Court Opinion

ID: 9495748
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:09:23.526832+00
Date Added: 2024-06-11T17:57:10.687667
License: Public Domain

BATCHELDER, Circuit Judge,
dissent.
I concur in much of the majority opinion. But I must respectfully dissent from the majority’s creation of a complex new field of litigation in order to determine the enforceability of a cost-splitting provision in an agreement to arbitrate. I dissent as well from the majority opinion’s conclusion that the cost-splitting provisions in both Morrison’s and Shankle’s agreements are unenforceable.
Recognizing that high arbitration costs “could preclude a litigant such as Randolph from effectively vindicating her federal statutory rights in the arbitral forum,” Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000), the Supreme Court in Green Tree held that the mere risk that Randolph would have to pay those costs was not enough to justify the invalidation of the arbitration agreement. Rather, the Court held, “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.” Id. at 92, 121 S.Ct. 513. I believe that it follows ineluctably from Green Tree that where one party to an agreement to arbitrate containing a cost-splitting provision demonstrates that the likely costs of arbitration will be large, and she cannot afford to pay her share of those costs, either the agreement to arbitrate must be held invalid or the cost-splitting provision, if it is severable, must be held unenforceable.
If the cost-splitting provision cannot be enforced against such a party, it can hardly serve to deter her from seeking to vindicate her federal statutory rights in the arbitral forum or prevent her from being able to do so effectively. That being the case, the majority opinion’s complicated pre-arbitration quasi-class action litigation scheme seems to me to be neither appropriate nor necessary. Whether a party claiming an inability to comply with the cost-splitting provision of an agreement to arbitrate chooses to raise the matter prior to arbitration in a legal action challenging the agreement or in a post-arbitration proceeding for judicial review,1 the bottom line will be the same: if the costs are likely to exceed the party’s ability to pay them, or if the actual costs incurred exceed her ability to pay them, she cannot be required to pay them. The majority is correct in noting that in the past, plaintiffs have found themselves in a sort of “Catch-22” when litigating cost-splitting provisions after the arbitration: the potential imposition of costs clearly did not deter this plaintiff, so why should the court find that the costs were prohibitively high? But Green Tree solved this problem by establishing that if a plaintiff cannot afford the *682likely costs (in a pre-arbitration determination) or actually-imposed costs (in a post-arbitration determination), then the cost-splitting provision cannot be enforced against that plaintiff. Once this is understood, deterrence is no longer an issue, and the “Catch-22” disappears: plaintiffs can approach arbitration with confidence— regardless of whether they choose to litigate the issue before the arbitration, or whether they find it more convenient or cost-effective to do so afterwards — knowing that they will not have to pay if they cannot afford it. The district court’s job is to determine not whether this or other similarly situated plaintiffs have been or will be deterred, but whether this plaintiff can afford the costs.
Not only is the majority opinion’s pre-arbitration layer of litigation unnecessary, it is also without foundation in the cases that the majority cites to support it. The majority declines to follow an actual case-by-case approach to determining the possible “chilling effect” of an agreement’s cost-splitting provision — an approach the majority attributes to Bradford v. Rockwell Semiconductor Systems, Inc., 238 F.3d 549 (4th Cir.2001). Instead, the majority looks to Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), stating that
[t]his difference in approach is premised on Gilmer, which held that “[s]o long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.” As Gilmer makes clear, federal anti-discrimination statutes play both a remedial and deterrent role. Although the former role is largely a matter of the rights of particular aggrieved individuals, the latter is a question of “broader social purposes.” The deterrent function of the laws in question is, in part, that employers who engage in discriminatory practices are aware that they may incur liability in more than one case. If, however, a cost-splitting provision would deter a substantial number of potential litigants, then that provision undermines this deterrent effect of the anti-discrimination statutes. Thus, in order to protect the statutory rights at issue, the reviewing court must look to more than just the interests and conduct of a particular plaintiff.
Ante, at 20, 111 S.Ct. 1647, (citations omitted). Of course, if the cost-splitting provision is unenforceable against any plaintiff who makes the required showing that he or she cannot pay those costs, then the deterrent function of the laws in question is well-fulfilled. Gilmer merely reiterated the importance of the principle that “the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum.” 500 U.S. at 28, 111 S.Ct. 1647 (citation omitted). Gilmer spoke in terms of the individual litigant, and implied neither a need nor a requirement for a reviewing court to look beyond him.
Finally, the case-by-case approach that the majority eschews is not simply the approach “advocated in Bradford,” as the majority puts it, but is the approach compelled by the Supreme Court’s decision in Green Tree. Nothing in Green Tree authorizes the majority’s novel requirement that where one party to an agreement to arbitrate challenges the agreement’s cost-splitting provision, the federal court — in the interest of advancing the “broader social purposes” of the federal anti-discrimination statutes under which the claim to be arbitrated arises — must decide the enforceability of the provision by “addressing the effect of arbitration costs on a class” of similarly situated potential litigants. Ante, at 22, 111 S.Ct. 1647. Indeed, the Green Tree Court made it very clear that the court reviewing such a challenge must de*683termine whether the particular challenger has demonstrated that she would incur prohibitive arbitration costs in her particular arbitration proceeding, costs that certainly would be greatly influenced by both the kind and number of claims to be arbitrated. The majority opinion here, however, explicitly requires — contrary to Green Tree’s directive — that the costs to be considered are those that are “average or typical.”
