Appellate Briefs Opposing Mandatory Arbitration

OPPOSING MANDATORY ARBITRATION

Courtroom door.

On August 27, 2014, after the Josephsons submitted briefs and made oral arguments opposing mandatory arbitration and Archer’s effort to enforce an arbitration clause on all of the their causes of action, Judge Rosenberg ruled in favor of the defendants in a terse ruling without a reasoned discussion of the Josephsons extensive legal arguments.

On September 30, 2014 Mr. Charles Harder, representing Anne Josephson and the two children and Michael Josephson, in pro per, for himself each filed coordinated briefs to the California Court of Appeals supporting their Petition for a Writ of Mandate asking the court to review and reverse the trial judge’s ruling. The appellate court, without a written opinion, summarily rejected the petition the day after it was filed.

Although the Josephsons were not able to get a reasoned judicial ruling on their legal arguments in either the trial or appellate court, we present an amalgamation of the two briefs in the hope that other attorneys and parties in California and elsewhere will use these arguments to better effect in attacking unfair mandatory arbitration clauses.

We have omitted many of the purely legalistic and procedural aspects of the briefs and combined and excerpted arguments from both briefs. We apologize for some redundancy and occasional organizational awkwardness but we concluded this method was better than presenting each brief separately and requiring the reader to do all the work.

Court-of-appeals

IN THE COURT OF APPEAL STATE OF CALIFORNIA SECOND APPELLATE DISTRICT

PETITION FOR WRIT OF MANDATE, PROHIBITION OR OTHER APPROPRIATE RELIEF

EXCERPTS FROM BRIEFS

Petitioners Michael Josephson, Anne Josephson, C. Josephson and M. Josephson (the “Petitioners” or the “Josephsons”) request an immediate stay of Respondent Court’s August 27, 2014 order granting Real Parties in Interest’s motion to compel arbitration.

 INTRODUCTORY STATEMENT

The Archer School for Girls (“Archer”) has crafted an arbitration clause that unconscionably favors them over their students, silences their critics, sweeps their accusers under the rug, and prevents the fact-finding that is necessary to ensure a full and fair hearing of grievances against them.

This writ petition presents the following important questions of law for this Court to answer:

First, whether a confidentiality clause, which, in practice, would preclude the Josephsons from investigating their claims, talking to potential witnesses, and testing the school’s defenses, renders the arbitration clause so one-sided in favor of the drafting parties that it is substantively unconscionable.

Second, whether an arbitration clause is substantively unconscionable for the additional reasons that it includes a loser-pays fee-shifting provision and no opportunity for appeal.

Third, whether the Josephsons can be forced to arbitrate their tort claims by persons who never negotiated or signed an arbitration clause with the plaintiff, who never established that they were acting as the agent of the signatory or were third party beneficiaries to the agreement, and who the Josephsons never pleaded to be agents of the signatory.

Fourth, whether an enrollment agreement, which requires the parents to pay a non-refundable tuition fee, yet allows the school, in its sole discretion, to dismiss any student at any time and refuse to allow them to attend classes for any reason, is an illusory contract.

 THE CONFIDENTIALITY CLAUSE

The confidentiality clause in this case is so broad that it renders any arbitration pursuant to it fundamentally unfair—preventing the Josephsons from identifying and talking to witnesses or investigating Real Parties’ defenses to their claims—thus infecting the entire arbitration clause as substantively unconscionable

On August 27, 2014, Respondent Court entered an order upholding the Archer arbitration clause, including its one-sided confidentiality clause forcing Petitioners Michael Josephson, Anne Josephson, C. Josephson and M. Josephson (the “Petitioners” or the “Josephsons”) into a secret arbitration, where a confidentiality clause will prohibit them from speaking to the public, policymakers and governmental officials, or even to other potential witnesses, experts, or consultants about their case.

Well-reasoned and persuasive Ninth Circuit case law holds that such confidentiality clauses tied to arbitration are unconscionable under California law because they grossly favor the drafting party, which does repeat business with the arbitration tribunal, and which can use such clauses to interfere with the claimant’s ability to gather evidence and speak to witnesses.

Ninth Circuit cases have considered confidentiality clauses materially identical to that at issue here, and those cases found that such clauses are indeed unconscionable under California law.  The California cases that have encountered confidentiality clauses in arbitration provisions have not analyzed them in the same depth that the Ninth Circuit cases have, which leaves California trial courts susceptible to conflicting decisions on the same confidentiality terms.  This possibility alone warrants review of this petition.

Indeed, this petition presents an opportunity for this Court to make clear that the Ninth Circuit case law applying California law is correct and that blanket confidentiality clauses in arbitration agreements are unconscionable due to the fact that they clearly favor the side that inserts them into contracts.  The California authorities on this issue deviate from the Ninth Circuit’s holdings but have not analyzed the issue in depth, and this petition provides an opportunity for this Court to clarify this important area of the law for the bench and bar.

The California state appellate courts have yet to take the opportunity to evaluate in depth this kind of oppressive confidentiality clause and to announce that the Ninth Circuit doctrine accurately reflects California law.  This petition presents that opportunity.

THE ARBITRATION CLAUSE DOES DON’T APPLY TO THE REAL PARTIES IN INTEREST

Arbitration is contractual and only parties that actually agree to arbitrate can be so compelled.  Real Parties in Interest have not met their burden to show that they are parties to the agreement.  Thus, the clause cannot be enforced as to them. 

*  *  *

Respondent Court’s order forcing Petitioners to arbitrate their claims against persons who the Josephsons never agreed to arbitrate against was grossly erroneous and should be reversed.  This error, if not addressed by this Court now, will force the Josephsons into a forum they did not choose, as to claims against persons they never agreed to arbitrate against, and where the Josephsons will be silenced to such a degree that they will be unable to interview witnesses and gather the evidence necessary to support their claims.  The Josephsons have no other adequate remedy at law and will suffer irreparable injury if writ relief is not granted.

            The order takes away the Josephsons’ choice of forum even as to the Josephsons’ tort claims against persons who did not sign the arbitration clause—Real Parties in Interest Elizabeth English, Archer’s Head of School, and the individual Board of Trustees members.[1]  California authority holds that non-signatories bear the burden of establishing that they have the right to invoke the arbitration clause—via an agency theory, third party beneficiary theory, or otherwise.

               Real Parties in Interest did not meet their burden and, as such, they cannot take advantage of an arbitration clause they did not sign.  Thus, Respondent Court’s order finding that Real Parties in Interest were agents of Archer and could compel arbitration pursuant to Archer’s arbitration clause was reversible error.  Because the order forces the Josephsons into arbitration with no possibility for appeal, the Josephsons have no other adequate remedy at law and will suffer irreparable injury based on the oppressive confidentiality clause’s infringement of their First Amendment rights.

*  *  *  *

IN ADDITION:

  1. The arbitration agreement is substantively unconscionable due to its other provisions, including a loser-pays fee-shifting provision and a provision that the arbitrator’s decision is not appealable under any circumstances.
  2. The enrollment agreement containing the arbitration clause is a classic contract of adhesion and thus is procedurally unconscionable.
  3. The enrollment agreement is an 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.  Thus, the arbitration clause contained therein is not enforceable.

 In sum, the arbitration clause in this case 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 ever are 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.  The case law is clear that, despite any general policy favoring arbitration, arbitration clauses are not enforced in actions involving non-signatories, and are not enforced when presented on a take-it-or-leave-it basis and loaded with unreasonable terms like those in the clause at issue.

Further, even if the arbitration clause is not invalidated, the confidentiality clause must be. There is no way that anyone can have a fair fight against Archer or Real Parties in Interest so long as the Archer enrollment agreement prevents claimants from even contacting potential witnesses and gathering evidence.

