Antitrust Law Daily Wrap Up, ANTITRUST—W.D. Ky.: Beauty school may enforce arbitration provisions against students, (May 19, 2016)

By Greg Hammond, J.D.

A Kentucky beauty school was granted its motion to compel arbitration in an antitrust action brought by nine students. The federal district court in Louisville determined that the students did not contest the validity of the delegation clause, rendering the provision valid under the Federal Arbitration Act (FAA), and the delegation clause constituted clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. The students’ challenge to the validity of the agreement as a whole as unconscionable was therefore left to the arbitrator to decide (Mitchell v. EEG, Inc., May 17, 2016, McKinley, J.).

Nine students filed suit against EEG, Inc., doing business as Empire Beauty School, alleging that EEG made a number of false representations. In addition, the students claim that they were coerced into buying textbooks at inflated prices, induced to apply for financial aid they could not afford, taught by unqualified faculty, not given federal student loans in excess of tuition, taught in an unsafe environment, and not provided with the proper materials. They brought claims under Kentucky’s Antitrust Statute and the Kentucky Consumer Protection Act, along with claims for breach of contract, fraud, and civil conspiracy. EEG moved to compel arbitration.

Delegation clause. The court granted the motion to compel arbitration with regard to eight of the students, finding that the different versions of the enrollment agreements contained a delegation clause that allows either party to elect to proceed in arbitration before the American Arbitration Association. The students contested the validity of the enrollment agreement, arguing that it was procedurally and substantively unconscionable. This argument went to the validity of the enrollment agreement as a whole, according to the court, but the existence of the delegation clause was clear and unmistakable evidence that the parties agreed to arbitrate the arbitrability question. Because EEG’s argument that the delegation provision was enforceable remained uncontested by the students, the court did not reach the unconscionability arguments. Rather, the court treated the delegation provision as valid under the FAA and enforced it, leaving any challenge to the validity of the agreement as a whole to the arbitrator.

Forged signature. One student, however, challenged whether any agreement between her and EEG was ever concluded, arguing that her signature on the enrollment agreement was forged. Because this raised a challenge to whether an agreement between EEG and that student was formed in the first place and there was insufficient evidence to determine whether the signature was a forgery, the court ordered limited discovery and denied the motion to compel arbitration with regard to that particular student.

The case is No. 3:15CV-00903-JHM.

Attorneys: Nader G. Shunnarah for Rochelle Mitchell. Caroline L. Pieroni (Dinsmore & Shohl LLP) for EEG, Inc.

Companies: EEG, Inc.

Cases: Antitrust KentuckyNews