ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, November 12, 2013

Ninth Circuit Compels Arbitration of Claims Against For-Profit Colleges

9th CircuitThe same panel that declined to compel arbitration in the Chavarria case, which we disussed yesterday, did compel arbitration against claims brought by a putative class of students against the parent company that owns the for-profits colleges they attended in Ferguson v. Corinthian Colleges, Inc.   Plaintiffs brought claims alleging deceptive business practices.  Defendant moved to compel arbitration, and the District Court granted that motion in part, allowing plaintiffs' claims for injunctive relief under California’s unfair competition law, false advertising law, and Consumer Legal Remedies Act to proceed.  The District Court's decision to allow such claims to proceed relied on the California Supreme Court's Broughton-Cruz rule, which exempts claims for public injuntive relief from arbitration.  But U.S. Supreme Court precedent has now established that the Federal Arbitration Act (FAA) preempts the Broughton-Cruz rule.  Accordingly, the Ninth Circuit reversed the District Court in part and granted Corinthian Colleges motion to compel arbitration.

 The Ninth Circuit summarized plaintiffs' claims as follows:

The thrust of Plaintiffs’ complaints was that Corinthian systematically misled prospective students in order to entice enrollment. Corinthian allegedly misrepresented the quality of its education, its accreditation, the career prospects for its graduates, and the actual cost of education at one of its schools. Students were also allegedly misinformed about financial aid, which resulted in student loans that many could not repay. Corinthian also allegedly targeted veterans and military personnel specifically, so that it could receive funding through federal financial aid programs available to those people.

Plaintiffs brought various claims seeking damages and injunctive relief under California law.

The Ninth Circuit summarized the recent history of U.S. Supreme Court cases in which it held that the FAA preempts various state rules.  In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). it held that the FAA preempted a California rule—known as the Discover Bank rule—which invalidated most class action waivers in adhesion contracts, including arbitration agreements, as unconscionable.  In Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201 (2012) (per curiam), the Supreme Court reiterated its position that "[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA."  

The Ninth Circuit found that rule articulated in Concepcion and Marmet invalidated the  Brouthton/Cruz rule.  After reviewing Supreme Court rulings on the scope of the FAA, the Ninth Circuit concludes that "even where a specific remedy has implications for the public at large, it must be arbitrated under the FAA if the parties have agreed to arbitrate it."

The Ninth Circuit also rejected plaintiffs' argument that their claims were not within the scope of the arbitration agreement.


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