STATEMENT OF FACTS    (see  Comprehensive statement of facts)

 PROCEDURAL HISTORY

Petitioners filed an action on May 28, 2014, asserting various tort causes of action against ARCHER, the BOT, ENGLISH, and the individual members of Archer’s Board of Trustees.  Ex. B.

At no time did any of the plaintiffs assert a cause of action for breach of the enrollment agreement or any other contractual claim or theory of recovery.  Id.  Further, while Archer is a signatory to the arbitration agreement, Elizabeth English and the individual board members are not.  Ex. A.

On June 24, 2014, Real Parties in Interest brought a motion to compel arbitration.  Ex. C.  The only basis proffered by Real Parties in Interest for why they were entitled to compel arbitration pursuant to an agreement they did not sign was that the individual defendants have “voluntarily submitted” to an arbitration.  Id.  Though they offered no evidence whatever to support their claim, Real Parties in Interest argued for the first time in their reply that they were entitled to force plaintiffs into an arbitration on the theory that they were agents of Archer or, alternatively, as third party beneficiaries to the enrollment agreement.  Ex. G.

On June 26, 2014, the defendants sought a TRO attempting to gag the Parents from speaking about this case on the basis of the confidentiality clause.  The Court denied the motion and, instead, entered a stay on the litigation pending the hearing on the motion to compel arbitration.  Ex. D.

On August 12, 2014, due to a substitution of counsel, Michael Josephson received an extension of three court days, to August 18, 2014, to file his opposition papers.  On August 18, Michael Josephson filed an opposition to defendants’ motion to compel arbitration and concurrently filed: (1) a Request for Dismissal of Archer, and the Board of Trustees as a corporate entity, as defendants; (2) a proposed First Amended Complaint (Revised Complaint (FAC)); and (3) an application to lift the litigation stay for the purpose of filing the FAC.  Exs. E & F.  The proposed FAC dropped Archer, and the Board of Trustees as a corporate entity, as defendants, alleged eight causes of action, and made clear that the claims are tort claims not arising out of the enrollment agreement.  Id.

On August 26, 2014, Respondent Court heard oral argument on defendants’ motion to compel arbitration and took the matter under submission.  Ex. H.

On August 27, 2014, Respondent Court granted The Josephsons’ requests for dismissal of Archer and the Board of Trustees as a corporate entity.  Ex. I.

The same day, on August 27, 2014, Respondent Court entered an order granting defendants’ motion.[2]  Ex. J.  The court’s order was based on the following two grounds:  first, a finding that all defendants may enforce the agreement because the individual defendants are being sued as the agents of the Archer School for acts committed within the scope of their agency and employment (citing Gravillis v. Coldwell Banker, 143 Cal. App. 4th 761, 772 n.3 (2006)); and second, a finding that the arbitration provision is not unconscionable because the Josephsons failed to show that the provision “shocks the conscience” (citing Baker v. Osborne Development Corp., 159 Cal. App. 4th 884, 894 (2008) and Little v. Auto Stiegler, Inc., 29 Cal. 4th 1064, 1071–72 (2003)).  Id.  Neither ground is supported under the circumstances presented here.

The Court’s August 27 Order further held that the motion for leave to file the FAC would await the outcome of the arbitration.  Id.

On September 11, 2014, over the Josephsons’ objections, JAMS issued a Commencement Letter at Real Parties’ request, thereby commencing arbitration proceedings and requiring the Josephsons to participate in the selection of an arbitrator.

On September 18, 2014, the Josephsons sought a stay of Respondent Court’s order.  Ex. K.  The same day, Respondent Court denied the stay request.  Ex. L.  Pursuant to JAMS rules, Petitioner must submit his arbitrator strike and ranking list by October 3, 2014.

 STANDARD OF REVIEW

While the standard of review for a writ petition is ostensibly abuse of discretion, where the underlying issue is compliance with a legal rule, discretion is abused where the legal rule is not complied with and the standard of review becomes de novo.  “The petitioner has the burden of showing an abuse of discretion or that there was a mandatory duty to act in a particular way, not involving judgment or discretion.”  Jon B. Eisenberg, et al., California Practice Guide: Civil Appeals and Writs § 15:38 (The Rutter Group 2012) (emphasis added).

The question of whether the arbitration clause at issue in this petition is unconscionable also is reviewed de novo.  “Civil Code section 1670.5 indicates that unconscionability is ultimately a question of law for the court.”  Bigler v. Harker School, 213 Cal. App. 4th 727, 736 (2013).  While conflicts in the evidence relating to unconscionability would be reviewed under a substantial evidence standard, Baker v. Osborne Development Corp., 159 Cal. App. 4th 884, 892 (2008), here there was no conflicting evidence presented and thus the standard of review is de novo.

 STATEMENT OF THE CASE

            Petitioners, Michael, Anne, C., and M. Josephsons seek relief from this court in the form of: 1) a ruling to abate arbitration proceedings improperly commenced by the defendants Elizabeth English (ENGLISH), head of school at the Archer School for Girls (ARCHER) and individual members of the school’s Board of Trustees (BOT) in the underlying action; and 2) an order vacating the trial court’s ruling compelling that all his claims be subjected to binding arbitration.

            On August 27, 2014, Respondent Court entered an order dismissing ARCHER and the BOT as an entity pursuant to Petitioner’s and the other plaintiffs’ request.  Petitioners also sought leave from Respondent Court to file a First Amended Complaint (FAC).  The court denied the request to lift the stay in proceedings to allow filing of the FAC, indicating he would rule on the request at a subsequent time.  (The original complaint is attached as Ex. B and the FAC as Ex. F; Respondent Court’s order is attached as Ex. J).  Petitioner contends this was a prejudicial error as it prevented the court from considering whether the revised allegations and three new causes of action were arbitrable.

Both the original complaint and the REVISED COMPLAINT (FAC) include separate tort causes of action against ENGLISH and BOT seeking compensation and exemplary damages for emotional injuries caused by intentional, malicious, and reckless actions committed by Real Parties in Interest.  Petitioner contends these actions were motivated by personal animosity and vindictiveness and were designed to retaliate against and punish him relating to an incident in 2009 which ENGLISH perceived as a challenge to her authority.  Ex. B (Compl. ¶¶ 72–80).  These include:

1) Seeking to discipline Petitioner’s daughter, Child 1, for a momentary and minor act of rudeness to a teacher,[3] by subjecting her to a traumatic shaming ritual (a mock trial before a dozen peers and faculty) in direct disregard of:  (a) ARCHER’s established policy of collaboration with parents; (b) the employment of only non-coercive discipline; and (c) the professional opinion of a licensed psychologist that the discipline prescribed by ENGLISH and ratified by the BOT would cause lasting and severe mental harm.[4]  Ex. B (Compl. ¶¶ 8, 11–15, 25–26, 34, 50, 52–53, 59, 101, 106, 108).

2) Imposing an unlawful suspension on Child 1, preventing her from attending classes or participating in school activities until she subjected herself to the shaming ritual.  Id. (Compl. ¶ 31).

3) Subjecting Child 1 to humiliation and intense emotional pain by publicly ejecting her from the school to enforce the improper suspension. Id. (Compl. ¶¶ 37–41).

4) Forcing Child 1 to seek unwanted, unnecessary and clinically unjustified “medical leave” under threat that ENGLISH would notify the Barnard College[5] that she was suspended, thereby jeopardizing her status with the college.  Id. (Compl. ¶¶ 50, 81).

5) Imposing such onerous and unreasonable conditions on Child 1 that she was forced to withdraw and prohibited from receiving her diploma from ARCHER and participating in graduation ceremonies.  Id. (Compl. ¶ 7, 50, 53).

