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Two Eastern District judges have enforced arbitration clauses in employment discrimination cases despite the fact that the workers may have to bear some or all of the costs of arbitrating. In his 13-page opinion in Goodman v. ESPE America Inc., U.S. District Judge J. Curtis Joyner held that a “loser pays” provision in an arbitration agreement is enforceable and “does not deny plaintiff an effective and accessible forum.” Likewise, in Zumpano v. Omnipoint Communications Inc., U.S. District Judge William H. Yohn Jr. found that an arbitration clause that calls for both sides to bear the costs equally is also enforceable. Both Joyner and Yohn found that the 3rd U.S. Circuit Court of Appeals has never squarely addressed the questions raised in their cases, and that other appellate courts are split — with a few decisions that have been more hostile to arbitration clauses that put a financial burden on the worker. Nonetheless, both judges found that the 3rd Circuit is likely to side with the circuits that have approved such clauses due to its general insistence on the presumptive validity of arbitration clauses. THE GOODMAN CASE Jeffrey Goodman, the former president of ESPE America, a subsidiary of the German corporation ESPE Dental-Medizin GmbH & Co., filed a race discrimination suit against the company after he was fired in March 1998. But ESPE’s lawyer, Steven K. Ludwig of Fox Rothschild O’Brien & Frankel, moved to have the case dismissed, citing an arbitration clause in Goodman’s employment contract. Goodman’s lawyers, Alan B. Epstein and Nancy Abrams of Spector Gadon & Rosen, complained that the “loser pays” clause of the arbitration provision denied him his substantive right to an effective and accessible forum. The clause states: “The prevailing party shall be entitled to an award which shall include all costs of arbitration, including a reasonable attorney’s fee.” Epstein and Abrams cited several cases holding that arbitration provisions that require plaintiffs to pay a substantial portion of the costs of arbitration are invalid, including: � The 10th Circuit’s 1999 decision in Shankle v. B-G Maintenance Mgmt. of Colorado, Inc. which invalidated an agreement that required the plaintiff to pay one-half of arbitrator’s fees to invoke arbitration procedure. � The 11th Circuit’s 1998 decision in Paladino v. Avnet Computer which held that an arbitration agreement requiring the employee to pay one-half of costs and “steep filing fees” is unenforceable. � The District of Columbia Circuit’s 1997 decision in Cole v. Burns Int’l Sec. Servs., which held that “an employee can never be required, as a condition of employment, to pay an arbitrator’s compensation in order to secure the resolution of statutory claims under Title VII.” But Joyner found that other courts have reached different conclusions. In Williams v. Cigna Fin. Advisors, Inc., the 5th Circuit in 1999 rejecting Cole’s reasoning and found that public policy is not violated when a plaintiff is required to pay $3,650 in arbitration costs pursuant to mandatory fee-splitting provision. Likewise, in Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., the 1st Circuit refused in 1999 to invalidate an arbitration agreement with a fee-splitting provision because the fees were not yet levied and therefore judicial review was unavailable. The 7th Circuit, in Koveleskie v. SBC Capital Mkts Inc., adopted the Rosenberg analysis. So far, Joyner found, “neither the Supreme Court, nor the 3rd Circuit has addressed this precise question.” But the Supreme Court did recently discuss a related issue, Joyner said, holding in Green Tree Fin. Corp. v. Randolph that an arbitration agreement that is silent as to whom is responsible for arbitration costs is still enforceable despite the risk that it may subject a plaintiff to substantial costs. The record in Green Tree lacked any information about the costs plaintiff would bear, Joyner noted, and the justices held that the plaintiff’s arguments were based solely on unfounded assumptions about such potential costs. As a result, Joyner said, the Supreme Court found that the plaintiff’s risk that she “will be addled with prohibitive costs is too speculative to justify invalidation of an arbitration agreement.” Although Joyner found that Goodman’s argument “is not without some superficial appeal,” he held that “the particular arbitration provision at issue here is distinguishable from those involved in the cases cited by plaintiff.” Instead, Joyner found that Goodman’s case “closely resembles the facts of the Rosenberg line of cases.” Joyner said Goodman “has not alleged that imposition of arbitration costs would preclude him from arbitrating his claims, and the limited record before us suggests