Court Opinion

ID: 1042933
Source: CourtListenerOpinion
Date Created: 2013-10-02 18:57:14.309966+00
Date Added: 2024-06-11T08:20:40.189444
License: Public Domain

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

                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                                     SECOND APPELLATE DISTRICT
                                                  DIVISION TWO

CRYSTAL MERRILL et al.,                                                 B240202

                   Plaintiffs and Appellants,                           (Los Angeles County
                                                                        Super. Ct. No. BC471835)
         v.

ACTION EDUCATIONAL SERVICES,
INC.,

                   Defendant and Appellant.

         APPEAL from a judgment of the Superior Court of Los Angeles County.
Anthony J. Mohr, Judge. Affirmed in part, reversed in part, and dismissed in part.

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

         Duane Morris LLP, Keith Zakarin, Edward M. Cramp, and Lisa K. Widdecke for
Defendant and Appellant.
       Crystal Merrill (Merrill) and Fi Tran (Tran) (collectively, plaintiffs) filed a
putative class action against Action Educational Services, Inc. also known as West Coast
University, Inc. (defendant) for fraud, misrepresentation, and violation of the unfair
competition law (Bus. & Prof. Code, § 17200 et seq.) (UCL) and other statutes, following
their enrollment in defendant’s nursing school program. As part of their enrollment,
plaintiffs each signed an enrollment agreement (EA) and one or more retail installment
sales contracts (RICs). All of the RICs, and the EA signed by Merrill, contained a
provision requiring arbitration of disputes. The EA signed by Tran did not contain an
arbitration clause.
       Defendant filed a petition to compel arbitration of all of plaintiffs’ claims. The
trial court granted the petition to arbitrate plaintiffs’ individual claims under the RICs as
well as Merrill’s individual claims under the EA. The court denied the petition to compel
arbitration of Tran’s claims under the EA, and stayed those claims, along with plaintiffs’
class claims and their claims under the UCL.
       Defendant appeals from the trial court’s order denying the petition to compel
arbitration of Tran’s claims under the EA. Defendant also appeals from the order staying
plaintiffs’ class claims. Plaintiffs appeal from the order granting the petition to compel
arbitration of their individual claims under the RICs and Merrill’s claims under the EA.
       We reverse the order denying the petition to compel arbitration of Tran’s claims
under the EA. We dismiss defendant’s appeal of the order staying the class claims. We
also dismiss plaintiffs’ appeal.
                                     BACKGROUND
       Plaintiffs enrolled in defendant’s Bachelors of Science Nursing Program between
2008 and 2009. As part of their enrollment, plaintiffs each signed an EA. The EA signed
by Merrill contains an arbitration provision that provides as follows:
             “Any controversy or claim arising out of or relating to the
       Agreement, or breach thereof, not addressed by the California Education
       Code, shall be settled by arbitration in accordance with the Commercial
       Rules of the Arbitration American Arbitration Association, and judgment

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       upon the award rendered by the Arbitrator(s) may be entered in any court
       having jurisdiction.”

The EA signed by Tran contains no arbitration provision.
       Merrill and Tran also signed one or more RICs.1 Each of the RICs incorporates by
reference the terms of plaintiffs’ respective EAs. The RICs state: “This agreement is
subject to the terms and conditions in the Additional Terms of This Contract on the
backside of this Contract and your Enrollment Agreement, which is incorporated herein
by reference as though set forth in full.” The RICs signed by plaintiffs also contain the
following arbitration provision:
              “Agreement to Arbitrate. Either you or we may, without the other’s
       consent, elect mandatory, binding arbitration for any dispute, claim or
       controversy arising out of or related to this Contract, or breach thereof,
       which shall be settled by arbitration in accordance with the Commercial
       Rules of the American Arbitration Association, and judgment upon the
       award rendered by the arbitrator(s) may be entered in any court having
       jurisdiction.”

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

1     Merrill signed an EA dated April 21, 2009, and an RIC dated January 27, 2011,
and Tran signed an EA dated December 13, 2008, and RICs dated August 23, 2010,
November 8, 2010, and September 29, 2011.

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purported arbitration agreement with defendant. Plaintiffs sought monetary damages,
restitution, and injunctive relief, as well as their costs and attorney fees.
       Defendant filed a petition to compel arbitration of all of plaintiffs’ claims. In
support of its petition, defendant attached copies of the EAs and RICs signed by Merrill
and Tran. Plaintiffs opposed the petition to compel arbitration on the grounds that their
claims fell outside the scope of the arbitration clauses, that the arbitration provisions were
unconscionable, and that arbitration would bar vindication of their statutory rights.
       At the hearing on the petition to compel arbitration, the trial court found that the
Federal Arbitration Act governed the parties agreements. The court then stated that its
tentative ruling would be to grant the petition, but “to stay the non-arbitral part of this
which is really the [Business and Professions Code section] 17200 [claims].” The trial
court further stated: “The arbitrator is not going to be the one who determines class
certification: I’m going to handle that.” Toward the end of the hearing, the trial court
reiterated “I’m not going to let the arbitrator certify this class.” When defendant’s
counsel inquired as to the basis for that decision, the court responded: “Because I think
that the arbitrator will not be as qualified as a judge on this court, to be very frank about
it.” Defendant’s counsel then argued that an arbitrator, rather than the court, should
determine whether the arbitration clauses permit class arbitration and whether a class
should be certified, but the trial court rejected these arguments, stating, “If the plaintiffs
want to certify a class, they have to come back here and make the motion in front of me.”
       The trial court issued a written order stating that the arbitration provisions in the
RICs and in Merrill’s EA were not procedurally or substantively unconscionable; that the
agreements to arbitrate were valid and enforceable; and that any arbitration would be
conducted under the American Arbitration Association commercial rules. The order
compels to arbitration Merrill’s and Tran’s individual claims under the RICs as well as
Merrill’s claims under the EA. The order denies the petition to compel arbitration with
respect to Tran’s EA, stating the reason for denial as follows:
             “Tran’s [EA] has no arbitration clause. His RIC does and it
       incorporates the terms of his [EA]. Incorporating the [EA] into the RIC

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       does not render the [EA] subject to the arbitration. (Arguably, if the EA
       incorporated the RIC, then the arbitration clause would apply to the EA.)”

