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MANDATORY ARBITRATION OF STATUTORY EMPLOYMENT CLAIMS ABA Section

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MANDATORY ARBITRATION OF STATUTORY EMPLOYMENT CLAIMS ABA Section

    MANDATORY ARBITRATION OF STATUTORY

    EMPLOYMENT CLAIMS

ABA Section on Labor and Employment Law

    Equal Employment Opportunity Committee

    2003 Midwinter Meeting

    March 19-21, 2003

    By: Janice Goodman

     Justin M. Swartz

    Goodman & Zuchlewski, LLP

    500 Fifth Avenue

    Suite 5100

    New York, NY 10110

    (212) 869-1940

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    TABLE OF CONTENTS

    EFFECTIVE VINDICATION OF STATUTORY RIGHTS ................................................... 2

Cost-Splitting Provisions ............................................................................................... 3

    Cost-Splitting is Per Se Unenforceable .............................................................. 4

    Case by Case Analysis of Cost-Splitting ............................................................ 6

Limitations on Remedies . ............................................................................................ 9

    Limitations on Attorneys’ Fees .......................................................................... 9

    Limitations on Other Statutory Remedies ...................................................... 10

Altering Burdens of Proof ........................................................................................... 11

    Limited Discovery ........................................................................................................ 12

    Unfair or Biased Rules ................................................................................................. 13

    Prohibitions of Class Actions....................................................................................... 13

    Truncated Limitations Periods ................................................................................... 15

    Hearing Time Limit ..................................................................................................... 16

    Waiver of Right to Appeal........................................................................................... 16

    Confidentiality Provisions ........................................................................................... 17

    SEVERABILITY OF OFFENSIVE CLAUSES ..................................................................... 17

    CONTRACT DEFENSES ....................................................................................................... 20

    Consideration / Illusory Promise / Mutuality of Obligation....................................... 20 Unconscionable Contracts of Adhesion ...................................................................... 22 No Agreement to Arbitrate ......................................................................................... 25

    Knowing and Voluntary Waiver ................................................................................. 26

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     MANDATORY ARBITRATION OF STATUTORY EMPLOYMENT CLAIMS

    By: Janice Goodman

    Justin M. Swartz

    In 1991, the Supreme Court approved mandatory arbitration of claims brought pursuant to

    the Age Discrimination in Employment Act (“ADEA”) for employees in the securities industry who

    executed a U-4 government registration form. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). The Court held that “although all statutory claims may not be appropriate for arbitration,

    individual agreements to arbitrate statutory employment claims should be enforced to the same

    extent as are other arbitration agreements unless Congress has evinced a contrary intent in the

    statute‟s text or its legislative history, or where there is an inherent conflict between arbitration and

    the purpose of the statute. Id. at 24-26. Although Gilmer was limited to the governmental

    registration forms required of employees in the securities industry, over the next decade, the circuit

    courts, almost uniformly, interpreted Gilmer broadly, and upheld pre-dispute mandatory arbitration

    agreements with regard to statutory employment discrimination claims. See e.g., Desiderio v. th Cir. NASD, 191 F.3d 198 (2d Cir. 1999); Koveleskie v. SBC Capital Mkts., Inc., 167 F.3d 361 (71999), cert. denied, 528 U.S. 811 (1999); Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305, 309 th1(6 Cir. 1991). The sole exception was the Ninth Circuit, which, after reviewing the legislative

    history of the Civil Rights Act of 1991, held that Congress intended to preclude employers from

    requiring individuals, as a conditions of their employment, to prospectively waive their rights to

    bring Title VII claims in a judicial forum, finding that such an agreement was not voluntary. thDuffield v. Robertson Stephens & Co., 144 F.3d 1182, 1185-1198 (9 Cir. 1998), cert. denied 525 U.S. 982 (1998). The Supreme court denied certiorari in Duffield, 525 U.S. 982 (1998).

    In 2001, in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), the Supreme Court

    addressed the question left unanswered in Gilmer: whether Section 1 of the Federal Arbitration Act

    (“FAA”), 9 U.S.C. Sec. 1 (2002), excludes employment contracts from its coverage. The Court held that Section 1 of the FAA does not exclude all contracts of employment, but only employment 2contracts of transportation workers. Id. at 119.