otherwise. Unlike the low-level employee in Shankle, Joyner noted that Goodman received $80,000 upon termination. And Goodman’s arbitration agreement “neither requires up-front payment of costs before commencing an action nor mandates the splitting of costs after conclusion of the case,” Joyner noted. “Indeed, not only is the arbitration provision silent as to any initial costs and filing fees, the provision by its terms suggests that plaintiff is not liable for any costs at any time if his claim is successful,” Joyner wrote. In the end, Joyner said, Goodman’s “speculation about prohibitive costs is just that — speculation; this is not enough to invalidate an otherwise enforceable arbitration provision.” THE ZUMPANO CASE Joseph Zumpano, who is represented by Timothy M. Kolman and Marc E. Weinstein, claims that his former employers at Omnipoint Communications discriminated against him on the basis of his age and national origin and failed to honor his employment agreement. Omnipoint’s lawyers, David B. Lichtenberg, John M. Nolan and Richard J. Cino of Jackson Lewis Schnitzler & Krupman in Moorestown, N.J., moved to dismiss and for enforcement of an arbitration clause. Zumpano challenged the validity of the employment agreement, saying it is “unconscionable” because it forces him to bear some of the costs. First, Zumpano said, the agreement is unenforceable because it requires him to pay a portion of the arbitrator’s fees and expenses, citing Shankle, Paladino and Cole. In the alternative, Zumpano claimed that the agreement is unenforceable because the imposition of fees and expenses “would make the plaintiff unable to, or would substantially deter plaintiff from seeking to, enforce his or her statutory rights.” But Judge Yohn found that “the arbitration clause involved in this case and Zumpano’s former position of employment clearly distinguish this case from Shankle, Paladino and Cole.” Yohn also found that “these three decisions are not as closely aligned with 3rd Circuit precedents and are less persuasive than more recent decisions by the 5th, 1st, and 7th Circuits and numerous district courts holding that arbitration agreements which stipulate that an employee may be responsible for a portion of the arbitrator’s fees and expenses are enforceable.” Like Joyner had, Yohn cited the 5th Circuit’s decision in Williams, the 1st Circuit’s decision in Rosenberg and the 7th Circuit’s decision in Kovelskie. “Although, at times, the 10th Circuit broadly framed the question before it in Shankle (‘Is a mandatory arbitration agreement, which is entered into as a condition of continued employment, and which requires an employee to pay a portion of the arbitrator’s fees, unenforceable under the Federal Arbitration Act?’), its holding is narrowly tailored to the facts of the case,” Yohn wrote. “First, the agreement in question required the employee to pay one-half of the arbitrator’s fees. Second, the court found that Shankle, who was employed as a janitor and, later, a shift manager, “could not afford such a fee, and it is unlikely other similarly situated employees could either.” Unlike Shankle, Yohn said, the arbitration clause involved in Zumpano’s case does not require Zumpano to pay half of the arbitrator’s fees. Instead, he said, under the AAA Rules, it is uncertain how much Zumpano will be charged. Under AAA rules, Yohn noted “all expenses of the arbitration, including required travel and other expenses of the arbitrator, AAA representatives, and any witness and the costs relating to any proof produced at the direction of the arbitrator, shall be borne equally by the parties, unless they agree otherwise or unless the arbitrator directs otherwise in the award. The arbitrator’s compensation shall be borne equally by the parties unless they agree otherwise, or unless the law provides otherwise.” Yohn found that Zumpano, who earned a base salary of $120,000, “was by no means ‘similarly situated’ to Shankle.” Yohn found that the 3rd Circuit “has yet to rule on the issue of whether an arbitration clause that allows a well-compensated employee to be held responsible for a portion of the arbitrator’s fees and expenses is enforceable.” However, he said, the 3rd Circuit recognizes that “there is a strong presumption in favor of arbitration.” Given that “strong presumption,” Yohn said, “district courts have been instructed to maintain a ‘healthy regard for the strong federal policy in favor of arbitration’ when determining whether an arbitration agreement is enforceable.” As a result, Yohn concluded, “even if Shankle, Paladino, and Cole were apposite, on this issue, the precedents of the 3rd Circuit are more closely aligned with the more recent decisions of the 5th, 1st, and 7th circuits.”

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