Carter v. Countrywide Credit Industries, Inc.

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

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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).

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 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.

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 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

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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

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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

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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.

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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.

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 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”).

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 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.

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 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

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 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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