Green Tree Financial Corp.-Alabama et al. v. Randolph

United States Supreme Court
531 U.S. 79 (2000)

ELI5:

Rule of Law:

An arbitration agreement that is silent on the allocation of arbitration costs is not per se unenforceable. The party seeking to invalidate the agreement on the grounds of prohibitive costs bears the burden of showing the likelihood of incurring such costs, as a speculative risk is insufficient.

Facts:

Larketta Randolph purchased a mobile home from Better Cents Home Builders, Inc.
She financed the purchase through Green Tree Financial Corporation.
The financing agreement required Randolph to purchase Vendor’s Single Interest insurance to protect the lienholder.
The agreement contained a clause requiring that all disputes arising from the contract be resolved by binding arbitration.
The arbitration clause did not specify how arbitration costs, such as filing fees or arbitrator's fees, would be allocated between the parties.
Randolph believed Green Tree violated the federal Truth in Lending Act (TILA) by failing to disclose the insurance requirement as a finance charge.

Procedural Posture:

Larketta Randolph filed a class-action lawsuit against Green Tree Financial Corp. in the U.S. District Court for the Middle District of Alabama.
Green Tree filed a motion to compel arbitration and dismiss the lawsuit pursuant to the arbitration clause in the financing agreement.
The District Court, as the court of first instance, granted Green Tree's motion to compel arbitration and dismissed Randolph's claims with prejudice.
Randolph (appellant) appealed the dismissal to the U.S. Court of Appeals for the Eleventh Circuit.
The Eleventh Circuit, as the intermediate appellate court, held that it had jurisdiction and reversed the District Court's order, finding the arbitration agreement unenforceable due to its silence on costs.
Green Tree (petitioners) petitioned the U.S. Supreme Court for a writ of certiorari to review the Eleventh Circuit's decision, which the Court granted.

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Issue:

Does an arbitration agreement's silence regarding the allocation of arbitration costs and fees render it unenforceable because it fails to protect a party from potentially prohibitive costs that could prevent them from vindicating their federal statutory rights?

Opinions:

Majority - Chief Justice Rehnquist

No, an arbitration agreement's silence with respect to costs and fees does not render it unenforceable. To invalidate such an agreement, the party resisting arbitration bears the burden of showing that arbitration would be prohibitively expensive. The court's reasoning rests on the 'liberal federal policy favoring arbitration agreements' under the Federal Arbitration Act (FAA). The possibility that Randolph might face 'steep' arbitration costs is too speculative to justify invalidating the agreement. The party challenging the agreement must provide specific evidence showing the likelihood of incurring costs that would effectively prevent them from vindicating their statutory rights. Since Randolph provided no evidence of the costs she would face—only unsupported assumptions—she failed to meet her burden of proof.

Concurring in part and dissenting in part - Justice Ginsburg

No, but the majority incorrectly assigns the burden of proof. While agreeing that the case was appealable, the dissent argues that the Court should not have definitively ruled on the cost issue. The burden should not be on the consumer, who is presented with a take-it-or-leave-it contract, to prove inaccessibility. Green Tree, as the corporate drafter and repeat player, has superior information about arbitration costs and should have the burden of showing the arbitral forum is financially accessible. The case is not ripe for disposition and should have been vacated and remanded for closer consideration of the forum's accessibility, rather than prematurely resolving the issue in the lender's favor.

Analysis:

This decision significantly strengthens the enforceability of arbitration agreements by establishing a high evidentiary bar for challenges based on cost. It places the burden of proof squarely on the party resisting arbitration—typically the consumer or employee—to demonstrate with concrete evidence that the costs would be prohibitive. This ruling makes it more difficult to invalidate adhesion contracts on grounds of potential expense, reinforcing the federal policy favoring arbitration even when key terms like cost allocation are undefined. The decision has a lasting impact by requiring challengers to move beyond speculation and present a detailed showing of likely expenses before a court will invalidate an arbitration clause.

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