Kourembanas v. Intercoast Colls.

373 F.Supp.3d 303

Stephanie KOUREMBANAS, et al., Plaintiffs,

v.INTERCOAST COLLEGES, Defendant.

No. 2:17-cv-00331-JAW

United States District Court, D. Maine.

Signed February 28, 2019

Andrew P. Cotter, James A. Clifford, Clifford & Clifford, LLC, Kennebunk, ME, Richard L. O'Meara, Murray Plumb & Murray, Portland, ME, for Plaintiffs.

George T. Dilworth, Julia G. Pitney, Drummond Woodsum, Portland, ME, Jeffrey R. Fink, William R. Bay, Pro Hac Vice, Thompson Coburn LLP, St. Louis, MO, for Defendant.

ORDER ON MOTION TO COMPEL AND DISMISS

JOHN A. WOODCOCK, JR., UNITED STATES DISTRICT JUDGE

The plaintiffs are four former students who signed enrollment agreements with the defendant, a for-profit college; the enrollment agreements contained arbitration provisions. The students filed a suit against the defendant alleging unfair and deceptive trade practices, breach of contract, fraudulent inducement to contract, as well as intentional and negligent misrepresentation. The defendant moved to compel arbitration and to dismiss the lawsuit, and the plaintiffs responded that the defendant was barred from compelling arbitration, raising certain corporate and contract law defenses. Although disquieted by the result, the Court concludes that Supreme Court and First Circuit authority requires the Court to grant the motion to dismiss and compel arbitration in accordance with the enrollment agreement.

I. BACKGROUND

A. Procedural History

On August 29, 2017, the Plaintiffs initiated a class action lawsuit against InterCoast Colleges (InterCoast), alleging under various theories that InterCoast engaged in fraud by inducing students to borrow money through federally-funded financial aid programs to pay for a Licensed Practical Nursing (LPN) program that InterCoast operated in Maine, when the quality of the education in the InterCoast LPN program was deficient and deceptively below its advertised quality. Class Action Compl. (ECF No. 1 ) (Compl. ). On November 7, 2017, InterCoast moved to compel arbitration and to dismiss the lawsuit. Def.'s Mot. to Compel Arbitration and Dismiss the Case (ECF No. 7 ) (Def.'s Mot. ).¹ On September 28, 2018, the Plaintiffs filed their response to InterCoast's motion to compel arbitration. Pls.' Resp. in Opp'n to Def.'s Mot. to Compel Arbitration and Dismiss the Case (ECF No. 23 ) (Pls.' Opp'n ). InterCoast replied on November 15, 2018. Def.'s Reply to Resp. to Mot. to Compel Arbitration and Dismiss the Case (ECF No. 32 ) (Def.'s Reply ).

On October 3, 2018, the Plaintiffs moved for oral argument, Mot. for Oral Argument (ECF No. 24 ), which the Court granted on November 16, 2018. Order (ECF No. 33 ). On February 4, 2019, the Court held oral argument concerning the pending motion to compel arbitration and to dismiss the case. Min. Entry (ECF No. 35 ).²

B. Factual Background³

InterCoast operates for-profit programs in several jurisdictions across the United States; most in California. Compl. ¶ 24. From approximately October 2005 until early March 2016, InterCoast operated practical nursing education programs in Maine (InterCoast LPN Program). Id. ¶ 25. Students who enrolled in the InterCoast LPN Program signed an enrollment agreement entitled "InterCoast Career Enrollment Agreement" (the Enrollment Agreement). Def.'s Mot. Attach. 1. Decl. of Kelly Michaud , ¶ 7 (ECF No. 7 ) (Kelly Michaud Decl. ). Each Enrollment Agreement contained a provision requiring arbitration of disputes between the student and InterCoast. Id. The Plaintiffs—Stephanie Kourembanas, Caridad Jean Baptiste, Cathy Mande, and Catharine Valley—all enrolled in the InterCoast LPN Program. Compl. ¶¶ 1-5. Each Plaintiff signed the InterCoast Enrollment Agreement. Kelly Michaud Decl. ¶¶ 10, 15, 20, 29; Def.'s Mot. Attachs. 2-6 (ECF No. 7 ) (Pls.' Enrollment Agreements ).

The signed Enrollment Agreements provide:

Any dispute arising from enrollment at InterCoast Career Institute, other than grades and no matter how described, pleaded, or styled, shall be resolved by binding arbitration under the Federal Arbitration Act conducted by the American Arbitration Association (‘AAA’), under its Commercial Rules. The award rendered by the arbitration may be entered in any court having jurisdiction. This provision incorporates the Arbitration provision found elsewhere in InterCoast Career Institute enrollment materials.

Kelly Michaud Decl. ¶¶ 11, 16, 20, 25, 30; Pls.' Enrollment Agreements. Immediately after this language, above the student's signature line, the Enrollment Agreement states:

I understand that this is a legally binding contract. My signature below certifies that I have read, understood, and agreed to my rights and responsibilities, and that the institution's cancellation and refund policies have been clearly explained to me.