6) Terminating the right of Child  2, a 10th grader, from continuing her education at ARCHER on the stated grounds that Petitioner’s advocacy on behalf of Child 1 irreparably damaged the parent-school relationship (with no supporting evidence or justification) permitting ENGLISH to separate the entire Josephson family from the school.  Id. (Compl. ¶¶ 69–72, 80–87).

7) Formally banning Petitioner, Child 1, Child 2 and Anne Josephson from setting foot on the ARCHER campus for any reason, and as further demonstration of spitefulness, the ban also included two other Josephson daughters who had previously graduated from ARCHER and had nothing at all to do with the matter. This ban was calculated to, and did in fact, exacerbate the shame and emotional injury of petitioner and the other plaintiffs as it prevented Child 1 and Child 2 from attending the graduation ceremonies of their Archer classmates.[6]  Ex. F (FAC ¶ 69). 

 ADDITIONAL CAUSES OF ACTION

Both the original complaint and the FAC contain Petitioner’s claims that ENGLISH and the BOT committed professional malpractice and further violated California law (California Civil Code section 52.1) by seeking to intimidate him from asserting his Constitutional rights to defend his daughters from their unlawful, unethical and unprofessional actions.  Ex. B (Compl. ¶¶ 122–127, 135–139); Ex. F (FAC ¶¶ 93–99, 107-110).

Finally, both the original complaint and the FAC allege that ENGLISH and the BOT unlawfully interfered with Petitioner’s personal relations with his daughter, Child 2, who was told by ENGLISH (in an apparent attempt to drive a wedge between Petitioner and his daughter) that her right to complete her education at ARCHER was being terminated because of his behavior (i.e., his requests to ENGLISH and the BOT that they impose alternative, less traumatic discipline on his daughter, Child 1).  Ex. B (Compl. ¶¶ 56–57, 128–134); Ex. F (FAC ¶¶ 63, 100–106).

NEW CAUSES OF ACTION

In addition to these causes of action, Petitioner’s FAC added three additional causes of action, which he contends are not and should not be considered arbitrable:  (1) violation of the Unruh act; (2) violation of Civ. Code § 3523; and (3) violation of the Americans with Disabilities Act.  Ex. F (FAC ¶¶ 111–130).

THE MANDATORY ARBITRATION PROVISION

The standard form Enrollment Agreements were presented to Petitioner, and all parents, as a “take it or leave it” precondition to enrollment.  Ex. E (Opp. at 3:8–9).  Nobody at Archer offered to allow or permit any modification of the terms of the Enrollment Agreements or to negotiate any term therein.  Id.

Petitioner contends that he and all other parents were led to understand that none of the terms of the contract, including the arbitration clause, were negotiable and that the Head of School viewed any challenge to her policies as a lack of support which could justify denial of admission or re-enrollment.

Neither ENGLISH nor the BOT ever contended nor offered any evidence disputing Petitioners’ claim that the enrollment contract was nonnegotiable. They offered no evidence showing that Archer ever negotiated or agreed to change the arbitration clause with any parent or enrollee nor did they contend they were willing to do so.[7]

Neither ENGLISH nor the BOT, the Real Parties in Interest, are signatories to the enrollment agreement; neither the Petitioner nor other plaintiffs ever signed a contract with any of the Real Parties in Interest; and none of the remaining defendants in the case submitted any evidence to the trial court demonstrating an agency relationship with ARCHER that would give them the right to force Petitioner to arbitrate his claims against them.

The extensive, take-it or leave-it adhesion contract Petitioner was forced to sign as a condition of the enrollment of Child 1 and Child 2 included an arbitration provision which reads in pertinent part:

Any actionable legal controversy or claim arising under or relating to this Agreement or its breach, including any dispute relating to Student’s enrollment at Archer or to Student’s completion of the academic year at Archer, and including without limitation the determination of the scope or applicability of this agreement to arbitrate shall be settled solely by final and binding arbitration before a single neutral arbitrator.

In addition, the agreement gives the “school” (ENGLISH as its chief executive officer) sole discretion to do whatever she pleases for whatever reasons she has:

Archer shall at all times have the right, for any reason considered sufficient by Archer in its sole discretion, to decline enrollment or re-enrollment and to discipline, suspend, or dismiss any student. Student may not be permitted to attend classes for any reason…, and arrangement for continued attendance lies within the sole discretion of the Head of School or her designee.  [Id.]

It also gives ENGLISH sole discretion to separate a student if she believes a parent’s behavior is unacceptable:

Unacceptable parent behavior may result in non-renewal or termination of this Agreement and Student’s enrollment.  Parent agrees that Archer’s decision for non-renewal or termination shall be final and at its sole discretion.  [Id.]

 Applying the Mandatory Arbitration Provision to Petitioners’ Tort Claims In This Case Would Be Unconscionable

Petitioner contends Respondent Court erred in interpreting this clause to embody all of Petitioner’s claims (including the three new causes of action in the FAC the court did not consider), none of which is based in any way on the educational enrollment agreement or any contract theory.

Petitioner further contends that Respondent Court erred in refusing to accept the FAC and fully considering and ruling on the arbitrability of the revised causes of action and these additional claims prior to ruling on defendants’ motion to compel arbitration.  Plaintiffs have an absolute right to amend their complaint prior to any responsive pleading and the FAC states the Petitioner’s actual and current claims.

Petitioner also contends that the trial court erred by refusing to rule the provision, at least in this context, is unconscionable because it seeks to encompass every act, including criminal conduct and malicious intentional torts against students and parents, committed by teachers, administrators or board members, simply because their conduct occurred in a context loosely related to the status of the victim as a student.

If all these intentional acts, regardless of their nature and the seriousness of the harm caused can be enveloped in a broadly worded arbitration clause in a school enrollment agreement, students and parents are literally helpless and remediless.  Thus, if a parent affronts the head of school in any way, she could punch the student in the face, or worse, punch the child in the face to punish the parent, and any effort to hold the head of school accountable would be limited to arbitration.  For that matter, if ENGLISH killed Petitioner’s dog or sent a drone to destroy his home as an expression of her animosity resulting from his opposition to any one of her decisions, the arbitration clause would limit Petitioner’s civil relief to the outcome of an arbitration proceeding shrouded in secrecy and rigged to deny effective relief.

The way ENGLISH and the BOT seek to interpret and enforce an arbitration clause in the ARCHER enrollment contract is intended to and, if upheld, will effectively strip students and their parents of meaningful recourse for any and every action (including criminal acts and intentional torts) committed by teachers, administrators and board members of a private school against children they were entrusted to protect.

Petitioner also contends that this adhesive, imbalanced, overly broad arbitration provision is unconscionable for other reasons as well:

1)  Whatever validity a broad interpretation of arbitrability of torts “arising out of a contract” may have in other commercial contexts, holding that criminal and tortious conduct against students by an educational institution entrusted with the welfare of children is inherently unconscionable and a violation of sound public policy.

2)  The arbitration provision contains a repressive confidentiality requirement that would prevent Petitioners from proving their claims and obtaining the relief therefrom and, in violation of sound public policy, prevent Petitioners from holding the Real Parties in Interest publicly accountable in order to deter them from further misconduct, to reform practices at ARCHER and other private educational institutions and to establish law that will protect all parents and their children from the kind of abusive conduct exhibited in this case.  If Real Parties in Interest succeed in limiting Petitioner to their carefully contrived arbitration process, it would prevent Petitioner from discussing the matter with, or seeking information from, teachers, administrators and parents who may have material evidence supporting their claims, from other parents who have similar experiences and concerns (including parents considering whether to enroll their children at ARCHER), and with the general public.  Even the ultimate outcome of the dispute would be clothed in confidentiality.  This is unconscionable.

