Harnisch v. Coll. of Legal Arts Inc.

Decision Date25 May 2011
Docket Number080710135; A140802.
Citation259 P.3d 67,243 Or.App. 16,270 Ed. Law Rep. 867
PartiesRuth HARNISCH, Holli Arnold, Wanda Robertson, Cherie Caseres, Moni Chandy, Pearl Lee, Linda Halvorson, Jerilyn McClure, Amanda Fisher, Julie Lauringer, Jeanie Kitterman, Karen Barnes, and Jennifer Taylor, individually, Plaintiffs–Respondents,andDebra Mendive, Plaintiff,v.COLLEGE OF LEGAL ARTS, INC., an Oregon corporation, Defendant,andCascade Education, LLC, an Oregon limited liability company, Defendant–Appellant.
CourtOregon Court of Appeals

OPINION TEXT STARTS HERE

Brad C. Stanford, Portland, argued the cause for appellant. With him on the briefs were Farleigh Wada Witt, and Keith Zakarin and Duane Morris LLP, pro hac vice.Kevin Brague, Tigard, argued the cause for respondents. With him on the brief was The Brague Law Firm, LLC.Before BREWER, Chief Judge, and HASELTON, ARMSTRONG, WOLLHEIM, SCHUMAN, ORTEGA, SERCOMBE, DUNCAN, and NAKAMOTO, Judges, and ROSENBLUM, Senior Judge.WOLLHEIM, J.

Plaintiffs, who were students at the College of Legal Arts, brought this action against defendants, College of Legal Arts, Inc., and its successor, Cascade Education, LLC, for breach of contract, breach of warranties, and misrepresentation.1 Defendant moved to compel arbitration as to five plaintiffs who had signed enrollment agreements containing an arbitration clause and moved to stay the actions brought by all of the plaintiffs pending arbitration. The trial court granted the motion to compel arbitration as to four of the five plaintiffs whose enrollment agreements contained arbitration clauses, but found that one plaintiff, Lee, had not assented to the arbitration clause. The trial court granted the motion to stay the actions brought by those plaintiffs who were compelled to arbitrate, but denied the stay as to those plaintiffs who were not compelled to arbitrate. Defendant appeals, assigning error to, first, the trial court's denial of its motion to compel Lee to arbitrate and, second, the trial court's denial of its motion to stay the actions brought by the plaintiffs who did not agree to arbitrate. We affirm.

The relevant facts are not in dispute. Plaintiffs enrolled in the College of Legal Arts during different years, and the enrollment agreements varied from year to year. For the purposes of this case, the most significant difference between the various enrollment agreements is the presence of an arbitration clause on the back of the agreements signed by five of the plaintiffs. 2 On those forms, the front of the agreement contained spaces for student information, such as name and address, a description of the program, tuition and financial aid for that program, and a list of costs that a student may incur, followed by lines to be filled in with the amount that the student would owe.3 Also on the front of the enrollment agreement was this notice:

NOTICE TO STUDENT

“By signing this enrollment agreement you acknowledge that you have read it completely and understand its content and that you have received a completed copy of this contract and its attachments, including the school catalog, with insertions. The terms and conditions of the back of this form and the policies in the catalog are part of this enrollment agreement. Do not sign this enrollment agreement if blank spaces have not been filled in.”

(Uppercase and boldface in original.) The front of the enrollment agreement also contained lines for “Signature of Applicant” and “Signature of College Official.”

On the back of the enrollment agreement were eight additional sections identified with uppercase headings. The heading for the final section, the arbitration clause, was also underlined. The text of the arbitration clause stated:

ARBITRATION AGREEMENT: Any dispute arising from enrollment at College of Legal Arts, no matter how described, pleaded or styled, shall be resolved by binding arbitration and by a single arbitrator under the Federal Arbitration Act conducted by the American Arbitration Association (‘AAA’) at Portland, OR, under its Commercial Rules. All determinations as to the scope [and] enforceability of this Arbitration Agreement shall be determined by the Arbitrator, and not by a court. The award rendered by the arbitrator may be entered in any court having jurisdiction.

“Student's initial ____”

(Uppercase and underscoring in original.)

