Reed v. Fla. Metro. Univ., Inc.

• Decision Date: 18 May 2012
• Docket Number: No. 11–50509.,11–50509.
• Citation: 280 Ed. Law Rep. 586,681 F.3d 630
• Parties: Jeffrey H. REED, Plaintiff–Appellee, v. FLORIDA METROPOLITAN UNIVERSITY, INCORPORATED; Corinthian Colleges, Incorporated, Defendants–Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

681 F.3d 630

280 Ed. Law Rep. 586

Jeffrey H. REED, Plaintiff–Appellee,

v.FLORIDA METROPOLITAN UNIVERSITY, INCORPORATED; Corinthian Colleges, Incorporated, Defendants–Appellants.

No. 11–50509.

United States Court of Appeals,Fifth Circuit.

May 18, 2012.

Jonathan B. Cohen, Sean Patrick Keefe (argued), James, Hoyer, Newcomer, Smiljanich & Yanchunis, P.A., Tampa, FL, for Plaintiff–Appellee.

Peter Winslow Homer (argued), Christopher John King, HomerBonner, P.A., Miami, FL, John J. McKetta, III, Matthew Christopher Powers, Lit. Counsel, Graves, Dougherty, Hearon & Moody, P.C., Austin, TX, for Defendants–Appellants.

Appeal from the United States District Court for the Western District of Texas.

Before KING, BENAVIDES and DENNIS, Circuit Judges.

KING, Circuit Judge:

Defendants–Appellants Florida Metropolitan University and Corinthian Colleges appeal the district court's confirmation of an arbitral award that requires them to submit to class arbitration. They contend that the district court, not the arbitrator, should have decided whether the parties' agreement provided for class arbitration, and that the district court should have vacated the arbitrator's class arbitration award. Because the parties agreed that the arbitrator should decide the class arbitration issue, we conclude that the district court correctly referred that issue to the arbitrator. The district court erred, however, in confirming the award because the arbitrator exceeded his powers. We therefore REVERSE the district court's order and REMAND for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 2008, Plaintiff–Appellee Jeffrey Reed (“Reed”) enrolled in Everest University Online's (“Everest”) distance learning program,¹ and subsequently obtained a bachelor's degree in paralegal studies. Reed planned to attend law school upon graduation, and enrolled in Everest after receiving assurances from school officials that the college's degree would be accepted by educational institutions and employers. Reed soon discovered, however, that law schools would not recognize his bachelor's degree, nor would the local police department, where he sought employment. Reed accrued more than $51,000 in student loan debt while attending Everest.

Dissatisfied with his experience at Everest, Reed filed a putative class action in Texas state court, alleging that Defendants–Appellants Corinthian Colleges and Florida Metropolitan University (together, the “School”) had violated certain provisions of the Texas Education Code by soliciting students in Texas without the appropriate certifications.² Reed sought approximately $51,000 in damages, plus attorney's fees. Reed defined the putative class as “[a]ny person who contracted to receive distance education from Everest University Online while residing in Texas.”

The School removed the action to the district court, and then moved to compel individual arbitration pursuant to the arbitration provision of the Enrollment Agreement. The arbitration provision provides, in relevant part:

The student agrees that any dispute arising from my enrollment at Everest University, no matter how described, pleaded or styled, shall be resolved by binding arbitration under the Federal Arbitration Act conducted by the American Arbitration Association (“AAA”) under its Commercial Rules. The award rendered by the arbitrator may be enforced in any court having jurisdiction.

Terms of Arbitration

1. Both student and Everest University irrevocably agree that any dispute between them shall be submitted to Arbitration.

2. Neither the student nor Everest University shall file or maintain any lawsuit in any court against the other, and agree that any suit filed in violation of this Agreement shall be dismissed by

the court in favor of an arbitration conducted pursuant to this Agreement.

...

4. The arbitrator's decision shall be set forth in writing and shall set forth the essential findings and conclusions upon which the decision is based.

5. Any remedy available from a court under the law shall be available in the arbitration.

...

Acknowledgment of Waiver of Jury Trial and Availability of AAA Rules

By my signature on the reverse, I acknowledge that I understand that both I and Everest University are irrevocably waiving rights to a trial by jury, and are selecting instead to submit any and all claims to the decision of an arbitrator instead of a court. I understand that the award of the arbitrator will be binding, and not merely advisory.

