United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
March 5, 2004
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 03-10484
_____________________
LOY CARTER, Etc.; ET AL.,
Plaintiffs,
LOY CARTER, on behalf of themselves and
all others similarly situated; GEOFF
BURKHART, on behalf of themselves and
all others similarly situated; HEATHER
DAWN YOUNG, on behalf of themselves
and all others similarly situated;
DEBORAH ROBINSON, on behalf of themselves
and all others similarly situated,
Plaintiffs - Appellants,
versus
COUNTRYWIDE CREDIT INDUSTRIES, INC.;
COUNTRYWIDE HOME LOANS, INC.; FULL
SPECTRUM LENDING, INC.,
Defendants - Appellees.
__________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
Before GARWOOD, JOLLY, and CLEMENT, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
Appellees Countrywide Credit Industries, Inc., Countrywide
Home Loans, Inc., and Full Spectrum Lending, Inc. (“Countrywide”)
are in the business of selling and servicing consumer mortgage
loans. Appellants Loy Carter, Geoff Burkhart, Heather Young, and
Deborah Robinson (“Carter Appellants”) are current and former
employees of Countrywide who brought suit against Countrywide on
behalf of themselves and others similarly situated in an attempt to
recover overtime compensation allegedly due under the provisions of
the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201. Following
the filing of this suit, Countrywide moved to compel the plaintiffs
to submit their claims to arbitration under arbitration agreements
(“the Arbitration Agreements”), which all Countrywide employees
sign as a condition of their employment with the company.
In response, the Carter Appellants admitted that they signed
the Arbitration Agreements. However, they asserted that the
Agreements were invalid and thus unenforceable for four primary
reasons: (1) FLSA claims are not subject to arbitration; (2) the
Agreements are unconscionable; (3) the Agreements infringe on
substantive rights otherwise granted by the FLSA; and (4) the fee
splitting arrangement contained in the Agreements imposes
impermissibly prohibitive arbitration costs on them.
The district court rejected the first three arguments
entirely, holding that the Agreements were not unconscionable nor
would their enforcement clash with any substantive provisions of
the FLSA. The district court did hold, however, that the
Agreements’ fee-splitting provision imposed prohibitive costs on
the Carter Appellants; in this respect, the district court simply
severed this provision from the Agreements under the severability
clause, and ordered Countrywide to pay all costs associated with
2
arbitration. The district court then granted Countrywide’s motion
to compel arbitration.
The Carter Appellants appealed. On appeal, they reassert
their earlier objections to the validity and enforceability of the
Arbitration Agreements here. They also contend that although the
district court correctly concluded the fee-splitting provision was
unenforceable, it nevertheless erred by merely severing that
provision as opposed to invalidating the Agreements entirely. For
the reasons below, we disagree and AFFIRM the judgment compelling
arbitration.
I
The Federal Arbitration Act (“FAA”) provides that pre-dispute
arbitration agreements “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract.” 9 U.S.C. § 2. The Supreme
Court has noted that the purpose of the FAA is “‘to reverse the
longstanding judicial hostility to arbitration agreements . . . and
to place [them] upon the same footing as other contracts.’” Green
Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89 (2000) (quoting
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)).
Accordingly, there is a strong presumption in favor of arbitration
and a party seeking to invalidate an arbitration agreement bears
the burden of establishing its invalidity. Gilmer, 500 U.S. at 26.
We review the denial of a motion to compel arbitration de novo.
Hadnot v. Bay, Ltd., 344 F.3d 474, 476 (5th Cir. 2003).
3
II
The Carter Appellants first argue that the Arbitration
Agreements are unenforceable because FLSA claims are not subject to
arbitration. They contend that the FLSA grants them access to a
judicial forum and that this grant cannot be waived by an agreement
to arbitration. For authority, they cite the Supreme Court case of
Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728
(1981). We cannot agree.
We have already noted that individuals seeking to avoid the
enforcement of an arbitration agreement face a high bar. This bar
is high even where, as here, the claims subject to arbitration are
statutory in nature. Under Gilmer, a court is required to enforce
a party’s commitment to arbitrate his federal statutory claims
unless he can show that Congress intended to preclude arbitration
or other nonjudicial resolution of those claims. 500 U.S. at 26.
This showing is made by reference to “the text of the [statute],
its legislative history, or an inherent conflict between
arbitration and the [statute’s] underlying purposes.” Id.
(internal quotations removed). In weighing such an argument, a
court should keep centrally in mind “that questions of
arbitrability must be addressed with a healthy regard for the
federal policy favoring arbitration.” Id. (internal quotations
removed). Perhaps indicative of the difficulty of making such a
showing, the Supreme Court has seldom found congressional intent to
preclude the arbitration of any particular statutory claim.
