Fourth Circuit Enforces Arbitration Clause Over Franchisee Challenge

Muriithi v. Shuttle Express, Inc., 712 F.3d 173 (4th Cir. 2013)

In a recent case involving three different challenges to an arbitration clause in a franchise agreement, the U.S. Court of Appeals for the Fourth Circuit held that the arbitration clause was enforceable despite the agreement's inclusion of (1) a class-action waiver, (2) a fee-splitting clause, and (3) a one-year limitations provision. In Muriithi v. Shuttle Express, Inc., 712 F.3d 173 (4th Cir. 2013), the plaintiff, Samuel Muriithi, was a driver for defendant Shuttle Express, a shuttle service operating in the area of the Baltimore/Washington International Thurgood Marshall Airport. Muriithi filed suit in federal court against Shuttle Express, asserting claims under the federal Fair Labor Standards Act (FLSA) and under Maryland law. He alleged that in 2007 Shuttle Express had induced him to sign a "Unit Franchise Agreement" based on misrepresentations about his compensation and further alleged that the franchise agreement wrongly classified him as an "independent contractor" or "franchisee" instead of an "employee." Muriithi sought to bring the claims as a class action against Shuttle Express. Shuttle Express moved to dismiss the complaint for failure to state a claim or, in the alternative, to compel arbitration under the Federal Arbitration Act, 9 U.S.C. § 4, based on the following arbitration clause in the parties' franchise agreement:

Except as provided below, any controversy arising out of this Agreement shall be submitted to the American Arbitration Association at its office 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. Id . at *3-4. As noted, the agreement also contained a class-action waiver, a fee-splitting clause, and a one-year limitations provision. The district court denied the request to compel arbitration, holding that although the claims brought by Muriithi were within the scope of the arbitration clause, the arbitration clause was unenforceable. Specifically, the district court concluded that three provisions were unconscionable: First, the court addressed the arbitration provision's fee-splitting clause, which provided "[t]he 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." Id. at *4. Based on the district court's...