Nesbitt v. FCNH, Inc.
811 F.3d 371
| 10th Cir. | 2016Background
- Nesbitt enrolled at a Steiner-owned massage therapy school and signed an Enrollment Agreement containing an Arbitration Agreement requiring individual, AAA-rule arbitration and stating each party shall bear its own counsel costs; students could opt out within 30 days.
- Nesbitt and other students sued under the FLSA and Colorado wage laws, alleging students provided paid services to the public but were uncompensated employees; complaint also alleged the arbitration clause violated the NLRA.
- Defendants moved to compel arbitration and stay court proceedings based on the Arbitration Agreement; the district court denied the motion.
- The district court found the Arbitration Agreement was not procedurally unconscionable but held that (1) incorporation of AAA Commercial Rules (including fee-splitting) and (2) the express provision requiring each party to bear its own counsel costs would likely make arbitration prohibitively expensive and thus prevent effective vindication of FLSA rights.
- Because the agreement contained no severability/savings clause and was unambiguous, the district court declined to sever the offending provisions and held the entire Arbitration Agreement unenforceable as to Nesbitt’s claims.
- Defendants appealed; the Tenth Circuit reviewed de novo whether a valid, enforceable arbitration agreement existed and affirmed the district court’s denial of the motion to compel arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Arbitration Agreement is enforceable under the FAA given arbitration costs | Nesbitt: fee and cost provisions (AAA rules + clause each party bears its own counsel costs) would make arbitration effectively inaccessible, so FAA’s effective-vindication exception bars enforcement | Defendants: Nesbitt failed to show arbitration would be prohibitively expensive; she could opt out or seek AAA fee relief; agreement silent on specific fee allocation so court should interpret silence in defendants’ favor | Held: Affirmed district court — effective-vindication exception applies; the fee/cost structure likely precludes vindication of FLSA rights and Nesbitt met her burden |
| Whether Nesbitt failed to meet her burden under Green Tree to show prohibitive arbitration costs | Nesbitt: provided affidavit estimating arbitrator fees and inability to pay; likelihood of prohibitive costs shown | Defendants: Green Tree requires more; opt-out and AAA hardship procedures mean costs are speculative | Held: Tenth Circuit rejects defendants’ Green Tree arguments; opt-out availability does not defeat effective-vindication claim and discretionary AAA relief is not an adequate substitute for accessible statutory remedies |
| Whether the Arbitration Agreement is ambiguous about post‑award fee-shifting under the FLSA | Nesbitt: clause that each party bears its own counsel plus capitalized limits on remedies discourage access despite potential for award of fees under FLSA or AAA rules | Defendants: arbitration incorporates federal law and AAA rules, which permit fee awards, so plaintiff would not be deprived of fee-shifting remedies | Held: Agreement is internally inconsistent/ambiguous; potential future fee awards do not cure the upfront barrier of fees and costs |
| Whether unenforceable provisions could be severed | Nesbitt: agreement lacks a savings/severability clause and is unambiguous; unfair provisions render the entire clause unenforceable | Defendants: court should interpret silence to avoid prohibitive result and sever offending terms | Held: Court agreed with district court that because the agreement contained no effective savings clause and posed substantive barriers, the arbitration clause could not be salvaged for Nesbitt |
Key Cases Cited
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) ( §2 of FAA is primary substantive provision; liberal federal policy favoring arbitration)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (arbitration agreements placed on equal footing with other contracts; saving clause limits)
- Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000) (party seeking to invalidate arbitration agreement on prohibitive cost grounds bears burden to show likelihood of incurring such costs)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (effective-vindication/public-policy concern where arbitration would prospectively waive statutory remedies)
- Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013) (acknowledges effective-vindication exception may cover prohibitive filing/administrative fees)
- Shankle v. B-G Maint. Mgmt. of Colo., Inc., 163 F.3d 1230 (10th Cir. 1999) (arbitration requiring employee to pay arbitrator fees prevented effective vindication and was unenforceable)
- Sanchez v. Nitro-Lift Tech., 762 F.3d 1139 (10th Cir. 2014) (standard of de novo review for denial of motion to compel arbitration)