poverty or prudence of the claimants. Such costly justice might tend to abate the spirit of litigation, but the unequal pressure serves only to increase the influence of the rich, and to aggravate the misery of the poor. By these dilatory and expensive proceedings, the wealthy pleader obtains a more certain advantage than he could hope from the accidental corruption of his judge. 2 Edward Gibbon, The Decline and Fall of the Roman Empire 1480 (J.B. Bury ed., Modern Library 1995) (1788) (emphasis added). Arbitration, indeed, has been promoted as abating the spirit of litigation, but it cannot be permitted to do so at the price of effectively denying plaintiffs any forum in which to redress grievances. That would violate the law against unconscionable dealings. See, e.g., Phillips v. Assocs. Home Equity Servs., 179 F.Supp.2d 840, 846 (N.D.Ill.2001) ($4,000 filing fee plus shared expenses of arbitration would effectively exclude financially strapped plaintiff from seeking remedy). ¶ 71. Given that requiring such costs of Mr. Gatlin would be prima facie unconscionable, the harder questions remain: first, whether such costs have been assessed, and if so, what to do about it. An exemplary case from the federal courts serves as an excellent guide in addressing these questions. ¶ 72. In Dobbins v. Hawk's Enterprises, 198 F.3d 715, 716 (8th Cir.1999), the purchasers of a mobile home that was 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 Dobbinses filed a motion to lift the stay on the basis that the fees imposed by the American Arbitration Association ... and their inability to pay the 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 Dobbinses 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 (emphasis added). ¶ 73. For its part, Sanderson Farms suggests that if this Court finds any portion of the arbitration provision unconscionable, it should sever or modify such portion and compel arbitration, as opposed to nullifying the entire arbitration provision. A severability provision is indeed included in the Agreement. Further, pursuant to the UCC: (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. Miss.Code Ann. § 75-2-302 (Rev.2002). Sanderson Farms further cites Quinn v. EMC Corp., 109 F.Supp.2d 681, 685-86 (S.D.Tex.2000), as follows: 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. Sanderson Farms does not, however, offer to shoulder the cost of arbitration if the cost-allocation provision is stricken, thus distinguishing the present facts from Dobbins. ¶ 74. A great difference exists, at Mississippi law, between a court's severing an unconscionable provision and its rewriting a contract to include terms that neither party envisioned at the outset. Courts cannot write into a contract that which fails to appear. S. Natural Gas Co. v. Fritz, 523 So.2d 12, 18 (Miss.1987). While we have recognized that equity may direct us not to enforce a contractual provision, First Nat'l Bank of Vicksburg v. Caruthers, 443 So.2d 861, 864 n. 3 (Miss.1984), that is not the same thing as enforcing a new provision of our own creation. It bears repeating that we are forbidden by the FAA to treat arbitration provisions in contracts any differently than we would other contractual clauses. ¶ 75. Admittedly, in stating that this Court does not rewrite contracts when they are not illegal, immoral, or contrary to public policy, Travelers Indem. Co. v. Chappell, 246 So.2d 498, 510 (Miss.1971), we have left open the implication that we do rewrite them when those conditions do exist. We do so, however, in light of the general rule in this state and elsewhere... that reformation of a contract is justified only (1) if the mistake is a mutual one, or (2) where there is a mistake on the part of one party and fraud or inequitable conduct on the part of the other. Johnson v. Consol. Am. Life Ins. Co., 244 So.2d 400, 402 (Miss.1971) (emphasis added). Moreover, this mistake must be in the drafting of the instrument, not in the making of the contract. Id. Nothing in the record supports a finding that the cost-allocation provision was a mere slip of the pen. No mistake has been shown on either side, so the rule of Johnson will not permit us to rewrite the fee provision of the arbitration clause. ¶ 76. Nor have courts invariably leapt at the opportunity to pencil in their own allocations of arbitration fees, even where one party offered to bear the entire cost (which is not true in the case presently before us). A Florida court ruled that, where one party offered to pay all the costs of arbitration notwithstanding the language of the agreement, ... we are not authorized to remake the parties' contract. Flyer Printing Co. v. Hill, 805 So.2d 829, 833 (Fla.Dist.Ct.App.2001); see also Mercuro v. Superior Court, 96 Cal. App.4th 167, 116 Cal.Rptr.2d 671, 684 (2002). ¶ 77. Neither is it wise to allow companies to draft arbitration clauses with unconscionable provisions and then let them try them out in the marketplace, secure in the knowledge that the courts will at worst sever the offending cost allocation after plaintiffs have been forced to jump through hoops in order to invalidate those agreements. Cooper v. MRM Inv. Co., 199 F.Supp.2d 771, 782 (M.D.Tenn.2002); see Perez v. Globe Airport Sec. Servs., Inc., 253 F.3d 1280, 1287 (11th Cir.2001), reh'g en banc denied, 273 F.3d 1118 (11th Cir. 2001) (table), vacated on stipulation of parties, 294 F.3d 1275, 1276 (11th Cir. 2002). ¶ 78. I thus find Dobbins persuasive in part. While Mr. Gatlin claims he was unable to afford arbitration, there is insufficient evidence on the record before us for this Court to make that determination, in light of the potential for the arbitrator to make a finding of financial hardship on Mr. Gatlin's part. ¶ 79. Therefore, I would reverse and remand with directions to the circuit court to first order Mr. Gatlin to seek a diminution or waiver of fees from the AAA. The circuit court should retain jurisdiction over the case to determine whether the fee, if not altogether waived, has been lowered to a reasonable amount. Upon the AAA's making its finding regarding hardship, the circuit court must then conduct a hearing to determine whether Mr. Gatlin's financial situation prevents him from affording the arbitration fee. [15] Sanderson Farms would be able to present evidence at this stage to support the position that Mr. Gatlin is able to bear the cost of arbitration. Blair v. Scott Specialty Gases, 283 F.3d 595, 610 (3d Cir.2002) (once initial showing made that cost is prohibitive, burden shifts to other party). If the circuit court determines this to be the case, it should then apply the Agreement's severability clause to strike the arbitration clause from the Agreement. While this approach may seem radical or cumbersome to some, it derives from this Court's fidelity both to existing Mississippi case law and to the FAA's requirement that arbitration clauses be judged under the same law as would govern any contract.