Torres v. Simpatico, Inc.
2015 U.S. App. LEXIS 4830
8th Cir.2015Background
- Appellants are current or former unit franchisees of Stratus Franchising who sued master franchisers and related entities (Stratus Group) in a putative RICO class action.
- Each appellant signed a standard unit-franchise Agreement containing a broad arbitration clause requiring individual binding arbitration of disputes.
- The district court, applying Missouri contract law, granted the Stratus Group’s motion to compel individual arbitration and held non-signatory entities could invoke the clause as third‑party beneficiaries.
- Appellants argued the arbitration clause was unconscionable because individual arbitration would be prohibitively expensive (fee prepayment, cost-shifting provisions) and because it waived certain remedies (punitive damages, attorney’s fees).
- Appellants also argued non-signatories could not enforce the arbitration provision; the district court found the Agreement clearly intended to benefit and bind affiliates and named non-signatory beneficiaries.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitration clause is unenforceable as unconscionable due to arbitration costs | Arbitration fees, prepayment, and cost‑shifting make individual arbitration prohibitively expensive and effectively bar vindication of rights | Appellants failed to present specific, non‑speculative evidence of likely fees or their inability to pay; clause allows arbitrator cost allocation | Arbitration enforceable — appellants did not meet burden to show costs make arbitration inaccessible |
| Whether waiver of punitive damages/attorney’s fees in arbitration makes clause invalid | Waiver of punitive/exemplary damages and attorney’s fees undermines remedies available under RICO and is unconscionable | Remedy issues concern merits and are for the arbitrator to address; do not invalidate the arbitration agreement | Dismissed — remedy limitations are for arbitrators to consider in crafting relief and do not affect clause validity |
| Whether non‑signatory Stratus Group members may invoke arbitration clause | Non‑signatories lack standing to enforce agreements they did not sign | Agreement expressly names affiliates and states it is intended to benefit and bind certain third‑party non‑signatories; other contract provisions (insurance, indemnity, assumption) show intended benefit | Non‑signatories may enforce arbitration as third‑party beneficiaries under Missouri law |
| Whether plaintiffs’ RICO claims fall within arbitration clause scope | Plaintiffs asserted RICO claims based in part on fraud connected to the Agreement | Arbitration clause broadly covers controversies between signatories and affiliates; district court previously held RICO claims fall within clause | Not contested on appeal; court enforces arbitration for these RICO claims |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA preempts state rules that obstruct enforcement of arbitration agreements)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (federal policy favoring arbitration)
- Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996) (state contract defenses invalidating arbitration must be generally applicable)
- Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000) (party challenging arbitration must show specific, not speculative, likelihood of prohibitive costs)
- Faber v. Menard, Inc., 367 F.3d 1048 (8th Cir. 2004) (standard of review and burden to show arbitration costs render forum inaccessible)
- Cicle v. Chase Bank USA, 583 F.3d 549 (8th Cir. 2009) (cost‑sharing and cost‑shifting provisions can save arbitration clause from being unconscionable)
- Larry’s United Super, Inc. v. Werries, 253 F.3d 1083 (8th Cir. 2001) (remedy questions belong to arbitrator in the first instance)
- Donaldson Co. v. Burroughs Diesel, Inc., 581 F.3d 726 (8th Cir. 2009) (state law governs nonsignatory enforcement of arbitration clauses)
- Robinson v. Title Lenders, Inc., 364 S.W.3d 505 (Mo. 2012) (Missouri limits unconscionability review to contract formation context)
- Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. 2012) (Missouri discussion of unconscionability principles and formation-focused review)