373 F. Supp. 3d 303
D. Me.2019Background
- Four former students (Kourembanas, Baptiste, Mande, Valley) signed InterCoast enrollment agreements that included broad arbitration clauses.
- Plaintiffs sued InterCoast in federal court alleging unfair/deceptive trade practices, breach of contract, fraudulent inducement, and misrepresentation relating to an LPN program.
- InterCoast moved to compel arbitration under the Federal Arbitration Act (FAA) and to dismiss; plaintiffs opposed, arguing (1) the school lacked corporate capacity/used an unregistered d/b/a so the agreements are unenforceable, (2) the arbitration clauses are unconscionable, and (3) the enrollment contracts were fraudulently induced.
- Each plaintiff signed and initialed the enrollment agreements; the arbitration clause covered “any dispute arising from enrollment…no matter how described.”
- The Court applied FAA principles and Maine contract law, concluded (a) challenges to the contract as a whole (fraudulent inducement) are for an arbitrator, (b) an unregistered trade name/d/b/a does not, as a matter of Maine law, render the contract unenforceable, and (c) the arbitration clauses were not procedurally or substantively unconscionable.
- The Court granted the motion to compel arbitration and dismissed the complaint without prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of arbitration clause | Arbitration clauses unenforceable because InterCoast (d/b/a InterCoast Career Institute/InterCoast Colleges) lacked corporate existence/capacity | Plaintiffs knowingly contracted with InterCoast (trade name of the corporate entity); using a trade name does not invalidate a contract | Court: Nonregistered trade name/d/b/a does not void contract under Maine law; InterCoast may enforce agreement |
| Scope of arbitration provision | N/A (plaintiffs did not dispute scope) | Clause is broadly worded to cover any dispute arising from enrollment | Court: Clause is broad and covers plaintiffs’ claims |
| Fraudulent inducement to contract | Plaintiffs allege fraud induced enrollment generally (quality, accreditation, corporate identity) | InterCoast: any fraud challenge goes to arbitration if it attacks the contract as a whole rather than the arbitration clause specifically | Court: Claims that fraudulently induced the entire contract are for the arbitrator to decide (delegated); only fraud targeting the arbitration clause itself would be for the court |
| Unconscionability of arbitration clause | Clause is inconspicuous, lacks disclosure of rights/terms, and incorporates other materials — procedurally and substantively unconscionable | Clause was signed and initialed by students; Maine presumes parties read contracts; plaintiffs bear burden to show unconscionability | Court: Plaintiffs failed to meet burden; clause not procedurally or substantively unconscionable |
Key Cases Cited
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (separability: challenges to the contract as a whole go to arbitrator unless challenge is to the arbitration clause itself)
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (party must challenge arbitration clause specifically for court to decide; general contract challenge goes to arbitrator)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (U.S. 2019) (clear-and-unmistakable evidence standard for delegating arbitrability questions to arbitrators)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (arbitrability determination: challenges to the validity of the contract as a whole are for arbitrators)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA preempts state rules invalidating arbitration agreements on certain grounds; strong federal policy favoring arbitration)
- Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (U.S. 2018) (enforcement of arbitration agreements that preclude class/collective actions)
- Bercovitch v. Baldwin Sch., Inc., 133 F.3d 141 (1st Cir. 1998) (First Circuit arbitration precedent on scope and enforceability)