Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—9th Cir.: Students required to arbitrate consumer protection claims against college, (Oct 29, 2013)

By Jody Coultas, J.D.

The U.S. Court of Appeals in San Francisco will require current and former students to arbitrate their California consumer protection law claims against for-profit academic institution Corinthian Colleges, Inc., pursuant to arbitration provisions in enrollment agreements (Ferguson v. Corinthian Colleges, Inc., October 28, 2013, Clifton, R.). The court rejected the students’ arguments that their claims for “public injunctive relief” were exempt from arbitration and that their claims did not fall within the scope of the arbitration agreements.

The students alleged that Corinthian enticed the students to enroll by misrepresenting the quality of its education, its accreditation, the career prospects for its graduates, and the actual cost of education at one of its schools. Corinthian also allegedly misinformed students about financial aid and targeted veterans and military personnel so that it could receive funding through federal financial aid programs. The misrepresentations allegedly violated California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumer Legal Remedies Act (CLRA).

The district court denied Corinthian’s motion to arbitrate the students’ claims for injunctive relief based on the California Supreme Court establishing the Broughton-Cruz rule, which exempts claims for public injunctive relief from arbitration.

Federal Arbitration Act. The Broughton-Cruz rule was preempted by the Federal Arbitration Act (FAA) because it prohibits outright arbitration of a particular type of claim, according to the court. In Broughton v. Cigna Healthplans of California, 988 P.2d 67 (Cal. 1999), the California Supreme Court held that arbitration could not be compelled for “public injunction” claims because of an inherent conflict between arbitration and the purposes of the CLRA. However, in AT&T Mobility LLC v. Concepcion,131 S. Ct. 1740 (2011), the Supreme Court held that state laws that prohibit outright the arbitration of a particular type of claim are preempted by the FAA. The court rejected the students’ argument that because an injunction is technically a remedy rather than a cause of action, the Broughton-Cruz rule was insulated from the FAA. 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 arbitrator may enter injunctive relief against a party that has entered into an arbitration agreement.

The court declined to resolve what, if any, remedy the students might be entitled to should an arbitrator determine that it lacked the authority to issue the requested injunction. Also, the court declined to resolve questions that could arise if a motion is brought in court to confirm an arbitration award that includes injunctive relief, or whether it might be necessary for a court to enforce a public injunction awarded by an arbitrator.

Public injunction claims. The students’ public injunction claims were within the scope of the arbitration agreement, according to the court. Because the scope of an arbitration agreement is a matter of contract, the court looks to the express terms of the agreements to determine whether the parties intended that public injunction claims be arbitrated. The terms of the arbitration agreements were sufficiently broad to encompass the claims.

The case is No. 11-56965.

Attorneys: Albert Y. Chang (Chapin Fitzgerald Sullivan & Bottini LLP) for Kevin Ferguson. Peter W. Homer (HomerBonner P.A.) for Corinthian Colleges, Inc.

Companies: Corinthian Colleges, Inc.

Cases: Advertising StateUnfairTradePractices AlaskaNews ArizonaNews CaliforniaNews HawaiiNews IdahoNews MontanaNews NevadaNews OregonNews WashingtonNews