June 22, 2011
Court Compels Arbitration Clauses Against Students
Here's a story that makes one stop and think. The Chronicle of Higher Education (premium content subscribers) is reporting on a federal case where students in Colorado sued Westwood College there for allegedly misrepresenting its tuition costs, accreditation status, and job prospects for graduates. Does that last one sound familiar? Well, the school found a slick way to defeat the suit and avoid a class action on the matter. It placed an arbitration of disputes clause in its enrollment documents. There were two sets of plaintiffs in this case. One set were students who sued the Westwood's parent group directly (the Bernal plaintiffs). Another set files an arbitration proceeding seeking class arbitration (The Mensch plaintiffs). This led to some procedural issue affecting both sets.
The arbitrator for the Mensch plaintiffs said that the contract was not unconscionable and that nothing in the agreement allowed him to compel class arbitration. A Colorado state court confirmed the ruling. The question in the suit, at this stage of the litigation, is whether the arbitrator's decision is binding, and if collateral estoppel does not apply, whether the arbitration agreement is unconscionable. The Court, in considering the question, cited the recent Supreme Court precedent in AT & T Mobility LLC v. Concepcion from April 27 of this year. Concepcion basically held that states can't prohibit arbitration clauses in contracts as unconscionable under their law, even in adhesion contracts, if that prohibition conflicts with the Federal Arbitration Act's presumption in favor of arbitration. I think you can see where this is going.
The Court basically stated it could consider whether the agreement is the unconscionable and would have issued a ruling stating that it was, but for Concepcion. That changed everthing. From the Court:
There is no doubt that Concepcion was a serious blow to consumer class actions and likely foreclosed the possibility of any recovery for many wronged individuals. The dissent in Concepcion recognized the impact of the majority's decision and argued that it would effectively end the ability to prosecute small-dollar claims and that those claims would slip through the legal system. Id. at 1761. Countering this argument, the majority wrote: “States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.” Id. at 1753. Thus, the Supreme Court considered the fact that the Concepcions and other class plaintiffs would be denied any recovery by its ruling, and ruled against the class plaintiffs nonetheless. The Court is bound by this ruling and, therefore, cannot be persuaded in this case by the fact that ordering the parties to arbitration may impact Plaintiffs' ability to recover.
Ultimately, there is no dispute that the agreement to arbitrate was prominently written in the enrollment documents, including an entirely separate document entitled “Agreement to Binding Arbitration and Waiver of Jury Trial”. (ECF No. 15–2.) There is also no evidence that Plaintiffs were subject to significant external pressure driving them to sign the documents without taking time to review them and/or have someone else review them. The Arbitration Agreements here appear to contain relatively standard terms, which would suggest that they are substantively fair. Plaintiffs had to ability to cancel the contracts and receive a substantial refund. Finally, there is a competitive market for education programs such as those offered by Defendants and Plaintiffs could have chosen to pursue their education elsewhere. All of these factors weigh against a finding of unconscionability. (footnotes omitted)
The Court went on to compel arbitration. Can you imagine law schools placing arbitration agreements in their enrollment documents? Consider that as an option to avoid student threats to sue over misrepresentation of job prospects or other disputes. That would certainly teach law students something about the law. The case is on Westlaw with supporting documents, Bernal v. Burnett (D. Colo., June 06, 2011) 2011 WL 2182903. [MG]