Esquer v. Educ. Mgmt. Corp.
Esquer v. Educ. Mgmt. Corp.
Opinion of the Court
(1) GRANTING MOTION TO COMPEL ARBITRATION [ECF No. 8];
(2) STAYING ACTION; AND
(3) ADMINISTRATIVELY CLOSING THE ACTION
Pending before the Court is Defendants Education Management Corporation ("EMC") and the Art Institute of California-San Diego's ("AICSD") (together "Defendants") Motion to Compel Individual Arbitration and to Dismiss or Stay Proceedings Pending Arbitration. (ECF No. 8-1.) Plaintiff Steven Esquer has opposed the motion (ECF No. 10) and Defendants have responded (ECF No. 11). For the reasons set forth below, the Court grants Defendants' motion to compel individual arbitration.
I. BACKGROUND
A. Relevant Factual Background
On December 20, 2013, Plaintiff Steven Esquer applied for admission to Defendant AICSD to pursue a B.S. in Graphic and Web Design. (ECF No. 1 ¶¶ 19, 20). AICSD is an educational institution offering bachelor and associated degrees and is a subsidiary of Defendant Education Management Corporation, a publicly-traded corporation based in Pittsburg, Pennsylvania. (Id. ¶¶ 15-16.) At the time he applied to AICSD, Esquer completed several forms, including an Enrollment Agreement. (Id. ¶ 21.)
*1009The first page of the Enrollment Agreement Esquer signed contained the following language under a section titled "Student's Agreement": "I understand that this Agreement becomes a legally binding document after I sign it and it is accepted by The Art Institute of California ..." (ECF No. 8-3, Declaration of Abdo Antun ("Antun Decl."), Ex. 1.) Immediately preceding the student signature line was a provision reading: "I understand that this is a legally binding contract. My signature below certifies that I have read, understood, and agreed to my rights and responsibilities ..." (Id. ) Page 2 of the Enrollment Agreement contained the following provisions:
ARBITRATION
Every student and The Art Institute agrees that any dispute or claim between the student and The Art Institution (or any company affiliated with The Art Institute ...) arising out of or relating to a student's enrollment or attendance at The Art Institute whether such dispute arises before, during, or after the student's attendance and whether the dispute is based on contract, tort, statute, or otherwise, shall be, at the student's or The Art Institute's election, submitted to and resolved by individual binding arbitration pursuant to the terms described herein....
Either party may elect to pursue arbitration upon written notice to the other party.... If a party elects to pursue arbitration, it should initiate such proceedings with JAMS, which will serve as the arbitration administrator pursuant to its rules of procedure ... This provision does not preclude the parties from mutually agreeing to an alternate arbitration forum or administrator in a particular circumstance. If either party wishes to propose such an alternate forum or administrator, it should do within twenty (20) days of its receipt of the other party's intent to arbitrate. IF EITHER A STUDENT OR THE ART INSTITUTE CHOOSES ARBITRATION.... THE ARBITRATOR'S DECISION WILL BE FINAL AND BINDING.
... Upon a student's written request, The Art Institute will pay the filing fees charged by the arbitration administrator, up to a maximum of $3,500 per claim. Each party will bear the expense of its own attorneys, experts and witnesses, regardless of which party prevails, unless applicable law gives a right to recover any of those fees from the other party ... the arbitrator may award sanctions in the form of fees and expenses reasonably incurred by the other party (including arbitration administration fees, arbitrators' fees, and attorney, expert and witness fees), to the extent such fees and expenses could be imposed under Rule 11 of the Federal Civil Rules of Civil Procedure.
The Federal Arbitration Act (FAA),9 U.S.C. §§ 1 , et seq., shall govern this arbitration provision ... (Antun Decl. Ex. 1.)
The Enrollment Agreement was signed by both Plaintiff and an official of AICSD. (Id. )
B. Procedural Background
Esquer brought suit against AICSD and EMC on June 19, 2017, alleging claims under Title III of the Americans with Disabilities Act ("ADA")
II. LEGAL STANDARD
The FAA applies to contracts that evidence transactions involving interstate commerce.
