Fourth Circuit Sends Franchisee To Individual Arbitration, Expands Application Of Concepcion

http://arbitrationnation.com/wp-content/uploads/2013/04/AirportShuttle-190x178.jpgThe Fourth Circuit issued a bold new arbitration decision last week, sending a putative class of shuttle drivers to arbitration while expanding its application of SCOTUS’ Concepcion decision beyond cases involving federal preemption of state arbitration law.  Muriithi v. Shuttle Express, Inc., __ F.3d __, 2013 WL 1287859 (4th Cir. 2013).

Muriithi was a driver for an airport shuttle service who signed a franchise agreement containing an arbitration clause.  The franchise agreement required arbitration of “any controversy arising out of this Agreement,” required that arbitration proceed “on an individual basis only,” and required each party to bear half the “fees and costs of the arbitrator.”  Muriithi later brought employment claims as a representative of a putative class of drivers, arguing they should have been treated as employees entitled to minimum wage and overtime pay instead of labeled as franchisees.

Shuttle Express moved to compel arbitration.  The district court denied the motion, finding the arbitration clause was unconscionable, because plaintiffs could not effectively vindicate their statutory rights due to the class action waiver and fee-splitting provision (and a one year statute of limitation).

The Fourth Circuit reversed the district court, and ordered it to compel arbitration of the drivers’ claims.  The Fourth Circuit could have accomplished that in a fairly simple fashion – by finding that Muriithi did not meet his burden to prove the costs of arbitration would be prohibitive (under the same line of decisions at issue in the AmEx case currently pending before SCOTUS) because he did not present evidence about relevant arbitration fees or the value of his employment claims.  [It could not have hurt that Shuttle Express volunteered during oral argument to pay all arbitration costs if the court compelled arbitration.]

Instead, the Fourth Circuit did that, and then also went out of its way to discuss arguments about whether Concepcion had any application to the case.  The driver argued it did not, because he was not arguing for the application of any state common law that precludes class action waivers in arbitration.  The court disagreed, finding Concepcion applies to any unconscionability argument directed to waivers of class arbitration.  “[T]he Supreme Court’s holding was not merely an assertion of federal preemption, but also plainly prohibited application of the general contract defense of unconscionability to invalidate an otherwise valid arbitration agreement under these circumstances.”

That is a bold statement from the Fourth Circuit, not only because the question presented and ultimate holding in Concepcion were both specific to federal preemption, but also because it adopts the position of the Petitioner in the AmEx case, before SCOTUS has even issued a ruling.

Topics:  Arbitration, AT&T Mobility v Concepcion, Franchises, Preemption, Putative Class Actions, Unconscionable Contracts

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Franchise Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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