Merrill v. Action
Education Services

 

 

 

 

 

 

 

 

Filed 10/2/13 
Merrill v. Action Education Services CA2/2

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>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

 

California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b).  This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

 

IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND
APPELLATE DISTRICT

DIVISION
TWO

 
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CRYSTAL MERRILL et al.,                           Plaintiffs and Appellants,               v.   ACTION EDUCATIONAL SERVICES, INC.,                           Defendant and Appellant.

B240202         (Los Angeles County       Super. Ct. No. BC471835)

 

 

 

            APPEAL
from a judgment of the Superior Court
of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County.  Anthony J.
Mohr, Judge.  Affirmed in part, reversed
in part, and dismissed in part.

 

            Skapik
Law Group and Geralyn L. Skapik; OsbornLaw and Richard G. Osborn; Southern
California Lawyers Group and Eric Christopher Morris for Plaintiffs and
Appellants.

 

            Duane
Morris LLP, Keith Zakarin, Edward M. Cramp, and Lisa K. Widdecke for Defendant
and Appellant.

 

 

            Crystal
Merrill (Merrill) and Fi Tran (Tran) (collectively, plaintiffs) filed a
putative class action against Action Educational Services, Inc. also known as
West Coast University, Inc. (defendant) for fraud,
misrepresentation, and violation of the unfair competition law (Bus. &
Prof. Code, § 17200 et seq.) (UCL) and other statutes, following their
enrollment in defendant’s nursing school program.  As part of their enrollment, plaintiffs each
signed an enrollment agreement (EA) and one or more retail installment sales
contracts (RICs).  All of the RICs, and
the EA signed by Merrill, contained a provision requiring arbitration of
disputes.  The EA signed by Tran did not
contain an arbitration clause.

            Defendant
filed a petition to compel arbitration of all of plaintiffs’ claims.  The trial court granted the petition to
arbitrate plaintiffs’ individual claims under the RICs as well as Merrill’s
individual claims under the EA.  The
court denied the petition to compel arbitration of Tran’s claims under the EA,
and stayed those claims, along with plaintiffs’ class claims and their claims
under the UCL.

            Defendant
appeals from the trial court’s order denying the petition to compel arbitration
of Tran’s claims under the EA.  Defendant
also appeals from the order staying plaintiffs’ class claims.  Plaintiffs appeal from the order granting the
petition to compel arbitration of their individual claims under the RICs and
Merrill’s claims under the EA.

            We
reverse the order denying the petition to compel arbitration of Tran’s claims
under the EA.  We dismiss defendant’s
appeal of the order staying the class claims. 
We also dismiss plaintiffs’ appeal.

>BACKGROUND

            Plaintiffs
enrolled in defendant’s Bachelors of Science Nursing Program between 2008 and
2009.  As part of their enrollment,
plaintiffs each signed an EA.  The EA
signed by Merrill contains an arbitration provision that provides as follows:

“Any controversy or
claim arising out of or relating to the Agreement, or breach thereof, not
addressed by the California Education Code, shall be settled by arbitration in
accordance with the Commercial Rules of the Arbitration American Arbitration
Association, and judgment upon the award rendered by the Arbitrator(s) may be
entered in any court having jurisdiction.”

 

The EA signed by Tran contains no
arbitration provision.

            Merrill
and Tran also signed one or more RICs.href="#_ftn1" name="_ftnref1" title="">^[1]  Each of the RICs incorporates by reference
the terms of plaintiffs’ respective EAs. 
The RICs state:  “This agreement
is subject to the terms and conditions in the Additional Terms of This Contract
on the backside of this Contract and your Enrollment Agreement, which is
incorporated herein by reference as though set forth in full.”  The RICs signed by plaintiffs also contain
the following arbitration provision:

“Agreement to
Arbitrate.  Either you or we may, without
the other’s consent, elect mandatory, binding arbitration for any dispute,
claim or controversy arising out of or related to this Contract, or breach
thereof, which 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.”

 

            Plaintiffs
filed the instant action, as individuals and on behalf of others similarly
situated, for fraud, negligent misrepresentation, and for violations of the
UCL, the false advertising law (Bus. & Prof. Code, § 17500 et seq.), and
the federal Racketeer Influenced and Corrupt Organizations Act (18 U.S.C.S. §
1961 et seq.) (RICO).  In their first
amended complaint, plaintiffs allege that defendant’s deceptive practices
induced them to incur federal student loan debt in order to enroll in
defendant’s educational programs, but those programs failed to adequately
prepare them for employment.  Plaintiffs
defined the putative class as persons who relied on defendant’s
misrepresentations by enrolling in defendant’s program and paying or owing
tuition to defendant.  They also defined
various subclasses to include persons who are parties to a purported
arbitration agreement with defendant. 
Plaintiffs sought monetary damages, restitution, and injunctive relief,
as well as their costs and attorney fees.