The majority opinion creates the anomalous likelihood that a district court could scrutinize, and perhaps strike down, a cost-splitting provision where the particular worker was fully able to pay the costs of litigation. It also creates a new layer of litigation that goes far beyond what is necessary to determine whether the cost-splitting provision of an agreement to arbitrate is enforceable against a particular challenger of that provision, and in doing so, raises questions for which it provides no answers. For example, the majority opinion directs that if the reviewing court finds that the cost-splitting provision would deter a substantial number of similarly situated potential litigants, “it should refuse to enforce the cost-splitting provision in order to serve the underlying functions of the federal statute.” Ante, at 21, 111 S.Ct. 1647. But the majority opinion also says, a few paragraphs further on, that the detailed socio-economic and arbitration-cost-versus-litigation-cost analyses that the court must undertake will yield different results in different cases. If the court concludes that the provision is unenforceable as to the potential litigant who raised the particular challenge, are all other similarly situated potential litigants relieved from the burden imposed by Green Tree? Some other potential litigants? Is the provision simply to be struck down? Or struck down as to some parties to the agreement?
I must further respectfully dissent from the majority opinion’s conclusion that the cost-splitting provisions in Morrison’s agreement with Circuit City and Shankle’s agreement with Pep Boys are unenforceable. I would hold that we lack sufficient information about either Morrison or Shankle to determine adequately — in a manner that comports with Green Tree— whether they can afford the costs, or how much they can afford.
Turning first to Morrison, we know that she was a manager and made $54,060 per year. We do not know the actual arbitration costs, if any, that were imposed on her, but we do know that the agreement provided that she could be required to pay only a maximum of 3% of her annual salary, or $1,622. Only if she did not pay this sum within 90 days of the arbitrator’s award could she be responsible for up to one-half of the costs of arbitration. But the majority’s method of determining Morrison’s potential costs runs afoul of Green Tree.
The Green Tree Court, in discussing Randolph’s ability to pay, observed that
[i]t 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.” 178 F.3d, at 1158. 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 *684too speculative to justify the invalidation of an arbitration agreement.
531 U.S. at 90-91, 121 S.Ct. 513 (footnote omitted). As a footnote within this passage acknowledges, Randolph had made some attempt to set forth evidence of the costs she faced: she asserted an average filing fee, though her source — informational material from the AAA — did not discuss the amount of filing fees; she relied on an article — Kenneth May, Labor Lawyers at ABA Session Debate Role of American Arbitration Association, Daily Lab. Rep. (BNA) No. 31, at A 12 (Feb. 15, 1996) — for the proposition that the average arbitrator’s fee in an AAA arbitration is $700 per day; and she cited fee estimates listed in various Court of Appeals decisions. 531 U.S. at 90 n. 6, 121 S.Ct. 513. Concerning the two AAA estimates Randolph submitted, the Court concluded that
Randolph plainly failed to make any factual showing that the American Arbitration Association would conduct the arbitration, or that, if it did, she would be charged the filing fee or arbitrator’s fee that she identified. These unsupported statements provide no basis on which to ascertain the actual costs and fees to which she would be subject in arbitration.
Id. The Court also found Randolph’s citations to Court of Appeals decisions inadequate: “None of this information affords a sufficient basis for concluding that Randolph would in fact have incurred substantial costs in the event her claim went to arbitration.” Id. Later, the Court pointed out that it was not deciding the question of “[h]ow detailed the showing of prohibitive expense must be before the party seeking arbitration must come forward with contrary evidence,” though it concluded that Randolph had not met that burden. Id. at 92, 121 S.Ct. 513.
In the present case, the majority derives its information about the costs facing Morrison from two sources. First, it presents figures from a study — not found in the record of this case, and not even released until after oral argument — published by Public Citizen, a consumer advocacy organization. This study’s findings are based on costs and estimates published by three major arbitration providers. Public Citizen does not attempt to hide the fact that it is marshaling evidence to show why cost-splitting provisions are a bad idea. From its study we learn that for claims of $60,000 to $80,000, the costs of arbitration are often much greater than those of litigation. This may be so, but I do not see how this non-specific, extra-record evidence — which Circuit City has had no opportunity to refute — satisfies Morrison’s burden. Morrison’s complaint does not specify how much she is claiming, we have no idea how Circuit City’s arbitration fees stack up against the general figures listed in the study, and Green Tree says nothing about comparing the prospective costs of arbitration v. litigation. To paraphrase Green Tree, I would find that Morrison has “plainly failed to make any factual showing that the American Arbitration Association [or either of the other two organizations that Public Citizen’s study relies on] would conduct the arbitration, or that, if [they] did, she would be charged the filing fee or arbitrator’s fee that [the study] identified.” 531 U.S. at 90 n. 6, 121 S.Ct. 513. On the contrary, “[t]hese unsupported statements provide no basis on which to ascertain the actual costs and fees to which she would be subject in arbitration.” Id. (emphasis added).