 3) The inevitable and unavoidable impact of permitting a private school to insert into a take-it-or-leave-it enrollment contract an inescapable arbitration clause is that students and parents will be completely deterred from pursuing remedies for even the most serious grievances.  What chance is there for a successful resolution when the secret arbitration process: a) sharply limits the substantive and procedural rights inherent in our judicial system, including injunctive relief; b) requires the payment of thousands of dollars of arbitration costs and subjects aggrieved parents to the possibility of payment of attorney’s fees (a fact that can be emphasized with intimidating effect by the school); c) subjects the complainant to sanctions if they even talk about their claims with other parents or friends; d) prevents any public knowledge of the outcome of the claims; e) shields the school from any form of public accountability; and e) precludes the evolution and clarification of the law in a manner that would deter other instances of misconduct and guide private school practices?  What is more, these limitations last forever, even after the children leave the school.[8]

 4) In this case, the mandatory arbitration provision is supplemented by another adhesive and unconscionable clause in the enrollment contract seeking to vest in the Head of School the “sole discretion” (final and unchallengeable) to do anything she wants to Archer students and parents.  One could not devise a better scheme to avoid accountability—in the courts, in the arbitration hall, or via public or media scrutiny. This is unconscionable.

CASE LAW AND LEGAL ARGUMENT

  1. The arbitration proceedings commenced by the defendants ENGLISH and the members of the BOT immediately after the Respondent Court’s ruling granting their motion to compel arbitration, over the Petitioners’ objection based on the fact that writs seeking to appeal the trial court’s judgment compelling arbitration would be promptly filed, should be stayed until Petitioners receive a ruling on their writs in order to prevent irreparable injury to Petitioners.
  2. The arbitration proceedings commenced by the defendants ENGLISH and the members of the BOT in an effort to force plaintiffs to arbitrate specific claims made in a complaint filed in civil court should be stayed because it is Petitioner’s sole prerogative to either pursue, modify or dismiss his claims, and he will be irreparably damaged if forced pay for and submit to an arbitration he believes cannot provide him with the remedies he seeks.
  1. Respondent Court erred in ruling that Petitioners can be forced to arbitrate with Real Parties in Interest, who were not signatories to the arbitration proceeding, where the Real Parties in Interest offered no evidence establishing a sufficient agency relationship, and the claim of agency was raised in a reply brief too late to allow Petitioners to respond. Jones v. Jacobson, 195 Cal. App. 4th 1, 16 (2011) (non-signatories have burden of establishing agency).  Arbitration is contractual in nature, and there must be an agreement to arbitrate before it is compelled.
  1. Respondent Court erred in ruling that all Petitioner’s tort causes of action, including intentional and negligent infliction of emotional distress, professional malpractice, injury to and interference with personal relations, threats, intimidation and coercion (Civ. Code § 52.1), violation of the Unruh act, violation of Civ. Code § 3523, and violation of the Americans with Disabilities Act[9] are encompassed within a mandatory arbitration provision requiring arbitration of all claims “arising out of” a student enrollment contract.  F (the FAC).

Petitioner’s cause of action for professional malpractice seeks to apply the tort of professional malpractice to educators and establish specific standards to guide educators as to their responsibilities. Petitioner’s action seeks the court to affirm and apply the following legal principles regarding the fiduciary duty of educators including ENGLISH and the members of the BOT:

As a professional educator and the head of school, ENGLISH has a professional fiduciary duty towards to all students to: (a) provide an environment where students are protected from intentional, reckless or negligent actions of teachers and school officials that could cause emotional harm; (b) assure that no actions affecting students or their parents are based on personal grievance or pique; (c) set a good example for students, staff, administrators and parents; (d) ensure that the psychological well-being of students is fully taken into account in any disciplinary decisions; and (e) give fair notice (where reasonable) to parents of any potential adverse action against their children and an opportunity to inform administrators of any special factors concerning  their children that would be relevant to the fair disposition of the  disciplinary matter.  Id. (FAC ¶¶ 123–124).

Petitioner has also alleged that the members of the Archer BOT owe professional fiduciary duties, both to properly supervise the Head of School and to protect the safety and well-being of the children who are entrusted to their care, pursuant to recognized principles of director liability applicable to nonprofit educational institutions.

The causes of action of Child 1 and Child 2 for violation of the Unruh Act and the Americans with Disabilities Act are not arbitrable.  Real Parties’ obligation to reasonably accommodate Child 1’s disability is created by law and does not arise out of nor can it be eliminated by the enrollment contract.

  1. Respondent Court erred in ruling that an arbitration clause, which contains a confidentiality provision that benefits only the drafter of the provision and precludes the ability of an aggrieved party to gather evidence to prove its claims and limits the right of free speech, is not unconscionable. Ting v. AT&T, 319 F.3d 1126, 1152 (9th Cir. 2003); Pokorny v. Quixtar, Inc., 601 F.3d 987, 1002 (9th Cir. 2010); Davis v. O’Melveny & Myers, 485 F.3d 1066, 1078 (9th Cir. 2007); Schnuerle v. Insight Communications Co., 376 S.W.3d 561, 578–80 (Ky. 2012).

Public accountability is a deterrent.  The law allows for exemplary damages precisely because there are times in which, in order to achieve good public policy, a wrongdoer has to be and should be punished.  Part of that punishment is to reveal and expose the conduct.  The arbitration clause at issue here guarantees that there will be no public accountability for Real Parties’ actions and, consequently, nothing to deter them from continuing to act in this way.  If Real Parties in Interest succeed in denying The Josephsons a public forum, Real Parties will establish a precedent that will prevent any parent from daring to oppose anything anyone remotely affiliated with Archer does in the future.  This should not be allowed.

The overbroad and oppressive confidentiality clause renders the arbitration clause substantively unconscionable.

          The confidentiality clause in the arbitration provision is so overbroad that it prevents prospective plaintiffs/claimants from talking to each other, or any other third party, and thus prevents 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 to a claim by Archer for breach of confidentiality that have been made to the Josephsons.

          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 are unconscionable under California law.  In Ting v. AT&T, 319 F.3d 1126 (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 sought to be imposed by Real Parties in Interest.  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.”  Id. at 1152; accord Schnuerle v. Insight Communications Co., L.P., 376 S.W.3d 561, 578–80 (Ky. 2012) (following Ting and holding confidentiality provision in arbitration agreement unconscionable under Kentucky law).  In Pokorny v. Quixtar, Inc., 601 F.3d 987, 1002 (9th Cir. 2010), the Ninth Circuit held that confidentiality clauses favor the party that is “continually arbitrating the same claims and accumulating ‘a wealth of knowledge on how to negotiate the terms of its own unilaterally crafted contract.’”[10]  Davis v. O’Melveny & Myers, 485 F.3d 1066 (9th Cir. 2007) (overruled on other grounds) 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.

             In Davis, the Ninth Circuit struck the arbitration clause as “unconscionable under California law” based on the confidentiality provision.  Id. at 1084.  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.[11]

            California Court of Appeal cases examining arbitration agreements containing confidentiality clauses have not engaged in any analysis of the effect of an onerous confidentiality clause on the fairness of an arbitration proceeding.  For instance, Sanchez v. Carmax Auto Superstores California, LLC, 224 Cal. App. 4th 398, 408 (2014), involved a litigant who interposed numerous provisions of an arbitration clause in an employment agreement, none of which were found by the court to have merit.  The discussion of the confidentiality clause was grouped along with two other challenges (to the provisions permitting the arbitrator to not make findings of fact and prohibiting joinder), and consisted of a single sentence stating that “we see nothing unreasonable or prejudicial about it.”  Id.

            Htay Htay Chin v. Advanced Fresh Concepts Franchise Corp., 194 Cal. App. 4th 704, 714 (2011), contains a paragraph analyzing the confidentiality clause.  The Chin opinion handwaves the concern about repeat players before the arbitrator, stating (without any reasoning whatsoever) that because the confidentiality clause contained exceptions for disclosures required by law and disclosures consented to by the parties, this would be sufficient to ensure the fairness of the proceedings.