            Defendant
filed a petition to compel arbitration of all of plaintiffs’ claims.  In support of its petition, defendant
attached copies of the EAs and RICs signed by Merrill and Tran.  Plaintiffs opposed the petition to compel
arbitration on the grounds that their claims fell outside the scope of the
arbitration clauses, that the arbitration provisions were unconscionable, and
that arbitration would bar vindication of their statutory rights.

            At
the hearing on the petition to compel arbitration, the trial court found that
the Federal Arbitration Act governed the parties agreements.  The court then stated that its tentative
ruling would be to grant the petition, but “to stay the non-arbitral part of
this which is really the [Business and Professions Code section] 17200
[claims].”  The trial court further
stated:  “The arbitrator is not going to
be the one who determines class certification: 
I’m going to handle that.”  Toward
the end of the hearing, the trial court reiterated “I’m not going to let the
arbitrator certify this class.”  When
defendant’s counsel inquired as to the basis for that decision, the court
responded:  “Because I think that the
arbitrator will not be as qualified as a judge on this court, to be very frank
about it.”  Defendant’s counsel then
argued that an arbitrator, rather than the court, should determine whether the
arbitration clauses permit class arbitration and whether a class should be
certified, but the trial court rejected these arguments, stating, “If the
plaintiffs want to certify a class, they have to come back here and make the
motion in front of me.”

            The
trial court issued a written order stating that the arbitration provisions in
the RICs and in Merrill’s EA were not procedurally or substantively
unconscionable; that the agreements to arbitrate were valid and enforceable;
and that any arbitration would be conducted under the American Arbitration
Association commercial rules.  The order
compels to arbitration Merrill’s and Tran’s individual claims under the RICs as
well as Merrill’s claims under the EA. 
The order denies the petition to compel arbitration with respect to
Tran’s EA, stating the reason for denial as follows:

“Tran’s [EA] has no
arbitration clause.  His RIC does and it
incorporates the terms of his [EA]. 
Incorporating the [EA] into the RIC does not render the [EA] subject to
the arbitration.  (Arguably, if the EA
incorporated the RIC, then the arbitration clause would apply to the EA.)”

 

The trial court stayed the
remainder of the case, including the class claims, the UCL claims, and Tran’s
claims under the EA.

            Defendant
filed the instant appeal, challenging the trial court’s order denying the
petition to arbitrate Tran’s EA-related claims, and the court’s ruling staying
plaintiffs’ class claims.  Plaintiffs
appeal from the order granting the petition to arbitrate their individual
claims under the RICs and Merrill’s claims under the EA.

>DISCUSSION

I.  Appealability of defendant’s
claims

            Plaintiffs
contend the trial court’s order staying the class action claims and Tran’s
EA-related claims was not an appealable final order.  They argue that the order staying the class
claims was not final because those claims had not yet been presented to the
trial court in a motion for class certification.  Plaintiffs similarly argue that the trial
court’s ruling with respect to Tran’s EA-related claims was not a final order
because it contemplated further proceedings in arbitration and in the trial
court.  As support for this argument,
they cite the following sentence in the trial court’s order:  “It is possible that the arbitrator may make
rulings that will impact Tran’s rights under the EA, and for that reason, the
court also stays Tran’s claims under that contract.”

            The
record shows that the trial court denied the petition to compel arbitration of
Tran’s EA-related claims and did not simply stay those claims because of
anticipated further proceedings.  The
trial court’s order expressly states: 
“[T]he court DENIES the petition to compel arbitration with respect to
Tran’s Enrollment Agreement.”  That
denial is an appealable order.  (Code
Civ. Proc., § 1294, subd. (a).)

            The
order staying plaintiffs’ class claims is not appealable.  That order neither directs the class claims
to arbitration nor denies the arbitrability of those claims.  Rather, the order staying the class claims
contemplates further proceedings -- in this case, an as yet unfiled motion to
certify the class.  Because no class
certification motion was filed, issues concerning class certification and the
arbitrability of plaintiffs’ class claims were not before the trial court, and
they are not properly before this court.

            Defendant’s
motion to compel arbitration of plaintiffs’ class claims prior to certification
of the class was thus premature for two reasons:  (1) the trial court lacked personal
jurisdiction over the putative class members who were not yet parties to the
action, and (2) until a motion to certify a class is filed, issues as to
whether the action is appropriate for class treatment, whether an arbitrator or
a court should certify the class, and whether class members can be ordered to
arbitration, cannot be decided.

            Two
cases inform our analysis here, Lee v.
Southern California University for Professional Studies (2007) 148
Cal.App.4th 782 (Lee) and >Sky Sports, Inc. v. Superior Court (2011)
201 Cal.App.4th 1363 (Sky Sports).

