Grand Canyon Educ., Inc. v. Ward

• Decision Date: 17 February 2021
• Docket Number: A20A1894
• Citation: 855 S.E.2d 415,358 Ga.App. 412
• Parties: GRAND CANYON EDUCATION, INC. v. WARD.
• Court: Georgia Court of Appeals

358 Ga.App. 412

855 S.E.2d 415

GRAND CANYON EDUCATION, INC.

v.WARD.

A20A1894

Court of Appeals of Georgia.

February 17, 2021

Derin Bronson Dickerson, Kristen Kabat Bromberek, Atlanta, for Appellant.

G. Franklin Lemond Jr., Atlanta, Edward Adam Webb, for Appellee.

Brown, Judge.

Grand Canyon Education, Inc. d/b/a Grand Canyon University ("GCU") appeals from the trial court's denial of its motion to dismiss or compel arbitration in this class action lawsuit filed by Lee Ward. GCU contends that the trial court erroneously concluded that certain federal regulations prohibit enforcement of the arbitration clause at issue. For the reasons that follow, we affirm.

Whether a valid and enforceable arbitration agreement exists is a question of law for the court. Miller v. GGNSC Atlanta , 323 Ga. App. 114, 117 (1), 746 S.E.2d 680 (2013). This Court therefore reviews a trial court's order granting or denying a motion to compel arbitration de novo. Id.

This is the second time this case has appeared before this Court. In our prior opinion, Ward v. Grand Canyon Education, Inc. , 348 Ga. App. XXVIII (February 28, 2019) (unpublished) ("Ward I "), we described the relevant facts as follows:

Ward alleges that in 2015 he enrolled in an online course at GCU. GCU procured federal loans and grants on Ward's behalf. The enrollment agreement that Ward signed contained an arbitration clause stating that Ward "agree[d] that any dispute arising from [his] enrollment ... shall be resolved by binding arbitration under the Federal Arbitration Act." After taking an online class for several weeks, Ward decided to terminate his enrollment. Thereafter, GCU notified Ward that he owed approximately $1000 in tuition, which Ward ultimately paid. GCU also sent Ward a form indicating that it had obtained over $2000 in federal grants or scholarships on his behalf.

After being contacted by a GCU recruiter, Ward decided to enroll in another online class. This time, GCU obtained over $6000 in federal loans on Ward's behalf. After attending the online class, Ward again decided to withdraw his enrollment. Ward claims that he completed an online form several times during the first week of classes indicating his desire to withdraw. However, Ward did not hear anything regarding his withdrawal request so he submitted the form again, and he was then contacted by the GCU recruiter who informed him that since he waited until after the first week of classes to withdraw from the course he was required to pay the full tuition and may also owe money to the federal government for the loans obtained on his behalf.

Ward filed a class action lawsuit against GCU alleging breach of contract and unjust enrichment, and seeking a declaratory judgment that certain contractual provisions were unenforceable. GCU removed the case to federal court, but the district court found that GCU's notice of removal was untimely and remanded the case back to the superior court. GCU then filed a motion to dismiss and to compel arbitration, which the superior court granted.

(Footnote omitted.) Ward I , slip op. at 2-3. Ward then appealed the superior court's order, contending that the "Borrower Defense Regulations," 34 CFR § 685.300 et seq. (2016), prohibited enforcement of the arbitration clause. Ward I , slip op. at 3. During the pendency of the appeal, a federal court held unlawful a previously-imposed stay in implementing the regulations. See Bauer v. DeVos, 325 F.Supp.3d 74, 96 (II) (B), 101 (II) (C), 110 (II) (D) (3) (D. C. Cir. 2018). Accordingly, this Court vacated the superior court's order and remanded the case for the court to consider the effect of the Borrower Defense Regulations on GCU's motion to compel arbitration. Ward I , slip op. at 5.

On remand, the parties submitted supplemental briefing, and the superior court concluded that the arbitration agreement was unenforceable under the Borrower Defense Regulations. Accordingly, the superior court denied GCU's motion to dismiss and to compel arbitration. GCU obtained a certificate of immediate review, and this Court granted GCU's application for interlocutory appeal.

On appeal, GCU contends that the Borrower Defense Regulations do not preclude arbitration of Ward's claims because they do not qualify as "borrower defense claims." Before turning to the issue at hand, we will assess the governing regulatory framework.