            Sanchez and Chin, respectfully, do not even attempt to grapple with the reasoning of the Ninth Circuit’s caselaw on this issue, applying fundamental principles of California unconscionability law.  There is a very serious problem with parties inserting confidentiality clauses into their arbitration clauses so that plaintiffs have no chance to talk to other witnesses and gather the evidence necessary to prove their case.  With all respect to the panel that decided Chin, that concern is not alleviated whatsoever by an exception for disclosures required by law or consented to by all the parties.  This Court should clarify that the Ninth Circuit has correctly interpreted the law in this area.[12]

 6. Respondent Court erred in ruling that a “take-it-or-leave it” arbitration provision can be enforced to deny an aggrieved party access to the courts when the compelled arbitration proceeding is imbalanced in favor of the author of the provision by creating cost barriers, including shifting fees on statutory claims, C. v. Harvard-Westlake School, 176 Cal. App. 4th 836, 864–65 (2009), imposing limitations, preventing public accountability and deterrence, and precluding the creation and clarification of law reforms.

The Arbitration Clause Should Not Be Enforced Because It 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.  See, e.g., Ontiveros v. DHL Express (USA), Inc., 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.”); Htay Htay 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 substantive aspect examines whether the terms of the contract are objectively unreasonable to the other party; 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.  1 Witkin, Summary 10th (2005) Contracts § 332, p. 368.  “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.”  Gentry v. Superior Court, 42 Cal. 4th 443, 469 (2007) (abrogated on other grounds).

The loser pays fee-shifting provision and the no appealability provision further render the arbitration clause substantively unconscionable.

The confidentiality provision 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.[13]

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.

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

 The take-it-or-leave-it nature of the arbitration clause renders it procedurally unconscionable.

“The procedural element of unconscionability involves oppression and surprise.  Oppression arises when the parties have unequal bargaining power, leading to no real negotiation and lack of meaningful choice.  Surprise may arise when challenged terms are hidden in a prolix printed form drafted by a party in a superior bargaining position.”  Baker v. Osborne Development Corp., 159 Cal. App. 4th 884, 894 (2008) (internal citations and quotations omitted).  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).

The enrollment agreement at issue here is a classic example of a contract of adhesion.  It is a standard form contract, imposed by the school, which has vastly superior bargaining power over the parents 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.  The arbitration provision is hidden in the school’s form contract—buried in the middle of a 13-page document.  Ex. 1.  It does not matter that the Josephsons had signed the contract on more than one occasion.  If it is procedurally unconscionable one time, it is procedurally unconscionable every time.  See, e.g., Little v. Auto Stiegler, Inc., 29 Cal. 4th 1064, 1069, 1071 (2003) (finding procedural unconscionability even where the plaintiff had signed the agreement on three separate occasions).

Moreover, there is no evidence that any parent could or did negotiate the arbitration clause (or any clause, for that matter) in the Archer enrollment agreement.  Such evidence would be available only to Real Parties in Interest, and the fact that they did not submit it in support of their petition to compel arbitration below gives rise to the inference that such evidence does not exist.  Cal. Evid. Code § 412; see also Jones, 195 Cal. App. 4th at 16 (finding burden of proof to be on the party with “superior access to information, and vastly greater knowledge”).

            In D.C. v. Harvard-Westlake School, 176 Cal. App. 4th 836 (2009), and Bigler v. Harker School, 213 Cal. App. 4th 727 (2013), the courts were not prepared to say that, “in the context of an enrollment contract with a private school, that, as a matter of law, a student’s parents are unable to persuade the school to remove a provision they dislike.”  Bigler, 213 Cal. App. 4th at 737 (quoting D.C., 176 Cal. App. 4th at 868).[15]  This Court should be prepared to do so now.  In arguing the agreement is not procedurally unconscionable, Real Parties in Interest attempted to shift the burden to the Josephsons, who are not the parties with access to the applicable information.  If Archer negotiates the terms of its arbitration agreement, and it is not presented on a take it or leave it basis, only Archer would have access to that evidence.  The Josephsons never could have that access, especially given the arbitration agreement’s confidentiality clause, and to require the Josephsons to put forward evidence it is impossible for them to access is to ensure that every private school’s arbitration clause will be enforced, no matter how substantively unconscionable.

7. Respondent Court erred in interpreting an arbitration provision in an enrollment contract so broadly that it effectively immunizes an educational institution from public accountability and liability by preventing access to the courts to children injured by criminal acts and intentional torts committed by teachers, administrators or board members because such a provision is inherently unconscionable and inconsistent with compelling public policy.

It is important to understand that the enrollment agreement is being insisted upon by a school that is 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, 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 they 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.  Their dominant objective is to deter meritorious claims and clothe the entire process in an impenetrable veil of secrecy.  When important policies such as the duties that are owed to children are involved, however, such deterrence and secrecy are against the public interest.

The concerns raised herein are of special importance as more and more states and municipalities are experimenting with “school choice” and privately run schools, which receive less governmental oversight and are not directly accountable to the public.  Additionally, more and more students are enrolling in “for profit” vocational and trade schools, which also force their students to sign mandatory arbitration clauses.  Stephen Burd, INSIDE HIGHER ED, “Signing Away Rights,” (Dec. 17, 2013) available at https://www.insidehighered.com/views/2013/12/17/essay-questions-mandatory-arbitration-clauses-students-profit-higher-education   (viewed Sept. 22, 2014) (noting that while shareholders of for-profit schools were able to recover in court in fraud suit based on false graduation rate claims, defrauded students would not be compensated because they had signed arbitration agreements).  Thus, a larger and larger segment of the school-age population is attending schools whose officials may be completely legally unaccountable to anyone.

 8.  Respondent Court erred in enforcing a highly restrictive “take-it-or-leave-it” arbitration provision in an enrollment contract of an educational institution for children, when the contract also grants an administrator complete, sole and final discretion to do anything she pleases, regardless of the harm caused or the existence of improper motives or the inherent arbitrary or capricious nature of the use of authority. Such a provision is inherently unconscionable and inconsistent with compelling public policy.

9. Respondent Court erred in forcing Petitioners into an arbitration process that prevents them from offering their claims in a forum where they can seek to create or clarify legal principles in a manner that would hold wrongdoers accountable for their conduct, deter similar abuses and establish clear standards that assure that educational institutions safeguard the well-being of children entrusted to their care. The secret arbitration process in this context is inconsistent with sound public policy and the American tradition of law reform and evolution.  “Imagine if a 1951 class action lawsuit against the Board of Education of Topeka, Kansas challenging ‘separate, but equal’ education was dismissed on a motion to compel arbitration.  . . . Would segregation have ended without the litigation that resulted in Brown v. Board of Education?”  Jeff Guarrera, “Mandatory Arbitration: Inherently Unconscionable, but Immune from Unconscionability,” 40 W. St. U. L. Rev. 89, 89 (2012) (footnotes omitted).

Only the court system can change the laws.  If The Josephsons are is sent to arbitration, he cannot make any attempt to do so.  And no one can.  There will never be any reform in the private education context, because there will be few plaintiffs able to spend all the money and time and energy trying to fight an unconscionable arbitration clause with an oppressive confidentiality provision in the hopes of having their day in court.  Even if an arbitrator were to agree with Petitioner that, for instance, educators owe a professional duty of care to their students and to parents, the decision would have no precedential effect and would indeed, thanks to the confidentiality clause, not even be available to the general public or other parents of children enrolled in private schools.  As a result, the law will forever be stacked in the private schools’ favor.

