Originally from Dispute Resolution Journal

CONSUMER

Fee-Silent Arbitration Clause

After ruling that an order compelling arbitration and dismissing a party’s underlying claims is a “final decision with respect to arbitration” that is immediately appealable under section 16(a)(3) of the Federal Arbitration Act, the U.S. Supreme Court went on to hold that the fact that an arbitration clause is silent with respect to costs and fees does not render it unenforceable.

The case was filed by Larketta Randolph, who financed the purchase of a mobile home through Green Tree Financial Corp. The installment contract and security agreement required the buyer to purchase insurance protecting the vendor or lienholder against the costs of repossession in the event of default. It also contained a binding arbitration clause that was silent as to who pays the fees and costs of arbitration.

Randolph sued under the Truth-in-Lending Act, claiming that Green Tree failed to disclose the insurance requirement. A later-added claim alleged violation of the Equal Credit Opportunity Act by requiring arbitration. Green Tree moved to compel arbitration and stay or dismiss the suit. The district court granted Green Tree’s motion, compelling arbitration and dismissing Randolph’s claims with prejudice. After holding it had jurisdiction to hear the appeal, the 11th Circuit reversed, believing the silence of the arbitration clause as to fees and costs might make it too expensive for Randolph to vindicate her statutory rights. Green Tree filed a petition for certiorari.

The Supreme Court affirmed on the procedural issue, finding that the district court’s order directing arbitration of the dispute and dismissing the suit with prejudice was a “final decision” within the well-established meaning of that term. The Court reasoned that the order disposed of the entire case on the merits and left nothing for the court to do but execute the judgment. The Court declined to accept the claim that the distinction between “embedded” proceedings and “independent” proceedings, and its consequences on finality, was incorporated into FAA section 16(a)(3).