Little v. Career Educ. Corp. (In re Little)

• Citation: 610 B.R. 558
• Decision Date: 03 January 2020
• Docket Number: C/A No. 16-00707-JW,Adv. Pro. No. 19-80041-JW
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: IN RE, Booker T. LITTLE, Jr., Debtor(s). Booker T. Little, Plaintiff(s), v. Career Education Corporation a/k/a CEC and Colorado Technical University a/k/a CTU, Defendant(s).

610 B.R. 558

IN RE, Booker T. LITTLE, Jr., Debtor(s).Booker T. Little, Plaintiff(s),

v.Career Education Corporation a/k/a CEC and Colorado Technical University a/k/a CTU, Defendant(s).

C/A No. 16-00707-JW

Adv. Pro. No. 19-80041-JW

United States Bankruptcy Court, D. South Carolina.

Signed January 3, 2020

Daniel A. Stone, Stone Law Firm, Irmo, SC, for Plaintiff.

Graham S. Mitchell, Nelson Mullins Riley and Scarborough LLP, George Barry Cauthen, Columbia, SC, for Defendant.

ORDER ON JOINT MOTION TO COMPEL ARBITRATION

John E. Waites, US Bankruptcy Judge

This matter comes before the Court upon the Joint Motion to Dismiss, Alternatively, Joint Motion to Compel Arbitration ("Motions") filed by Career Education Corporation and Colorado Technical University, Inc. ("Defendants") on August 29, 2019. Booker T. Little, Jr. ("Plaintiff") filed a response to the Motions. On September 18, 2019, the Court entered a Consent Order between Plaintiff and Defendants setting the schedule for filing briefs on the Motions. Pursuant to that Consent Order, the parties filed lengthy briefs, and the Court held a hearing on the matters.

The Court has jurisdiction of this matter pursuant to 28 U.S.C. § 157. The Court makes the following findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, which is made applicable to this proceeding by Fed. R. Bankr. P. 7052.¹

FINDINGS OF FACT

In his Amended Complaint, Plaintiff has filed several causes of action against Defendants regarding his recruitment by and enrollment in the online university of Defendant Colorado Technical University, Inc., where he attended online classes from 2005 to 2006. Career Education Corporation is the parent company of Colorado Technical University, Inc. and also a Defendant in Plaintiff's Amended Complaint.

According to Plaintiff's Amended Complaint, Colorado Technical University and Career Education Corporation have been the subject of litigation with the attorneys general of several states, including South Carolina, for its alleged prior practices with its students, including matters related to its alleged improper student recruitment and collection of tuition among other items. Per Defendants' pleadings, Defendants entered a settlement agreement with these states' attorneys general without admitting to any fault.² Plaintiff alleges this settlement agreement resulted in many students receiving a discharge of their student loan debt incurred while attending Defendants' online university. Plaintiff commenced the present proceeding after learning that this settlement agreement was not applicable to him as the time period in which he attended Defendants' online university was not subject to the agreement.

Plaintiff's causes of action can be divided into two separate categories: State Law Claims and Bankruptcy Law Claims. The State Law Claims include causes of action for negligence, fraud, fraud in the inducement, negligent misrepresentation, fraudulent misrepresentation, breach of contract, unjust enrichment, promissory estoppel, and a violation of the South Carolina Unfair Trade Practices Act. The Bankruptcy Law Claims include a cause of action for abuse of process under 11 U.S.C. § 105 and a cause of action to determine dischargeability of debt under 11 U.S.C. § 523(a)(8).³

In their Motions, Defendants allege, among other arguments, that Plaintiff's claims are subject to arbitration due to a provision included in the enrollment agreement alleged to have been electronically signed by Plaintiff on September 28, 2005 ("Enrollment Agreement").⁴ Paragraph 11 of the Enrollment Agreement provides the following regarding dispute resolution ("Arbitration Clause"):

