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Friday, May 17, 2024 | Back issues
Courthouse News Service Courthouse News Service

Students of For-Profit School Face Arbitration

(CN) - An arbitrator must resolve unfair competition and false advertising claims against the for-profit education company Corinthian Colleges, the 9th Circuit ruled Monday.

The federal appeals court in Pasadena found that a California rule that had exempted such claims for "public injunctive relief" from arbitration is no longer valid in light of recent Supreme Court rulings.

In two proposed class actions consolidated in Santa Ana, lead plaintiffs Kevin Ferguson and Sandra Muniz alleged that Corinthian, which operates for-profit colleges throughout the country under the names Everest Institute and Heald College, misled students as to the quality of its education, its schools' accreditation, and students' job prospects after graduation, among other things. They also claimed that Corinthian misled students into applying for federal financial aid, and that it specifically targeted veterans. The consolidated federal action proposed a class that included all students who enrolled in an Everest school after approximately January 24, 2005, or a Heald school after approximately January 24, 2009.

Corinthian moved to compel arbitration on all seven of the plaintiffs' claims, citing an arbitration clause in its enrollment agreements.

U.S. District Judge David Carter agreed as to most of the claims, but denied to compel arbitration for the plaintiffs' claims for injunctive relief under California's unfair competition law, false advertising law and Consumer Legal Remedies Act.

In doing so, Judge Carter referred to the California Supreme Court's so-called Broughton-Cruz rule, which had for years exempted from arbitration claims "for the benefit of the general public rather than the party bringing the action," based on a perceived conflict between arbitration and the state's Consumer Legal Remedies Act.

Noting the U.S. Supreme Court's recent expansive reading of the Federal Arbitration Act, a three-judge panel of the 9th Circuit reversed on Monday,

"Just a few months ago, the Supreme Court reiterated that 'courts must 'rigorously enforce' arbitration agreements according to their terms," Judge Richard Clifton Wrote for the panel.

That and other recent rulings "strongly suggests even where a specific remedy has implications for the public at large, it must be arbitrated under the FAA if the parties have agreed to arbitrate it," he added.

The panel reversed the lower court's ruling and remanded the case, ordering a stay of the lawsuit pending arbitration of all the plaintiffs' claims.

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