III. DISCUSSION
In the instant motion, Defendants seek to compel arbitration pursuant to the arbitration provisions of the Enrollment Agreement. Defendants argue that the question of arbitrability has been delegated to the arbitrator and thus the scope of this Court's review is narrow. Plaintiff argues that the agreement's delegation clause is unenforceable and that, even if it is enforceable, certain claims are outside the scope of the arbitration provisions.
A. The Parties Clearly and Unmistakably Delegated Arbitrability
A threshold issue the Court must decide is whether the Enrollment Agreement delegated the arbitrability determination to the arbitrator. The determination of whether an arbitration clause is valid, applicable, and enforceable is reserved to the district court unless "the parties clearly and unmistakably provide[d] otherwise," such as by delegating the issue of arbitrability to arbitration. AT & T Technologies, Inc. v. Commc'ns Workers of Am. ,
Defendants argue that the delegation provision requires that any dispute pertaining to arbitrability must be submitted to the arbitrator. (ECF No. 8-1 at 13.) Defendants argue the parties have shown a clear and unmistakable intent to delegate the question of arbitrability to the arbitrator *1011because (1) the arbitration provision requires the arbitration of "any dispute or claim," (id. (citing Antun. Decl. Ex.1 at 2)), and (2) the agreement incorporates the JAMS procedural rules, which in turn provide JAMS with the authority to determine jurisdiction and arbitrability. Plaintiff disputes delegation on the grounds that (1) the arbitration agreement does not expressly state that the arbitrator has the power to determine arbitrability and (2) the arbitration agreement merely references the requirement to initiate proceedings with JAMS, not JAMS's procedural rule regarding its jurisdiction over arbitrability.
The delegation clause of the arbitration agreement here states that upon initiation of arbitration JAMS "will serve as the arbitration administrator pursuant to its rules of procedure. " (Id. at 2 (emphasis added).) There appears to be a dispute between the parties as to which JAMS rules of procedures apply. Whereas Defendants point to Rule 8(b) of the JAMS Streamlined Arbitration Rules & Procedures, Plaintiff points to Rule 11 of the JAMS Comprehensive Arbitration Rules & Procedures.
Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper Parties to the Arbitration, shall be submitted to and ruled on by the Arbitration. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter. Compare Rule 11(b), JAMS Comprehensive Arbitration Rules & Procedures with Rule 8(b) JAMS Streamlined Arbitration Rules & Procedures.
In the context of another arbitrator, the Ninth Circuit has held that "incorporation of the AAA rules constitutes clear and unmistakable evidence that the contracting parties agreed to arbitrate arbitrability." Brennan v. Opus Bank ,
Several courts in this Circuit have determined that Brennan 's scope is limited to delegation clauses in cases involving sophisticated parties. See, e.g., Ingalls v. Spotify USA, Inc. , No. C 16-03533 WHA,
Other courts in this Circuit, however, have found that incorporation of an arbitrator's procedural rules into an arbitration agreement constitutes a clear delegation of arbitrability without regard to a party's sophistication. See, e.g., McLellan v. Fitbit, Inc. , No. 3:16-cv-00036-JD,
The Court need not look beyond the two-page Enrollment Agreement's terms to find the requisite intent to delegate in this case. Han v. Synergy Homecare Franchising LLC ,
B. The Delegation Clause is Not Unconscionable
Plaintiff contends that the arbitration agreement's provisions, including its delegation clause, are nevertheless unenforceable because they are unconscionable. Defendants argue that this Court should not address unconscionability in light of the delegation of arbitrability, but that even if the Court considers the argument, it fails.
