Thornton v. Career Training Center, Inc.

• Citation: 26 Cal.Rptr.3d 723,128 Cal.App.4th 116
• Decision Date: 04 April 2005
• Docket Number: No. D044598.,D044598.
• Court: California Court of Appeals
• Parties: Tommy D. THORNTON et al., Plaintiffs and Respondents, v. CAREER TRAINING CENTER, INC., et al., Defendants and Appellants.

26 Cal.Rptr.3d 723

128 Cal.App.4th 116

Tommy D. THORNTON et al., Plaintiffs and Respondents, v. CAREER TRAINING CENTER, INC., et al., Defendants and Appellants.

No. D044598.

Court of Appeal, Fourth District, Division 1.

April 4, 2005.

Review Granted July 20, 2005.

Kaye, Rose & Maltzman, LLP, B. Otis Felder, Los Angeles; Duane Morris LLP, Keith Zakarin, Edward M. Cramp, San Diego, for Defendants and Appellants.

Majors & Fox, Gary W. Majors, Frank J. Fox and Lawrence J. Salisbury, San Diego, for Plaintiffs and Respondents.

McCONNELL, P.J.

Defendants Career Training Center, Inc., formerly doing business as Computer Education Institute, Inc., Sam Afrookhteh and Matthew Amir Baniassad (collectively CEI) challenge the trial court's denial of their second motion to compel arbitration of the action of plaintiffs Tommy D. Thornton, Robert Thornton, Anthony Griego (collectively the individual plaintiffs) and Trade School Review Association (TSRA) for violation of California's unfair competition law (UCL) (Bus. & Prof.Code,¹ § 17200 et seq.) and other causes of action. CEI contends the court erred by finding inapplicable an arbitration clause in various Sallie Mae promissory notes the individual plaintiffs signed to obtain student loans. Further, in its reply brief CEI contends Proposition 64, which limits private enforcement of the UCL, applies to pending appeals and the plaintiffs lack standing to pursue their UCL cause of action.²

This court recently held Proposition 64 (as approved by voters, Gen. Elec., (Nov. 2, 2004)) applies to UCL actions filed before its effective date of November 3, 2004. (Bivens v. Corel Corporation (2005) 126 Cal.App.4th 1392, 24 Cal.Rptr.3d 847 (Bivens); Lytwyn v. Fry's Electronics, Inc. (2005) 126 Cal.App.4th 1455, 25 Cal. Rptr.3d 791 (Lytwyn).) We direct the trial court to grant judgment on the pleadings in favor of CEI on the plaintiffs' UCL cause of action. As to the individual plaintiffs, who, unlike TSRA, allege injuries caused by CEI's conduct, we direct the court to grant them leave to amend the UCL cause of action to attempt to assert class certification.

We conclude the court's finding on the arbitration issue is proper as there is no indication CEI and the individual plaintiffs agreed to arbitrate disputes against CEI pertaining to its enrollment practices. CEI is neither a signatory to nor third party beneficiary of the promissory notes, and the alleged wrongdoing of CEI does not concern the notes or student loans. Accordingly, we affirm the court's order denying CEI's motion to compel arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

CEI sold vocational education. In January 2001 the individual plaintiffs enrolled at the San Diego campus of CEI, each paying more than $10,000 for training in the field of "computer networking."

In June 2002 the individual plaintiffs sued CEI for unfair competition (§ 17200 et seq.) "as private attorneys general on behalf of the general public," violation of the Private Postsecondary and Vocational Education Reform Act of 1989 (former Ed. Code, § 94700 et seq.) and intentional misrepresentation. The complaint alleges CEI made numerous false representations, including that it was a nationally accredited school, the courses it offered carried transferable college credits, and graduates of the computer networking program would be prepared for a certification examination and could expect annual salaries upwards of $58,000. Further, the complaint alleges CEI failed to give a variety of statutorily required disclosures, such as "placement statistics regarding prior graduates." TSRA, a nonprofit association, joined in the unfair competition cause of action as a private attorney general.

CEI moved to compel arbitration under its contracts with the individual plaintiffs, and to stay the matter pending completion of arbitration. The trial court denied the motion on the ground the arbitration clauses are not triggered because they exclude claims addressed by state law, and the complaint alleges only state law claims. CEI appealed, and this court affirmed the trial court's order. (Thornton v. Computer Education Institute (Jan. 28, 2004, D041407) [nonpub. opn., 2004 WL 161468].)