The district court granted the School's motion to compel arbitration and stayed the action pending arbitration. It found that a valid arbitration agreement existed, that the parties' dispute was within the scope of the agreement, and that the arbitration clause was not unconscionable. The district court declined, however, to address whether the parties' agreement provided for class arbitration, concluding that the issue is “more appropriately decided by the arbitrator.”

The case then proceeded before an American Arbitration Association (“AAA”) arbitrator. Reed moved for a Clause Construction Award under the AAA Supplementary Rules for Class Arbitration, seeking class arbitration. The arbitrator determined that the parties implicitly agreed to class arbitration and entered an award to that effect. Reed then sought to confirm the arbitration award in the district court, and the School moved to vacate the award on the basis that the arbitrator exceeded his powers. The School argued that the award conflicted with the recent Supreme Court decisions in Stolt–Nielsen S.A. v. AnimalFeeds International Corp., ––– U.S. ––––, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010), and AT&T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). The district court confirmed the award, finding it to be consistent with recent precedent and a “reasonable interpretation of the contract in light of the [Federal Arbitration Act] and Texas law.” The School appealed.

II. DISCUSSION

This appeal requires us to address two issues. Our first task is to determine whether the district court erred when it allowed the arbitrator to decide whether the parties agreed to class arbitration. Second, we must decide whether the district court properly denied the School's motion to vacate the arbitrator's award.

1. The District Court Properly Referred the Class Arbitration Issue to the Arbitrator

The School contends that the district court erred when it allowed the arbitrator to determine whether the parties' arbitration agreement allowed for class arbitration, instead of deciding the issue itself. We disagree.

The Supreme Court has not definitively decided this issue. In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003), four Justices concluded that the class arbitration issue did not constitute a “gateway” or arbitrability matter that is generally decided by a court, but was instead a procedural matter for the arbitrator. Id. at 452, 123 S.Ct. 2402. In Stolt–Nielsen, the Court confirmed that Green Tree “did not yield a majority decision” on this issue. 130 S.Ct. at 1772. The Stolt–Nielsen Court declined to revisit the question because the parties in that case had agreed to submit the question to the arbitrator rather than the court. Id. At least at the Supreme Court level, therefore, the question remains open.³

According to the School, the district court should have resolved the class arbitration issue because the parties expressly submitted that issue to the court for resolution. We disagree. Reed's opposition to the School's motion to compel arbitration was restricted largely to issues of the applicability and unconscionability of the arbitration clause. Reed, in fact, requested that the court “find that no valid, enforceable arbitration agreement exists, and that Plaintiff may proceed with this case before [the district court].” Reed's discussion of class arbitration came only when he argued that requiring individual arbitration would render the arbitration agreement unconscionable. Although Reed argued that the case should proceed as a class even if it were referred to arbitration, he did so only in response to the School's motion to compel arbitration. Nor did the district court understand Reed to make a class arbitration argument. It summarized, “Reed ... argues that his claims are not within the scope of the arbitration agreement, that Defendants are not parties to the arbitration agreement, that Texas law makes the arbitration agreement unenforceable, and that the arbitration agreement is illusory and unconscionable, and thus unenforceable.” Indeed, as Reed sought to avoid arbitration altogether and to proceed as a class action, we cannot conclude that he intended to submit the class arbitration issue to the district court.

We now turn to the arbitration rules to which the parties agreed. As noted above, the parties explicitly agreed to adopt the AAA's Commercial Rules when they entered into their agreement in 2008. These rules do not contain class arbitration procedures; rather, such procedures are provided in the separate Supplementary Rules for Class Arbitration, which were enacted in October 2003 after the Supreme Court's Green Tree decision. See Stolt–Nielsen, 130 S.Ct. at 1765 (discussing development of Supplementary Rules). Shortly before it issued the Supplementary Rules, the AAA explained, “[t]he Association's various rules are silent on the issue of class arbitration and the Association has taken no position on the availability of class arbitrations. To accommodate these types of cases, the Association has commenced drafting supplementary rules that will govern the Association's administration of class arbitrations.” AAA Policy Statement, available at http:// www. adr. org/ index 2. 1. jsp? JSPssid= 15753& JSPaid= 43425. By their terms, these Supplementary Rules apply “to any dispute arising out of an agreement that provides for arbitration pursuant to any of...