Gozzi v. W. Culinary Inst., Ltd.

• Decision Date: 21 January 2016
• Docket Number: 080303530,A152137.
• Citation: 276 Or.App. 1,366 P.3d 743
• Parties: Shannon GOZZI, et al., Plaintiffs, and Jennifer Adams, fka Jennifer Schuster, and Nathan Surrett, individually and on behalf of all similarly-situated individuals, Plaintiffs–Respondents, v. WESTERN CULINARY INSTITUTE, LTD.; and Career Education Corporation, Defendants–Appellants.
• Court: Oregon Court of Appeals

276 Or.App. 1

366 P.3d 743

Shannon GOZZI, et al., Plaintiffs,andJennifer Adams, fka Jennifer Schuster, and Nathan Surrett, individually and on behalf of all similarly-situated individuals, Plaintiffs–Respondents,

v.WESTERN CULINARY INSTITUTE, LTD.; and Career Education Corporation, Defendants–Appellants.

080303530

A152137.

Court of Appeals of Oregon.

Argued and Submitted May 9, 2014.

Decided Jan. 21, 2016.

Jeff E. Scott argued the cause for appellants. With him on the briefs were Stephen F. English, Thomas R. Johnson, Misha Isaak, and Perkins Coie LLP; and Gregory Nylen and Greenberg Traurig LLP.

Maureen Leonard argued the cause for respondents. With her on the joint answering brief were David F. Sugerman and Brian S. Campf ; and Tim Quenelle.

Before ORTEGA, Presiding Judge, and DeVORE, Judge, and EDMONDS, Senior Judge.

ORTEGA, P.J.

In this class action, defendants—Western Culinary Institute, Ltd. (WCI) and its parent company, Career Education Corporation—assert an interlocutory appeal, under ORS 36.730(1)(a), of the trial court's order denying their motion to compel arbitration. Plaintiffs were students who attended defendants' culinary trade school known as Le Cordon Bleu between March 1, 2006 and March 1, 2010, and have asserted claims for fraud and unfair trade practices under Oregon's Unfair Trade Practices Act (UTPA). Defendants' motion to compel arbitration concerns a subclass of about 1,060 of the roughly 2,500 class members who signed enrollment contracts that included arbitration agreements governed by the Federal Arbitration Act (FAA), 9 USC sections 1 to 16. We reject without discussion defendants' second assignment of error, challenging the class itself, but address their contention, asserted in their first assignment of error, that a provision in the arbitration agreements delegates arbitrability and enforceability of the arbitration agreement to an arbitrator rather than to the court. That is, in defendants' view, plaintiffs' objections to the motion to compel arbitration—namely, that the arbitration agreement is unconscionable and that defendants waived their right to enforce the arbitration agreements because of their litigation conduct—must be resolved in arbitration and, consequently, the trial court erred when it decided those issues itself by denying the motion to compel arbitration.

Plaintiffs remonstrate that (1) the denial of the motion to compel is unreviewable because defendants failed to appeal the denial of a prior motion to compel arbitration and (2) the delegation provision in the arbitration agreements is ambiguous and, therefore, unenforceable. We review the denial of a motion to compel arbitration for legal error. Citigroup Smith Barney v. Henderson, 241 Or.App. 65, 69, 250 P.3d 926 (2011). We conclude that the trial court's ruling is reviewable and that the delegation provision in the arbitration agreements requires that an arbitrator must decide whether plaintiffs' objections to the motion to compel arbitration are well-taken. Consequently, we reverse and remand.

The relevant procedural history is as follows. Plaintiffs filed an action against defendants in March 2008, alleging violations of the UTPA. In particular, plaintiffs allege that defendants failed to inform prospective students that their programs do not provide any material benefit because they prepare students only for low-paying entry-level jobs that they could have obtained without a culinary degree from Le Cordon Bleu. In May 2012, when defendants filed the subject motion to compel the subclass to arbitrate their claims, over four years had elapsed, plaintiffs had amended their complaint several times, defendants had answered with affirmative defenses asserting a right to mandatory arbitrate their claims and the parties had engaged in extensive discovery and had filed numerous motions.