    The Circuit City decision did not, however, disturb Duffield‟s holding, as it dealt with an entirely unrelated issue. In Circuit City, the Supreme Court held that employment arbitration

     1There is authority, however, that claims under the Fair Labor Standards Act may not be

    compelled to arbitration. Louis v. Geneva Enterprises, Inc., 128 F. Supp. 2d 912 (E.D. Va. 2000) (citing Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 739 (1981); Tran v. Tran, th54 F.3d 115, 118 (2d Cir. 1995); but see e.g., Keuhner v. Dickinson & Co., 84 F.3d 316, 320 (9

    Cir. 1996); Carter v. Countrywide Credit Indus., 189 F. Supp. 2d 606, 614 (N.D. Tex. 2002).

    2Legislation has been introduced to reverse the Circuit City holding. The Preservation of Civil Rights Protection Act, S. 2435 and H.R. 2282, would amend the FAA to exclude contracts of

    employment. In the House of Representatives, the bill was sponsored by Rep. Dennis Kucinich

    (D-OH). In the Senate, the bill was sponsored by Senators Edward Kennedy (D-MA) and Russ

    Feingold (D-WI). See http://www.nela.org/news/mandatoryarbitration.htm for information on various efforts to eliminate mandatory arbitration of employment disputes.

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agreements signed by “non-transportation” workers were within the scope of the FAA. Duffield

    addresses whether predispute mandatory arbitration agreements as a condition of employment are

    “voluntary,” an issue not addressed or mentioned in Circuit City. Circuit City does not address the question of under what circumstances a particular federal statute, such as Title VII, may limit the

    enforceability of an arbitration agreement.

     Nevertheless, after Circuit City, by a 2-1 decision, the Ninth Circuit repudiated Duffield. It

    held that, “[i]n Circuit City, the Supreme Court so directly undermined the reasoning behind

    Duffield, that we conclude it has lost its status as valid precedent.” EEOC v. Luce, Forward, th Cir. 2002). The EEOC initially filed a petition for en Hamilton, & Scripps, 303 F.3d 994, 1002 (9

    banc review which it subsequently withdrew. The Court of Appeals, however, granted the

    individual complainant permission to petition for rehearing en banc. On February 7, 2003, the court agreed to rehear the case en banc, and ordered that the three-judge panel opinion not be cited as

    precedent. EEOC v. Luce, Forward, Hamilton, & Scripps, 2003 U.S. App. LEXIS 2109, Nos. th00-57222, 01-55321 (9 Cir. Feb. 7, 2003).

    Although broad attacks on mandatory arbitration of statutory employment discrimination

    claims have almost uniformly failed, employees have successfully attacked one-sided overboard

    arbitration agreements drafted by employers and made a condition of employment. This paper

    summarizes recent court decisions regarding those arbitration provisions that courts have generally

    voided. Section I reviews the various provisions which courts have held are unenforceable. Section

    II reviews the courts‟ decisions regarding severability of unacceptable provisions. Section III

    reviews court decisions rejecting arbitration agreements based on general principals of contract law.

    I. EFFECTIVE VINDICATION OF STATUTORY RIGHTS

     The law is clear that pre-dispute mandatory arbitration of statutory claims is appropriate

    only “so long as the prospective litigant effectively may vindicate [her] statutory cause of action in the arbitral forum”. Gilmer, 500 U.S. at 28 (citation omitted); Green Tree Fin. Corp.-Ala. v.

    Randolph, 531 U.S. 79, 90 (2000) (citation omitted). Courts have read this language to mean that

    arbitration agreements may not be enforced if they “undermine the relevant statutory schemes.”

    Cole v. Burns Int‟l Security Systems, 105 F.3d 1465, 1468 (D.C. Cir. 1997). “[O]bviously Gilmer

    cannot be read as holding that an arbitration agreement is enforceable no matter what rights it

    waives or what burdens it imposes.” Id. at 105 F.3d 1465, 1482 (D.C. Cir. 1997).

