Davis v. ECPI College of Technology, L.C.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-2122
ALVIN DAVIS, JR.; DEANA CORNWELL; ERIC CASH;
RHONDA KAREN CAMPBELL; MATTHEW BROWN; RAFAEL
CABRAL; THOMAS LEE BRADLEY; LAURA ANKERSON;
CALISHA ALEXANDER; STEVEN L. FOWLER; JAMES B.
FLOWERS; OHAZI FARHAN; ROBERT DALE EDWARDS;
DARLENE BARGLE; RICHARD DOTSON, JR.; STEPHEN
DEBRUNNER; ROBERT PHILLIPS; KEVIN QUICK;
IKEISHA ROBERTS; PRISCILLA SAMPLES; JEREMY
SCHULTS; KAREN SEWELL; PAUL SPRINGER; DANIEL
BRITT SURLES; JOSH TWEED; MARY WALLACE; GEORGE
ANTHONY WILLIAMS; KATRINA WILLIAMS; JAMES
BRIAN WINGARD; JAMES MONTGOMERY; KYLE NORRIS;
MEGAN NORRIS; ANGELA PETERSON; JOHN HIGMAN,
JR.; PAUL HOLLAND; JAMES HOOD; CHRISTOPHER
BRUCE HOUSER; KENDRICKS LOTT; JASON MAZYCK;
ARMONDO GARCIA; JASON BLAKE GODFREY; CRYSTAL
HICKS; TIM HENEGAR; DAVID HAROLD; LAURA
MERRELL; DON MONCRIEF; JAMES MCGONNELL; NANCY
COBB; BRADLEY WILLIAM WATERS,
Plaintiffs - Appellees,
versus
ECPI COLLEGE OF TECHNOLOGY, L.C.,
Defendant - Appellant.
Appeal from the United States District Court for the District of
South Carolina, at Greenville. G. Ross Anderson, Jr., District
Judge. (CA-05-2034)
Argued: December 1, 2006 Decided: March 20, 2007
Before MICHAEL and GREGORY, Circuit Judges, and Gerald Bruce LEE,
United States District Judge for the Eastern District of Virginia,
sitting by designation.
Reversed by unpublished per curiam opinion.
ARGUED: John Michael Bredehoft, KAUFMAN & CANOLES, P.C., Norfolk,
Virginia, for Appellant. Gary W. Poliakoff, POLIAKOFF, POOLE &
ASSOCIATES, Spartanburg, South Carolina, for Appellees. ON BRIEF:
Burt H. Whitt, Heather A. Mullen, Kevin D. Holden, KAUFMAN &
CANOLES, P.C., Richmond, Virginia; Thomas A. Bright, NELSON,
MULLINS, RILEY & SCARBOROUGH, Greenville, South Carolina, for
Appellant.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
The defendant, an educational institution, required its
students to sign an enrollment agreement containing an arbitration
clause. The plaintiffs (and former students) sued the defendant in
U.S. District Court, claiming that the collective action waiver in
the arbitration clause is unconscionable. The district court
agreed and issued a preliminary injunction preventing the defendant
from proceeding in forty-seven separate arbitrations that are
pending before the American Arbitration Association (AAA). We
reverse. Because the plaintiffs concede that the basic agreement
to arbitrate is valid, the issue of whether the collective action
waiver is unconscionable must be decided in arbitration.
I.
ECPI College of Technology, L.C. (ECPI) is a for-profit
educational institution offering associate degrees in the fields of
technology, business, and health sciences. The school has campuses
in North Carolina, South Carolina, and Virginia. The plaintiffs
were formerly enrolled at the Greenville, South Carolina, campus.
ECPI requires students to sign an enrollment agreement
prior to matriculation. A clause in the agreement states that “any
dispute arising out of or in any way related to [the] agreement”
that is not resolved under informal procedures must be submitted to
the AAA for binding arbitration. J.A. 54. The arbitration clause
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contains a collective action waiver, which provides that the
arbitration “shall not include any party other than the College and
Student, and shall not be joined or consolidated with any other
arbitration.” Id.
In early 2005 a group of current and former ECPI students
(plaintiffs here) concluded that they had state law claims against
ECPI, including claims that the school provided substandard
educational services and that it had misrepresented various facts
regarding credit transferability and job placement after
graduation. The plaintiffs were interested in recovering tuition,
interest, and punitive damages. In March 2005 forty-seven of the
plaintiffs submitted their claims jointly to the AAA and requested
class arbitration. The AAA rejected the class treatment request
pursuant to the enrollment agreement and the AAA’s internal
policies. The plaintiffs then filed separate claims with the AAA,
and the AAA began to appoint arbitrators to hear the individual
claims. In July 2005 the plaintiffs asked the AAA to reconsider
their request for class arbitration. The plaintiffs argued that
individual proceedings would “massively compound and increase
difficulty in presenting claims, costs, efforts, and time involved
in these cases, all of which thwarts all of the stated purposes of
arbitration.” J.A. 60. The AAA again denied the plaintiffs’
request and informed them that it would not consolidate any of the
arbitrations absent agreement by the parties or court order.
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The plaintiffs, including two students bringing claims
for the first time, then sued ECPI in U.S. District Court, seeking
a preliminary injunction to prevent the institution from proceeding
in the individual arbitrations. The plaintiffs claimed that the
collective action waiver was unconscionable under South Carolina
contract law and that they would suffer irreparable harm if
required to conduct forty-seven different arbitration proceedings.
The district court granted the preliminary injunction. In
considering the factors set out in Blackwelder Furniture Co. v.
