Arbitration clauses in school contracts put children at risk

Arbitration clauses in school contracts put children at risk.

Every parent who has or is asked to sign an arbitration clause in an enrollment contract should realize how much they are being required to give up. If you have signed a contract are are considering signing a contract with such a clause you should realize the risk you may be taking and the rights you will be giving up. The Archer mandatory arbitration clause illustrates the problem.

The Archer arbitration clause, the way it is interpreted by Elizabeth English and her board, is no ordinary alternative dispute resolution provision. This clause was written to be the mother of all arbitration clauses intended to strip parents of every reasonable right of recourse they might have.

English’s attorneys claim it doesn’t simply relate to interpretation of the enrollment contract and decisions made by the school in the ordinary course of business (the reasonable interpretation of its terms). The clear implication and intention of the defendants is that the clause covers ANY action, including intentional torts and criminal acts, committed by any agent of Archer so long as it has any loose connection to the students enrollment at the school — and the liomitation lasts forever, even after you leave the school.

Thus, if you protest a decision and the head of school punched you in the face, or worse, punches your child in the face in front of you, your only recourse is to seek mandatory arbitration with all the shortcomings described below.

The Josephsons’ fight against these unfair and burdensome provisions designed to effectively insulate the school from any accountability for abuse of its students and prevent parents from pursuing any grievance with the school should be concern you because if Ms. English wins, your child is at risk.

Consider this analysis by the Josephsons’ attorneys:

The provisions in the Archer arbitration clause, combined with defendants’ arguments in the petition to compel arbitration, are a recipe for a Jerry Sandusky situation at Archer, whereby children are placed in an environment with no requirements of school official accountability, no public disclosure of wrongful acts, no ability for parents to receive information or discuss it from other parents or third parties, and no consequences to the school when its officials engage in tortious acts, because of the unconscionable arbitration clause and the unfair procedure that it purports to require based on the clauses requiring confidentiality, parents’ payment of arbitration costs, fee shifting, “sole discretion” standard of the Head of School.

Though defendants in this case have been dismissive and disdainful about the Josephsons’ efforts to pursue their claims in a court of law and Archer’s chair Barbara Bruser tried to convince the entire Archer community that the Josephsons’ case was without merit, we think anyone reading the following pages will think otherwise.

Excerpts from Josephsons’ opposition to motion to compel arbitration

Plaintiffs’ original complaint alleged no breach of contract claims and only tort claims, but did assert claims against the school itself and its board of trustees as well as against the individual Defendants.  Plaintiffs have now dismissed their claims against the school and its board of trustees without prejudice, and have tendered a proposed amended complaint.  Even if the complaint is not amended, however, Plaintiffs are still pursuing only tort claims and only against individual defendants who are not signatories to the enrollment contracts containing the arbitration clause.

Despite the fact that Plaintiffs are asserting tort claims against non-signatories to the enrollment contract, Defendants are seeking to force Plaintiffs into contractual arbitration based on a one-sided, oppressive arbitration clause . . .

That arbitration proceeding will

1) insulate Defendants from any public accountability for their actions,

2) prevent Plaintiffs from talking with anyone about their grievances and their efforts to hold Defendants accountable by means of a confidentiality clause they have sought to use to even prevent Plaintiffs from communicating information about this lawsuit,

3)  impose onerous costs on Plaintiffs relating to the arbitration, and 4) subject Plaintiffs to the threat of being forced to pay defendant’s legal expenses.

This oppressive, unfair and unconscionable arbitration clause was presented to the Josephsons without negotiation, within a mandatory written form contract that every parent is required to sign for admittance to, and continued enrollment at, the school. . . .

Among other things, the clause purports to force parents to pay exorbitant arbitration fees and costs simply to have a forum to seek redress, and to hold them responsible for paying potentially hundreds of thousands of dollars (or more) to the school for reimbursement of legal costs, in the event the all-powerful arbitrator rejects the claim.  Such onerous provisions effectively preclude children and parents from ever seeking to hold school employees responsible for tortious acts.