The majority’s second source is Morrison’s brief, which the majority cites for the proposition that according to “a recent estimate by the AAA ... the average arbitrator fee was $700 per day.” Ante, at 31, 111 S.Ct. 1647. Morrison’s brief, in turn, derives its information from a footnote in Cole v. Burns Int’l Sec. Serv., 105 F.3d *6851465 (D.C.Cir.1997), which says: “AAA cites $700 per day as the average arbitrator’s fee. Kenneth May, Labor Lawyers at ABA Session Debate Role of American Arbitration Association, Daily Lab. Rep. (BNA) No. 31, at A-12 (Feb. 15, 1996).” Id. at 1480 n. 8. But I have already noted that the plaintiff in Green Tree attempted to rely on this very article, and I would add that the Supreme Court explicitly found that it was unreliable, observing that “[t]he article contains a stray statement by an association executive that the average arbitral fee is $700 per day.” 531 U.S. at 90 n. 6, 121 S.Ct. 513. I think the majority errs in holding that Morrison satisfies her burden by relying on the same “stray statement” that Randolph attempted, in vain, to rely on before the Supreme Court.
Further, in establishing that “an average employment case incurred a total of $3,750 to $14,000 in arbitration expenses,” ante, at 31, 111 S.Ct. 1647, the majority again relies on Morrison’s brief, which again relies on the same footnote in Cole. See Appellant’s Brief at 13 (citing Cole, 105 F.3d at 1480 n. 8). The relevant portion of the Cole footnote provides that
CPR Institute for Dispute Resolution estimates arbitrators’ fees of $250-$350 per hour and 15-40 hours of arbitrator time in a typical employment case, for total arbitrators’ fees of $3,750 to $14,000 in an “average” case. See Cpr Inst. For Dispute Resolution, Employment AdR: A Dispute Resolution Program For Corporate Employers 1-13 (1995).
105 F.3d at 1480 n. 8. In my opinion, this remains too speculative: an estimate from a document published eight years ago, as cited by a different Court of Appeals. See Green Tree, 531 U.S. at 90 n. 6, 121 S.Ct. 513 (“Randolph’s brief lists fees incurred in cases involving other arbitrations as reflected in opinions of other Courts of Appeals ... None of this information affords a sufficient basis for concluding that Randolph would in fact have incurred substantial costs in the event her claim went to arbitration.”) (emphasis added); see also Respondent’s Brief at 34, Green Tree, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (No. 99-1235), 1999 U.S. Briefs 1235 (citing Cole, 105 F.3d at 1480 n. 8, as well as other Court of Appeals cases, as evidence that arbitration costs could be prohibitive). I would find, as the Supreme Court did in Green Tree, that the record is insufficient to establish the likelihood that Morrison (or even similarly situated litigants, if there were any reason to consider them) would face prohibitive costs.
Shankle fares only a little better. We know that he was a mechanic and salesperson, but we do not even know his salary. Shankle did provide evidence that the arbitrator would charge $150 per hour. But for the proposition that “the typical employment discrimination arbitration involves between fifteen and forty hours of arbitrator time,” the majority cites Shankle v. B-G Maintenance Management of Colorado, Inc., 163 F.3d 1230, 1234 n. 5 (10th Cir.1999), which in turn — remarkably enough — cites the same old footnote in Cole. Ante, at 43, 111 S.Ct. 1647 (citing Shankle, 163 F.3d at 1234 n. 5) (citing Cole, 105 F.3d at 1480 n. 8). At the very least, Shankle should have cited estimates made by or about arbitrations done under the AAA procedure. I would find that Shankle, like Morrison, has failed to carry his burden of showing the likelihood of prohibitive costs.

. As my statement in the text makes clear, I think that Green Tree allows for either a pre- or a post-arbitration determination. In Green Tree, after all, the Supreme Court considered a pre-arbitration challenge to cost imposition, and the Court indicated that the litigant's deficiency was not that she had brought suit too early, but that she had failed to carry her burden of showing the "likelihood” that the costs imposed would be prohibitive. 531 U.S. at 92, 121 S.Ct. 513. On the other hand, the Court did not rule out the possibility that review of costs could be appropriate post hoc as well.
Consequently, the majority is incorrect in stating that "the dissent favors a post-arbitration evaluation of parties' ability to pay the costs.” See ante, at 660. My quarrel is not with the proposition of a pre-arbitration determination, but with the elaborate scheme the majority creates.