    Since Gilmer, federal courts have shown an ever growing concern about whether

    pre-dispute mandatory arbitration agreements allow employees to effectively vindicate their rights

    under anti-discrimination statutes, and have closely scrutinized these agreements. See Halligan v. Piper Jaffrey, Inc., 148 F.3d 197, 202-03 (2d Cir. 1998), cert. denied, 119 S.Ct. 186 (1999) (discussing post-Gilmer controversy over mandatory arbitration); Phillips v. CIGNA Inv., Inc., 27 F. Supp. 2d 345, 349 (D. Conn. 1998) (citing “conflicting national goals of eliminating

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discrimination in the workplace, on one hand, and enforcing arbitration agreements, on the other).

    This enhanced scrutiny of pre-dispute mandatory arbitration clauses has emerged in part

    because employers have not been satisfied merely with changing the dispute resolution forum, but

    have regularly drafted arbitration clauses intended to “tilt the playing field” in their favor. Chisolm

    v. Kidder Peabody Asset Management, Inc., 966 F. Supp. 218 (S.D.N.Y. 1997), aff‟d. 164 F.3d 617 (2d Cir. 1998). Notwithstanding Gilmer‟s admonition that mandatory arbitration agreements may

    not be used to prevent litigants from effectively vindicating their statutory rights, many employers

    reacted to Gilmer by attempting to impose self-serving arbitration rules designed to curtail plaintiffs‟ ability to prevail on their statutory claims, and to limit potential recoveries.

    Among the unfair provisions that employers insert into arbitration agreements and have

    been routinely questioned by the courts are provisions that: (A) require employees to pay high costs

    and fees just to gain access to arbitration, (B) limit or eliminate the statutory remedies available to

    employees, (C) alter burdens of proof, (D) substantially curb discovery, (E) promulgate unfair rules

    and procedures, (F) limit employees‟ right to bring class actions, (G) truncate limitations periods, (H)

    place time limitations on hearings, (I) waive the right to appeal, and (J) keep awards and identities

    of parties confidential.

    A. Cost-Splitting Provisions

    Arbitration agreements often contain clauses that require employees to pay half of the costs

    and fees required to initiate arbitration. In addition to the prohibitive initial fees, arbitration

    agreements require employees to pay a share of per diem arbitrators‟ fees.

    Courts have recognized that the high costs of arbitration place a burden on the employees

    that they do not face in federal court and that could substantially deter employees from vindicating

    their rights. Studies have shown that the average arbitrator‟s fee in an employment dispute is

    $2,000. LeRoy & Feuille, “When Is Cost and Unlawful Barrier to Alternative Dispute Resolution,”

    50 UCLA L. Rev. 143 (October, 2002). A review of decisions in the securities industry reflects the

    exorbitant cost that arbitration can bring. Some examples of the high forum fees that employees

    have been ordered to pay to vindicate their rights are:

     $25,650 Sobol v Kidder Peabody & Co., Inc., 49 F. Supp. 2d 208 (S.D.N.Y. 1999)

     $41,400 Wolfe v Charles R. Schwab, NASD Arbitration Docket No. 1993-003197

     $24,800 Livingston v Shearson, NASD Case No. 93-00770

     $55,000 Kidder, Peabody v Fletcher, NYSE docket No. 1992-002062.

    While the Supreme Court has not decided whether imposition of forum fees on the employee

    in discrimination cases renders arbitration agreements unenforceable, the Court has recognized that

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“it may well be that the existence of large arbitration costs could preclude a litigant . . . from

    effectively vindicating her federal statutory rights in the arbitral forum.” Green Tree Financial Corp.-Alabama v Randolph, 531 U.S. 79, 90 (2000). In Green Tree, plaintiff appealed the district court‟s order compelling arbitration of her claims under the Truth in Lending Act. The arbitration

    agreement in Green Tree was silent on the allocation of the costs of arbitration. Plaintiff argued that

    the agreement prevented her from effectively vindicating her statutory rights because of the risk that

    she would be responsible for high costs. Because the agreement was silent on whether and how

    much of the costs would be on the plaintiff, the Court held that “[t]he risk that Randolph will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration

    agreement.” Id at 90-91. Although the Court did not rule that imposition of fees was an

    impermissible burden per se, it returned the case to the lower court to allow the plaintiff to make a

    showing that she will be saddled with prohibitive costs in arbitration.

