Muriithi v. Shuttle Express, Inc.

• Decision Date: 01 April 2013
• Docket Number: No. 11–1445.,11–1445.
• Citation: 712 F.3d 173
• Parties: Samuel D. MURIITHI, Plaintiff–Appellee, and Kevin A. Gadson; Okierieta O. Enajekpo, Plaintiffs, v. SHUTTLE EXPRESS, INC., Defendant–Appellant, and Supershuttle International, Inc.; Shuttle Express Corporation; Veolia Transportation, Incorporated; Veolia Environment SA, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

712 F.3d 173

Samuel D. MURIITHI, Plaintiff–Appellee,andKevin A. Gadson; Okierieta O. Enajekpo, Plaintiffs,

v. SHUTTLE EXPRESS, INC., Defendant–Appellant,andSupershuttle International, Inc.; Shuttle Express Corporation; Veolia Transportation, Incorporated; Veolia Environment SA, Defendants.

No. 11–1445.

United States Court of Appeals, Fourth Circuit.

Argued: Jan. 29, 2013.

Decided: April 1, 2013.

ARGUED:Christopher A. Parlo, Morgan Lewis & Bockius, LLP, New York, New York, for Appellant. John Michael Singleton, Sr., Lutherville, Maryland, for Appellee. ON BRIEF:Russell R. Bruch, Morgan Lewis & Bockius, LLP, Washington, D.C.; Melissa C. Rodriguez, Morgan Lewis & Bockius, LLP, New York, New York, for Appellant.

Before DAVIS and KEENAN, Circuit Judges, and John A. GIBNEY, Jr., United States District Judge for the Eastern District of Virginia, sitting by designation.

Vacated and remanded by published opinion. Judge KEENAN wrote the opinion, in which Judge DAVIS and Judge GIBNEY joined.

OPINION

BARBARA MILANO KEENAN, Circuit Judge:

In this appeal, we consider the enforceability of an arbitration clause included in a franchise agreement between the plaintiff, Samuel Muriithi, and the defendant, Shuttle Express, Inc. The district court refused to compel arbitration based on three provisions in the franchise agreement that the court found were unconscionable: (1) a class action waiver; (2) a requirement that the parties “split” arbitration fees; and (3) a one-year limitations period for asserting claims arising under the franchise agreement. Upon our review, we conclude that the Supreme Court's recent decision in AT&T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), requires reversal of the district court's holding that the class action waiver was an unconscionable contract provision. We further conclude that the district court erred in holding that the other two challenged provisions also rendered the arbitration clause unconscionable. Accordingly, we vacate the district court's judgment and remand the case for entry of an order compelling arbitration of Muriithi's claims.

I.

Samuel Muriithi was a driver for Shuttle Express, a passenger shuttle service, who provided transportation for passengers to and from the Baltimore—Washington International Thurgood Marshall Airport. Muriithi alleges that Shuttle Express misled him concerning the compensation he would receive, inducing him to sign a Unit Franchise Agreement with Shuttle Express in April 2007 (the Franchise Agreement). Muriithi also alleges that Shuttle Express improperly classified him in the Franchise Agreement as an “independent contractor” or “franchisee,” rather than as an “employee,” and that, as a result, he is entitled to overtime pay and to compensation of at least the prevailing minimum wage required under federal law.

Asserting these grounds for relief, Muriithi initiated a collective action against Shuttle Express under the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201 through 219.¹ In his complaint, Muriithi also raised various Maryland state law claims on behalf of all members of a purported class. Shuttle Express moved to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, or to compel arbitration under the Federal Arbitration Act (FAA), 9 U.S.C. § 4.

The Franchise Agreement contains an arbitration clause, which states in material part:

ARBITRATION; ATTORNEY'S FEES

Except as provided below, any controversy arising out of this Agreement shall be submitted to the American Arbitration Association at its offices in or nearest to Baltimore, Maryland, for final and binding arbitration in accordance with its commercial rules and procedures which are in effect at the time the arbitration is filed. The parties shall bear their own costs including without limitation attorney's fees, and shall each bear one-half (1/2) of the fees and costs of the arbitrator.

...

The parties acknowledge that their relationship is unique and that there are and will be differences from the relationships [Shuttle Express] may have with other franchisees or licensees. Therefore, any arbitration, suit, action or other legal proceeding shall be conducted and resolved on an individual basis only and not on a class-wide, multiple plaintiff, consolidated or similar basis.

(individually, the fee-splitting clause and the class action waiver; in its entirety, the Arbitration Clause).