4
The Carter Appellants assert here that the text and
legislative history of the FLSA explicitly preclude arbitration.
As the district court noted, however, there is nothing in the
FLSA’s text or legislative history supporting this assertion.
Indeed, like the district court, we find nothing that would even
implicitly have that effect. This fact has been recognized by the
other two circuit courts that have addressed this issue. See
Kuehner v. Dickinson & Co., 84 F.3d 316, 319-20 (9th Cir. 1996)
(finding no evidence that Congress intended to preclude arbitration
of FLSA claims in the text or legislative history of the statute);
Adkins v. Labor Ready, Inc., 303 F.3d 496, 506 (4th Cir. 2002)
(holding that FLSA claims are arbitrable).
Undaunted, the Carter Appellants cite Barrentine and its Fifth
Circuit progeny, Bernard v. IBP, Inc. of Nebraska, 154 F.3d 259 (5th
Cir. 1998), for the proposition that FLSA claims are not subject to
arbitration. However, neither of these cases support the Carter
Appellants. Significantly, Barrentine and Bernard involved
arbitration agreements embedded in collective-bargaining
agreements, not individually executed pre-dispute arbitration
agreements like the ones at issue here. This difference is not
insignificant; the Supreme Court explicitly distinguished between
these two types of arbitration agreements in Gilmer, ultimately
concluding that the former may not be subject to arbitration while
the latter are. In addition, as the Supreme Court noted in Gilmer,
Barrentine took place during a period of judicial skepticism
5
concerning the efficacy of arbitral forums. By the time of Gilmer,
however, the “mistrust of the arbitral process” expressed by
Barrentine-era cases had been “undermined by [the Supreme Court’s]
recent arbitration decisions.” Gilmer, 500 U.S. at 34 n.5.
Similar conclusions concerning the inapplicability of Barrentine to
this case were reached by our sister circuits in Kuehner, 84 F.3d
at 320, and Adkins, 303 F.3d at 506. We thus find unpersuasive the
Carter Appellants’ contention that FLSA claims are not subject to
arbitration.
III
The Carter Appellants also argue that the Arbitration
Agreements here are invalid because they deprive them of
substantive rights guaranteed by the FLSA. Specifically, they
contend that the Agreements interfere with their right under the
FLSA to proceed collectively, collect attorney fees, select their
forum, and engage in appropriate discovery. We find no such
interference that will preclude the enforcement of these
agreements.
First, we reject the Carter Appellants’ claim that their
inability to proceed collectively deprives them of substantive
rights available under the FLSA. The Supreme Court rejected
similar arguments concerning the ADEA in Gilmer, despite the fact
that the ADEA, like the FLSA, explicitly provides for class action
suits. 500 U.S. at 32. What is more, the provision for class
actions in the ADEA is the FLSA class action provision, which the
6
ADEA expressly adopts. 29 U.S.C. § 626(b). Accordingly, Gilmer’s
conclusion in this respect applies with equal force to FLSA claims.
Similarly, we reject the Carter Appellants’ assertion that the
Arbitration Agreements’ limits on discovery deprive them of
substantive FLSA rights. Once again, the Supreme Court considered
and rejected a similar argument in Gilmer. Id. at 31. There, the
Court noted that the mere fact that discovery in arbitration
proceedings “might not be as extensive as in federal courts” does
not render those agreements invalid; by agreeing to arbitrate, a
party simply “trades the procedures and opportunity for review of
the courtroom for the simplicity, informality, and expedition of
arbitration." Id. Thus, a party seeking to have an arbitration
agreement invalidated on this basis must show that the discovery
provisions in question “will prove insufficient to allow [FSLA]
claimants . . . a fair opportunity to present their claims.” Id.
We agree with the district court’s conclusion that there is no
evidence here that the limits placed on discovery will have such an
effect on the Carter Appellants’ individual cases.
We also conclude that the Arbitration Agreements’ failure to
explicitly mandate that the arbitrator grant attorneys’ fees to
prevailing parties is not a basis for invalidating the Agreements.
Although Paragraph 8 of the Agreements states that "[e]ach party
shall pay for each party's own costs and attorneys' fees,"
Paragraph 2 states that the arbitration "shall be adjudicated in
accordance with the state or federal law which would be applied by
7
a United States District Court sitting at the place of hearing."
Therefore, if the Carter Appellants prevail on their FLSA claims at
arbitration, and thereby become entitled to attorneys' fees under
the statute, the arbitrator would be required by the Agreements to
grant the fees. Indeed, Paragraph 8 concedes this fact as it goes
on to state that "the arbitrator may, in his or her discretion,
permit the prevailing party to recover fees and costs only to the
extent permitted by applicable law.”1 Accordingly, the Agreements
do not deny the Carter Appellants their ability to recover
attorneys’ fees if they prevail.