Moreover, the arbitration clause further purports to prevent parents from talking with other parents or third parties about tortious acts by administration and faculty members against children in their care.  Such a clause goes against the public interest.  School employees could assault, molest, or rape children within their care and parents purportedly would have to keep quiet and say nothing to any third parties, including other parents.

Moreover, the confidentiality clause, if applicable, would have the effect of preventing parents from being able to talk to potential witnesses to tortious activity, thereby preventing them from being able to prove their case against the school employees.

Thus, even if the arbitration clause is construed to extend to the Josephson’ tort claims against the non-signatory defendants in this case, the clause is both procedurally and substantively unconscionable.  Every parent must sign the clause as a condition of enrollment, and the school admits that it does not negotiate with parents.

Further, the clause is extremely broad and purports to cover any claim “arising out of or relating to” the enrollment contract.  Worse still, it contains a confidentiality provision that purports to preclude any parent making claim from ever discussing any aspect of the arbitration with anyone, such as another parent who might have had a similar experience or personally observed the tortious acts at issue and thus could be a potential witness.

The arbitration clause also forces parents to bear half the costs of the arbitration, which vastly exceed what they would pay in court (a $400 one-time fee in court, versus paying half of $8,000 per day for an arbitrator to review documents, rule on motions, conduct a hearing, etc.).

And the clause purports to require parents to face a massive attorneys’ fees award if the arbitrator ultimately rejects their claim for whatever reason.  The arbitrator’s decision also is unreviewable by any court of appeal or tribunal.  Finally, the arbitration clause is based on a provision that the Head of School has “sole discretion” to make any decisions whatsoever regarding the student.

The arbitration clause is not a dispute resolution device.  When read in the context of the entire contract, it is a device to ensure that even meritorious claims for serious injuries to minors entrusted to the school’s care, will never be brought, and if any are ever brought, will be quickly dismissed, with an attorney’s fees award to the school, which can be economically devastating to the family who might have already been devastated by the tortious acts of the school’s employees.

On June 24, 2014, defendants brought the present motion.  On August 12, 2014, due to a substitution of counsel, Plaintiffs received an extension of three court days, to August 18, 2014, to file their opposition papers.

Arbitration Clause Is Unconscionable

Unconscionability of an arbitration clause is determined by the Court, not an arbitrator, because of the inherent incentive arbitrators have to uphold arbitration contracts to ensure they get future business.  Ontiveros v. DHL Express, 164 Cal. App. 4th 494, 506-07 (2008) (“[A]n arbitrator who finds an arbitration agreement unconscionable would not only have nothing further to arbitrate, but could also reasonably expect to obtain less business in the future, at least from the provider in question.”).  This is especially true with respect to standard form, take-it-or-leave-it adhesion contracts like the one in the case at bar, where there is no negotiation of the terms of the arbitration clause and thus the same party that drafts the unconscionable arbitration clause can then engage in the Kafka-esque maneuver of committing the determination of that unconscionability issue to an arbitrator whose personal financial incentives militate against striking the arbitration clause.  Chin v. Advanced Fresh Concepts Franchise Corp., 194 Cal. App. 4th 704, 710 (2011) (“There is substantial authority that a delegation clause in an adhesion contract is unconscionable.”).

Unconscionability has a procedural and a substantive component.  The procedural aspect examines whether the party claiming unconscionability was either surprised by contractual terms or had no meaningful choice with respect to their content; the substantive aspect examines whether the terms of the contract are objectively unreasonable to the other party.  1 B.E. Witkin, Summary of California Law, Contracts § 332 at 368 (10th Ed. 2005).

Contracts of adhesion are considered procedurally unconscionable.  Nyulassy v. Lockheed Martin Corp., 120 Cal. App. 4th 1267, 1280 n. 11 (2004).  A contract of adhesion “signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it”.  Neal v. State Farm Ins. Cos, 188 Cal. App. 2d 690, 694 (1961).