The Court rejects Defendants' argument that the Court should not address unconscionability. Although a court must enforce an agreement where arbitrability has been delegated, enforcement is only proper "in the absence of some other generally applicable contract defense, such as fraud, duress, or unconscionability." See Mohamed v. Uber Techs., Inc. ,
1. California Law on Unconscionability
The parties concede that the Court should apply California law to assess whether the delegation clause is unconscionable. (ECF Nos. 10, 11.) Under California law, unconscionable contracts are those that are "so one-sided as to shock the conscience." Baltazar v. Forever 21, Inc. ,
2. Procedural Unconscionability
Procedural unconscionability focuses on "oppression" or "surprise." "Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice. Surprise involves the extent to which the supposedly agreed-upon terms *1014are hidden in a prolix printed form drafted by the party seeking to enforce them." Flores v. Transamerica HomeFirst, Inc. ,
Plaintiff contends that the arbitration provisions are procedurally unconscionable because (1) the Enrollment Agreement is an adhesion contract, (2) the Enrollment Agreement gives no indication on its face that a student is giving up certain rights, such as the right to a jury trial, and (3) the methodology by which AICSD secured the Plaintiff's signature was problematic in light of the student-educator relationship here. (ECF No. 10 at 8-9.) These arguments are no less applicable to the delegation clause of the arbitration agreement because Plaintiff has specifically argued that the "arbitration provisions" are procedurally unconscionable on these grounds.
a. Plaintiff Has Shown Oppression
The Court considers Plaintiff's first and third procedural unconscionability arguments as arguments about oppression. "The threshold inquiry in California's unconscionability analysis is whether the arbitration agreement is adhesive." Nagrampa v. MailCoups, Inc. ,
The Court agrees that the Enrollment Agreement, which includes the delegation clause, is a contract of adhesion. The Enrollment Agreement is a standard form contract presented to all individuals wishing to enroll at AICSD. The Enrollment Agreement, and the arbitration provisions it includes, was prepared by AICSD and presented to Plaintiff as a condition of enrolling or attending AICSD. There is no indication that Plaintiff had any "equality of bargaining power" with AICSD so that he could negotiate the terms of the Enrollment Agreement, including the inclusion of the delegation clause. For these reasons, Plaintiff's challenge to the delegation clause as unconscionable on the ground that it is part of an adhesion contract has merit. See Tiri v. Lucky Chances, Inc. ,
b. Plaintiff Has Shown Surprise
The Court deems Plaintiff's second argument as an argument about unfair surprise and agrees there is some surprise. "Surprise involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce the printed terms."
*1015A & M Produce Co. v. FMC Corp. ,
Although the front page states that both "sides of this Agreement ... constitute the entire Enrollment Agreement," the font of the text is extremely small. The text of the arbitration provisions, although generally in the same font as all the non-arbitration provisions and appearing under the bolded phrase "Arbitration," is in an extremely small font. (Id. at 2.) Although one provision of the arbitration agreement is in all capital letters, it is hard to imagine how an individual would notice the arbitration provisions that are otherwise undifferentiated from the rest of the provisions contained on the page. It is even less likely that an unsophisticated layperson like Esquer would understand the significance of the delegation clause. See, e.g., Pinela ,
3. Substantive Unconscionability
Plaintiff contends that the Enrollment Agreement and its arbitration provisions are substantively unconscionable because (1) the proposed arbitrator is compromised by virtue of its interest and (2) Plaintiff faces the risk of paying arbitration-related fees and costs not required in a judicial proceeding. (ECF No. 10 at 9.) The substantive unconscionability inquiry focuses on "the effects of the contractual terms and whether they are overly harsh or one-sided." Flores ,
a. Plaintiff Fails to Show Arbitrator Bias
Plaintiff argues that the arbitration provisions are unenforceable because the proposed arbitrator is biased. Plaintiff argues that Defendants repeatedly appear before JAMS and has submitted a document purporting to demonstrate the frequency and familiarity of interactions between Defendants and JAMS. (ECF No. 10 Ex. 1.) Plaintiff asserts the so-called "repeat player effect," by which an arbitrator seeks to cultivate further business from a party repeatedly appearing before it, may be taken into account by this Court in deciding whether the arbitration agreement is substantively unconscionable. (ECF No. 10 at 10.) Although the Court agrees bias is relevant to the unconscionability inquiry, the Court finds Plaintiff's bias argument in this case unpersuasive.
