X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Arbitration can cost big bucks. The cost of arbitration has probably been the most litigated issue in our courts. Although the issue has numerous components, one recurring question involves arbitration provisions which award costs, including reasonable attorney fees, to the prevailing party, generally known as a “loser pays” provision. The evolution of judicial review of such clauses is summarized in Musnick v. King Motor Companydecided by the 11th U.S. Circuit Court of Appeals in March of this year. That panel noted that some earlier decisions refused to enforce “loser pays” provisions, holding that they denied plaintiffs a forum to vindicate claims. However, the playing field changed after the U.S. Supreme Court decided Green Tree Financial Corporation v. Randolphin 2000. There, with an arbitration agreement silent on the division of fees and costs, the Court held simply because the plaintiff “might be required to bear substantial costs of the arbitration … does not render the agreement unenforceable.” It was “too speculative” to conclude that a litigant could not vindicate statutory rights. Moreover, the plaintiff had not made a thorough record below, submitting only “unsupported statements” about the projected costs. The Court held that a party seeking to avoid arbitration had the burden to show that prohibitive costs would be likely. If so, then the burden shifts to the proponent of arbitration. As a practical matter, this holding subjected the costs issue to a case-by-case analysis. In most of the circuits, the individual attempting to avoid arbitration has the burden to produce evidence of the likely cost of arbitration, then further prove that he or she cannot pay it. Courts will not indulge in presumptions or speculation in determining whether costs are prohibitive. For example, in Musnick, the plaintiff filed one affidavit, without any other evidence, stating only: “I genuinely fear the imposition of attorney’s fees from Fisher & Phillips, as I am familiar with their billing sent to King Motors. Fisher & Phillips’ hourly rate is high, and I imagine it will be higher when billed to an opponent. � I am fearful of a potential attorney’s fee award against me. … I will be unable to pay.” This affidavit was “wholly inadequate” and simply “speculative.” Moreover, the court refused to remand to the District Court for further fact-finding. Although the court criticized the plaintiff’s minimal production of evidence, its fundamental reason for refusing to remand was that the plaintiff could actually win the case or, if he lost, seek judicial review to vacate the adverse award of fees. My bet is that Musnick did not pursue his case. Most people are unwilling to risk their house for the chance to win an arbitration award. Musnick’s affidavit was probably correct — if he lost he might owe $50,000 or more to Fisher & Phillips, and be dependent only on the deferential standard of review to rescue him. The “ivory tower” approach — leave fees and costs to the arbitrator for later review — seriously underestimates the strong aversion most people have for risk. In real terms, the 11th Circuit approach could deter three out of four potential litigants from pursuing their cases. The lesson? It is essential, if the cost of arbitration deters vindication of statutory rights, to make the required showing in the District Court. Not only must proof of your client’s financial circumstances be convincing, you need proof of the expected cost of arbitration. A typical filing and administration fee is now $125, for the employee, if arbitration is mandatory. Therefore, the true cost is the arbitrator’s fee. Average fees are discoverable by reviewing resumes on arbitration services’ Web sites. Then, your client must prove the anticipated time necessary for the case, and show that he or she will be absolutely prevented, by the outlay of money required, from pursuing an otherwise meritorious case. Joseph D. Garrison is a principal of Garrison, Levin-Epstein, Chimes & Richardson (www.garrisonlaw.com)in New Haven, Conn.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.