Defendant English has admitted that Archer does not negotiate with parents.  Michael Josephson Decl. ¶ 4.  The contract at issue here is a contract of adhesion:  it is standard form contract, imposed by the school which has vastly superior bargaining power because of its selective admissions policies and the benefit to be gained from a child’s attendance there in terms of potential admissions to highly selective universities.  There is no evidence that any parent could or did negotiate the arbitration clause.  Such evidence would be available to defendants; the fact that they did not submit it in support of their petition to compel arbitration gives rise to the inference that such evidence does not exist.  Evid. Code § 412.  Thus, the procedural unconscionability prong is satisfied.[3]

With respect to substantive unconscionability, a number of provisions in the arbitration clause combine to make the clause substantively unconscionable.  First, the overbroad confidentiality clause is expressly designed to favor Archer by preventing prospective plaintiffs/ claimants from talking to each other, or any other third party, and thus preventing parents from locating witnesses or obtaining any information from them – particularly other parents who were required to sign the same confidentiality clause and presumably are subject to the same threats by Archer, as were made to Plaintiffs, to sue them for more than a million dollars if they breach confidentiality.

A line of persuasive federal authority holds that overbroad confidentiality clauses are unreasonably favorable to sellers of goods and services who insert arbitration clauses into contracts, and thus unconscionable.  In Ting v. AT&T, 319 F.3d 1126, 1152 (9th Cir. 2003), the Ninth Circuit held that a confidentiality provision was unconscionable because it required merely that arbitration awards be kept confidential—a far narrower clause than the extremely broad confidentiality provision imposed by Archer.  The Ting court held: “We conclude, however, that if the company succeeds in imposing a gag order, plaintiffs are unable to mitigate the advantages inherent in being a repeat player.”); Pokorny v. Quixtar, Inc., 601 F.3d 987, 1002 (9th Cir. 2010) (holding confidentiality clause favors the party which is “continually arbitrating the same claims and accumulating ‘a wealth of knowledge on how to negotiate the terms of its own unilaterally crafted contract’”) [1]

Davis v. O’Melveny & Myers, 485 F.3d 1066 (9th Cir. 2007) states the matter clearly and persuasively:

The clause precludes even mention to anyone “not directly involved in the mediation or arbitration” of “the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration” or even “the existence of a controversy and the fact that there is a mediation or an arbitration proceeding.” Such restrictions would prevent an employee from contacting other employees to assist in litigating (or arbitrating) an employee’s case. An inability to mention even the existence of a claim to current or former O’Melveny employees would handicap if not stifle an employee’s ability to investigate and engage in discovery. The restrictions would also place O’Melveny “in a far superior legal posture” by preventing plaintiffs from accessing precedent while allowing O’Melveny to learn how to negotiate and litigate its contracts in the future.  Strict confidentiality of all “pleadings, papers, orders, hearings, trials, or awards in the arbitration” could also prevent others from building cases.at 1078

In Davis, the Ninth Circuit struck the arbitration clause as “unconscionable under California law” based on the confidentiality provision.  Id. at 1066.  The confidentiality provision here is virtually identical to the one in Davis and, for the same reasons held by the Davis court, Archer’s arbitration provision also should be stricken as “unconscionable under California law.”  Id.  While facially the clause may appear neutral, it is one-sided and intended to severely prejudice and “hog-tie” the case of any plaintiff or claimant who might contemplate bringing a claim against Archer. [5]

The confidentiality provision also does not exist in isolation.  It resides within an agreement that also shifts fees, even for statutory claims where the California courts have expressly held that individuals cannot be required to pay any cost which they would not have to pay were the matter brought in court.  In D.C. v. Harvard-Westlake School, 176 Cal. App. 4th 836, 864-65 (2009), the Court of Appeal held that an arbitration clause in a private school contract cannot impose either court costs or attorney’s fees shifting on plaintiffs with respect to statutory claims.  Plaintiffs have alleged several statutory claims including civil rights claims (under the Unruh Act and the ADA) herein; a fee shifting arbitration clause is flatly prohibited as to those claims.

from footnote:Archer’s purpose in having cost shifting provisions in its arbitration clause is to deter claims.  Archer can easily afford the attorney’s fees and the cost of arbitrators.  But it is betting on the fact that many Archer parents cannot.  Arbitrators typically charge $8,000 per day to review papers, hear motions and preside over an evidentiary hearing.  In a typical long-term arbitration, those costs add up.  Moreover, Archer holds a proverbial axe over the head of any parent who considers bringing a claim.  If the claim does not prevail, Archer will seek reimbursement of its attorneys’ fees and costs.  Its counsel easily could charge more than $500,000—enough to bankrupt a child’s parents, and cost them their home and other assets, if a fees award is imposed against them.  Archer can easily afford $500,000.  The vast majority of parents cannot.  Thus, this provision, combined with the confidentiality provision which purports to prevent a parent from obtaining essential information, could cause any reasonable parent to forego bringing a claim in arbitration at all—precisely Archer’s purpose in mandatory the unconscionable arbitration clause at issue.

