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Monday, April 15, 2013

Fourth Circuit Vacates District Court's Finding that an Arbitration Clause is Unconscionable

4th CircuitSamuel Muriithi was a driver for Shuttle Express, a shuttle service that transported passengers to and from the Baltimore-Washington International Thurgood Marshall Airport (BWI).  Muriithi signed a Unit Franchise Agreement with Shuttle Express in 2007 (the Agreement).  He claims that he was misled when he signed the agreement and objects to Shuttle Express having classified him as an independent contractor and franchisee rather than as an employee.  He claims entitlement to payment of at least federal minimum wage plus overtime pay.  

Based on this claims, Mr. Muriithi brought a Fair Labor Standards Act (FLSA) claim, as well as state law claims, on his own behalf and behalf of a purported class of other similarly situated drivers.  in reliance on the Agreement's arbitration provision, which included a fee-splitting provision, a one-year statute of limitation and a class action waiver, Shuttle Express moved to compel arbitration.

The District Court found the arbitration provision unenforceable based on all three features mentioned above.  The District Court found that the fee-splitting provision made arbitration so expensive as to deter an arbitration that Mr. Muriithi might consider.  In addition, hat provision coupled with the class action waiver would prevent Mr. Muriithi from vindicating his statutory rights.  Finally, the District Court found that the one year statute of limitations was unenforceable because inconsistent with the FLSA's two year statute of limitations.  Concluding that the arbitration provision was "permeated by substantively unconscionable parts," the District Court found no way to severe the objectionable elements and denied Shuttle Express's motion to compel arbitration.  Shuttle Express appealed.

In Muriithi v. Shuttle Expres Inc., decided April 1st, the Fourth Circuit vacated and remanded.  The Fourth Circuit quickly established that Mr. Muriithi's dispute with Shuttle Express was subject to the arbitration provision, so the only questions was whether that provision was for some reason unenfroceable.  In appealing the District Court's ruling that the class action waiver rendered the provision unconscionable, Shuttle Express contended that AT&T Mobility v. Concepcion foreclosed any such finding.  Whilte Muriithi and the District Court attempted to limit Concepcion to cases involving federal pre-emption of state law claims and thus render it inapplicable to Muriithi's FLSA claim, the Fourth Circuit read Concepcion more broadly.  It read Concepcion as foreclosing any unconscionability defenses to an otherwise valid arbitration agreement based on a class action waiver.  

As to the fee-splitting provision, such a provision can render an arbitration agreement unenforceable, if plaintiff can establish that the "arbitral costs are so high that they effectively preclude a litigant from vindicating his federal statutory rights in an arbitral forum."  The Fourth Circuit concluded that Mr. Muriithi failed to make such a showing.  Finally, since the statute of limitations was not part of the arbitration clause, the Fourth Circuit found that the District Court had erred in addressing it on a motion to compel arbitration.  

The case was remanded to the District Court for an order compelling arbitration, with Suttle Express paying the costs of such arbitration, pursuant to its in-court agreement to do so.

[JT]

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