WEBB v. ELDORADO COLLEGES INC

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Court of Appeal, Fourth District, Division 1, California.

Mark A. WEBB, Plaintiff and Respondent, v. ELDORADO COLLEGES, INC. et al., Defendants and Appellants.

Cipriano Raul LOPEZ, Plaintiff and Respondent, v. ELDORADO COLLEGES, INC. et al., Defendants and Appellants.

Cari PARKER-KEMPSTER, Plaintiff and Respondent, v. ELDORADO COLLEGES, INC. et al., Defendants and Appellants.

Robert S. D'HONDT, Plaintiff and Respondent, v. ELDORADO COLLEGES, INC. et al., Defendants and Appellants.

Nos. D024899, D025100, D025103, D025104.

Decided: February 11, 1998

Rice, Fowler, Booth & Banning and Keith Zakarin, San Diego, for Defendants and Appellants. Majors & Fox and Gary W. Majors, San Diego, for Plaintiff and Respondent.

Eldorado Colleges, Inc., Anthony J. Pitale and Lisa Halco (collectively Eldorado) appeal orders denying their petitions to compel arbitration of actions filed against them by Mark A. Webb, Cipriano Raul Lopez, Cari Parker-Kempster and Robert S. D'Hondt (collectively the Students).   Eldorado contends the trial court erred by denying the petitions to compel arbitration because no grounds exist for revocation of the arbitration agreement pursuant to Code of Civil Procedure section 1281.2, subdivision (b).   Eldorado further contends the Maxine Waters School Reform and Student Protection Act of 1989 (Ed.Code,1 former § 94316 et seq., hereafter the Act) 2 does not make the arbitration agreement unenforceable.   We reverse the orders and remand with directions.

FACTUAL AND PROCEDURAL BACKGROUND

Eldorado operates vocational schools.3  Each of the Students executed an enrollment agreement with Eldorado.   The printed form of each two-page enrollment agreement contains the following arbitration provision on its second page:

“Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in accordance with the Commercial Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction.”

In 1995 each of the Students filed separate complaints against Eldorado alleging causes of action for violations of the Act, intentional and negligent misrepresentation, and unfair business practices (Bus. & Prof.Code, § 17200 et seq.).   The complaints allege that Eldorado made misrepresentations to the Students to obtain their enrollment agreements.4

On September 29, 1995, Eldorado filed petitions to compel arbitration of and stay the Students' legal actions pursuant to Code of Civil Procedure section 1281.2.5  Eldorado filed memoranda in support of its petitions, and Students filed memoranda opposing Eldorado's petitions.   On October 23, 1995, in response to each petition, the trial court filed a minute order stating:

“PETITION TO COMPEL ARBITRATION DENIED PER EDUCATION CODE §§ 94319.8 and [94319.9, subd. (f) ] and CCP [§] 1281.2(b).” 6

Eldorado timely filed notices of appeal of these orders, and we subsequently consolidated the appeals.7

DISCUSSION

IContractual Arbitration Generally Is Favored

 California has a “strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.  [Citations.]”  (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 322, 197 Cal.Rptr. 581, 673 P.2d 251 [hereafter Ericksen ].)  “The scope of arbitration is, of course, a matter of agreement between the parties, ․” (Id. at p. 323, 197 Cal.Rptr. 581, 673 P.2d 251.)  “Doubts regarding the scope of arbitrable issues must be resolved in favor of arbitration.  [Citation.]”  (Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1276, 8 Cal.Rptr.2d 587.)

California statutes provide a means by which parties can enforce arbitration agreements.  Code of Civil Procedure section 1281 states:

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”

Code of Civil Procedure section 1281.2 states in part:

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

“(a) The right to compel arbitration has been waived by the petitioner;  or

“(b) Grounds exist for the revocation of the agreement․”

This statute authorizes trial courts to hear petitions to compel arbitration and order the parties to arbitrate their disputes.

II

Code of Civil Procedure Section 1281.2 Generally Does Not Preclude Arbitration Because of Fraud In the Inducement

The trial court relied in part on Code of Civil Procedure section 1281.2, subdivision (b) as a basis for denying Eldorado's petition to compel arbitration.   The Students assert that statute applies to preclude arbitration because “[g]rounds exist for the revocation of the agreement.”  (Code Civ. Proc., § 1281.2, subd. (b).)  They primarily rely on alleged violations of the Act to show that grounds exist for the “revocation” of the arbitration agreements contained in the enrollment agreements.8  We address and reject that contention in part III, post.

