In ordering arbitration of a dispute arising from the aborted sale of a motor vehicle, a federal district court in Virginia held that arbitration was not cost-prohibitive because the designated rules – namely, the National Arbitration Forum Code of Procedure – allowed the claimants to request that the other party cover any expenses that would preclude them from vindicating their statutory rights.

In March v. Tysinger Motor Co., No. 3:07-CV-508, 2007 WL 4358339 (E.D. Va. Dec. 12, 2007), the Marches attempted to buy a motor vehicle from Tysinger by trading in their old vehicle and applying for financing. Several days later, after the trade-in, Tysinger notified the Marches that their application for financing had been rejected.

The Marches sued Tysinger for allegedly violating various consumer protection statutes. In response, Tysinger moved to compel arbitration pursuant to an arbitration agreement in the Buyer's Order. The arbitration agreement required arbitration in accordance with the rules of the National Arbitration Forum (FORUM).

In opposing arbitration, the Marches argued that arbitration before the FORUM would be prohibitively expensive. As support for this argument, the Marches submitted evidence that filing an arbitration claim for more than $500,000 would cost $3,250. The Marches also submitted an affidavit stating that their income exceeded their expenses by only $100 per month.

Based on those allegations, the Court found that arbitration before the FORUM could be prohibitively expensive. However, under the applicable standard, the Marches had to demonstrate that arbitration was likely to be prohibitively expensive. See Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 92 (2000). The Court held that the Marches failed to meet this burden because Rule 44(G) of the FORUM Code of Procedure would allow the Marches to request that Tysinger cover the expense.

In the alternative, the Marches argued that the arbitration agreement was unconscionable because Rule 19 of the FORUM Code of Procedure would preclude them from seeking class-wide relief. In rejecting this argument, the Court explained that even if the FORUM refused to administer a class-wide arbitration, the arbitration agreement was nevertheless enforceable because "arbitration may proceed in a forum that does not replicate every aspect of a court."

Before reaching its holding, the Court discussed a recent Fourth Circuit decision holding that the enforceability of a class waiver is a procedural question for the arbitrator rather than a "gateway issue" for the court. See Davis v. ECPI College of Technology, L.C., No. 05-2122, 2007 WL 840506 (4th Cir. Mar. 20, 2007). The Court described Davis as "an anomaly," but the First Circuit Court of Appeals recently arrived at a similar conclusion in holding that the enforceability of a class waiver was a question for the arbitrator, at least in the first instance, because the waiver contained the caveat "unless your state's law provides otherwise." See Anderson v. Comcast Corp., 500 F.3d 66, 71-72 (1st Cir. 2007).