Although the Supreme Court of California has taken notice of the "repeat player effect," the court has never declared that such an effect renders an arbitration agreement per se unconscionable. See *1016Mercuro v. Superior Court ,
b. The Fee and Cost Provisions Are Not Unconscionable
Plaintiff also argues that arbitration provisions are substantively unconscionable because Plaintiff faces the risk of having to pay arbitration-related fees and costs not required in court. This argument is insufficient to invalidate the delegation clause of this arbitration agreement because that provision is not sufficiently connected to the delegation clause. This alone would doom finding that the delegation provision is substantively unconscionable. See Rent-a-Ctr. ,
Even assuming there is a sufficient connection, Plaintiff advances nothing more than mere speculation about the fees and costs of arbitration. "The 'risk' that [a plaintiff] will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement." Green Tree Fin. Corp.-Ala. v. Randolph ,
4. Plaintiff Has Not Proven the Delegation Clause is Unenforceable
Although Plaintiff has shown some degree of procedural unconscionability as to the delegation provision, he has failed establish that the provision is substantively unconscionable. Because California law requires a showing of both types of unconscionability, Mohamed ,
C. Defendants' Demand for Arbitration is not "Wholly Groundless"
The arbitration provision of the Enrollment Agreement provides that it applies to "any dispute or claim between the student and The Art Institute ... arising out of or relating to the student's enrollment or attendance at" AICSD, including claims against "any company affiliated" with AICSD. (Antun Decl. Ex. 1.) Notwithstanding this broad language, Plaintiff argues that Defendants' demand for arbitration does not reach his claim that Defendants intentionally and publicly disclosed his private personal facts. (ECF No. 10 at 11.) Plaintiff's argument does not have merit. As confirmed by the allegations in the Complaint, this entire dispute, including Plaintiff's claim concerning alleged disclosure of his private personal facts during classes at AICSD, arises from or relates to Plaintiff's enrollment and attendance at AICSD. Thus, the entire dispute directly "touches" the subject matter of the Enrollment Agreement and is subject to arbitration. See Simula Inc. v. Autoliv, Inc. ,
D. Defendants' Request to Dismiss or Stay the Case
As part of their motion to compel arbitration, Defendants moved for dismissal or a stay of the case pending arbitration. Under the FAA, a court may stay the trial of an action pending arbitration when it is satisfied that the issues in dispute are referable to arbitration under the parties' arbitration agreement. See
IV. CONCLUSION & ORDER
Accordingly, the Court HEREBY ORDERS :
1. Defendants' motion to compel arbitration (ECF No. 8) is GRANTED .
2. The action is STAYED as to all parties and all claims. See9 U.S.C. § 3 .
3. The Court further ORDERS the parties to proceed to JAMS for a determination of arbitrability and possible arbitration in the manner provided for in the Enrollment Agreement's arbitration provisions. See9 U.S.C. § 4 .
4. The Court directs the Clerk of the Court to ADMINISTRATIVELY CLOSE this action; the decision to *1018administratively close this action pending the resolution of the arbitration does not have any jurisdictional effect. See Dees v. Billy ,394 F.3d 1290 , 1294 (9th Cir. 2005) ("[A] district court order staying judicial proceedings and compelling arbitration is not appealable even if accompanied by an administrative closing" because "administratively closing ... has no jurisdictional effect.").
IT IS SO ORDERED.
The main difference between these sets of rules is whether the claims exceed $250,000.00 or not, with the streamlined rules applying to claims that do not exceed this amount. Compare Rule 1(a), JAMS Comprehensive Arbitration Rules & Procedures with Rule 1(a) JAMS Streamlined Arbitration Rules & Procedures.
Moreover, such an inquiry may be better suited to a court's determination of whether a delegation clause is unenforceable because it is unconscionable. Courts take into account a party's sophistication when assessing unconscionability. See, e.g., Tiri v. Lucky Chances, Inc. ,
Plaintiff concedes that the copy of the Enrollment Agreement Defendants submitted in support of their motion to compel is a true copy of the agreement he signed. (ECF No. 10 at 6.)
Reference
- Full Case Name
- Steven ESQUER v. EDUCATION MANAGEMENT CORPORATION, and The Art Institute of California-San Diego
- Cited By
- 16 cases
- Status
- Published