Ferguson v. Corinthian Colls., Inc.

• Decision Date: 28 October 2013
• Docket Number: No. 11–56965.,11–56965.
• Citation: 733 F.3d 928
• Parties: Kevin FERGUSON, on behalf of himself and all others similarly situated; Sandra L. Muniz, on behalf of herself and all others similarly situated, Plaintiffs–Appellees, v. CORINTHIAN COLLEGES, INC.; Corinthian Colleges, Inc., dba Everest College; Corinthian Colleges, Inc., dba Everest University; Corinthian Colleges, Inc., dba Everest Institute; Corinthian Colleges, Inc., dba Everest College of Business; Technology and Health Care; Heald College, LLC; Heald Capital, LLC, Defendants–Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

733 F.3d 928

Kevin FERGUSON, on behalf of himself and all others similarly situated; Sandra L. Muniz, on behalf of herself and all others similarly situated, Plaintiffs–Appellees,

v.CORINTHIAN COLLEGES, INC.; Corinthian Colleges, Inc., dba Everest College; Corinthian Colleges, Inc., dba Everest University; Corinthian Colleges, Inc., dba Everest Institute; Corinthian Colleges, Inc., dba Everest College of Business; Technology and Health Care; Heald College, LLC; Heald Capital, LLC, Defendants–Appellants.

No. 11–56965.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Aug. 8, 2013.

Filed Oct. 28, 2013.

Peter W. Homer (argued) and Christopher King, HomerBonner P.A., Miami, FL; Paul D. Fogel and Felicia Yu, Reed Smith LLP, San Francisco, CA; Kevin P. Jacobs, Herron, Jacobs, & Ortiz, Miami, FL, for Defendants–Appellants.

Francis A. Bottini, Jr. and Albert Y. Chang (argued), Chapin Fitzgerald Sullivan & Bottini LLP, San Diego, CA, for Plaintiffs–Appellees.

Kate Comerford Todd and Tyler R. Green, National Chamber Litigation Center, Inc., Washington, D.C.; Andrew J. Pincus, Evan M. Tager, Archis A. Parasharami, and Richard B. Katskee, Mayer Brown LLP, Washington, D.C., for Amicus Curiae Chamber of Commerce of the United States.

Appeal from the United States District Court for the Central District of California, David O. Carter, District Judge, Presiding. D.C. Nos. 8:11–cv–00127–DOC–AJW, 8:11–cv–00259–DOC–AJW.

Before: RICHARD C. TALLMAN, RICHARD R. CLIFTON, and CONSUELO M. CALLAHAN, Circuit Judges.

OPINION

CLIFTON, Circuit Judge:

Defendants Corinthian Colleges, Inc., and related entities appeal the district court's partial denial of their motion to compel arbitration. Plaintiffs, former students at for-profit schools owned by Corinthian, brought this putative class action on behalf of current and former students, alleging that Corinthian engaged in a deceptive scheme to entice the enrollment of prospective students in violation of California law. Pursuant to arbitration clauses in Plaintiffs' enrollment agreements, Corinthian moved to compel arbitration. The district court granted the motion in part but denied the motion regarding Plaintiffs' claims for injunctive relief under California's unfair competition law, false advertising law, and Consumer Legal Remedies Act. In doing so, the district court relied on decisions by the California Supreme Court establishing the so-called Broughton–Cruz rule, which exempts claims for “public injunctive relief” from arbitration.

Based on decisions of the United States Supreme Court, including some rendered after the district court entered its order in this case and after the California Supreme Court decisions establishing the Broughton–Cruz rule, we conclude that the Broughton–Cruz rule is preempted by the Federal Arbitration Act. We reverse that portion of the district court's ruling. The district court is instructed to direct all of Plaintiffs' claims to arbitration and to stay the action pending arbitration.

I. Background

Kevin Ferguson is a graduate of Everest Institute of Miami's Medical Assistant Program. He enrolled in the program in June 2009 and attended Everest for approximately one year. He allegedly financed his education through federal student loans and, despite graduating with a strong academic record, was unable to find employment in the medical assistant field.

Sandra Muniz attended Heald College in California in 2007, 2008 and 2009. After completing a business skills certificate, she enrolled in a paralegal program that she did not complete. She later enrolled in a criminal justice program. Like Ferguson, Muniz alleged that she financed her education through student loans and was unable to find meaningful employment.

Ferguson and Muniz brought two separate putative class actions against Corinthian, the parent company of the schools they attended. Corinthian also owns and operates a number of other for-profit academic institutions nationwide, many operating under the names “Everest” and “Heald.” Plaintiffs' proposed class included all students in the United States and Canada who enrolled in an Everest school after approximately January 24, 2005, or a Heald school after approximately January 24, 2009. The district court consolidated Ferguson's and Muniz's cases into the present action.

