Why do the for-profit colleges insist that students arbitrate their grievances instead of filing a lawsuit? Several reasons.
First, most commentators agree that arbitration generally favors a corporate entity over a private party. Arbitrators make good money settling disputes, and they know they are likely to have future dealings with corporations such as for-profit colleges. Arbitrators do not want to get a reputation for being hard on for-profit colleges because they know that the for-profits will not choose them to arbitrate future disputes. Thus, their rulings may be more likely to favor a for-profit college over a humble student or at least to limit the amount of damages that might get awarded against a college engaged in wrongdoing.
Second, arbitration usually takes place in a private setting, and arbitrators' decisions are generally not made public. If a for-profit college loses an arbitration case, other potential plaintiffs are not likely to find out about it.
Finally, arbitration clauses generally preclude students from banding together and bringing class action suits against allegedly deceitful colleges, and these clauses often require student grievants to bring their arbitration disputes in a jurisdiction that favors the college.
The Department of Education has signaled that it disfavors the for-profits' practice of forcing students to give up their right to sue as a condition of enrollment, and it says it will draft regulations that will limit this practice. But DOE has not acted yet, and courts have generally upheld the validity of arbitration agreements when those clauses have been challenged.
But the courts may be changing their views. Recently, a California appellate court invalidated an arbitration clause signed by California students who had enrolled in a nursing program with an Indiana education provider.
And last June, in the case of Morgan v. Sanford Brown Institute, the New Jersey Supreme Court invalidated an arbitration clause that Sanford Brown Institute required students to sign. The students had enrolled in an ultrasound technician program, and they accused Sanford Brown of engaging in deceptive practices. Specifically, the students alleged that Sanford Brown had:
misrepresented the value of the school's ultrasound program and the quality of its instructors, instructed students on outdated equipment and with inadequate teaching materials, provided insufficient career-service counseling, and conveyed inaccurate information about Sanford brown's accreditation status.The students also claimed that Sanford Brown had "employed high-pressure and deceptive business tactics that resulted in plaintiffs financing their education with high-interest loans, passing up the study of ultrasound at a reputable college, and losing career advancement opportunities."
Sanford Brown asked a a New Jersey court to force the students to arbitrate their claims pursuant to the arbitration clause in the students' enrollment agreements. That clause, according to the New Jersey Supreme Court, consisted of "thirty-five unbroken lines of nine-point Times New Roman font, including this murky passage:
Agreement to Arbitrate--Any disputes, claims, or controversies between the parties to this Enrollment Agreement arising out of or relating to (i) this Enrollment Agreement; (ii) the Student's recruitment, enrollment, attendance, or education; (iii) financial aid or career service assistance by SBI; (iv) any claim, no matter how described, pleaded or styled, relating in any manner, to any act or omission regarding the Student's relationship with SBI, it employees, or with externship sites or their employees; or (v) any objection to arbitrability or the existence, scope, validity, construction, or enforceability of this Arbitration Agreement shall be resolved pursuant to this paragraph . . . .Ultimately, the New Jersey Supreme Court ruled in the case, and the court invalidated Sanford Brown's arbitration clause. In the court's view, the clause was not "written in plain language that would be clear and understandable to the average consumer that she is giving up the right to pursue relief in a judicial forum" [internal quotation marks and citations omitted].
"In summary," the court concluded, "the arbitration provision and purported delegation clause in Sanford Brown's enrollment agreement failed to explain in some sufficiently broad way or otherwise that that arbitration was a substitute for having disputes and legal claims resolved before a judge or jury." Without some minimal knowledge of the meaning of arbitration, the court ruled, the complaining students could not give informed assent to arbitration and to waiving their right to seek relief in a court.
The New Jersey Supreme Court's Morgan decision is a good decision for all students who have been wronged by a for-profit college. Following on the heels of a similar decision in California, the Morgan opinion drives another nail in the coffin of the for-profit college industry, which has protected itself from liability for deceptive and fraudulent practices by forcing their students to waive their right to sue. In New Jersey and California at least, students now have a better chance of getting their claims against allegedly deceptive for-profit colleges heard by a court. And if students are successful in their cases and obtain substantial judgments against the colleges that wronged them, some of these colleges will be forced to close.
And that, in my opinion, would be a good development.
Magno v. The College Network, Inc.. (Cal. Ct. App. 2016). Accessible at http://caselaw.findlaw.com/ca-court-of-appeal/1741812.html
Morgan v. Sanford Brown Institute, 137 A.3d 1168 (N.J. 2016). Accessible at http://law.justia.com/cases/new-jersey/supreme-court/2016/a-31-14.html
U.S. Department of Education. U.S. Department of Education Takes Further Steps to Protect Students from Predatory Higher Education Institutions. March 11, 2016. Accessible at http://www.ed.gov/news/press-releases/us-department-education-takes-further-steps-protect-students-predatory-higher-education-institutions?