On November 1, 2016, the United States Department of Education promulgated the revised "Borrower Defense Regulations," designed to "protect student loan borrowers from misleading, deceitful, and predatory practices of, and failures to fulfill contractual promises by, institutions participating in the Department's student aid programs." 81 Fed. Reg. 75,926 (November 1, 2016). In addition to protecting student borrowers, the regulations at issue were implemented to protect taxpayer dollars, a fact borne out by the history of these regulations. The Department's 2016 amendments to the regulations resulted from government investigations establishing that Corinthian Colleges, "a publicly traded company operating numerous postsecondary schools," had "engaged in widespread misrepresentations and other abusive conduct," resulting in the Department levying a $30 million fine in 2015 against Heald, a chain owned by Corinthian. Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, William D. Ford Federal Direct Loan Program, and Teacher Education Assistance for College and Higher Education Grant Program, 81 Fed. Reg. 39,330, 39,335, 39,382-39,383 (June 16, 2016). Days later, Heald and other Corinthian-owned schools closed and filed for bankruptcy relief, and none of the government actions against the company actually achieved affirmative recovery for Corinthian Direct Loan borrowers. Id. at 39,383-39,384. Class action lawsuits and individual suits brought by Corinthian students were barred by arbitration clauses included in the Corinthian enrollment agreements, resulting in a flood of students applying for loan relief pursuant to the Department's borrower defense regulations. Id. at 39,335, 39,383. The Department was left to redress the losses with taxpayer dollars: "If the student class actions had been able to proceed, the class actions could have compelled Heald College and the Corinthian Colleges, generally, to provide financial relief to the students.... Instead, impacted borrowers with Direct Loans from attendance at any of the Corinthian Colleges" were left to "obtain relief by raising the schools’ misconduct as a defense to their Federal loans through the Department's current borrower defense process." Id. at 39,383.

In response to the collapse of Corinthian Colleges,

the Department [of Education] proposed amendments to the regulation governing the terms of the program participation agreement, which participating institutions must agree to before their students may receive [federal] Direct Loans. Most notably, the Department proposed amending the [program participation agreement] to require institutions to agree, as a condition of participation in the Direct Loan program, to forego "the use of class action waivers" and "the use of mandatory pre-dispute arbitration" clauses in their enrollment agreements. The Department reasoned that class action waivers and predispute arbitration agreements are inconsistent with the aims of the Direct Loan program because they (1) "affect whether institutions are held accountable for acts and omissions that give rise to borrower defense claims;" [and] (2) "make it more likely that the costs of losses from those actions or omissions will be passed on to the taxpayer ..."

(Citations and punctuation omitted.) California Assn. of Private Postsecondary Schools v. DeVos , 436 F.Supp.3d 333, 338 (I) (A) (D.C.Cir. 2020). See also Bauer , 325 F.Supp.3d at 80-81 (I) (A). These amendments were codified in 34 CFR § 685.222 and § 685.300 et seq., and took effect in October 2018. See 84 Fed. Reg. 9,964, 9,966 (March 19, 2019).¹

Pertinently, § 685.300 provides that an institution of higher education subject to the Borrower Defense Regulations "will not ... rely in any way on a predispute arbitration agreement with respect to any aspect of a borrower defense claim." 34 CFR § 685.300 (f) (1) (i). See also § 685.300 (e) (1) ("The school will not seek to rely in any way on a predispute arbitration agreement or on any other predispute agreement ... with respect to any aspect of a class action that is related to a borrwer defense claim...."). The regulations define a "borrower defense claim" as "a claim that is or could be asserted as a borrower defense as defined in § 685.222 (a) (5), including a claim other than one based on § 685.222 (c) or (d) that may be asserted under § 685.22 (b) if reduced to judgment[.]" 34 CFR § 685.300 (i) (1).²

Section 685.222 (a) (5) provides a general definition of "borrower defense[s]." "[A] ‘borrower defense’ refers to an act or omission of the school attended by the student that relates to the making of a Direct Loan for enrollment at the school or the provision of educational services for which the loan was provided," and can be invoked either as a "defense to repayment of amounts owed to the Secretary" or as a "right to recover amounts previously collected by the Secretary." 34 CFR § 685.222 (a) (5) (i) and (ii). Subsections (b), (c), and (d) specify three instances in which a borrower has a borrower defense. Subsection (b) provides that a borrower has a borrower defense if he "has obtained against the school a nondefault, favorable contested judgment based on State or Federal law in a court or administrative tribunal of competent jurisdiction." Id. § 685.222 (b) ("Judgment against the school"). Subsection (c) states that a borrower has a borrower defense if his or her school "failed to perform its obligations under the terms of a contract with the student." Id. § 685.222 (c) ("Breach of contract by the school"). Subsection (d)...