Fox v. Career Education Corporation et al

Filing 40

MEMORANDUM;... Therefore, the motions of defendants to compel arbitration and to stay this action pending the completion of arbitration (Docs. 12 and 14 ) are sustained. The alternative motion of defendants to dismiss (Doc. 16 ) is denied without prejudice. An appropriate Order is issued herewith. Signed by Magistrate Judge David D. Noce on 04/11/2012; (DJO)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
CANDACE FOX,

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)
)
)
)
)
)
)
)
)

Plaintiff,
v.
CAREER EDUCATION CORPORATION and
SANFORD BROWN COLLEGE, INC.,
Defendants.

No. 4:11 CV 1584 DDN

MEMORANDUM
This action is before the court on the motions of defendants Career
Education

Corporation

arbitration

(Doc.

and

12),

to

Sanford
stay

Brown

the

College,

action

Inc.

pending

arbitration (Doc. 14), and to dismiss (Doc. 16).

to

compel

completion

of

The parties have

consented to the exercise of plenary authority by the undersigned United
States Magistrate Judge pursuant to 28 U.S.C. § 636(c).

(Doc. 18.)

For the reasons set forth below, the court sustains defendants’
motion

to

compel

arbitration

(Doc.

12),

stays

the

action

pending

completion of arbitration (Doc. 14), and denies the motion to dismiss
without prejudice (Doc. 16).
I.

BACKGROUND

On August 17, 2011, plaintiff Candace Fox commenced this action
against defendants Career Education Corporation (CEC) and Sanford Brown
College, Inc. (SBC) (collectively defendants) in the Circuit Court of St.
Louis County, Missouri.

(Doc. 6.)

On September 13, 2011, defendants

removed the action to this court pursuant to 28 U.S.C. § 1441, on the
basis of diversity of citizenship jurisdiction, 28 U.S.C. § 1332.

(Doc.

1.)
According to the complaint, defendants own and operate for-profit
educational institutions, including Sanford Brown College in Fenton,
Hazelwood, and St. Peters, Missouri.

(Doc. 6 at ¶¶ 2-4.)

Plaintiff alleges that she attended Sanford Brown College in Fenton
and Hazelwood, Missouri.

(Id. at ¶ 6.)

She paid for tuition with a

combination of her own money, money from federal grants, and money from
loans, which she alleges she was encouraged to take out by certain
employees and representatives of defendants.

(Id.)

Plaintiff alleges that during her admissions process to Sanford
Brown

College,

defendants’

employees

and

agents

misrepresented

the

quality of the training, curriculum, instructors, and campuses at Sanford
Brown College, her prospective salary after graduation, and her ability
to transfer credits to other colleges.
that

she

enrolling

relied
at

on

Sanford

these

(Id. at ¶ 7.)

misrepresentations

Brown

College,

and

applying

purchasing books and supplies, and paying tuition.

Plaintiff alleges
was

for

induced

student

into

loans,

(Id. at ¶ 11.)

When plaintiff enrolled in the Emergency Medical Services program
at Sanford Brown College, she signed an Enrollment Agreement that
included an arbitration clause:
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
to the satisfaction of the student, then the dispute shall be
resolved by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association then in effect or in accordance with procedures
that the parties agree to in the alternative. The Federal
Arbitration Act and related federal judicial procedure shall
govern this agreement to the fullest extent possible,
excluding all state arbitration law, irrespective of the
location of the arbitration proceedings or of the nature of
the court in which any related proceedings may be brought.
Any such arbitration shall be the sole remedy for the
resolution of any disputes or controversies between the
parties to this agreement. Any such arbitration shall take
place before a neutral arbitrator in a locale near the College
unless the Student and the College agree otherwise.
The
arbitrator must have knowledge of and actual experience in the
administration and operation of postsecondary educational
institutions unless the parties agree otherwise.
The
arbitrator shall apply federal law to the fullest extent
possible in rendering a decision. The arbitrator shall have
the authority to award monetary damages measured by the
prevailing party’s actual damages and may grant any
nonmonetary remedy or relief that the arbitrator deems just
and equitable and within the scope of this agreement between
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the parties. Judgment on the award rendered by the arbitrator
may be entered in any court having jurisdiction.
The
arbitrator shall not have any authority to award punitive
damages, treble damages, consequential or indirect damages, or
other damages not measured by the prevailing party’s actual
damages, or to award attorney’s fees. The arbitrator also
shall not have any authority to alter any grade issued to a
student. The parties shall bear their own costs and expenses.
The parties shall also bear an equal share of the fees and
costs of the arbitration, which include but are not limited to
the fees and costs of the arbitrator, unless the parties agree
otherwise or the arbitrator determines otherwise in the award.
Except as may be required by law, neither a party nor an
arbitrator may disclose the existence, content, or results of
any such arbitration without the prior written consent of both
parties.
(Doc. 13-1 at 3, 4 (emphasis added).)1
In Count I, plaintiff alleges that defendants knowingly made
fraudulent misrepresentations and omissions in order to induce her into
enrolling at Sanford Brown College.