 *  *  *  *

The Non-Signatory Real Parties in Interest Have Not Met Their Burden To Show That They Have the Right to Compel Petitioners to Arbitrate.

California law is clear that, despite any judicial rhetoric about a “policy favoring arbitration,” arbitration is contractual and only parties that agree to arbitrate can be so compelled.  The California Supreme Court held in Victoria v. Superior Court, 40 Cal. 3d 734 (1985): “there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate . . . .”  Id. at 744 (quoting Weeks v. Crow, 113 Cal. App. 3d 350, 353 (1980)).  Though Archer’s standard-form arbitration clause purports to commit issues relating to the validity of the arbitration agreement to the arbitrator’s jurisdiction, the determination of whether the parties made agreed to arbitrate is determined by the court.  Cal. Code Civ. P. § 1281.2 (court determination that there is an agreement to arbitrate is a precondition to any order compelling arbitration); Gorlach v. Sports Club Co., 209 Cal. App. 4th 1497, 1505 (2012) (“when presented with a petition to compel arbitration, the trial court’s first task is to determine whether the parties have in fact agreed to arbitrate the dispute”).

In Jones v. Jacobson, 195 Cal. App. 4th 1 (2011), the Court held that “the nonsignatory bears the burden to establish he or she is a party to the arbitration agreement/provision covering the dispute.”  Id. at 15 (italics in original; bold face added). Here, there is no dispute that the only parties to the enrollment agreement are the Parents and Archer.  The Real Parties in Interest—English and the individual members of the Board of Trustees—are not signatories.

In Jones, “[t]he [non-signatory] appellants contend[ed] they [were] entitled to enforce the arbitration provision in paragraph 9 of the account agreement because it is broadly worded . . . .”   Id. at 18.  The Court found that, “[w]hile it may be true that the arbitration provision at issue here is broadly worded, that does not answer the threshold question of whether the [non-signatory] appellants satisfied their burden to show one or more of them are a party to the account agreement containing the arbitration provision.”  Id. (emphasis in original).

Similarly, no matter how broadly worded the arbitration clause at issue here is found to be, the Real Parties in Interest did not answer the threshold question below of whether they could be considered a party to the enrollment agreement containing the arbitration clause.  In their moving papers, the Real Parties’ only argument for arbitrability of the claims in this action was that the individual defendants had “voluntarily submitted” to an arbitration.  However, that is irrelevant, because the Josephsons never agreed to arbitrate with them (and the Real Parties in Interest understandably abandoned that argument on reply).  The only contracts that were signed were between the Parents and Archer itself.  The Real Parties’ offer to voluntarily submit to arbitration is just that—an offer.  Absent an acceptance by the Josephsons (and there was none), there was no agreement to arbitrate.  The arbitration clause contemplates this result, providing that if there are claims asserted against non-parties, they will be severed from the arbitrable claims against Archer.  Ex. 1 (“In the event that claims are asserted against multiple parties, some of whom are not subject to this Agreement, the parties agree to sever the parties subject to this Agreement….”).

There thus is no agreement to arbitrate between the Josephsons and Real Parties in Interest and thus no right to arbitrate unless the Real Parties in Interest establish that one of the very limited exceptions applies.  They cannot.  “Exceptions in which an arbitration agreement may be enforced by or against nonsignatories include where a nonsignatory is a third party beneficiary of the agreement and when a nonsignatory and one of the parties to the agreement have a preexisting agency relationship that makes it equitable to impose the duty to arbitrate on either of them.”  Jones, 195 Cal. App. 4th at 18 (internal citations and quotations omitted) (quoting Nguyen v. Tran, 157 Cal. App. 4th 1032, 1036–37 (2007)).  Real Parties in Interest have not met their burden of establishing either exception applies here.

1.      Real Parties in Interest did not meet their burden of proving they are agents of Archer.

For the first time in their reply papers below, Real Parties in Interest argued that they were entitled to take advantage of the arbitration clause because they were agents of Archer.  Ex. 7.[16]  As the parties with “superior access to information” in that regard, Real Parties in Interest bore the burden of proving that claim.  As the Jones v. Jacobson Court explained:

Not surprisingly, the [non-signatory] appellants have been unable to cite any authority placing the burden on a signatory to show the nonsignatory is not a party to the arbitration agreement.  Moreover, such a rule would make little sense in the case before us because the [non-signatory] appellants have superior access to information, and vastly greater knowledge, than the Joneses regarding whether the necessary “identity of interest” . . . exists between the [non-signatory] appellants and [the signatories], such that the [non-signatory] appellants are entitled to enforce the arbitration provision.  Thus, our inquiry in the instant case is whether the [non-signatory] appellants satisfied their burden to show they together or individually are a party to the account agreement containing the arbitration provision.

 

195 Cal. App. 4th at 16 (italics in original; bold face added).  The Real Parties in Interest have superior access to information compared to the Josephsons regarding whether the Real Parties in Interest have an agency relationship with Archer.

“The essential characteristics of an agency relationship as laid out in the Restatement are as follows: (1) An agent or apparent agent holds a power to alter the legal relations between the principal and third persons and between the principal and himself; (2) an agent is a fiduciary with respect to matters within the scope of the agency; and (3) a principal has the right to control the conduct of the agent with respect to matters entrusted to him.”  Garlock Sealing Technologies, LLC v. NAK Sealing Technologies Corp., 148 Cal. App. 4th 937, 964 (2007) (emphasis added).

            Real Parties in Interest argued that Archer’s bylaws provide that they are agents of the school.  Ex. 7.  In fact, Archer’s bylaws never state that its Head of School or Board of Trustees members are agents of the school; nor do the bylaws state that Archer has the right to control their conduct.  Id.  With respect to the members of the Archer board, the bylaws provide that the Board of Trustees have “discretion” in how they carry out their duties.  Id. (Art. II, Section 2).  The Bylaws thus appear to confirm that Archer does not have authority to control the Board of Trustees’ conduct.  This is not substantial evidence of agency.  It is no evidence at all.

With respect to Ms. English, the bylaws never designate the Head of School as Archer’s agent.  Id.  Instead, the Bylaws delegate extremely broad powers to the Head of School with no right to control the manner and means of her performance.  Id. (Art. VII, Section 2(e)).  On this record, Ms. English is an independent contractor, not an agent.  See 3 Witkin, Summary 10th (2005) Agency, §23, p.62 (defining employment as the employer’s “right to control the details of the work; conversely, freedom from that control tends to establish the relationship of independent contractor”) (emphasis added).  There is no substantial evidence in the record that Real Parties in Interest are Archer’s agents and, as such, they did not meet their burden of proof.  On this record, it was error for the trial court to allow the Real Parties in Interest to compel arbitration.

The Real Parties in Interest additionally argued (again, for the first time on reply) that the Josephsons’ complaint admits that Real Parties in Interest are Archer’s agents.  Ex. 7.  Not so.   For the agency theory to apply based on a party’s pleading, the agency relationship must be expressly pled.  In Thomas v. Westlake, 204 Cal. App. 4th 605, 614–15 (2012), the Court found that “a plaintiff’s allegations of an agency relationship among defendants is sufficient to allow the alleged agents to invoke the benefit of an arbitration agreement executed by their principal even though the agents are not parties to the agreement.”[17]  The Court then cited to language in the complaint that expressly alleged that each defendant, at all relevant times, acted as the agent of each other defendant.  Id. at 614.

