Hubbard v. Career Education Corporation et al

Filing 43

MEMORANDUM AND ORDER. IT IS HEREBY ORDERED that Defendant CEC's Motion to Compel Arbitration and stay the litigation [# 13 ] is GRANTED and its alternative motion to dismiss is DENIED. IT IS FURTHER ORDERED that Defendant CEC's motion to stay discovery pending a ruling on the motion to compel [# 15 ] is DENIED as moot. IT IS FURTHER ORDERED that this case is STAYED pending completion of the arbitration, and the parties must file a notice to the court within ten days of the conclusion of arbitration. If not concluded by May 25, 2012, the parties must on that date file a joint report setting forth the status of the arbitration. IT IS FURTHER ORDERED that defendant's motion for leave to file supplemental authority [# 42 ] is GRANTED. Signed by Honorable Catherine D. Perry on 11/30/2011. (CBL)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
MISHA HUBBARD,

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Plaintiff,
vs.
CAREER EDUCATION
CORPORATION et al.,

Defendant.

No. 4:11 CV 995 CDP

MEMORANDUM AND ORDER
This matter is before the Court on Defendant’s Motion to Compel
Arbitration and to Dismiss, or Alternatively Stay, this case. For the reasons set
forth below, the Motion to Compel Arbitration is granted.
Facts and Background
Plaintiff, Misha Hubbard, enrolled in the Health Information Technology
Program at Defendant Sanford-Brown College’s (“SBC”) Hazelwood, Missouri
campus on July 29, 2004. SBC owns and operates private career colleges in
Missouri. Defendant Career Education Corporation (“CEC”) owns SBC. At the
time she enrolled Hubbard signed an Enrollment Agreement that included an
arbitration clause that provided:
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10. Dispute Resolution: Any disputes or controversies between the
parties to this Agreement arising out of or relating to the student’s
recruitment, enrollment, attendance, education or career service
assistance by the College or to this Agreement shall be resolved first
through the grievance policy published in the catalog. If not resolved
in accordance with the procedures outlined in the school catalog . . . ,
then the dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association then in effect . . . . Any such arbitration shall be the sole
remedy for the resolution of any disputes or controversies between
the parties to this agreement.
Hubbard filed this lawsuit on May 25, 2011, alleging that CEC and SBC
(collectively “CEC”) made various misrepresentations or omissions concerning
the school’s program and the career opportunities of its graduates. Hubbard
asserts common law fraud (Counts I & II) and violations of the Missouri
Merchandising Practices Act (Count III). All of her claims arise out of her
recruitment, enrollment, and attendance at SBC.
Discussion
The Federal Arbitration Act (FAA) applies to all contracts involving
interstate commerce. 9 U.S.C. § 1 et seq. “The FAA reflects the fundamental
principle that arbitration is a matter of contract.” Rent-A-Center, West, Inc. v.
Jackson, 130 S.Ct. 2772, 2776 (2010). Section 2 of the Act states that an
agreement to arbitrate “shall be valid, irrevocable, and enforceable save upon such
grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. §
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2. The FAA established a strong policy favoring arbitration and “any doubts
concerning the scope of arbitrable issues should be resolved in favor of
arbitration.” Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 24–25 (1983) superseded by statute on other grounds. The Supreme Court has
recently reaffirmed that parties can also agree to arbitrate threshold questions of
arbitrability, such as whether parties have agreed to arbitrate or whether an
arbitration agreement is enforceable. Rent-A-Center, 130 S.Ct. at 2777 (citing
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83–85 (2002); Green Tree
Financial Corp. v. Bazzle, 539 U.S. 444, 452 (2003) (plurality opinion)).
The arbitration clause in the parties’ agreement has a broad scope. The
agreement states that “[i]f not resolved in accordance with the procedures outlined
in the school catalog . . . , then the dispute shall be resolved by binding
arbitration.” This is broad enough to include Hubbard’s common law fraud and
Missouri Merchandising Practices Act claims. The parties to this agreement also