            The
plaintiff in Lee, a former law
student, filed a putative class action complaint against the defendant
university for alleged violations of the Consumer Legal Remedies Act and the
UCL.  Some of the putative class members,
but not Lee, had signed an arbitration agreement that the university sought to
enforce by a motion to compel arbitration filed before certification of the
class.  The trial court denied the motion
to compel arbitration and the appellate court affirmed.

            Because
the putative class members who had signed an arbitration agreement were not yet
parties to the litigation, the appellate court in Lee concluded the motion to compel arbitration had been properly
denied as premature.  The court explained
that “no grounds exist for compelling arbitration when the only plaintiff
currently before the court never agreed to arbitrate her claims.  The question of whether she is an adequate
class representative for those who did, and all other matters pertaining to
whether the action is appropriate for class treatment, are issues for the trial
court to decide when Lee moves to certify the class.”  (Lee,
supra, 148 Cal.App.4th at p. 784.) 
“Lee has not, as of yet, brought a motion to certify any class.  It is quite possible that when she does so,
she will seek to narrow the definition of the class to law students only, none
of whom signed arbitration agreements, according to [the university’s] own
evidence.  She is certainly entitled to
do that -- [the university] offers no authority for the proposition that a
plaintiff is bound by a preliminary class definition set forth in the
complaint.  It is also possible (and this
court takes no position on this) that however Lee defines the class, any motion
for class certification will be denied for other reasons.  We cannot know this, of course, because there
has, as of yet, been no such motion.  Lee
is the only plaintiff before the court at the moment, and she is not bound by
an arbitration agreement; therefore, she cannot be compelled to
arbitrate.”  (Id. at pp. 786-787, fn. omitted.)

            In
Sky Sports, Division Three of this
district considered a related issue: 
Whether the defendant’s failure to bring a motion to compel arbitration
prior to certification of the class constituted a waiver of the right to
arbitration.  The answer, the court
concluded, was no.  The court held that
prior to certification of the class, a motion to compel arbitration would have
been premature because, as in Lee,
the sole plaintiff before the court -- the proposed class representative, Hogan
-- had not signed an arbitration agreement. 
Accordingly, the court stated, if the defendant had brought a motion to
compel arbitration prior to certification of the class, “the trial court would
have denied the motion because Hogan was not a party to the arbitration
agreement.  Thus, any delay in bringing
the motion to compel arbitration until the class was certified to include
parties to the arbitration agreement cannot constitute a waiver by the company.  Until the class was certified, the pleading
requirements to move to compel arbitration under [Code of Civil Procedure]
section 1281.2 were not satisfied. 
[Citation.]”  (>Sky Sports, supra, 201 Cal.App.4th at p.
1369.)  The court further noted that
“until Hogan brought the class certification motion, he could have narrowed the
class to include only those employees who did not sign arbitration
agreements.”  (Ibid.)

            In
the instant case, as in Lee and >Sky Sports, defendant’s motion to compel
arbitration was filed before any attempt by plaintiffs to certify a proposed
class.  Because no motion to certify the
class had been filed when the motion to compel arbitration was heard, the trial
court lacked personal jurisdiction over the putative class members.  Moreover, it is possible that a class
certification motion, once filed, might be denied.  If that occurs, the motion to compel
arbitration will be moot.  Defendant’s
petition was thus premature, to the extent it sought to compel arbitration of
the class claims.

            Because
no motion to certify the class had yet been made, the issues framed by the
parties in this appeal -- whether the arbitration agreements permit class
arbitration; who should decide, the arbitrator or the trial court, whether
plaintiffs’ class action claims are arbitrable; and who should certify a
proposed class -- were not properly before the trial courthref="#_ftn2" name="_ftnref2" title="">^[2] and cannot be reviewed by this court.  We therefore dismiss defendant’s appeal
concerning the class action claims.  (See
Vivid Video, Inc. v. Playboy
Entertainment Group, Inc. (2007) 147 Cal.App.4th 434 [dismissing appeal of
order determining who decides arbitrability of plaintiff’s claims and leaving
the question of what issues are arbitrable for future determination].)

II.  Arbitration of Tran’s EA
claims

The trial court
erred by denying the petition to compel arbitration of Tran’s EA-related
claims.  The RICs signed by Tran each
contains a provision requiring arbitration of “all disputes, claims or
controversies arising out of or related to this contract.”  Each of Tran’s RICs also contains a provision
incorporating the terms of his EA into the RIC: 
“This agreement is subject to the terms and conditions contained in the
Additional Terms of This Contract on the backside of this Contract >and your Enrollment Agreement, which is
incorporated herein by reference as though set forth in full.”  (Italics added.)