The thrust of Plaintiffs' complaints was that Corinthian systematically misled prospective students in order to entice enrollment. Corinthian allegedly misrepresented the quality of its education, its accreditation, the career prospects for its graduates, and the actual cost of education at one of its schools. Students were also allegedly misinformed about financial aid, which resulted in student loans that many could not repay. Corinthian also allegedly targeted veterans and military personnel specifically, so that it could receive funding through federal financial aid programs available to those people.

Plaintiffs asserted seven claims under California law. At issue in this appeal are Plaintiffs' claims under California's unfair competition law (“UCL”), California Business and Professions Code § 17200 et seq.; false advertising law (“FAL”), California Business and Professions Code § 17500 et seq.; and Consumer Legal Remedies Act (“CLRA”), California Civil Code § 1750 et seq. Plaintiffs sought both money damages and injunctive relief under those statutes.

Plaintiffs' enrollment agreements each contained an arbitration clause. Additionally, Ferguson signed an “Enrollment Agreement Addendum” containing an arbitration clause, and Muniz signed an “Agreement to Binding Arbitration and Waiver of Jury Trial.” Based on those agreements, Corinthian moved to compel arbitration of the entire action.

The district court granted the motion with respect to most of Plaintiffs' claims and stayed those claims pending arbitration. Applying California's Broughton–Cruz rule, the court declined to compel arbitration of Plaintiffs' requests for injunctive relief under the UCL, FAL, and CLRA, though it sent Plaintiffs' requests for damages under those statutes to arbitration. Corinthian appealed that ruling.

II. Discussion

We review de novo a district court's denial of a motion to compel arbitration. Kilgore v. KeyBank, Nat'l Ass'n, 718 F.3d 1052, 1057 (9th Cir.2013) (en banc).

A. The Federal Arbitration Act

The Federal Arbitration Act (“FAA”) provides that agreements to arbitrate are “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. That statute reflects an “emphatic federal policy” in favor of arbitration. Marmet Health Care Ctr., Inc. v. Brown, ––– U.S. ––––, 132 S.Ct. 1201, 1203, 182 L.Ed.2d 42 (2012) (per curiam) (citation omitted). Its purpose is to “ensur[e] that private arbitration agreements are enforced.” Mortensen v. Bresnan Commc'ns, LLC, 722 F.3d 1151, 1159 (9th Cir.2013) (quoting AT&T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1748, 179 L.Ed.2d 742 (2011)).

Pursuant to the Supremacy Clause of the United States Constitution, “the FAA preempts contrary state law.” Id. at 1158. In enacting the FAA, Congress “withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). We are thus prohibited from applying any state statute that invalidates an arbitration agreement. Allied–Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 272, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Nor may we apply any other state law that “prohibits outright the arbitration of a particular type of claim.” Concepcion, 131 S.Ct. at 1747.

Corinthian argues that the FAA preempts California's Broughton–Cruz rule. We agree.

B. The Broughton–Cruz Rule

The Broughton–Cruz rule began with the California Supreme Court's decision in Broughton v. Cigna Healthplans of California, 21 Cal.4th 1066, 90 Cal.Rptr.2d 334, 988 P.2d 67 (1999). Broughton involved claims by a minor and his mother against a health care company, Cigna Healthplans of California. Id., 90 Cal.Rptr.2d 334, 988 P.2d at 71. The minor plaintiff suffered severe injuries at birth, which the plaintiffs alleged were caused by substandard prenatal medical care and the denial of a medically necessary cesarean delivery. Id. In addition to asserting a medical malpractice claim, the plaintiffs alleged that Cigna had violated the CLRA by deceptively and misleadingly advertising the quality of its medical services. Id. They sought damages and an order enjoining Cigna's deceptive practices. Id.; see also Kilgore, 718 F.3d at 1059–60 (summarizing Broughton ).

The CLRA, which is intended to “protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection,” gives private parties the right to seek an order enjoining practices that violate it. Broughton, 90 Cal.Rptr.2d 334, 988 P.2d at 74 (citations omitted); see alsoCal. Civil Code §§ 1760, 1780. When a plaintiff exercises that right, it functions as a “private attorney general, enjoining future deceptive practices on behalf of the general public.” Broughton, 90 Cal.Rptr.2d 334, 988 P.2d at 76.

Because of an “inherent conflict” between arbitration and the purposes of the CLRA, the California Supreme Court held that arbitration could not be compelled for such claims for a “public injunction.” Id., 90 Cal.Rptr.2d 334, 988 P.2d at 77, 78. The California court identified two factors that create the conflict. First, public injunctions under the CLRA are “for the benefit of the general public rather than the party bringing the action,” and, second, the “judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy, which as a consequence will likely lead to the diminution or frustration of the public benefit if...