CEI then brought a second motion to compel arbitration, and to stay the matter pending completion of arbitration, on the ground arbitration is compelled by arbitration clauses contained in various Sallie Mae promissory notes the individual plaintiffs and majority of CEI students allegedly signed to obtain student loans. The trial court denied the motion on the grounds the defendants are neither parties to nor third party beneficiaries of the notes, and the arbitration clauses concern disputes between borrowers and lenders concerning the notes. The court further found the defendants waived any right to seek arbitration by unreasonable delay in raising the Sallie Mae argument.

DISCUSSION

I Plaintiffs' Motion To Dismiss

Before CEI filed its reply brief, the plaintiffs asked us to summarily dismiss CEI's appeal on the grounds of frivolity and delay, raising essentially the same arguments they raise in their respondents' brief. The plaintiffs rely on Ferguson v. Keays (1971) 4 Cal.3d 649, 658, 94 Cal. Rptr. 398, 484 P.2d 70, which notes "the appellate courts have discretion to impose appropriate sanctions or penalties upon the parties or their attorneys, `Where the appeal is frivolous or taken solely for the purpose of delay....'" (See also Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2004) ¶ 5:36, p. 5-13 ["Appellate courts have inherent authority to dismiss an appeal that is `frivolous or taken solely for delay,' and can also impose monetary sanctions in connection with the dismissal."].)

As a practical matter, however, "the power summarily to dismiss a frivolous appeal is seldom exercised." (Coleman v. Gulf Ins. Group (1986) 41 Cal.3d 782, 790, fn. 5, 226 Cal.Rptr. 90, 718 P.2d 77.) "The reason is that, to determine whether the appeal is frivolous, the court usually will have to examine the record and review the merits; having done so, little is to be gained by dismissing rather than deciding the appeal on its merits." (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs, supra, ¶ 5:37, p. 5-14.) Such is the case here, and thus we deny the plaintiffs' motion and dispose of the appeal on its merits. The plaintiffs have not requested monetary sanctions.

II Proposition 64

Section 17200 prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." The Legislature intended this "`sweeping language' to include `"anything that can properly be called a business practice and that at the same time is forbidden by law."'" (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1266, 10 Cal.Rptr.2d 538, 833 P.2d 545, quoting Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 111, 113, 101 Cal.Rptr. 745, 496 P.2d 817.)

When this lawsuit commenced, section 17204 provided that "any person acting for the interests of itself, its members or the general public" could bring a UCL cause of action. (Former § 17204.) As the court explained in Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126, 96 Cal.Rptr.2d 485, 999 P.2d 718, "representative UCL actions make it economically feasible to sue when individual claims are too small to justify the expense of litigation, and thereby encourage attorneys to undertake private enforcement actions. Through the UCL a plaintiff may obtain restitution and/or injunctive relief against unfair or unlawful practices ... to protect the public and restore to the parties in interest money or property taken by means of unfair competition."

On November 2, 2004, the voters approved Proposition 64; it became effective the following day. (Cal. Const., art. II, § 10, subd. (a).) Proposition 64 amended Business and Professions Code section 17204 to state a UCL cause of action may be prosecuted "by any person who has suffered injury in fact and has lost money or property as a result of such unfair competition." (§ 17204.) Further, Proposition 64 amended Business and Professions Code section 17203 to require that a private party may bring a representative action only if he or she meets the standing requirement of section 17204 and complies with class certification requirements set forth in Code of Civil Procedure section 382. Proposition 64 curtails the previously broad standing to pursue a UCL action.

CEI contends that because the UCL cause of action is strictly statutory, Proposition 64 applies to cases pending on appeal. The plaintiffs counter that application of Proposition 64 to this action would violate the rule against retrospective application of statutes.

"`A retrospective law is one which affects rights, obligations, acts, transactions and conditions which are performed or exist prior to the adoption of the statute.'" (Aetna Cas. & Surety Co. v. Ind. Acc. Com. (1947) 30 Cal.2d 388, 391, 182 P.2d 159; Myers v. Philip Morris Companies, Inc. (2002) 28 Cal.4th 828, 839, 123 Cal.Rptr.2d 40, 50 P.3d 751.) A statute has retrospective effect when it substantially changes the legal consequences of past events. (Kizer v. Hanna (1989) 48 Cal.3d 1, 7, 255 Cal.Rptr. 412, 767 P.2d 679.) "It is well settled that a new statute is presumed to operate prospectively absent an express declaration of retrospectivity or a clear indication that the electorate, or the Legislature, intended otherwise." (Tapia v. Superior Court (1991) 53 Cal.3d 282, 287, 279 Cal.Rptr. 592, 807 P.2d 434.)

"The repeal of a statutory right or remedy, however, presents entirely distinct issues from that of the prospective or retroactive application of a statute. A well-established line of authority holds: `"`The unconditional repeal of a special remedial statute without a saving clause stops all pending actions where the repeal finds them. If final relief has not...