The parties agree that the subclass's arbitration agreements are governed by the FAA, that the enrollment contracts and plaintiffs' claims implicate interstate commerce, and that the arbitration agreements provide that the FAA governs disputes within the agreement's scope. Section 2 of the FAA provides, in part:

"A written provision in any * * * contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

The United States Supreme Court has stated that the effect of section 2"is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [FAA]." Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). "And that substantive federal law of arbitrability—whether, under a contractual arbitration clause, a particular dispute must be decided by arbitration rather than in court—applies ‘even in the context of state-law claims brought in state court.’ " Industra/Matrix Joint Venture v. Pope & Talbot, Inc., 341 Or. 321, 329, 142 P.3d 1044 (2006) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) ). Moreover, section 2 is "a congressional declaration of a liberal federal policy favoring arbitration agreements, not-withstanding any state substantive or procedural policies to the contrary." Moses H. Cone Hospital, 460 U.S. at 24, 103 S.Ct. 927.

With that context in mind, we turn to the two motions to compel arbitration, which concerned two different arbitration agreements: (1) those agreed to by students—including class representative Surrett—who enrolled before November 2007 and (2) those agreed to by students who enrolled beginning in November 2007, i.e., the subclass, and which are subject to this appeal. Discussion of the first motion to compel arbitration against Surrett¹ is relevant because plaintiffs argue that defendants' failure to appeal its denial renders the denial of the subject motion to compel arbitration unreviewable on appeal. Surrett, in common with the class members who are not part of the subclass at issue in the subject motion, had signed an enrollment contract before November 2007, which includes an agreement providing for arbitration of "[a]ny 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 WCI or to this Agreement." Accordingly, defendants, asserting that plaintiffs' claims were within the scope of the arbitration agreement, moved to enforce that provision in Surrett's enrollment agreement in accordance with the FAA, noting that we had held that the FAA applies to arbitration agreements in enrollment contracts between private, for-profit post-secondary schools and their students. See Harnisch v. College of Legal Arts, Inc., 243 Or.App. 16, 22, 259 P.3d 67 (2011) (so stating). Anticipating that plaintiffs would argue that defendants had waived their right to compel arbitration,² defendants asserted that they neither acted inconsistently with a known right to arbitrate nor delayed their motion to compel arbitration because doing so earlier would have been futile.

In support of the latter assertion, defendants argued that, before two recently decided United States Supreme Court opinions regarding arbitration agreements governed by the FAA, AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), and Stolt–Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010), Oregon law would have treated Surrett's arbitration agreement as unconscionable and unenforceable under Vasquez–Lopez v. Beneficial Oregon, Inc., 210 Or.App. 553, 152 P.3d 940 (2007), in which we concluded that, among other reasons, an arbitration agreement's classwide arbitration ban rendered the agreement unconscionable. According to defendants, Stolt–Nielsen S.A. established that arbitration agreements that are silent regarding class arbitration could not be interpreted to allow for class-action arbitration. And, until the Court in Concepcion abrogated the rule in Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005), which, broadly stated, deemed agreements that prohibit class-wide arbitration as per se unconscionable, Surrett's agreement would have been deemed unconscionable under Vasquez–Lopez.

In response, while contesting defendants' characterization of the Concepcion and Stolt–Nielsen S.A. holdings, as well as our holding in Vasquez–Lopez,³ plaintiffs pointed out that the arbitration provision between Surrett and WCI had no class-action ban and, thus, defendants had waived their right to arbitrate because they could have asserted a right to arbitration much earlier in the litigation. Plaintiffs further argued that Surrett's arbitration agreement was unconscionable. The trial court denied defendants' first motion to arbitrate without explanation.

In May 2012, about a year after the first motion to compel arbitration, defendants filed the subject motion, but that second motion concerned the arbitration agreements of those class members who enrolled beginning in November 2007. Defendants contended that plaintiffs' arguments opposing the first motion to compel arbitration rested on the lack of an express class-wide arbitration ban in Surrett's arbitration agreement and that the subclass's enrollment contract includes a substantively different arbitration agreement, which expressly disallows class-wide arbitration of any claim within the scope of the arbitration agreement. And because, under Concepcion, arbitration agreements that have a provision prohibiting class-wide arbitration cannot be determined to be unconscionable and unenforceable on that basis, defendants argued that they had neither waived their right to compel arbitration nor could their ...