There is no such allegation here.  Neither the original complaint nor the proposed first amended complaint alleges that Real Parties in Interest are Archer’s agents—expressly or otherwise.  Exs. 2 & 6.  The allegations Real Parties in Interest point to do not allege agency and do not bear in any way on whether Archer has the “right to control the details of [Real Parties’] work.”  3 Witkin, Summary 10th (2005) Agency, §23, p.62.  Alleging that Ms. English is the Head of School is not an allegation that she is Archer’s agent.  Indeed, the broad discretion the Bylaws provide her in carrying out her duties militates in favor of the conclusion that Archer did not have the right to control the manner and means of her performance.  Further, an allegation that the members of the Board of Trustees have a fiduciary duty to Archer’s students is not an allegation that they are Archer’s agents.  An agency relationship requires more than a showing of a fiduciary duty.  See Garlock, supra, 148 Cal. App. 4th at 964.  Further, fiduciary duties arise out of all sorts of relationships, and so are not determinative of a principal-agent relationship.  (In fact, Petitioners alleged that they were owed fiduciary duties arising out of the Real Parties’ role as educators, not based on an agency theory.)

2.      The Real Parties in Interest did not meet their burden of proving they are third party beneficiaries of the enrollment agreement.

            For the first time on reply below, Real Parties in Interest argued that they were entitled to compel arbitration because they were third party beneficiaries of the enrollment agreement.  Ex. 7.  Their argument was not adopted by Respondent Court, and it fails.  “For a nonsignatory to invoke an arbitration provision in an agreement based on a third party beneficiary theory, the nonsignatory beneficiary first must establish the agreement was applicable to the controversy.”  Jones, 195 Cal. App. 4th at 22.  There is no “authority holding a third party beneficiary can invoke an arbitration clause in an agreement not applicable to the lawsuit.”  Id.  Thus, there must be a “sufficient nexus between the [enrollment] agreement containing the arbitration provision and the allegations, claims and damages sought by the [Josephsons] in their amended complaint.”  Id.  There is no nexus, much less a sufficient one.  The Josephsons’ claims against the individual defendants are not grounded in the enrollment agreement.  They are tort claims that allege the violation of independent tort duties that arise from public policy and the Real Parties’ status as educators entrusted with the care and education of minors.

Additionally, Real Parties in Interest did not meet their burden of showing the Enrollment Agreement, and its arbitration clause, were expressly intended to benefit them.  In Epitech, Inc. v. Kann, 204 Cal. App. 4th 1365 (2012), secured creditors of a corporation sued the corporation’s financial advisor for fraud and related tort claims where the advisor’s conduct caused the corporation to default on its debts.  The court held that the secured creditors were not bound by an arbitration clause in the corporation’s contract with its financial advisor, because they were not intended beneficiaries.  They stood to benefit if the corporation secured financing through the advisor’s work (as they would have been paid), but they were not intended beneficiaries of the agreement.  Further, and importantly, the Court held that an arbitration clause is not intended to benefit defendants in tort suits which did not arise out of the agreement.  Id. at 1373 (“Moreover, we note that the secured creditors are not suing Kann for breaching any of his contractual duties allegedly owed to them as third-party beneficiaries. Instead, they are pursuing Kann in causes of action for fraud, negligent misrepresentation, and concealment.  . . . The misrepresentations alleged do not arise out of Kann’s contractual relationship and are independent of it.”) (footnote omitted).

This case is controlled by Kann.  While Archer officials may stand to benefit incidentally when parents contract with the school to educate their child there, they are not the intended beneficiaries of the contract—the contract is intended to benefit the parties and the child.  Moreover, the claims asserted herein were tort claims based on independent duties, and the third party beneficiary theory is inapplicable.[18]

            The Josephsons are aware of the decisions in Bigler v. Harker School, 213 Cal. App. 4th 727 (2013), and D.C. v. Harvard-Westlake School, 176 Cal. App. 4th 836 (2009), upholding arbitration clauses in school enrollment agreements.  However, neither of those cases considered the arguments being made here.  D.C. was decided solely on an issue of procedural unconscionability, and was based on a fiction that a plaintiff would be able to prove whether the school had agreed to negotiate its standard form arbitration agreements with parents.  D.C., 213 Cal. App. 4th at 826.  It is, of course, obvious that no parent could prove that, and that schools never negotiate these provisions anyway.  D.C. did not rule on substantive unconscionability at all.

As for Bigler, it rejected claims that an arbitration provision was substantively unconscionable because it excluded one type of claim (disputes relating to tuition payment) from the agreement.  Bigler did not consider the argument that arbitration agreements in the educational context were per se unconscionable.  Rather, Bigler assumed that such agreements were permissible, and reasoned that if they were, the broad language of the arbitration clause in Bigler extended to the tort claims asserted therein.  Bigler, 213 Cal. App. 4th at 739.  Bigler is wrong on that point—contractual arbitration should not extend to tort claims for personal injuries where school officials are alleged to have acted ultra vires.  However, even if Bigler is taken as correct, its reasoning does not extend to the argument being made in this petition.

 10. The drafter of a provision in a form contract claimed to be a contract of adhesion should have the burden of proving it is not a non-negotiable, take it or leave it contract.

*          *          *

 In sum, instead of being able to shine a light on abominable conduct and seek to change the practices in the area of private education, the Josephsons are being forced into an unconscionable arbitration proceeding—one that will: 1) insulate Real Parties in Interest from any public accountability for their actions, 2) prevent the Josephsons from talking with anyone about his grievances and his efforts to hold Real Parties in Interest accountable by means of a confidentiality clause they have sought to use to even prevent him from communicating information about this lawsuit, 3) impose onerous costs on The Josephsons are relating to the arbitration, and 4) subject the Josephsons to the threat of being forced to pay Real Parties’ 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.  This is the underlying basis of The Josephsons’ lawsuit—to demand reforms in procedures and policies to prevent this sort of abuse of power against any other family—at Archer and elsewhere.

 The Josephsons Have No Other Adequate Remedy At Law And Will Suffer Irreparable Injury If Writ Relief Is Not Granted.

            The effect of Respondent Court’s order forcing the Josephsons to arbitrate against Real Parties in Interest is to leave the Josephsons with no other adequate remedy at law. If the Josephsons participate in an arbitration proceeding, they are subject to arguments of waiver and estoppel.  The Josephsons will also be required to pay the costs of arbitration.  Even if the Josephsons eventually prevail on their argument that the arbitration clause was invalid, the Josephsons could potentially be on the hook for tens of thousands of dollars in arbitrator fees, as well as duplicative legal fees.

            The irreparable harm of being forced to arbitrate has been long recognized as a ground for writ relief where the petition is meritorious.  Zembsch v. Superior Court, 146 Cal. App. 4th 153, 161 (2006) (holding effect of cost-sharing provision in arbitration clause would be to deny meaningful review of order compelling arbitration unless writ relief was granted); Bertero v. Superior Court, 216 Cal. App. 2d 213, 222 (1963) (stating that absent writ relief, parties “would be put to the unnecessary delay and expense of an arbitration, further court proceedings, and an appeal, after which they would be required to start over”) (disapproved on other grounds).  For the same reasons, Respondent Court’s order irreparably injures the Josephsons.

            Additionally, “[t]he loss of First Amendment and state constitutional freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury.”  Mardi Gras of San Luis Obispo v. City of San Luis Obispo, 189 F. Supp. 2d 1018, 1035–36 (C.D. Cal. 2002) (internal quotations omitted).  The confidentiality clause contained in the arbitration provision precludes the Josephsons from exercising their First Amendment right to freedom of speech as to the course of the arbitration proceedings, and thus constitutes an irreparable injury for which writ relief is appropriate.

The Arbitration Clause Should Not Be Enforced Because The Enrollment Agreement Is An Unenforceable Illusory Contract.