Seilig, 550 F.2d 189 (4th Cir. 1977), the court concluded that the
hardship to the plaintiffs of arbitrating forty-seven separate
cases significantly outweighed any potential harm that ECPI would
suffer if required to proceed in a consolidated arbitration. The
court then added, “given the South Carolina Supreme Court’s
statement in Bazzle[1] and the case law regarding unconscionability
of contracts, the Plaintiffs have an apparent likelihood of success
on the merits.” J.A. 179. ECPI now appeals the preliminary
injunction.
1
In Bazzle v. Green Tree Fin. Corp., 569 S.E.2d 349 (S.C.
2002), the South Carolina Supreme Court said: “Although this
present case does not raise this question, we note that preclusion
of class-wide or consolidated arbitration in an adhesion contract,
even if explicit, undermines the principle favoring expeditious and
equitable case disposition absent demonstrated prejudice to the
drafter of the adhesive contract.” Id. at 360 n.21. The state
court opinion was vacated by the Supreme Court of the United States
in Green Tree Fin. Corp., v. Bazzle, 539 U.S. 444 (2003).
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II.
ECPI argues that the preliminary injunction was improper
for two reasons. First, ECPI says that the Federal Arbitration Act
(FAA), 9 U.S.C. §§ 1-16, does not authorize courts to resolve
disputes concerning the procedures employed in an arbitration.
Second, it says that the district court erred in concluding that
the plaintiffs would suffer irreparable harm absent an injunction.
We reverse the preliminary injunction because the plaintiffs only
raise claims about the procedures to be used in arbitrating their
claims.
A.
Congress passed the FAA to “reverse the longstanding
judicial hostility to arbitration agreements,” Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991), and
“eliminate[] any bias in favor of judicial resolution of disputes,”
Dockser v. Schwartzenberg, 433 F.3d 421, 425 (4th Cir. 2006).
Section 2 of the FAA provides that arbitration agreements “shall be
valid, irrevocable, and enforceable,” placing them “upon the same
footing as other contracts.” Dean Witter Reynolds, Inc., v. Byrd,
470 U.S. 213, 219 (1985) (internal quotations and citations
omitted). By agreeing to arbitrate, a party does not forgo any
common law or statutory rights; “it only submits to the[]
resolution [of claims] in an arbitral, rather than a judicial,
forum.” Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, 473
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U.S. 614, 628 (1985). Thus, when a contract contains an
arbitration clause, the “merits of the underlying dispute . . .
[and] the procedural aspects of the arbitration itself” are
presumptively for the arbitrator to decide. Dockser, 433 F.3d at
425.
Judicial review under the FAA is available, however, on
the limited “question whether the parties have submitted a
particular dispute to arbitration,” that is, the question of
arbitrability. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,
84 (2002). A question of arbitrability exists
in the kind of narrow circumstances where parties would
likely have expected a court to decide [a] gateway
matter, where they are not likely to have thought that
they had agreed that an arbitrator would do so, and where
reference of the gateway dispute to the court avoids the
risk of forcing parties to arbitrate a matter that they
may well not have agreed to arbitrate.
Id. at 83-84. In other words, a court should intervene only “where
there is a question regarding whether the parties should be
arbitrating at all.” Dockser, 433 F.3d at 426; see also Pro Tech
Indus. Inc. v. URS Corp., 377 F.3d 868, 871 (8th Cir. 2004)
(stating that a court’s role is limited to deciding “whether a
valid agreement to arbitrate exists”).
B.
The plaintiffs have not raised the question of
arbitrability. They concede that their claims are properly in
arbitration. The issue, according to them, is “not whether the
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claims should be arbitrated, but rather how they should be
arbitrated.” Appellee’s Br. at 7 (emphasis in original); see also
J.A. 123 (plaintiffs’ counsel stating that: “We’ve asked for a
class arbitration, or in the alternative, a consolidated
arbitration. We’ve made that clear not only in the pleadings
before this court, but repeatedly in our requests to the AAA.”).
The question of “what kind of arbitration proceedings” are required
under the arbitration clause is not a gateway issue for a court to
decide. Green Tree Fin. Corp., v. Bazzle, 539 U.S. 444, 452
(2003). Once it is clear that the parties agreed to arbitration,
the validity and meaning of particular provisions within the
arbitration clause are for the arbitrator to determine. See
Employers Ins. Co. of Wausau v. Century Indem. Co., 443 F.3d 573,
578 (7th Cir. 2006) (holding that arbitrator should decide whether
arbitration clause permits consolidated proceedings); Ciago v.
Ameriquest Mortg. Co., 295 F. Supp. 2d 324 (S.D.N.Y. 2003) (holding
that unconscionability challenge to forum selection provision
within arbitration clause was not a gateway issue).
We conclude that the district court erred in granting a
preliminary injunction. The plaintiffs have not alleged that the
basic agreement to arbitrate is unconscionable. The arbitration
clause provides that all disputes arising out of or relating to the
enrollment agreement, which includes the arbitration clause, must
be decided in arbitration. The plaintiffs must therefore assert in
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arbitration their claim that the collective action waiver is
unconscionable.2
For the foregoing reasons, the district court’s order
granting a preliminary injunction is
REVERSED.
2
A claim that an arbitration agreement itself is
unconscionable is a gateway issue that a court would decide. See,
e.g., Pro Tech Indus. v. URS Corp., 377 F.3d 868, 872-73 (8th Cir.
2004); Snowden v. Checkpoint Check Cashing, 290 F.3d 631, 639 (4th
Cir. 2002). Here, the plaintiffs’ claim that the collective action
waiver provision is unconscionable is asserted as an objection to
procedure, not as an objection to arbitration. For that reason the
plaintiffs have not raised a gateway issue.
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