(Doc. 6 at ¶¶ 12-21.)

In Count II,

plaintiff alleges that defendants violated the Missouri Merchandising
Practices

Act,

Mo.

Rev.

Stat.

§§

407.010-407.1500,

through

deceptive and fraudulent misrepresentations and omissions.
¶¶ 22-27.)

their

(Doc. 6 at

In Count III, plaintiff alleges that defendants fraudulently

concealed and omitted facts regarding her potential salary, ability to
transfer credit hours to other colleges, future tuition rates, and future
loan obligations.

(Id. at ¶¶ 28-42.)

Plaintiff seeks damages from her payment of and future obligation
to pay for tuition, books, supplies, and equipment, as well as her
obligations to pay fees, incidental expenses, and interest expenses.
(Id. at ¶¶ 20, 26, 41.)

Plaintiff also seeks punitive damages.

(Id. at

¶¶ 21, 27, 42.)

1

Although the Enrollment Agreement was not attached to plaintiff’s
complaint, it was “necessarily embraced by the pleadings” and thus may
be considered by the court without converting the motion to dismiss into
a motion for summary judgment. Noble Sys. Corp. v. Alorica Central, LLC,
543 F.3d 978, 982 (8th Cir. 2008).
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II.

MOTION TO COMPEL ARBITRATION

Defendants move to compel arbitration (Doc. 12) and to stay or
dismiss the action pending completion of arbitration (Docs. 12, 14, 16).
In

their

motion

to

compel

arbitration,

defendants

argue

that

the

Enrollment Agreement between the parties contains a binding, enforceable
arbitration clause that covers plaintiff’s claims.

(Docs. 12, 13.)

Plaintiff responds that the arbitration clause is unenforceable
because it is unconscionable.

Plaintiff argues that the arbitration

clause is procedurally unconscionable because defendants’ representatives
made misrepresentations to her, pressured her into signing the Enrollment
Agreement without discussion or negotiation, and hid the arbitration
clause in small print on the last page of the Enrollment Agreement.
Plaintiff also argues that the Enrollment Agreement is a contract of
adhesion because it was offered on a take-it-or-leave-it basis and
because the parties had unequal bargaining power.
argues

that

the

arbitration

clause

is

Plaintiff further

substantively

unconscionable

because it precludes recovery of punitive damages and because it requires
her to pay one-half of the cost of arbitration, thereby making litigation
prohibitively expensive to her.

(Doc. 27.)

Defendants reply that any dispute regarding the enforceability of
the arbitration clause should be decided by an arbitrator.

Defendants

also argue that the arbitration clause is neither procedurally nor
substantively unconscionable.

(Doc. 32.)

III.

DISCUSSION

Section 2 of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16,
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. § 2.

This provision reflects the

strong federal policy favoring arbitration and requires courts to enforce
arbitration agreements according to their terms.
Concepcion, 131 S. Ct. 1740, 1745 (2011).

AT&T Mobility LLC v.