 The Students alternatively contend grounds exist for “revocation” of the arbitration agreements because they were fraudulently induced into executing the enrollment agreements.   The Students' complaints allege Eldorado made misrepresentations to obtain the Students' enrollment agreements.   However, all of those alleged misrepresentations relate to the enrollment agreement in general and not to the arbitration clause contained within the enrollment agreement.   The alleged misrepresentations deal with apparent “false promises” Eldorado allegedly made regarding the parties' contractual bargain for educational services.   The Students alleged that Eldorado misrepresented, inter alia, (1) transferability of courses, (2) quality and quantity of courses, instructors and equipment, and (3) placement statistics and assistance.   None of these allegations relate to arbitration of the enrollment agreements.

 The alleged misrepresentations, if proved, presumably could provide a basis for rescission of the entire enrollment agreement because of fraud in the inducement.   However, these allegations do not preclude arbitration of the enrollment agreements.   As the Ericksen court held, “ ‘in the absence of indication of contrary intent, and where the arbitration clause is reasonably susceptible of such an interpretation, claims of fraud in the inducement of the contract (as distinguished from claims of fraud directed to the arbitration clause itself) will be deemed subject to arbitration.’ ”   (Ericksen, supra, 35 Cal.3d at p. 323, 197 Cal.Rptr. 581, 673 P.2d 251, fn. omitted;   Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 419, 58 Cal.Rptr.2d 875, 926 P.2d 1061;  Wolitarsky v. Blue Cross of California (1997) 53 Cal.App.4th 338, 347, 61 Cal.Rptr.2d 629.)

Here, the enrollment agreements contain an arbitration provision requiring arbitration of “[a]ny controversy or claim arising out of or relating to this [enrollment agreement], or breach thereof.”   This provision is similar to the arbitration provision in Ericksen that required arbitration of “ ‘any dispute between the parties hereto with respect to the provisions of this Lease exclusive of those provisions relating to payment of rent.’ ”  (Ericksen, supra, 35 Cal.3d at p. 324, 197 Cal.Rptr. 581, 673 P.2d 251.)   Like the court in Ericksen, “[w]e conclude that the arbitration clause is broad enough to include this claim of fraud in the inducement.”  (Ibid.) Therefore, under Code of Civil Procedure section 1281.2, subdivision (b) the Students' allegations of fraud in the inducement do not preclude arbitration of the enrollment agreements.

III

The Act Does Not Preclude Arbitration

 The Students contend the Act, when interpreted with Code of Civil Procedure section 1281.2, precludes arbitration of their actions against Eldorado.

Section 94319.9, subdivision (f) of the Act states:

“Any provision in any agreement that purports to require a student to invoke any grievance dispute procedure established by the institution or any other procedure before bringing an action to enforce any right or remedy is void and unenforceable.”

The Students assert this statute necessarily precludes arbitration of actions involving vocational education service agreements because it invalidates any contractual provision requiring a student to “invoke any grievance dispute procedure ․ or any other procedure” before bringing an action.  (§ 94319.9, subd. (f).)  The Students argue that the phrase “any other procedure” includes arbitration and the statute therefore invalidates any requirement that a student arbitrate any dispute.

However, we disagree with the Students' interpretation of section 94319.9, subdivision (f).   The statute invalidates only “procedures” required to be invoked “before bringing an action.”  (§ 94319.9, subd. (f), italics added.)   Arbitration is not a procedure required to be followed before bringing an action;  it is an alternative to bringing an action in court.   The court in Saika v. Gold (1996) 49 Cal.App.4th 1074, 56 Cal.Rptr.2d 922 noted at page 1076, 56 Cal.Rptr.2d 922:  “Arbitration has become highly favored as an economical, efficient alternative to traditional litigation in law courts.  [Citations.]”  (Italics added.)   Section 94319.9, subdivision (f) therefore does not prohibit agreements providing for arbitration instead of civil actions;  rather, it prohibits “any grievance dispute procedure” or any other procedure which must be invoked as a prerequisite to a court or arbitral hearing of an action.

