Gozzi v. Western Culinary Institute, Ltd.

366 P.3d 743, 276 Or. App. 1, 2016 Ore. App. LEXIS 50
CourtCourt of Appeals of Oregon
DecidedJanuary 21, 2016
Docket080303530; A152137
StatusPublished
Cited by8 cases

This text of 366 P.3d 743 (Gozzi v. Western Culinary Institute, Ltd.) is published on Counsel Stack Legal Research, covering Court of Appeals of Oregon primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Gozzi v. Western Culinary Institute, Ltd., 366 P.3d 743, 276 Or. App. 1, 2016 Ore. App. LEXIS 50 (Or. Ct. App. 2016).

Opinion

ORTEGA, P. J.

In this class action, defendants — Western Culinary Institute, Ltd. (WCI) and its parent company, Career Education Corporation — assert an interlocutory appeal, under ORS 36.730(l)(a), of the trial court’s order denying their motion to compel arbitration. Plaintiffs were students who attended defendants’ culinary trade school known as Le Cordon Bleu between March 1, 2006 and March 1, 2010, and have asserted claims for fraud and unfair trade practices under Oregon’s Unfair Trade Practices Act (UTPA). Defendants’ motion to compel arbitration concerns a subclass of about 1,060 of the roughly 2,500 class members who signed enrollment contracts that included arbitration agreements governed by the Federal Arbitration Act (FAA), 9 USC sections 1 to 16. We reject without discussion defendants’ second assignment of error, challenging the class itself, but address their contention, asserted in their first assignment of error, that a provision in the arbitration agreements delegates arbitrability and enforceability of the arbitration agreement to an arbitrator rather than to the court. That is, in defendants’ view, plaintiffs’ objections to the motion to compel arbitration — namely, that the arbitration agreement is unconscionable and that defendants waived their right to enforce the arbitration agreements because of their litigation conduct — must be resolved in arbitration and, consequently, the trial court erred when it decided those issues itself by denying the motion to compel arbitration.

Plaintiffs remonstrate that (1) the denial of the motion to compel is unreviewable because defendants failed to appeal the denial of a prior motion to compel arbitration and (2) the delegation provision in the arbitration agreements is ambiguous and, therefore, unenforceable. We review the denial of a motion to compel arbitration for legal error. Citigroup Smith Barney v. Henderson, 241 Or App 65, 69, 250 P3d 926 (2011). We conclude that the trial court’s ruling is reviewable and that the delegation provision in the arbitration agreements requires that an arbitrator must decide whether plaintiffs’ objections to the motion to compel arbitration are well-taken. Consequently, we reverse and remand.

[4]*4The relevant procedural history is as follows. Plaintiffs filed an action against defendants in March 2008, alleging violations of the UTPA. In particular, plaintiffs allege that defendants failed to inform prospective students that their programs do not provide any material benefit because they prepare students only for low-paying entry-level jobs that they could have obtained without a culinary degree from Le Cordon Bleu. In May 2012, when defendants filed the subject motion to compel the subclass to arbitrate their claims, over four years had elapsed, plaintiffs had amended their complaint several times, defendants had answered with affirmative defenses asserting a right to mandatory arbitration of their claims and the parties had engaged in extensive discovery and had filed numerous motions.

The parties agree that the subclass’s arbitration agreements are governed by the FAA, that the enrollment contracts and plaintiffs’ claims implicate interstate commerce, and that the arbitration agreements provide that the FAA governs disputes within the agreement’s scope. Section 2 of the FAA provides, in part:

“A written provision in any * * * contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract *** shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

The United States Supreme Court has stated that the effect of section 2 “is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [FAA].” Moses H. Cone Hospital v. Mercury Constr. Corp., 460 US 1, 24, 103 S Ct 927, 74 L Ed 2d 765 (1983). “And that substantive federal law of arbitrability — whether, under a contractual arbitration clause, a particular dispute must be decided by arbitration rather than in court — applies ‘even in the context of state-law claims brought in state court.’” Industra/Matrix Joint Venture v. Pope & Talbot, 341 Or 321, 329, 142 P3d 1044 (2006) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 US 440 , 445, 126 S Ct 1204, 163 L Ed 2d 1038 (2006)). Moreover, section 2 is “a congressional declaration of a liberal federal [5]*5policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” Moses H. Cone Hospital, 460 US at 24.

With that context in mind, we turn to the two motions to compel arbitration, which concerned two different arbitration agreements: (1) those agreed to by students— including class representative Surrett — who enrolled before November 2007 and (2) those agreed to by students who enrolled beginning in November 2007, i.e., the subclass, and which are subject to this appeal. Discussion of the first motion to compel arbitration against Surrett1 is relevant because plaintiffs argue that defendants’ failure to appeal its denial renders the denial of the subject motion to compel arbitration unreviewable on appeal. Surrett, in common with the class members who are not part of the subclass at issue in the subject motion, had signed an enrollment contract before November 2007, which includes an agreement providing for arbitration of “ [a] ny 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 WCI or to this Agreement.” Accordingly, defendants, asserting that plaintiffs’ claims were within the scope of the arbitration agreement, moved to enforce that provision in Surrett’s enrollment agreement in accordance with the FAA, noting that we had held that the FAA applies to arbitration agreements in enrollment contracts between private, for-profit post-secondary schools and their students. See Harnisch v. College of Legal Arts, Inc., 243 Or App 16, 22, 259 P3d 67 (2011) (so stating). Anticipating that plaintiffs would argue that defendants had waived their right to compel arbitration,2 defendants asserted that they neither acted inconsistently with a known right to arbitrate nor delayed their motion to compel arbitration because doing so earlier would have been futile.

[6]*6In support of the latter assertion, defendants argued that, before two recently decided United States Supreme Court opinions regarding arbitration agreements governed by the FAA, AT&T Mobility LLC v. Concepcion, 563 US 333, 131 S Ct 1740, 179 L Ed 2d 742 (2011), and Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 US 662, 130 S Ct 1758, 176 L Ed 2d 605 (2010), Oregon law would have treated Surrett’s arbitration agreement as unconscionable and unenforceable under Vasquez-Lopez v. Beneficial Oregon, Inc., 210 Or App 553, 152 P3d 940 (2007), in which we concluded that, among other reasons, an arbitration agreement’s class-wide arbitration ban rendered the agreement unconscionable. According to defendants, Stolt-Nielsen S. A. established that arbitration agreements that are silent regarding class arbitration could not be interpreted to allow for class-action arbitration. And, until the Court in Concepcion abrogated the rule in

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366 P.3d 743, 276 Or. App. 1, 2016 Ore. App. LEXIS 50, Counsel Stack Legal Research, https://law.counselstack.com/opinion/gozzi-v-western-culinary-institute-ltd-orctapp-2016.