agreed to abide by the rules of the Commercial Rules of the American Arbitration
Association (AAA). Inclusion of these rules into an arbitration agreement serves
as clear and unmistakable evidence that the parties intended to have the arbitrator
decide threshold issues of arbitrability. Fallo v. High-Tech Institute, 559 F.3d 874,
878 (2009).
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Additionally, the issues concerning the enforceability of the arbitration
agreement, including Hubbard’s unconscionability claims, are for the arbitrator to
decide. When an arbitration clause contains a clear and unmistakable agreement
to arbitrate issues of arbitrability, as here, issues of the clause’s enforceability will
be for the arbitrator to decide unless the provision delegating such authority to the
arbitrator is specifically challenged. Rent-A-Center, 130 S.Ct. at 2779. Hubbard
has failed to specifically challenge the provision of the agreement which allows
the arbitrator to decide enforceability of the arbitration clause. Hubbard claims
that four provisions of the agreement are unconscionable. Those provisions are: 1)
a provision requiring the arbitrator to have experience in the administration and
operation of post secondary educational institutions; 2) a provision requiring the
parties to split the arbitration costs; 3) a provision limiting damages; and 4) a
provision prohibiting recovery of attorney’s fees. None of these arguments,
however, alleges that the delegation provision itself is unconscionable. None of
the challenged provisions affect Hubbard’s ability to arbitrate whether the
arbitration agreement is valid and enforceable, and thus, the arbitrator must decide
the enforceability of the arbitration agreement. See Chisolm v. Career Education
Corp., 4:11 CV 994 HEA (E.D. Mo. November 14, 2011); Kenner v. Career
Education Corp.; 4:11 CV 997 AGF (E.D. Mo. November 29, 2011).
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The Court is also unpersuaded that CEC has waived its right to arbitration.
A party waives its right to arbitrate if it: 1) had knowledge of the existing right to
arbitrate, 2) acted inconsistently with that right, and 3) prejudiced the party
opposing arbitration. Stifel, Nicolaus & Co. v. Freeman, 924 F.2d 157, 158 (8th
Cir. 1991). Any doubts concerning an allegation of waiver should be resolved in
favor of arbitrability. Id. A party opposing arbitration “bears a heavy burden of
proving waiver.” Newsom v. Anheuser-Busch Cos., 286 F. Supp. 2d. 1063, 1067
(E.D. Mo. 2003). All of Hubbard’s claims that CEC waived arbitration involve
conduct from a previous lawsuit brought by a group of plaintiffs, including
Hubbard, against SBC and CEC. The plaintiffs voluntarily dismissed that suit.
Hubbard then brought this suit alleging similar claims. In both Missouri and the
Federal Courts, when a plaintiff voluntarily dismisses a lawsuit, that suit is treated
as if it were never brought. Richter v. Union Pacific R.R. Co., 265 S.W.3d 294,
297 (Mo. Ct. App. 2008); Smith v. Dowden, 47 F.3d 940, 943 (8th Cir. 1995).
Hubbard has failed to meet the heavy burden to show waiver based on CEC’s
conduct in this case. She has not shown how CEC acted inconsistently with its
right to arbitration in the current case, or how she was prejudiced by any such
action. As such, the Court compels arbitration here, and will stay this case until
the parties complete arbitration as called for in the Enrollment Agreement.
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Accordingly,
IT IS HEREBY ORDERED that Defendant CEC’s Motion to Compel
Arbitration and stay the litigation [#13] is GRANTED and its alternative motion
to dismiss is DENIED.
IT IS FURTHER ORDERED that Defendant CEC’s motion to stay
discovery pending a ruling on the motion to compel [#15] is DENIED as moot.
IT IS FURTHER ORDERED that this case is STAYED pending
completion of the arbitration, and the parties must file a notice to the court within
ten days of the conclusion of arbitration. If not concluded by May 25, 2012, the
parties must on that date file a joint report setting forth the status of the arbitration.
IT IS FURTHER ORDERED that defendant’s motion for leave to file
supplemental authority [#42] is GRANTED.

CATHERINE D. PERRY
UNITED STATES DISTRICT JUDGE

Dated this 30th day of November, 2011.

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