The Archer arbitration clause contains other unfair provisions as well.  Arbitral decisions are not appealable.  Thus, a ruling by a biased or unqualified arbitrator, who might completely fail to follow California law, or refuse to fairly evaluate the facts, would leave a losing parent with no review.  Under California law, only an undisclosed conflict of interest, or fraud, justifies vacating an arbitration award.  Moreover, according to the enrollment contract, the decisions of the Head of School and Board of Trustees are reviewed under a “sole discretion” standard where Archer always will win.  These two additional components of the contract further render the arbitration clause, with its overly broad confidentiality provision, and cost-shifting provisions, substantively unconscionable.

from footnote:  The Court also should take into account the fact that the enrollment agreement is being presented by the defendants who are bring entrusted (by parents) with the care, supervision and education of their minor children from morning through afternoon of every school day of the year.  This relationship of trust implies the highest duties.  It would be completely inconsistent for the law to say, on the one hand, that the welfare of children is of paramount importance, but on the other hand, that when children are harmed, it will be swept under the rug in a confidential arbitration that nobody will ever know about, and that no parent probably would ever bring because the parents either cannot afford the arbitrator’s fees, or cannot risk the consequence of losing the case and their house and other assets along with it due to the fees shifting provision, or both.  Yet that is precisely what the Archer arbitration clause purports to do, and is precisely why the school mandates that all parents sign it—to give the school a cloak of invulnerability, as well as confidentiality—at the expense of the minor students’ public safety, and any accountability of school officials.

The totality of the circumstances, combined with applicable law, require that the Archer arbitration clause be found to be unconscionable, and stricken.

Several Additional Grounds Exist for Striking the Arbitration Clause

The arbitration clause is invalid on a number of other grounds as well:

  1. Illusory contract:  By making tuition non-refundable, and vesting each student’s enrollment in the “sole discretion” of the Head of School, Archer has created a contract mandating parents pay more than $30,000 per year, and gives the school the option of performing any services at all.  If the Head of School is empowered with the purported right to expel students at will, even on the first day of class, and keep the tuition money paid by the parents, the contract is illusory and thus unenforceable.  1 B.E. Witkin, Summary of California Law, Contracts § 231 at 266 (10tth Ed. 2005) (contract providing one party with “unqualified right to cancel” is illusory and unenforceable).
  2. Educational context:  The policy favoring arbitration of disputes should not apply to the educational context, where there is a public interest in protecting children, including holding schools accountable in public courts where necessary, and where private schools with selective admissions policies have immense power to impose onerous arbitration terms on prospective parents.  Contracts requiring arbitration of disputes in this context are contrary to public policy.
  3. Tort claims:  The arbitration clause does not state that it encompasses tort claims that a child or her parents might bring, even if the claims were asserted against Archer directly. These claims seek to vindicate fundamental public policies with respect to the protection of minors and the quality of their education.  They are not a mere private matter between a specific parent and Archer.
  4. No meeting of the minds: There was no meeting of the minds between Archer and Plaintiffs regarding the arbitration clause.  A waiver requires an intentional relinquishment of a known right. Plaintiffs did not intend to waive fundamental rights that relate to their childrens’ well-being when they signed the enrollment agreement.  Among other things, the arbitration clause is silent that tort claims would be included, silent that claims against individual defendants (as opposed to Archer) would be arbitrable; silent as to the remedy if the single arbitrator fails to follow the law, is biased, or refuses to consider important evidence; and silent that the confidentiality provision effectively means that Plaintiffs could not talk to third party witnesses to marshal evidence for their claims.  Contracts require a meeting of the minds, and that did not occur here.[8]

 

 

 

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