ARBITRATION; CLASS ACTIONS —An otherwise valid arbitration clause cannot prohibit class actions.
Three former students brought an action against the career training school in which they were enrolled. The former students alleged that they, along with the class of individuals they hoped to represent, were misled by the school’s unconscionable business practices and deception. The students complained that they were told of the school’s high placement percentage for graduates, yet none were ever sent out on job interviews and none received a job through the school. As a result, the students claimed to have suffered combined damages in excess of $40,000. Further, the students alleged the school targeted among others, the poor, uneducated, and unemployable.
The students filed suit against the school for violating the New Jersey Consumer Fraud Act and for unjust enrichment. The students also asked the Court to certify a class action, which would consist of those individuals who were induced to enroll in the training school, took out student loans to pay their tuition, and subsequently failed to find a job placement upon graduation. The school responded by requesting that the Court grant its motion to compel arbitration as well as grant its motion to stay the current action until a final decision could be reached through arbitration.
In considering the student’s claims, the Court looked at the arbitration provision of the agreement each student signed upon enrollment. This agreement provided that for any and all claims a student might have, resolution would be achieved through arbitration. The Court listed the agreement’s non-exhaustive examples of claims to be arbitrated. This list included claims regarding the marketing of the school, the student’s participation in any curriculum, and placement. The agreement also prohibited class actions.
First, the Court determined that jurisdiction over the proposed class action would be proper because it satisfied the two-prong test set forth by the governing statute. First, the students alleged the aggregate amount in damages of the class’s claims would exceed $5,000,000 and second, one of the students was a citizen of Pennsylvania, while the school was a New Jersey corporation, therefore the diversity requirement was satisfied.
Next, the Court found the arbitration agreement valid. Even though noting that a court can refuse to enforce a contract when it is unconscionable, this Court found the agreement was not unconscionable for a variety of factors. First, New Jersey public policy favors arbitration. Second, although the terms of the arbitration were written in smaller text than the clauses before and after them, the terms were readable and included a disclaimer printed in bold type. Additionally, the arbitration section made up one-fourth of the agreement. The Court pointed out that, in the past, arbitration agreements have been enforced against less sophisticated persons. The students also argued they faced losing their rights under the Consumer Fraud Act if they couldn’t proceed to court. The Court rejected this argument, noting that the student’s misunderstood the agreement. Contrary to the student’s claims, the agreement would not bar the remedies provided for by the Consumer Fraud Act. The students would indeed be entitled to the statutory damages, even if resolution of their claims was achieved through arbitration instead of by litigation.
Third, the Court found the class arbitration clause valid. The students argued that even if the Court found the arbitration clause valid, the prohibition against class actions was still against public policy. The Court found the students’ argument hypocritical because it would allow a class action to bring their claim to court while forcing an individual into arbitration, the Court found the prohibition on class actions applied to the students.
Lastly, the Court held that the students’ claims fell under the arbitration agreement. The agreement clearly set forth the types of claims to be addressed through arbitration. Here, the students were challenging the school’s marketing practices as well as its placement practices. Despite the manner in which the students’ characterized their complaints, the nature of their claims were ones that were expressly covered by the agreement. The Court further rejected the students’ claims that the prohibition on class actions only applies to arbitration, not litigation.
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