We granted the Students' request to take judicial notice of a June 22, 1990 letter from Assemblywoman Maxine Waters to Senator Gary Hart (the Waters Letter).   The Students argue that the Waters Letter proves the legislative intent of section 94319.9, subdivision (f) was to preclude arbitration of disputes involving vocational education service agreements.   They point to language in the Waters Letter that obstensibly discusses section 94319.9:  “Furthermore, we argued that the right of the student to bring an action cannot be restricted by the agreement such as by a provision requiring the student to submit to a grievance procedure established by the institution or requiring the student to arbitrate claims.   Any such provision is void and unenforceable.”

The Waters Letter would be relevant evidence of legislative intent of the Act if it related to the bill that enacted the Act. However, the Waters Letter relates to a subsequent bill proposing to amend the Act and cannot be considered as legislative intent at the time the Act was enacted.   We granted Eldorado's request for judicial notice of the synopses of the legislative history of Assembly Bills 1401 and 1402.   On October 1, 1989, the Act was enacted when the Governor signed Assembly Bill No. 1402.   Assembly Bill No. 1401 was subsequent legislation proposing to amend the Act. Although the Senate passed Assembly Bill No. 1401 on June 28, 1990 and the Assembly passed it on July 5, 1990, the Governor vetoed Assembly Bill No. 1401 on July 23, 1990 and the bill never became law.   The Waters Letter states that it “reports and summarizes to date [Assemblywoman Waters's] formal and informal discussions with members of the [L]egislature concerning Assembly Bill No. 1401.”   It further notes that “Assembly Bill No. 1401 follows Assembly Bill No. 1402, enacted in the 1989 legislative session.”   The Waters Letter of June 22, 1990 discusses only Assembly Bill No. 1401, which was vetoed by the Governor on July 23, 1990.   The Waters Letter not only is dated almost a year after enactment of the Act but also deals with legislation different from that which enacted the Act. The Waters Letter provides us with no relevant evidence on the legislative intent of the Act enacted by Assembly Bill No. 1402 in 1989.   Absent other evidence of legislative intent to the contrary and considering California's strong public policy favoring arbitration, we conclude the express language of section 94319.9, subdivision (f) does not reflect a legislative intent to preclude arbitration.

 The Students also contend that former section 94319.8 9 precludes arbitration of actions under the Act.   Former section 94319.8 states:

“No student may waive any provision of this article.   Any waiver or limitation of any substantive or procedural right or remedy is in violation of this section and is void and unenforceable.”

The Students assert that the term “procedural right” necessarily refers to the right to file a civil action in court and have a court determine rights and remedies under the Act. We disagree.   As Eldorado notes, case law holds that arbitration does not limit substantive and procedural rights guaranteed by legislation.  (Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 628, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444;  Saari v. Smith Barney, Harris Upham & Co., Inc. (9th Cir.1992) 968 F.2d 877, 881-882.)   The Saari court, at page 881, interpreted a federal statute that stated the “ ‘rights and procedures provided by this chapter may not be waived by contract or otherwise’ ” (original italics) to mean that the prohibition of waivers of “procedures” provided by the statute did not preclude arbitration of those statutory claims under a contractual arbitration agreement.  (Saari, supra, at pp. 881-882, original italics.)   It noted that the “term ‘procedures' is too broad to relate solely to forum selection.”  (Id. at p. 881.)   The Students do not show that any statutory procedural protections set forth in the Act would not be respected in arbitration.   Given California's strong public policy favoring arbitration, we conclude the general reference to “procedures” in former section 94319.8 does not preclude arbitration of actions under the Act. If the Legislature intended to preclude arbitration of actions under the Act, it presumably would have used language clearly expressing that intent.10

IV

The Students Do Not Show the Arbitration Provision Is Unenforceable as Part of an Adhesion Contract

 The Students contend the arbitration provision contained in the enrollment agreements is unenforceable as an inconspicuous part of an adhesion contract.   Assuming arguendo that the enrollment agreements constitute adhesion contracts, the Students do not show the arbitration provision itself was unfair and favored Eldorado.   On the contrary, a similar arbitration provision in an adhesion contract was held to be enforceable because the arbitration provision bore equally on both parties to the contract.  (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 711, 131 Cal.Rptr. 882, 552 P.2d 1178.)   We conclude the arbitration provision in this case also “bears equally” on the Students and Eldorado.   Neither party is favored by this allegedly adhesive provision.   In any event, we conclude that the arbitration provision is not so “inconspicuous” as to require its invalidation.   Although the provision appears on the second page of the enrollment agreement, it is legibly printed in typeface equal to that of other provisions in the agreement.   The Students do not show that case law requires arbitration provisions in contracts subject to the Act to be in type larger than that of other provisions.