    Before and after Green Tree courts have routinely invalidate cost-splitting provisions. The

    only split among the Courts is whether provisions requiring employees to pay high arbitration costs

    are invalid per se, or whether the employee challenging the cost provision must show that the costs

    are prohibitive.

    1. Cost-Splitting is Per Se Unenforceable.

    Three courts of appeal, the Tenth, Eleventh, and D.C. Circuits, have held that provisions in

    arbitration agreements that require plaintiffs to bear substantial arbitration costs are invalid per se

    because they prevent litigants from effectively vindicating their statutory rights. Green Tree does

    not undermine these holdings, because the arbitration agreement before the Green Tree Court was silent on responsibility for costs. See Gambardella v Pentec.Inc. 218 F. Supp. 2d 237, 245-46 (D. Conn. 2002).

    In the seminal case on cost-splitting provisions, the D.C. Circuit held that an employee

    cannot be required to pay “all or part” of an arbitrator‟s fee in order to pursue her statutory

    employment discrimination claim. Cole v. Burns Int‟l Security Serv.,105 F.3d 1465, 1468 (D.C. Cir. 1997). In Cole, the arbitration agreement was ambiguous as to the parties‟ responsibility for the

    costs of the arbitration. The court compelled arbitration, but resolved the ambiguity in favor of the

    employee, requiring the employer to bear the all costs of arbitration. Id. at 1468. The court reasoned that “to prevent employees who are seeking to vindicate statutory rights from gaining

    access to a judicial forum and then require them to pay for the services of an arbitrator when they

    would never be required to pay for a judge in court” would “undermine Congress‟ intent.” Id. at

    1484.

    The Tenth Circuit echoed Cole‟s concerns in Shankle v. B-G Maint. Mgmt. of Colo., Inc., th Cir. 1999), and refused to enforce an arbitration agreement that contained a 163 F.3d 1230 (10

    cost-splitting provision. The agreement in Shankle required the employee to pay one-half of the fees

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    and costs mandated by the American Arbitration Association‟s (the “AAA”) rules. The court estimated these fees to be between $1,875.00 and $5,000.00. Id. at 1232. Such an arrangement, the court held, “clearly undermines the remedial and deterrent functions of the federal

    anti-discrimination laws.” Id.

     th Cir. 1998), a majority of Likewise, in Paladino v. Computer Tech, Inc.,134 F.3d 1054 (11

    an Eleventh Circuit panel held that the risk that a Title VII plaintiff would be required to pay a

    $2,000.00 filing fee was “a legitimate basis” for concluding that the clause contravenes statutory policy. Id. at 1062 (Cox, J., joined by Tjoflat, J. concurring in court‟s refusal to compel arbitration

    on other grounds).

    Other circuit courts have expressed discomfort with cost-splitting provisions. See Circuit thCity Stores v. Adams, 279 F.3d 889, 894 (9 Cir. 2002) (holding that the requirement that plaintiff

    split arbitrator‟s fees with defendant contributes to unconscionability of agreement); Floss v. Ryan‟s thFamily Steakhouses, Inc., 211 F.3d 306, 314 (6 Cir. 2000) (observing that an arbitration policy

    forcing employees to pay one-half of the arbitrators fee prevents employees from pursuing federal

    statutory claims against employers while striking down arbitration clause on other grounds); Brooks

    v. Travelers Ins. Co., 297 F.3d 167, 171-72 (2d Cir. 2002) (expressing discomfort with an

    arbitration clause that required the parties to bear equally any costs of arbitration beyond the first

    day of the hearing, but declining to decide the issue because the employer abandoned its effort to

    compel arbitration).