Finally, we cannot agree with the Carter Appellants’ assertion
that the presence of a forum selection clause in the Arbitration
Agreements prevents them from vindicating their substantive FLSA
rights. The clause at issue states as follows, in relevant part:
[A]rbitration hearings covered by this
Agreement are to be held within the Federal
Judicial District in which Employee was last
employed with the Company.
This court has previously stated that a “forum selection
provision in a written contract is prima facie valid and
1
The Agreements also provide a mechanism for having the
failure to grant such fees reviewed. Paragraph 11 gives the
parties the “right to appeal to the appropriate court any errors of
law.” Given the fact that “judicial review of arbitral
adjudication of federal statutory employment rights . . . must be
sufficient to ensure that arbitrators comply with the requirements
of the statute at issue,” Williams v. Cigna Financial Advisors
Inc., 197 F.3d 752, 761 (5th Cir. 1999) (internal quotations
omitted), it seems clear that if an arbitrator failed to award fees
he or she should have under the statute, the Carter Appellants
would have an effective remedy in federal court.
8
enforceable unless the opposing party shows that enforcement would
be unreasonable.” Kevlin Services, Inc. v. Lexington State Bank,
46 F.3d 13, 15 (5th Cir. 1995). Though Kevlin Services involved a
forum selection provision in a contract that did not contain an
arbitration agreement, we think the same burden on the objecting
party of demonstrating unreasonableness should apply here.
The forum selection provision is not, on its face,
unreasonable. Had the Carter Appellants been able to provide
evidence that application of the forum selection provision placed
an unreasonable burden on any of them individually, the provision
might not have been enforceable. However, and significantly, they
have not done so.2 Three of the four Carter Appellants reside in
the same area where they were employed; and while the fourth has
moved to another judicial district, arbitrating in the forum
required by the Agreements would be closer to where she now lives
than to the judicial district where the Carter Appellants initially
filed this case. Accordingly, we do not think the forum selection
clause here works to prevent any of the Carter Appellants from
vindicating any of their statutory rights.
IV
2
In their brief, the Carter Appellants do provide the names of
several mystery plaintiffs who would find the enforcement of the
forum clauses unreasonable because they have moved away from the
arbitral forum. However, leaving aside the fact that nothing about
them or their current residences appears in the record, these
hypothetical plaintiffs are not the parties before us today.
Accordingly, whether the operation of the forum selection clause
would be unreasonable as to them is irrelevant.
9
The Carter Appellants next argue that the “Fee and Costs”
provision in the Arbitration Agreements imposes excessive and
prohibitive costs on them and, as such, renders the Agreements
unenforceable under Green Tree, 531 U.S. at 90. In Green Tree, the
Supreme Court noted that prohibitive arbitration costs may hamper
an employee’s ability to bring her statutory claims in arbitration,
effectively preventing the employee from vindicating her statutory
rights. Id. The district court agreed with the Carter Appellants’
contention that the Agreements would impose prohibitive costs on
them; however, the court refused to invalidate the Agreements on
that basis. Instead, the district court simply severed the
offending provision under the the Agreements’ severability clause
and ordered Countrywide to pay all arbitration costs. The Carter
Appellants argue that this was error -- that instead of severing
the provision, the district court should have invalidated the
Agreements in their entirety.
We need not reach this argument, however, because the Carter
Appellants’ prohibitive costs argument has been mooted by
Countrywide’s representation to the district court that it would
pay all arbitration costs. In October 2000, nearly a year prior to
the beginning of this litigation, Countrywide sent a Memorandum to
all of its employees revising the “Fee and Costs” provision of the
Arbitration Agreements. So revised, the new provision only
required employees to pay a $125 filing fee, with Countrywide
paying all other arbitration costs. In keeping with their
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obligations under this revision, Countrywide has already formally
acknowledged that it would pay all the arbitration costs (excluding
the $125 filing fee) of the Carter Appellants. Indeed, Countrywide
has done just that for other plaintiffs who were originally part of
this action but were later removed and elected to proceed to
arbitration. Thus, it is impossible here for the Carter Appellants
to carry their burden of “provid[ing] some individualized evidence
that [they] likely will face prohibitive costs in the arbitration
at issue and that [they are] financially incapable of meeting those
costs.” Livingston v. Associates Fin., Inc., 339 F.3d 553, 557
(7th Cir. 2003). See also Bradford v. Rockwell Semiconductors
Sys., Inc., 238 F.3d 549, 557 (4th Cir. 2001).3 Accordingly, the
issue of arbitration costs is moot in this case.4
V
3
The district court rejected this argument on the grounds that
Countrywide’s unilateral revisions to the contract were invalid
because it did not follow the procedures outlined in the Agreements
for amending the Agreements. Although this observation may be
accurate as a matter of contract law, what is at issue here is
whether these plaintiffs will be required to pay prohibitive
arbitration fees and costs if they are forced to proceed to
arbitration. See Livingston, 339 F.3d at 557 n.3. Countrywide’s
formal position in this case completely forecloses this
possibility.