Independently, the Archer enrollment agreement is illusory.   “Scholars define illusory contracts by what they are not. As Corbin observes . . . ‘one who states ‘I promise to render a future performance, if I want to when the time arrives,’ has made no promise at all.  It has been thought, also, that promissory words are illusory if they are conditional on some fact or event that is wholly under the promisor’s control and bringing it about is left wholly to the promisor’s own will and discretion.  This is not true, however, if the words used do not leave an unlimited option to the one using them. It is true only if the words used do not in fact purport to limit future action in any way.’ Thus, an unqualified right to modify or terminate the contract is not enforceable.  But the fact that one party reserves the implied power to terminate or modify a unilateral contract is not fatal to its enforcement, if the exercise of the power is subject to limitations, such as fairness and reasonable notice.”  Asmus v. Pacific Bell, 23 Cal. 4th 1, 15–16 (2000) (quoting 2 Corbin on Contracts § 5.32, pp. 175–176, fns. omitted); see also 1Witkin, Summary 10th (2005) Contracts § 231, p. 266 (contract providing one party with “unqualified right to cancel” is illusory and unenforceable).

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.  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 enrollment agreement provides:  “Archer shall at all times have the right, for any reason considered sufficient by Archer in its sole discretion, to . . . dismiss any student.  Student may not be permitted to attend classes for any reason . . . and arrangement for continued attendance lies within the sole discretion of the Head of School or her designee.”  Ex. 1 (Art. IV).  The agreement further provides that “the obligation to pay for the full academic year is unconditional after acceptance of this Agreement by Parent and Archer.”  Ex. 1 (Art. XIV). The enrollment agreement reserves the power to terminate the contract with Archer and its Head of School without any limitation of fairness or reasonable notice.  It thus is illusory and unenforceable.

CONCLUSION

            For the foregoing reasons, Petitioner respectfully urges the Court to issue a writ of mandate directing Respondent Court to show cause why it should not vacate its order of August 27, 2014 and to issue a new order denying the Real Parties in Interests’ motion to compel arbitration.

 Dated:  September 30, 2014

 [1] Barbara Bruser, Megan Callaway, Justin Chang, Stephanie Darrow, Suzie Doran, Beth Friedman, Ann Gianopulos, Mark Gordon, Caroline Grainge, Cathy Helm, Michael Heslov, Kathy Kennedy, Debbie Lehman, Scott Lord, Jonathan Lurie, Frank Marshall, Ray Michaud, Catrice Monson, Barbara Natterson Horowitz, Hillary Newman, John Ohanesian, Karen Richards Sachs, Victoria Shorr, Jody Siegler, Ana Serrano, and Ron Stone.

[2] Thus, Archer and the Board of Trustees as a corporate entity are not Real Parties in Interest on this appeal.

[3] The head of the upper school, Samantha Coyne, indicated to Petitioner that ordinarily the sanction for such behavior would be minor and not justify a suspension.  Id. (Compl. ¶ 27).

 [4] Petitioner understands that this process is used only occasionally and ENGLISH had the discretion to impose a less traumatic and more appropriate form of discipline.  Ex. B (Compl. ¶ 51).

[5] Child 1 had been admitted to college subject to her completion of her last semester.  Id. (Compl. ¶ 1).

 [6] The BOT was informed of this action and asked to repudiate it several days before the graduation ceremonies and, instead, the board ratified the decision. Id. (Compl. ¶¶ 106–110).

[7] The issue was raised in oral argument on the motion to compel arbitration and defendant’s counsel simply insisted that it was the plaintiffs’ burden to prove that they tried to negotiate the contract.  Ex. H (Trans. 25:2–10). Where it would be a simple matter for the party drafting the provision to indicate that the contract was not a strict take-it-or-leave-it requirement for enrollment, while a person challenging the provision would have to prove they irrationally endangered their relationship with the school for no reason, seeking to shift the burden of proof to the plaintiffs is a cynical and ingenuous ploy.

[8] “This arbitration agreement applies during the term of this Enrollment Agreement and survives after the termination of this Enrollment Agreement.”  Ex. A.

[9] These are the current claims asserted in Plaintiffs’ pending First Amended Complaint resulting from a change in legal counsel replacing the following causes of action in the original complaint: intentional and negligent infliction of emotional distress, professional malpractice, injury to and interference with personal relations, threats, intimidation and coercion, and defamation. Ex. B (Original Complaint).  Whichever list is used, these are tort causes of action that should not be enveloped in the arbitration clause.

[10] Notably, Pokorny did not sever the confidentiality clause, but rather held the entire arbitration clause unconscionable.  601 F.3d at 1005.  This is because the confidentiality clause, while onerous on its own, also infects the entire arbitration process.  It is part and parcel of an unfair, one-sided arbitration clause.

 [11] Even if the Court finds the arbitration clause to be enforceable, it should still sever and strike the confidentiality clause.  The enrollment agreement confirms the Court has the power to “blue pencil” the clause.  Ex. 1.

 [12] Real Parties in Interest argued below that the confidentiality clause was justified by the educational context and the fact that minors would often be parties and witnesses in arbitrations against Archer.  However, this concern can be handled by protective orders tailored to specific confidentiality concerns.  Real Parties in Interest should not be allowed to use the concerns about confidentiality in proceedings involving minors as an excuse to justify a clause that could make it impossible for such minors to prevail on meritorious claims against Real Parties in Interest.

[13] The purpose in having cost shifting provisions in the arbitration clause is to deter claims.  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, if the parents’ 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.  See Small v. HCF of Perrysburg, Inc., 159 Ohio App. 3d 66, 72 (Ohio Ct. App. 2004) (holding as unconscionable an arbitration clause, which repudiates American Rule and imposes “loser pays” fee shifting).

 [14] Respondent Court’s order did not address procedural unconscionability, addressing instead only the substantive unconscionability element.  Ex. 10 (finding that Plaintiffs did not show that the clause “shocked the conscience,” which is the standard for finding substantive unconscionability).

 [15] Bigler and D.C. are further distinguishable both because there were no confidentiality clauses in the agreements (and thus what other parents did or did not negotiate was at least theoretically available to the plaintiffs) and the Evid. Code § 412 argument was never made in those cases.

[16] Because Real Parties in Interest did not assert their agency argument until reply, filed just four (4) days before the hearing under Respondent Court’s expedited briefing schedule, the Josephsons did not have any meaningful opportunity to address Real Parties’ agency argument or to marshal and adduce evidence rebutting their alleged evidence in support of their argument. Nonetheless, Respondent Court ruled in Real Parties’ favor on the agency argument.

[17] Likewise, in Dryer v. Los Angeles Rams, 40 Cal. 3d 406, 418 (1985), the Court held that the agency theory could apply to compel arbitration because “Dryer specifically alleges that three of the four individual defendants are being sued in their capacities as ‘the owners, operators, managing agents, and in control [sic] of a Professional Football Team, associated franchise properties, and assets, doing business under the name of the LOS ANGELES RAMS.’”

 [18] The discussion in Ronay Family Limited Partnership v. Tweed, 216 Cal. App. 4th 830 (2013), a case that held that claims against a non-signatory fell within the scope of an arbitration clause, is illustrative as well.  In Tweed, the court stated that only intended beneficiaries may claim the benefits of an arbitration clause and although a third party beneficiary need not be specifically named, the non-signatory needs to be a member of a class that is expressly benefitted by the agreement.  Id. at 839.  The court quoted language from the arbitration agreement in Tweed which confirmed that express intent:  “any controversy arising out of or related to [Ronay’s] accounts, the transactions with [CapWest], its officers, directors, agents, registered representatives and/or employees for [Ronay].”  Id. (emphasis in original).  In contrast, the arbitration clause herein speaks only of disputes arising out of or relating to the Enrollment Agreement, to which only the Parents and the school are parties.  The clause never mentions the Real Parties in Interest, or more generally, claims against Archer officials or anything similar.  Real Parties in Interest did not meet their burden of showing they were intended third party beneficiaries of the arbitration clause.

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