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Federal Court Order Compelling Arbitration And Granting Class Action Defense Motion To Dismiss TILA Case Is Appealable Under FAA And Plaintiff Did Not Meet Burden Of Establishing Prohibitive Cost of Arbitration-Class Action Defense Cases

Green Tree v. Randolph: U.S. Supreme Court Upholds Order Compelling Arbitration Pursuant to Lender’s Arbitration Provision under Federal Arbitration Act (FAA) Because Plaintiff Did Not Establish that Arbitral Forum would be Prohibitively Expensive: Truth in Lending Act (TILA) Class Action Claims Properly Dismissed

In Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000), the United States Supreme Court addressed two issues: (1) whether a court order granting a defense motion to compel arbitration and dismissing (rather than staying) the plaintiff’s claims is immediately appealable under the Federal Arbitration Act (FAA), 9 U.S.C. § 16(a)(3) as a “final decision with respect to an arbitration”; and (2) whether an arbitration provision that is silent on the question of allocation and amount of arbitration fees and costs is unenforceable for failure to “affirmatively protect a party from potentially steep arbitration costs.” Id., at 82. The putative class action against Green Tree alleged violations of the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq., and arose from a loan to the putative class action representative for the purchase of a mobile home evidenced by a Manufactured Home Retail Installment Contract and Security Agreement that expressly provided for all disputes to be resolved by finding arbitration under the provisions of the FAA. Id., at 82-83 and n.1. Plaintiff asserted that Green Tree violated TILA by failing to disclose a specific insurance requirement as a finance charge; she later added a claim under the federal Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691 et seq. based on the requirement that she arbitrate her statutory claims for relief. The district court granted the class action defense team’s motion to compel arbitration and dismissed plaintiff’s claims with prejudice. The court also denied the plaintiff’s request to certify the case as a class action. Id., at 83.

The Eleventh Circuit Court of Appeals held that the district court’s order was immediately appealable, but reversed on the grounds that the arbitration clause’s silence as to responsibility for payment of arbitration fees and costs “posed a risk that [plaintiff’s] ability to vindicate her statutory rights would be undone by ‘steep’ arbitration costs, and therefore was unenforceable.” Green Tree, at 84. The United States Supreme Court agreed with the Circuit Court’s holding as to appealability: The Supreme Court held that, under the facts of that case, the order compelling arbitration was a “final decision” within the meaning of the FAA and therefore immediately appealable because it “plainly disposed of the entire case on the merits and left no part of it pending before the court.” Id., at 86.

The Supreme Court did not agree, however, with the Eleventh Circuit’s conclusion that the potentially steep costs of arbitration rendered the arbitration clause unenforceable. In so doing, the High Court stressed that the purpose of the FAA is “‘to reverse the longstanding judicial hostility to arbitration agreements . . . and to place arbitration agreements upon the same footing as other contracts.'” Green Tree, at 89 (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)). The Supreme Court also reaffirmed that the burden of proof rests with the party opposing arbitration: “where, as here, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.” Id., at 92. The problem with the Circuit Court’s analysis, the Supreme Court explained at pages 90-91, is that it was entirely speculative:

[T]he record does not show that [plaintiff] will bear such costs if she goes to arbitration. . . . The record reveals only the arbitration agreement’s silence on the subject, and that fact alone is plainly insufficient to render it unenforceable.”

Counsel should keep in mind that while the Supreme Court unanimously agreed that the order was immediately appeal, four (4) justices were of the opinion that the case should have been remanded for further proceedings on the allegedly prohibitive cost of the arbitral forum. See Green Tree, at 92 et seq. (Ginsberg, J. concurring and dissenting).

NOTE: Importantly, Green Tree noted that if the district court had “entered a stay instead of a dismissal” then the order would not have been appealable. Green Tree, at 87 n.2. It also bears noting that the Supreme Court expressly declined to address whether the arbitration agreement is unenforceable because it precludes plaintiff from pursuing her TILA claim as a class action. Id., at 92 n.7.

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