Any doubts concerning the

scope of arbitrable issues should be resolved in favor of arbitration.
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25
(1983).
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“[W]hen deciding whether to compel arbitration, a court asks whether
a valid agreement to arbitrate exists, and if so, whether the dispute
falls within the scope of that agreement.” Newspaper Guild of St. Louis,
Local 36047 v. St. Louis Post Dispatch, LLC, 641 F.3d 263, 266 (8th Cir.
2011).

Plaintiff does not dispute that her claims fall within the ambit

of the arbitration clause. Rather, plaintiff argues that the arbitration
clause is unenforceable because it is unconscionable.
Here, however, the parties agreed to abide by the Commercial Rules
of the American Arbitration Association (AAA Rules).

(Doc. 13-1 at 4.)

Rule 7(a) of the AAA Rules states that “[t]he arbitrator shall have the
power to rule on his or her own jurisdiction, including any objections
with respect to the existence, scope or validity of the arbitration
agreement.”

(Doc. 32-1 at 9.)

Parties are free to agree to arbitrate threshold or “gateway”
questions of arbitrability.

Rent-A-Center, West, Inc. v. Jackson, 130

S. Ct. 2772, 2777 (2010) (noting that this “reflects the principle that
arbitration is a matter of contract”).

“By incorporating the AAA Rules,

the parties agreed to allow the arbitrator to determine threshold
questions of arbitrability.” Green v. SuperShuttle Int’l, Inc., 653 F.3d
766, 769 (8th Cir. 2011). Inclusion of the AAA Rules into an arbitration
agreement is a “clear and unmistakable expression of the parties’ intent
to leave the question of arbitrability to an arbitrator.” Fallo v. HighTech Inst., 559 F.3d 874, 878 (8th Cir. 2009).

“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.”

Hubbard v.

Career Educ. Corp., No. 4:11 CV 995 CDP, 2011 WL 5976070, at *2 (E.D. Mo.
Nov. 30, 2011) (citing Rent-A-Center, 130 S. Ct. at 2779); accord
Mitchell v. Career Educ. Corp., No. 4:11 CV 1581 TCM, 2011 WL 6009658,
at *3 (E.D. Mo. Dec. 1, 2011) (citing Rent-A-Center, 130 S. Ct. at 2779).
This

is

true

even

when

the

delegation

clause

is

embedded

in

an

arbitration clause and when the arbitration clause is included in the
parties’ contract rather than agreed to in an independent contract.
Rent-A-Center, 130 S. Ct. at 2779 (noting that the nature of the
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underlying contract “makes no difference” because “[a]pplication of the
severability rule does not depend on the substance of the remainder of
the contract”); see also id. at 2779 n.3 (finding “no logical reason why
an agreement to arbitrate one controversy (an employment-discrimination
claim) is not severable from an agreement to arbitrate a different
controversy (enforceability)” and noting that “the invalidity of one
provision within an arbitration agreement does not necessarily invalidate
its other provisions” (emphasis omitted)).
None

of plaintiff’s arguments challenge the provision of the

arbitration clause delegating authority to an arbitrator to resolve
issues of arbitrability. Thus, it is for the arbitrator to determine the
enforceability of the arbitration clause.

Rent-A-Center, 130 S. Ct. at

2779; accord Womack v. Career Educ. Corp., No. 4:11 CV 1003 RWS, 2011 WL
6010912, at *2 (E.D. Mo. Dec. 2, 2011); Hubbard, 2011 WL 5976070, at *2;
Chisholm v. Career Educ. Corp., No. 4:11 CV 994 HEA, 2011 WL 5524552, at
*2 (E.D. Mo. Nov. 14, 2011).
Therefore, the motions of defendants to compel arbitration and to
stay this action pending the completion of arbitration (Docs. 12 and 14)
are sustained. The alternative motion of defendants to dismiss (Doc. 16)
is denied without prejudice.

An appropriate Order is issued herewith.

/S/
David D. Noce
UNITED STATES MAGISTRATE JUDGE
Signed on April 11, 2012.

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