Your signature below on this agreement acknowledges that you have been given reasonable time to read and understand this document....

Kelly Michaud Decl. ¶¶ 12, 17, 22, 26, 31; Pls.' Enrollment Agreements. In the Enrollment Agreements, the Plaintiffs signed on the line above "Signature of Student" and initialed each page of the Enrollment Agreement. Kelly Michaud Decl. ¶¶ 13, 18, 27, 32; Pls.' Enrollment Agreements.

II. POSITIONS OF THE PARTIES

A. InterCoast's Motion

InterCoast argues that the Enrollment Agreements are covered under the Federal Arbitration Act (FAA) and that the Court should compel arbitration because: (1) there is an enforceable written agreement to arbitrate; (2) the disputed issues between InterCoast and the Plaintiffs fall within the scope of the arbitration agreement; and (3) InterCoast has not waived its right to arbitrate these disputed issues. Def.'s Mot. at 4-7.

InterCoast says that when each Plaintiff reviewed, signed, and initialed the Enrollment Agreement, they "entered into a contract which contained an agreement to arbitrate ‘any dispute arising from enrollment, other than grades and no matter how described, pleaded, or styled.’ " Id. at 5 (quoting Kelly Michaud Decl. ¶¶ 11, 16, 20, 25, 30 and exhibits A-E thereto). InterCoast maintains that courts generally apply basic principles of contract law to arbitration agreements and interpret these agreements as creating "a presumption of arbitrability which is only overcome if it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Id. (quoting United States v. Consigli Constr. Co. , 873 F.Supp.2d 409, 412 (D. Me. 2012) (internal quotation marks omitted) ). InterCoast maintains that "[t]here is nothing to mandate revocation of the contracts" because the Enrollment Agreements set forth and explained InterCoast's policies, the arbitration clauses were conspicuous, and Maine law favors the enforcement of arbitration provisions. Id. at 5-6.

As to the second point, InterCoast argues the issues in this case fall within the arbitration agreement since the clause is broadly worded in stating "[a]ny dispute arising from enrollment at InterCoast Career Institute, other than grades and no matter how described, pleaded, or styled." Id. at 6. Because the Complaint asserts claims not relating to grades the Plaintiffs received but alleges unfair trade practices, breach of contract, and torts, InterCoast says their claims fall within the scope of the arbitration clause. Id. at 7. InterCoast points to Bercovitch v. Baldwin School, Inc. , 133 F.3d 141, 148 (1st Cir. 1998), and contends that Bercovitch is factually similar to this case and the First Circuit's analysis in Bercovitch "is instructive." Id. Lastly, InterCoast asserts that it has not waived its right to arbitrate and that the Plaintiffs do not assert otherwise. Id. at 8. InterCoast argues consequently that because the issues before the Court are arbitrable, the Court should dismiss the case and that dismissal is advantageous on various grounds. Id. (citing Boulet v. Bangor Sec. Inc. , 324 F.Supp.2d 120, 127 (D. Me. 2004) (quoting Bangor Hydro-Electric Co. v. New England Tel. and Tel. Co. , 62 F.Supp.2d 152, 161 n.9 (D. Me. 1999) ) ).

B. Plaintiffs' Opposition

After complaining that the arbitration clauses were untitled and in fine print, the Plaintiffs acknowledge that each individual Plaintiff executed an Enrollment Agreement with "InterCoast Career Institute" (ICCI), which contained an arbitration clause. Pls.' Opp'n at 1-2. The Plaintiffs say the issue is not whether they signed the Enrollment Agreements but whether the arbitration clauses within the Enrollment Agreements are enforceable. Id. at 2. The Plaintiffs argue the Court should deny InterCoast's motion to compel arbitration and dismiss the case, because (1) the arbitration clauses are not enforceable as ICCI "is not a legally organized entity and lacked any capacity to contract with the Plaintiffs;" and (2) the arbitration clauses are unconscionable. Id. At oral argument, the Plaintiffs also asserted InterCoast engaged in fraud and fraudulently induced them to enter their Enrollment Agreements.

The Plaintiffs claim that the arbitration provisions in their Enrollment Agreements "are unenforceable under common law principles of corporate and contract law."Id. at 6. Specifically, the Plaintiffs aver that the arbitration clauses are not enforceable because "[t]here is no evidence that either InterCoast Career Institute or the entity for which it claims to have been a d/b/a, InterCoast Colleges [ ] ever has been validly organized as a corporation" and consequently, InterCoast "is not a legal entity capable of enforcing rights under a contract it purports to have entered with Plaintiffs." Id. at 7 (internal quotations omitted). The Plaintiffs contend that in its Corporate Disclosure Statement (ECF No. 13 ) (Corporate Disclosure I ), InterCoast claims that it is a corporation and that "its stock is owned by Inter-Coast International Training, Inc." Id. at 6.

However, the Plaintiffs argue "[t]his representation is at odds with the corporate disclosure statements that [InterCoast]"...