U.S. Fourth Circuit - The FindLaw 4th Circuit Court of Appeals Opinion Summaries Blog

4th Forces Arbitration, Citing SCOTUS Concepcion Decision

Samuel Muriithi drove an airport shuttle for Shuttle Express. He did so not as an employee, but as a franchisee. Of course, he alleges that the arrangement was a misclassification and that he was entitled to more pay, overtime, etc. under the Fair Labor Standards Act.

Alas, the parties haven't even reached that important question yet. You see, their agreement included an arbitration clause. Shuttle Express pushed for enforcement of the clause but the district court ruled that it was unconscionable due to three provisions in the contract: the class action waiver, the requirement that the parties "split" arbitration fees, and the one-year limitations period for asserting claims.

The Fourth Circuit vacated the district court's opinion, citing AT&T Mobility LLC v. Concepcion, and kicked the case to arbitration.

Class Action Waiver

The lower court, which made its ruling prior to Concepcion, held that the class action waiver was unconscionable because without class actions, the only "realistic alternative would be that no individual suits are brought given that the costs of each arbitration has [sic] the potential to exceed any recovery."

Conception held that "the generally applicable contract defense of unconscionability may not be applied in a manner that targets the existence of an agreement to arbitrate as the basis for invalidating that agreement." Furthermore, "[r]equiring the availability of classwide arbitration interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with the [Federal Arbitration Act]."

In short, Concepcion mandates reversal of the lower court's holding.

"Split Fees"

The lower court held that the fee-splitting provision imposed prohibitive arbitration costs on Muriithi. But under Green Tree, one must present evidence of (1) the cost of arbitration; (2) his ability to pay; and (3) the difference in cost between arbitration of his dispute and litigation.

Muriithi's estimates for the cost of arbitration were $5,600 (or $2,800 each). Considering his 2009 income tax returns, that amount was prohibitive.

However, for some odd reason, his estimates came from the amount that someone paid some arbitrator in some case in the Virgin Islands. Muriithi is in Baltimore, Maryland. Nuff said. Burden of proof not met. He also failed to provide evidence about the value of his claim.

The good news is, in hopes of bolstering their chances in the Fourth Circuit, Shuttle Express agreed, during oral argument, to foot the bill for arbitration. The court noted that with or without the agreement, their ruling would've been the same either way. (Whoops.)

One Year Time Limit

The final issue shouldn't have been an issue at all. The contract had a one-year limitation for bringing claims. However, the limitation was not in the arbitration clause. Any dispute over the unconscionablity of that provision should therefore be brought when the dispute is actually heard - not when we're still arguing over the proper venue.

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