V

Issues Raised at Oral Argument

 At oral argument the Students argued for the first time that the arbitration agreement is unenforceable under Code of Civil Procedure section 1281.2, subdivision (c) and, as to their fourth cause of action alleging violation of the California Consumers Legal Remedies Act (Civ.Code, § 1750 et seq.), under the authority of Broughton v. Cigna Healthplans (1997) 56 Cal.App.4th 594, 65 Cal.Rptr.2d 558 (Cal.App. 2 Dist. B093517 [rehg. granted Aug. 20, 1997]).11  Neither of these arguments was presented to the trial court or to this court in the Students' briefing.   Because these arguments were not earlier raised, neither the trial court nor Eldorado had the opportunity to consider or respond to them.   Under these circumstances we deem the arguments to have been waived and do not consider either of them on the merits.  (See generally, Eisenberg et al., Cal. Prac. Guide:  Civil Appeals & Writs (The Rutter Group 1997) § 8.231, p. 8-103;  § 9.21, p. 9-5;  § 9.160, p. 9-33;  § 10.22, p. 10-5.)

DISPOSITION

The orders are reversed and the matters remanded with directions that the superior court enter orders granting the petitions to compel arbitration.   Eldorado is entitled to costs on appeal.

FOOTNOTES

1.   All statutory references are to the Education Code unless otherwise specified.

2.   The Act was recodified as section 94850 et seq. by Statutes 1997, chapter 78, section 4, page 360 et seq.

3.   Anthony Pitale is president of Eldorado and Lisa Halco is a managing agent for Eldorado.

4.   The four complaints allege misrepresentations by Eldorado regarding (1) transferability of courses taken elsewhere, (2) transferability of Eldorado's courses to other colleges, (3) quality and quantity of courses in specific programs of study, (4) placement statistics, (5) placement assistance available to students, (6) quality and quantity of equipment and facilities, and (7) qualifications of instructors.

5.   Although Eldorado's papers are titled as “motions” for orders compelling arbitration, the parties do not dispute their substantive effect as petitions to compel arbitration pursuant to Code of Civil Procedure section 1281.2.

6.   Although the trial court cites section “94319.1(f)” in support of its orders, we presume, as do the parties, the reference was a typographical error and the trial court intended to cite former section 94319.9, subdivision (f).   Section 94319.9, subdivision (f) was recodified as section 94877, subdivision (f) by Statutes 1997, chapter 78, section 4, page 383.   Further references in this opinion to sections of the Act are to the section numbers in effect prior to the 1997 recodification of the Act.

7.   The trial court's orders denying Eldorado's petitions to compel arbitration are appealable.  (Code Civ. Proc., § 1294, subd. (a).)

8.   “[T]he ‘revocation of a contract’ referred to in section 1281.2 is something of a misnomer.  ‘Offers are “revoked.”  [Citation.]   Contracts are extinguished by rescission.’  [Citation.]   We construe section 1281.2, subdivision (b), to mean that the petition to compel arbitration is not to be granted when there are grounds for rescinding the agreement.   Fraud is one of the grounds on which a contract can be rescinded.  (Civ.Code, § 1689, subd. (b)(1).)”  (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973, 64 Cal.Rptr.2d 843, 938 P.2d 903.)

9.   Section 94319.8 has been recodified as section 94876 by Statutes 1997, chapter 78, section 4, page 383.

10.   The Students also assert that the Act must necessarily preclude arbitration because it provides for equitable remedies as part of the remedies available for violations of the Act. (§ 94319.9, subd. (b).)  However, the Students cite no case holding that arbitrators are without the power to award equitable relief.   On the contrary, the United States Supreme Court stated:  “[A]rbitrators do have the power to fashion equitable relief.  [Citation.]”  (Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 32, 111 S.Ct. 1647, 1655, 114 L.Ed.2d 26, italics added;  see also Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 36 Cal.Rptr.2d 581, 885 P.2d 994.)

11.   The granting of a rehearing in the Broughton case precludes its citation as authority.

McDONALD, Associate Justice.

WORK, Acting P.J., and HADEN, J.**, concur.

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