X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:Forty-five students enrolled in an electrician’s program at the San Antonio College of Medical and Dental Assistants-McAllen Branch, a wholly-owned subsidiary of Kaplan Higher Education Corp. They allege they were fraudulently induced to enroll by assurances that upon graduation they would be eligible for licenses as journeymen or master electricians. Each student signed an enrollment agreement detailing tuition, rules and graduation requirements, and requiring them to arbitrate “[a]ny controversy or claim arising out of, or relating to, this Agreement.” Initially, the plaintiffs filed suit against Kaplan, the college, college president Frank Jennings and admissions director Leticia Ventura. When the defendants moved for arbitration, the plaintiffs dropped their claims against the college and Jennings (both signatories to the agreements) as well as all claims of joint venture or enterprise, leaving only claims against Kaplan and Ventura (both nonsignatories). Although alleged in various forms, the substance of the students’ claim was fraudulent inducement, as they sought refunds of tuition and other costs they would not have incurred had they not been induced to sign up. The trial court refused to compel arbitration, and the 13th Court of Appeals denied mandamus relief. HOLDING:The court conditionally granted the writ of mandamus. The court disagreed with Kaplan that the students sued on the agreements. “Claims must be brought on the contract (and arbitrated) if liability arises solely from the contract . . . . [C]laims can be brought in tort (and in court) if liability arises from general obligations imposed by law.” Claims of fraudulent inducement arise from general obligations imposed by law, not the underlying contract. Nevertheless, the agents of a signatory may sometimes invoke an arbitration clause even if they themselves are nonsignatories and a claimant is not suing on the contract. A contracting party, the court stated, generally cannot avoid unfavorable clauses by suing the other party’s agents. This rule, the court stated, is necessary “”to place arbitration agreements on equal footing with other contracts.’” This rule, the court stated, applies when a party to an arbitration contract seeks to avoid it by pleading a contract dispute as fraudulent inducement by an officer, agent or affiliate of the other. Almost every contract claim against a corporation could be recast as a fraudulent inducement claim against the agents or employees who took part in the negotiations preceding it. If such arbitration clauses are enforceable only if every officer, employee, agent, or affiliate signs or is listed in the contract, they would be more easily avoided than other contract clauses. Moreover, the court stated, the students’ agreements with the college require arbitration, because the college will be liable for the judgment if their suit is successful. The Texas Education Code requires vocational schools to provide full refunds if enrollment was procured by representations “by the owner or representatives of the school.” The enrollment agreements specifically provided for tuition refunds in the event enrollment was induced by misrepresentation. If the college’s liability for such refunds (about $10,000 for each student) can be decided in court by suing its agents, then the arbitration contract has been effectively abrogated. The students, the court stated, argued that Ventura and the other admissions officers to whom they spoke were not employees of the college but of Kaplan. But the undisputed facts, the court stated, showed that regardless of who paid Ventura and the other admissions officers, the college will have to answer for any misrepresentations they made in advertising, recruiting and procuring contracts on its behalf. Thus, when an agreement between two parties clearly provides for the substance of a dispute to be arbitrated, one cannot avoid it by simply pleading that a nonsignatory agent or affiliate was “pulling the strings.” Accordingly, the court conditionally granted the writ of mandamus and direct the trial court to order that the students’ claims proceed to arbitration. OPINION:Per curiam.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.