    Even after Green Tree, several district courts have followed suit, striking down

    cost-splitting provisions as unenforceable per se. In Ball v. SFX Broad., Inc., 165 F. Supp. 2d 230 (N.D.N.Y. 2001), the court struck down an arbitration clause that imposed substantial costs on an

    employee seeking to vindicate her rights under Title VII holding that “the imposition of such

    costs . . . has no parallel in the litigation arena” and that “it simply cannot be said that, under such

    circumstances, arbitration is „a reasonable substitute for a judicial forum.‟” (citing Cole, 105 F.3d at 1484); see also Bailey v. Ameriquest Mortgage Co., 2002 Dist. LEXIS 1343, No. 01-545, at *17 (D. Minn. Jan. 23, 2002) (following Cole and Shankle in denying motion to compel arbitration);

    LeLouis v. Western Directory Co., 230 F. Supp. 2d 1214, 1223 (D. Or. 2001) (party imposing

    mandatory arbitration agreement is responsible for costs, distinguishing from freely negotiated

    agreement); Geiger v. Ryan‟s Family Steak Houses, Inc., 134 F. Supp. 2d 985, 996 (S.D. Ind. 2001)

    (“arbitration agreements which include a fee structure and place the burden for the fees on the

    shoulders of the employee are usually not upheld”) (striking down arbitration clause) (citations

    omitted); see Martens v. Smith Barney, Inc., 181 F.R.D. 243, 256 (S.D.N.Y. 1998) (pre-Green

    Tree) (stating in dicta that “[r]equiring plaintiffs to pay for access would surely deter the bringing

    of arbitration, running counter to Congressional intent”) (citations omitted); cf., Bond v. Twin thCities Carpenters Pension Fund, 2002 U.S. App. LEXIS 21028, No. 01-3300 (8 Cir. October 8, 2002) (holding that a cost sharing provision in a pension plan‟s mandatory arbitration clause is thprohibited under ERISA); Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 785-6 (9

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Cir. 2002) (striking down arbitration clause because, under California law, “the only valid fee

    provision is one in which an employee is not required to bear any expense beyond what would be

    required to bring the action in court” and expressing concern that employees who are required to

    pay high arbitration costs will be deterred from bring civil rights claims); Armendariz v. Foundation th 83, 113 (2000) (holding that a mandatory arbitration Health Psychcare Serv. Inc., 24 Cal. 4

    agreement that includes claims under California‟s Fair Employment and Housing Act “impliedly

    obliges the employer to pay all types of costs that are unique to arbitration”); Giles v. City of New

    York, 41 F.Supp. 2d 308, 312 (S.D.N.Y. 1999) (invalidating cost splitting provision in context of

    a collective bargaining agreement).

    2. Case by Case Analysis of Cost-Splitting

    Other courts while equally hostile to burdening employees with excessive costs, reject the

    per se rule and review each case to determine whether the cost burden prohibits the litigant from

    effectively vindicating her statutory rights. The Fourth Circuit, in Bradford v. Rockwell thSemiconductor Sys., Inc., 238 F.3d 549 (4 Cir. 2001) held that “the appropriate inquiry is one that evaluates whether the arbitral forum in a particular case is an adequate and accessible substitute to

    litigation, i.e. a case-by-case analysis.” Id. at 556. This inquiry must focus on, among other things, (1) the claimant‟s ability to pay the arbitration fees and costs, (2) the expected cost differential

    between arbitration and litigation in court, and (3) whether that cost differential is so substantial as

    to deter the bringing of claims. Id.

    In Bradford, the court rejected plaintiff‟s argument that the arbitration costs precluded him

    from effectively vindicating his statutory rights because he “failed to offer any evidence of the

    expected cost of litigation or that he suffered any hardship as a result of the arbitration agreement.”

     Id. at 558, n.6. Moreover, before filing his complaint in court, plaintiff initiated arbitration and,

    although he did not prevail, conceded that he received a full and fair hearing on the merits of his

    claims. Id. at 558. The court held that plaintiff should have raised his objections to the fee-splitting

    arrangement prior to the beginning of the arbitration. Id. at 558, n.7. Invalidating the provision after the arbitrator already ruled on plaintiff‟s claim would have given him a “second bite of the

    apple under circumstances in which there is no evidence that allowing him to pursue his litigation in

    court would cost him any less than the amount of money that he ha[d] already spent in arbitration.” th See also, Williams v. CIGNA Financial Advisors, Inc., 197 F.3d 753, 764-65 (5 Cir. 1999)

    (rejecting plaintiff‟s post-arbitration public policy argument against cost-splitting where plaintiff

    presented no evidence that forum fees prevented full vindication of his rights or that fees were

    prohibitively expensive for plaintiff).