Four of the plaintiffs signed the signature line on the front of the enrollment agreement and initialed the line for “Student's initial” below the arbitration clause on the back of the enrollment agreement. Lee signed the front of the enrollment agreement in the space provided but did not initial below the arbitration clause on the back of the enrollment agreement.

After plaintiffs initiated this action, defendant moved to compel arbitration as to those plaintiffs who had signed enrollment agreements containing arbitration clauses. As to the remaining plaintiffs, defendant moved to stay their actions until the arbitration was completed. Plaintiffs argued that the arbitration clauses were unenforceable or, in the alternative, if the arbitration clauses were enforceable, a stay of those actions subject to arbitration should not require a stay of actions not subject to arbitration.

The trial court concluded that the arbitration agreements were enforceable as to each of the plaintiffs except Lee. It explained:

“The absence of * * * [Lee's] initials tells me that * * * she did not agree to this arbitration provision. Notwithstanding her signature on the front of the form, there's a specific place for her to initial her agreement to that additional provision on the back. She did not. And given all of the other circumstances, I think that means there's no enforceable agreement as to her.”

The trial court also denied defendant's motion to stay the actions by plaintiffs who were not compelled to arbitrate.

On appeal, defendant makes two assignments of error: first, that the trial court erred in denying its motion to compel arbitration as to Lee; and, second, that the trial court should have stayed the actions of the nonarbitrating plaintiffs. We begin with defendant's first assignment of error.

Defendant asserts that Lee entered into a valid arbitration agreement by signing the enrollment agreement even though she did not initial the space below the arbitration agreement. Defendant claims that the “Notice to Student” paragraph alerted Lee to the terms on the back of the enrollment agreement, she is presumed to have read and understood the enrollment agreement, and initials are not a necessary formality to entering an arbitration agreement. Lee contends that the absence of her initials objectively indicates that she did not assent to the arbitration clause. Alternatively, Lee argues that the arbitration clause is unenforceable because it is unconscionable. We conclude that the trial court did not err in finding that Lee did not assent to the arbitration clause, so we do not consider Lee's unconscionability argument. 4

Defendant asserts that the arbitration clause is subject to the Federal Arbitration Act (FAA), 9 USC sections 1–16. We agree. The FAA applies to arbitration agreements that affect or involve interstate commerce. Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Many of the students, including some plaintiffs in this case, funded their education with federal loans. See Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 58, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003) (“No elaborate explanation is needed to make evident the broad impact of commercial lending on the national economy or Congress' power to regulate that activity pursuant to the Commerce Clause.”). Moreover, at least one of the plaintiffs was a Washington resident when she signed the agreement.

Having concluded that the FAA applies, we turn to defendant's first assignment of error, which is that the trial court erred in denying defendant's motion to compel Lee to arbitrate. The FAA establishes a strong federal policy favoring arbitration. Mitsubishi Motors v. Soler Chrysler–Plymouth, 473 U.S. 614, 631, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). But the strong federal policy favoring arbitration is not so strong that it overrides the contracting parties' intent and requires arbitration where the parties have not agreed to arbitrate. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995) ([T]he FAA's proarbitration policy does not operate without regard to the wishes of the contracting parties.”). In determining whether the parties entered a legally enforceable agreement to arbitrate, we apply Oregon contract law. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (courts apply state contract law to determine whether parties agreed to arbitrate under the FAA). Specifically, defendant argues that [t]here is no evidence that [Lee] did not intend [to] be bound by the arbitration provision.” Based on the trial court's finding that Lee did not assent to the arbitration provision and defendant's argument on appeal that there is no evidence to support that finding by the trial court, we understand defendant to argue that there is no evidence in the record to support the trial court's conclusion that Lee did not assent to the arbitration agreement. Accordingly, we turn to that question.

Given our standard of review on the issue that defendant raises—whether Lee assented to the arbitration clause—defendant faces an uphill battle. Assent is an issue of fact. Martin v. Comcast of California, 209 Or.App. 82, 97, 146 P.3d 380 (2006). Our standard of review dictates that we affirm the trial court's finding that Lee did not assent to the arbitration agreement “if there is any evidence in the record to support it.” Id.; accord First Options of Chicago, Inc., 514 U.S. at 947–48, 115 S.Ct. 1920 (...

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