4
Several of our sister circuits have reached similar
conclusions. See, e.g., Livingston, 339 F.3d at 557 (holding that
the fact that the defendants agreed to pay all costs associated
with arbitration “forecloses the possibility that the [plaintiffs]
could endure any prohibitive costs in the arbitration process”);
Large v. Conseco Fin. Serv. Corp., 292 F.3d 49, 56-57 (1st Cir.
2002) (finding that the defendant’s offer to pay the costs of
arbitration “mooted the issue of arbitration costs”).
11
The Carter Appellants also contend that the Arbitration
Agreements should be invalidated on the grounds that they are
unconscionable. They concede that there is not one particular
aspect of the Agreements that renders them unconscionable, but
assert that the combined weight of all their allegedly onerous
elements renders them so. Their list of onerous elements includes
those provisions that they argue infringe on their substantive FLSA
rights -- lack of ability to proceed collectively, limited
discovery, and the forum selection clause -- as well as the
Agreements’ fee-splitting arrangement and what they claim is
Countrywide’s abuse of its superior bargaining position.
In determining the contractual validity of an arbitration
agreement, courts apply ordinary state-law principles that govern
the formation of contracts. First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944 (1995). Accordingly, we look to Texas
state law to determine whether the arbitration agreements here are
unconscionable. Under Texas law, unconscionability includes two
aspects: (1) procedural unconscionability, which refers to the
circumstances surrounding the adoption of the arbitration
provision, and (2) substantive unconscionability, which refers to
the fairness of the arbitration provision itself. In re
Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002). The burden of
proving unconscionability rests on the party seeking to invalidate
the arbitration agreement. Id. at 572. We find that the Carter
Appellants simply cannot carry this burden here.
12
The Carter Appellants argue that the Agreements are
procedurally unconscionable under Texas law because Countrywide
used its superior bargaining position to coerce potential
employees; that is, employees feared that they would not get the
job unless they signed. This argument, however, has no support in
Texas law. Indeed, the Texas Supreme Court specifically rejected
such an argument in Halliburton. There, the court held that “an
employer may make precisely such a ‘take it or leave it’ offer to
its at-will employees.” Id. The court reasoned that “[b]ecause an
employer has a general right under Texas law to discharge an
at-will employee, it cannot be unconscionable, without more, merely
to premise continued employment on acceptance of new or additional
employment terms.” Id.
The Carter Appellants also argue that the Agreements’ terms
are substantively unconscionable because their terms are so one-
sided and unfair. We have already rejected the essence of this
argument. We earlier noted that the Arbitration Agreements’
discovery, party joinder and forum provisions are not unreasonable.
We have also concluded that the fee-splitting arrangement is no
longer an issue in this case as Countrywide has agreed to pay all
such fees itself. Accordingly, we agree with the district court’s
conclusion that the Arbitration Agreements here are not
unconscionable.5
5
In support of their contention that the Arbitration
Agreements are unconscionable, the Carter Appellants rely heavily
13
Conclusion
We find no basis that the Arbitration Agreements here are
invalid. We therefore AFFIRM the district court’s judgment
compelling arbitration.
AFFIRMED.
upon Ferguson v. Countrywide Credit Industries, Inc., 298 F.3d 778
(9th Cir. 2002), a Ninth Circuit case affirming a district court’s
invalidation of an apparently identical arbitration agreement on
unconscionability grounds.
This reliance on Ferguson is misguided, however, as the
Ferguson court explicitly relied on California state law in
determining that the arbitration agreement was unconscionable
whereas here, both parties acknowledge that Texas law should apply.
The Carter Appellants argue that this makes no salient difference
because California law and Texas law regarding unconscionability
are essentially the same. As the district court noted, however,
this is incorrect. In reality, California law and Texas law differ
significantly, with the former being more hostile to the
enforcement of arbitration agreements than the latter. This
difference can be quickly observed by noting their respective
threshold views of arbitration agreements. In Texas, there is
nothing per se unconscionable about arbitration agreements; indeed,
parties claiming unconscionability bear the burden of demonstrating
it. See, e.g., In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571,
574 (Tex. 1999). Conversely, in California, a contract to
arbitrate between an employer and an employee raises a rebuttable
presumption of substantive unconscionability. See, e.g., Ingle v.
Circuit City Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2003)
(applying California law). Given this dramatic difference between
the two states’ laws, Ferguson is hardly persuasive in applying
Texas law.
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