    Recently, in Morrison v. Circuit City Stores, Inc., 2003 U.S. App. LEXIS 1456, Nos. th99-4099/99-5897 (6 Cir. Jan. 30, 2003), the Sixth Circuit adopted a “case by case” analysis to

    determine the validity of a cost-splitting provision. Id. at *4. The Sixth Circuit‟s approach differs markedly, however, from the Fifth Circuit‟s. The Sixth Circuit does not focus solely on the

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    individual litigant, but takes a global perspective. “[E]mployers should not be permitted to draft arbitration agreements that deter a substantial number of potential litigants from seeking any forum

    for the vindication of their rights. To allow this would fatally undermine the federal

    anti-discrimination statutes, as it would enable employers to evade the requirements of federal law

    altogether.” Id. at *13.

    The Court went on to hold that both of the cost-splitting provisions before it were 3unenforceable. The court found that “[m]inimal research will reveal that the potential costs of arbitrating the dispute easily reach thousands, if not tens of thousands, of dollars, far exceeding the

    costs that a plaintiff would incur in court.” Id. at *53-54; see also Id. at *75. Without undertaking a “searching inquiry into the financial situation of either plaintiff, the court concluded that the

    cost-splitting provisions would “deter a substantial number of similarly situated potential litigants

    from seeking to vindicate their statutory rights in the arbitral forum. Id. at *75-76; see also Id. at

    *56.

    The Sixth Circuit also rejected what it called the “post hoc judicial” approach to determining whether plaintiffs can effectively vindicate their statutory rights in the face of cost-splitting

    provisions. Id. at *28-34 (rejecting reasoning of Rosenberg v. Merrill Lynch, Pierce, Fenner, & stSmith, Inc., 170 F.3d 1, 16 (1 Cir. 1999) and Koveleskie v. SBC Capital Mkts., Inc., 167 F.3d 361, th366 (7 Cir. 1999), cert. denied, 528 U.S. 811 (1999)). Under this approach, courts rely upon

    judicial review of arbitration awards to adjudicate the enforceability of cost-shifting provisions. Id.

    at *28. Such an approach is insufficient because it places plaintiffs “in a kind of a „Catch-22‟” by requiring them to pay the costs and arbitrate their claims before allowing them to challenge the

    cost-shifting provision, and fails to address the Sixth Circuit‟s overriding concern that potential

    litigants will be prospectively deterred from pursuing their claims. Id. *34.

     rdIn Blair v. Scott Specialty Gases, 283 F.3d 595 (3 Cir. 2002), the Third Circuit adopted a case-by case approach, but held that the plaintiff challenging a cost splitting arrangement must first

    be allowed to take discovery on the rates charged by the arbitrators and the approximate length of

    similar arbitration proceedings before the court rules on the issue. Id. at 43; see also Baugher v. Dekko Heating Technologies, 202 F. Supp. 2d 847, 850 (N.D. Ind. 2002) (ordering discovery on

    the issue of arbitration costs and allowing plaintiff to present evidence of her inability to pay the

    costs).

    Most courts that employ the “case-by-case” approach conclude that plaintiffs have carried

    their burden and refuse to enforce cost-splitting provisions. For example, in Spinetti v. Service

    EXIS 23959, No. 01-1191 (W.D. Pa. Nov. 15, 2001), the court severed Corp. Int., 2001 U.S. Dist. L

    a cost-splitting provision that required the employee to pay almost $2,000.00 just to file her claim

    before the American Arbitration Association (“AAA”), holding that such costs were prohibitive

     3The court‟s opinion resolved the question in two consolidated cases.