A party may be
bound by an arbitration clause which has been incorporated by reference from
another agreement.  (Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992)
6 Cal.App.4th 1266, 1271; Chan v. Drexel
Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 639; King v. Larsen Realty, Inc. (1981) 121 Cal.App.3d 349, 357 (>King).) 
In order to be bound by the arbitration agreement under these
circumstances, the following standards must be met:  “‘[T]he reference must be clear and
unequivocal, the reference must be called to the attention of the other party
and [the party] must consent thereto, and the terms of the incorporated
document must be known or easily available to the contracting parties.’”  (Williams
Constr. Co. v. Standard-Pacific Corp. (1967) 254 Cal.App.2d 442, 454.)  A valid incorporation by reference makes the
document referred to part of the incorporating contract as though recited
verbatim.  (King, supra, 121 Cal.App.3d at p. 357.)  “[I]n the event such incorporation is made,
the original agreement and those referred to must be considered and construed
as one.  [Citations.]”  (Bell
v. Rio Grande Oil Co. (1937) 23 Cal.App.2d 436, 440; accord >Republic Bank v. Marine Nat. Bank (1996)
45 Cal.App.4th 919, 921.)  The foregoing
standards were met here.

Tran’s RICs
expressly incorporate by reference the terms of his EA.  The reference is clear and unequivocal, and
Tran’s signature immediately below that reference is evidence of his consent
thereto.  Tran’s RICs and EA must
therefore be considered and construed as one agreement, and subject to the same
arbitration provision.  (>King, supra, 121 Cal.App.3d at p.
357.)  In addition, “California has a
‘“strong public policy in favor of arbitration”’ [citation], ‘. . . arbitration
agreements should be liberally interpreted, and arbitrations should be ordered
unless the agreement clearly does not apply to the dispute in question.’  [Citation.] 
‘Doubts as to whether an arbitration clause applies to a particular
dispute are to be resolved in favor of sending the parties to
arbitration.’  [Citation.]”  (Vianna
v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189.)  Arbitration should be ordered “unless it is
clear that the arbitration clause cannot be interpreted to cover the
dispute.  [Citation.]”  (United
Transportation Union v. Southern Cal. Rapid Transit Dist. (1992) 7
Cal.App.4th 804, 808.)  The express
incorporation by reference of Tran’s EA into the RICs subjects Tran’s EA-related
claims to the arbitration provision contained in the RICs.href="#_ftn3" name="_ftnref3" title="">^[3]  The trial court erred by denying defendant’s
petition to compel arbitration of Tran’s EA-related claims.

>III. 
Appealability of plaintiffs’ claims

            An order granting a motion to compel
arbitration is generally not appealable. 
(Abramson v. Juniper Networks,
Inc. (2004) 115 Cal.App.4th 638, 648-649.) 
Such an order is normally subject to review only on an appeal from a
final judgment.  (Code Civ. Proc., §§
906, 1294.2.)  An appellate court has
discretion, in exceptional situations, to treat a purported appeal from a
nonappealable order as a petition for writ of mandate.  (H. D.
Arnaiz, Ltd. v. County of San Joaquin (2002) 96 Cal.App.4th 1357,
1366-1367.)  That discretion, however,
should be exercised only in unusual and extraordinary circumstances.  (Ibid.)  With respect to arbitration clauses, “the
underlying policy [is] to encourage parties to arbitrate first and litigate, if
necessary, later.”  (Blanton v. Womancare, Inc. (1985) 38 Cal.3d 396, 408.)

            Plaintiffs
have presented no extraordinary circumstances that would warrant the issuance
of a writ in this case.  Their arguments
on appeal simply reiterate those presented in opposition to the petition to
compel arbitration in the trial court below, including the unconscionability
agreements rejected by the trial court. 
Because there has been no showing of unusual or extraordinary
circumstances, we dismiss plaintiffs’ appeal.

DISPOSITION

            The order dated March 15, 2012,
denying the petition to compel arbitration of Tran’s EA-related claims is
reversed and the trial court is directed to grant the petition to compel
arbitration of those claims.  The order
is otherwise affirmed.  Plaintiffs’
cross-appeal is dismissed as is defendant’s appeal of the order staying the
class action claims.  The parties will
bear their respective costs on appeal.

            NOT TO BE PUBLISHED IN THE
OFFICIAL REPORTS.

 

 

                                                                                                ________________________,
J.

                                                                                                CHAVEZ

 

 

We concur:

 

 

 

_________________________, P. J.

BOREN

 

 

 

_________________________, J.*

FERNS

 

 

 

 

 

 

 

 

 

 

 

 

______________________________________________________________________

 * Judge of the Los
Angeles Superior Court, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.