Also relevant to this appeal is the one-year limitations provision included in the Franchise Agreement, which states as follows:

STATUTE OF LIMITATIONS

The parties hereby acknowledge and agree that any arbitration, suit, action or other proceeding relating to this Agreement must be brought within one (1) year after the occurrence of the act or omission that is the subject of the arbitration, suit, action or other legal proceeding.

(the one-year limitations provision).²

In considering Shuttle Express' motion to compel arbitration, the district court first addressed the issue whether Muriithi's claims fall within the scope of the Arbitration Clause. The court held that Muriithi's FLSA and Maryland law claims “arise out of” the Franchise Agreement and, thus, fall within the scope of disputes covered by the parties' agreement to arbitrate. The court further concluded, however, that the Arbitration Clause is unenforceable based on three provisions in the Franchise Agreement that the court found were unconscionable.

First, under the fee-splitting provision, the district court found that the costs of arbitration would be “so prohibitively expensive as to deter arbitration” at Muriithi's request. Second, the district court held that the class action waiver and the fee-splitting provision operate together to “prevent [Muriithi] from fully vindicating [his] statutory rights.” The court also found that if “class actions are prohibited by the [Franchise Agreement], the realistic alternative would be that no individual suits are brought given that the costs of each individual arbitration has the potential to exceed any recovery.”

Third, the district court concluded that the one-year limitations provision governing all claims arising out of the Franchise Agreement also “operates to prevent [Muriithi] from vindicating [his] statutory rights,” because the FLSA affords him at least a two-year period in which to assert his claims. 29 U.S.C. § 255(a). The district court thus determined that because the Arbitration Clause was “so permeated by substantively unconscionable provisions,” it could not be remedied by severing the unconscionable parts. Accordingly, the court denied Shuttle Express' motion to compel arbitration. ³ Shuttle Express timely filed a notice of appeal.

II.

We have jurisdiction over this appeal pursuant to 9 U.S.C. § 16(a)(1)(B), which authorizes an appeal from a district court's denial of a petition to compel arbitration brought under Section 4 of the FAA. Shuttle Express challenges the district court's order refusing to compel arbitration, contending that: (1) under the Supreme Court's holding in AT&T Mobility LLC v. Concepcion, the class action waiver is not unconscionable; (2) Muriithi failed to establish that he will incur “prohibitive” arbitration costs under the fee-splitting provision; and (3) the district court erred in holding as part of the motion to compel arbitration that the one-year limitations provision is unconscionable.⁴

A.

Upon petition of a party to an arbitration agreement, a district court may compel arbitration to enforce the parties' agreement to arbitrate their disputes. 9 U.S.C. § 4; Rota–McLarty v. Santander Consumer USA, Inc., 700 F.3d 690, 696 n. 5 (4th Cir.2012). We review de novo a district court's denial of a motion to compel arbitration. Sydnor v. Conseco Fin. Servicing Corp., 252 F.3d 302, 304–05 (4th Cir.2001). We also review de novo questions of state contract law concerning the validity of the parties' arbitration agreement. Rota–McLarty, 700 F.3d at 699.

Section 2 of the FAA provides that 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.” ⁵9 U.S.C. § 2. We apply ordinary state law principles governing the formation of contracts, including principles concerning the “validity, revocability, or enforceability of contracts generally.” Hill v. Peoplesoft USA, Inc., 412 F.3d 540, 543 (4th Cir.2005) (quoting Perry v. Thomas, 482 U.S. 483, 493 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987)). We also apply the federal substantive law of arbitrability, which governs all arbitration agreements encompassed by the FAA. Id. (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).

B.

A court may compel arbitration of a particular dispute only when the parties have agreed to arbitrate their disputes and the scope of the parties' agreement permits resolution of the dispute at issue. United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960); see also UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F.3d 319, 324 n. 2 (4th Cir.2013). The issue whether a dispute is arbitrable presents primarily a question of contract interpretation, requiring that we give effect to the parties' intentions as expressed in their agreement. Wachovia Bank, N.A. v. Schmidt, 445 F.3d 762, 767 (4th Cir.2006). Any uncertainty regarding the scope of arbitrable issues agreed to by the parties must be resolved in favor of arbitration. Moses H. Cone, 460 U.S. at 24–25, 103 S.Ct. 927;see also Hill, 412 F.3d at 543.

In the Franchise Agreement, the parties agreed that “any controversy arising out of this [a]greement shall be submitted to” arbitration. Muriithi's claims under the FLSA and the Maryland Wage and Hour Law, Md. Lab. & Empl.Code §§ 3–401 to 3–431, are based on his allegation that he improperly was classified as an ...