11. Dispute Resolution: Any 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 [Colorado Technical University] Online or to this Agreement shall be resolved first through the grievance policy published in the catalog. If not resolved in accordance with the procedures outlined in the University catalog to the satisfaction of the student, then the dispute shall be resolved by binding arbitration in accordance with Commercial Arbitration Rules of the American Arbitration Association then in effect or in accordance with procedures that the parties agree to in the alternative. The Federal Arbitration Act and related federal judicial procedure shall govern this agreement to the fullest extent possible, excluding all state arbitration law, irrespective of the location of the arbitration proceedings or of the nature of the court in which any related proceedings may be brought. Any such arbitration shall be the sole remedy for the resolution of any disputes or controversies between the parties to this agreement. Any such arbitration shall take place before a neutral arbitrator in a locale near [Colorado Technical University] Online unless the Student and [Colorado Technical University] Online agree otherwise. The arbitrator must have knowledge of and actual experience in the administration and operations of postsecondary educational institutions unless the parties agree otherwise. The arbitrator shall apply federal law to the fullest extent possible in rendering a decision. The arbitrator shall have the authority to award monetary damages measured by the prevailing party's actual damages and may grant any non-monetary remedy or relief that the arbitrator deems just and equitable and within the scope of this agreement between the parties. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. The arbitrator shall not have any authority to award punitive damages, treble damages, consequential or indirect damages, or other damages not measured by the prevailing party's actual damages, or to award attorney's fees. The arbitrator also shall not have any authority to alter any grade issued to a student. The parties shall bear their own costs and expenses. The parties also shall bear an equal share of the fees and costs of the arbitration, which include but are not limited to the fees and costs of the arbitrator, unless the parties agree otherwise or the arbitrator determines otherwise in the award. Except as may be required by law, neither a party nor an arbitrator may disclose the existence, content, or results of any such arbitration without the prior written consent of both parties.

In response to the Motions, Plaintiff alleges that the Arbitration Clause is unconscionable under South Carolina law and that Defendants have not demonstrated that Plaintiff signed or returned the Enrollment Agreement. While Defendants dispute Plaintiff's arguments, they allege, among other arguments, that the Enrollment Agreement provides for an arbitrator, and not the Court, to decide these issues regarding the validity and formation of the Arbitration Clause contained in the Enrollment Agreement. Therefore, Defendants assert that, pursuant to the Federal Arbitration Act, all of the Plaintiff's asserted causes of action must immediately be submitted to an arbitrator for these determinations.

CONCLUSIONS OF LAW

Defendants brought their Motion to Dismiss and their Motion to Compel Arbitration in a single pleading.⁵ As such, the Defendants' Motion to Compel Arbitration was heard at the same time as their Rule 12(b)(6) motion to dismiss. At the hearing, the parties did not present evidence in support of their positions on the arbitration issues but relied on their arguments. Defendants allege that arbitration must be compelled under the Federal Arbitration Act ("FAA"), which if applicable to this proceeding, would require the Court to stay a determination of the merits of the present adversary proceeding, apparently including Defendants' Rule 12(b)(6) motion to dismiss. See 9 U.S.C. § 3 (2019) (mandating that upon the court's satisfaction that the issues involved are referable to arbitration pursuant to the parties' agreement, the court shall stay the trial of an action until such arbitration has been completed in accordance with the parties' agreement). Therefore, for each of the Plaintiff's causes of action, the Court must first determine if the claim is subject to arbitration before addressing any issue on the merits of the claim, including Defendants' Rule 12(b)(6) motion to dismiss. See Peabody Holding Co., LLC v. United Mine Workers of Am., Int'l Union , 665 F.3d 96, 104 (4th Cir. 2012) ("[C]ourts at the arbitrability stage ‘have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the written instrument which will support the claim.’ " (quoting AT & T Tech., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) )); U.S. ex rel. TBI Investments, Inc. v. BrooAlexa, LLC , 119 F. Supp. 3d 512, 540 (S.D.W. Va. 2015) ("As the Court finds that Defendants also request that the Court compel arbitration of Count III and that this claim is arbitrable pursuant to the ADR Clause, the Court does not reach Defendants' argument under Rule 12(b)(6).") McLean v. United States , 566 F.3d 391, 398 (4th Cir. 2009) ("Courts have held that, unless otherwise specified, a dismissal for failure to state a claim under Rule 12(b)(6) is presumed to be both a judgment on the merits and to be rendered with prejudice.").⁶

For the purposes of this Order, in determining whether the causes of action are subject to arbitration, the Court will address Plaintiff's Bankruptcy Law Claims and State Law Claims separately.

Bankruptcy Law Claims:

In the present matter, the Court must first determine if Debtor's Bankruptcy Law Claims, grounded in the Bankruptcy Code, are subject to arbitration. While courts are generally required to enforce arbitration agreements, bankruptcy courts in their discretion may retain constitutionally core claims if "arbitration...