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because plaintiff was unemployed for six months following her termination and then, even after

    finding work, was forced to take cash advances from her credit cards to pay her daily expenses. Id.

    at *11-*12. Likewise, the court in Ball v. SFX Broad., Inc., 165 F. Supp. 2d 230 (N.D.N.Y. 2001),

    declined to compel arbitration before the AAA where the AAA‟s rules would have required plaintiff,

    who was newly employed on a commission basis and was the sole financial support for herself and

    her four children, to pay fees of at least $1150.00 per day. See also Carter v. Countrywide Credit Indus., Inc., 189 F. Supp. 2d 606, 620 (N.D. Tex. 2002) (severing cost-splitting from agreement

    and ordering Defendant to pay all arbitration costs); Gourley v. Yellow Transportation, LLC, 178 F. Supp. 2d 1196, 1204 (D. Colo. 2001) (refusing to enforce arbitration agreement that contained

    cost-splitting provision where plaintiffs were in financial straits); Phillips v. Associated Home

    Equity Serv., Inc., 179 F. Supp. 2d 840, 846 (N.D. Ill. 2001) (denying motion to compel arbitration

    of Truth in Lending Act claim because of the mere risk that plaintiff would be saddled with a

    $4,000.00 AAA filing fee and other costs where plaintiff‟s affidavit stated that she could not afford

    to pay the costs and was in severe financial straits).

    Moreover, even if the “case-by-case” approach is appropriate, it is not clear that plaintiffs

    are required to make any showing regarding their personal financial circumstances. Some courts

    require plaintiffs to show only that, if cost-splitting provisions are upheld, they will incur high

    arbitration costs. Ball, 165 F. Supp. at 239 (N.D.N.Y. 2001) (“it is not at all clear that . . . a court

    is required to consider the particular financial position of the plaintiff in evaluating the burden

    imposed by an arbitration agreement.”); Giordano v. Pep Boys Manny, Moe & Jack, Inc., 2001

    EXIS 5433, No. 99-1281, at *24 (E.D. Pa. 2001) (courts are not required to “undertake U.S. Dist. L

    detailed analyses of the household budgets of low-level employees to conclude that arbitration costs

    in the thousands of dollars deter the vindication of employees‟ claims in arbitral fora.”). See Shankle,

    163 F.3d at 1234-35 (invalidating Arbitration Clause without inquiry into plaintiff‟s finances);

    Carter v. Countrywide Credit Indus., Inc., 189 F. Supp. 2d 606, 620 (N.D. Tex. 2002) (severing

    cost-splitting provision from arbitration agreement and ordering defendant to pay all fees incurred

    in the arbitration without inquiry into plaintiff‟s financial condition). Cf., Morrison v. Circuit City thStores, Inc., 2003 U.S. App. LEXIS 1456, Nos. 99-4099/99-5897, at *63 (6 Cir. Jan. 30, 2003) (holding that plaintiff‟s financial condition should be examined only as representative of “larger

    class‟s ability to shoulder the costs of arbitration”) (citation omitted).

    In courts that employ the “case-by-case” approach, it is important for plaintiffs challenging

    cost-splitting provisions to develop adequate records. Where courts have enforced Arbitration

    Clauses containing fee-splitting provisions, they have almost invariably done so because the records

    before them were inadequate. See, e.g. Rosenberg v. Merrill Lynch, Pierce, Fenner, & Smith, Inc., stth170 F.3d 1, 16 (1 Cir. 1999); Koveleskie v. SBC Capital Mkts., Inc., 167 F.3d 361, 366 (7 Cir. 1999), cert. denied, 528 U.S. 811 (1999); Middleworm v. Ashcroft, 200 F. Supp. 2d 171, 179-80 (E.D.N.Y. 2002); Rajjak v. McFrank and Williams, 2001 U.S. Dist. LEXIS 9764, No. 01 Civ. 0493 (S.D.N.Y. 2001); Arakawa v. Japan Network Group, 56 F. Supp. 2d 349 (S.D.N.Y. 1999); but see thWilliams v. CIGNA Fin. Advisors, Inc., 197 F.3d 752, 763-64 (5 Cir. 1999); Zumpano v.

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