The trial court stayed the remainder of the case, including the class claims, the UCL
claims, and Tran’s claims under the EA.
       Defendant filed the instant appeal, challenging the trial court’s order denying the
petition to arbitrate Tran’s EA-related claims, and the court’s ruling staying plaintiffs’
class claims. Plaintiffs appeal from the order granting the petition to arbitrate their
individual claims under the RICs and Merrill’s claims under the EA.
                                       DISCUSSION
I. Appealability of defendant’s claims
       Plaintiffs contend the trial court’s order staying the class action claims and Tran’s
EA-related claims was not an appealable final order. They argue that the order staying
the class claims was not final because those claims had not yet been presented to the trial
court in a motion for class certification. Plaintiffs similarly argue that the trial court’s
ruling with respect to Tran’s EA-related claims was not a final order because it
contemplated further proceedings in arbitration and in the trial court. As support for this
argument, they cite the following sentence in the trial court’s order: “It is possible that
the arbitrator may make rulings that will impact Tran’s rights under the EA, and for that
reason, the court also stays Tran’s claims under that contract.”
       The record shows that the trial court denied the petition to compel arbitration of
Tran’s EA-related claims and did not simply stay those claims because of anticipated
further proceedings. The trial court’s order expressly states: “[T]he court DENIES the
petition to compel arbitration with respect to Tran’s Enrollment Agreement.” That denial
is an appealable order. (Code Civ. Proc., § 1294, subd. (a).)
       The order staying plaintiffs’ class claims is not appealable. That order neither
directs the class claims to arbitration nor denies the arbitrability of those claims. Rather,
the order staying the class claims contemplates further proceedings -- in this case, an as
yet unfiled motion to certify the class. Because no class certification motion was filed,

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issues concerning class certification and the arbitrability of plaintiffs’ class claims were
not before the trial court, and they are not properly before this court.
       Defendant’s motion to compel arbitration of plaintiffs’ class claims prior to
certification of the class was thus premature for two reasons: (1) the trial court lacked
personal jurisdiction over the putative class members who were not yet parties to the
action, and (2) until a motion to certify a class is filed, issues as to whether the action is
appropriate for class treatment, whether an arbitrator or a court should certify the class,
and whether class members can be ordered to arbitration, cannot be decided.
       Two cases inform our analysis here, Lee v. Southern California University for
Professional Studies (2007) 148 Cal.App.4th 782 (Lee) and Sky Sports, Inc. v. Superior
Court (2011) 201 Cal.App.4th 1363 (Sky Sports).
       The plaintiff in Lee, a former law student, filed a putative class action complaint
against the defendant university for alleged violations of the Consumer Legal Remedies
Act and the UCL. Some of the putative class members, but not Lee, had signed an
arbitration agreement that the university sought to enforce by a motion to compel
arbitration filed before certification of the class. The trial court denied the motion to
compel arbitration and the appellate court affirmed.
       Because the putative class members who had signed an arbitration agreement were
not yet parties to the litigation, the appellate court in Lee concluded the motion to compel
arbitration had been properly denied as premature. The court explained that “no grounds
exist for compelling arbitration when the only plaintiff currently before the court never
agreed to arbitrate her claims. The question of whether she is an adequate class
representative for those who did, and all other matters pertaining to whether the action is
appropriate for class treatment, are issues for the trial court to decide when Lee moves to
certify the class.” (Lee, supra, 148 Cal.App.4th at p. 784.) “Lee has not, as of yet,
brought a motion to certify any class. It is quite possible that when she does so, she will
seek to narrow the definition of the class to law students only, none of whom signed
arbitration agreements, according to [the university’s] own evidence. She is certainly
entitled to do that -- [the university] offers no authority for the proposition that a plaintiff

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is bound by a preliminary class definition set forth in the complaint. It is also possible
(and this court takes no position on this) that however Lee defines the class, any motion
for class certification will be denied for other reasons. We cannot know this, of course,
because there has, as of yet, been no such motion. Lee is the only plaintiff before the
court at the moment, and she is not bound by an arbitration agreement; therefore, she
cannot be compelled to arbitrate.” (Id. at pp. 786-787, fn. omitted.)
       In Sky Sports, Division Three of this district considered a related issue: Whether
the defendant’s failure to bring a motion to compel arbitration prior to certification of the
class constituted a waiver of the right to arbitration. The answer, the court concluded,
was no. The court held that prior to certification of the class, a motion to compel
arbitration would have been premature because, as in Lee, the sole plaintiff before the
court -- the proposed class representative, Hogan -- had not signed an arbitration
agreement. Accordingly, the court stated, if the defendant had brought a motion to
compel arbitration prior to certification of the class, “the trial court would have denied
the motion because Hogan was not a party to the arbitration agreement. Thus, any delay
in bringing the motion to compel arbitration until the class was certified to include parties
to the arbitration agreement cannot constitute a waiver by the company. Until the class
was certified, the pleading requirements to move to compel arbitration under [Code of
Civil Procedure] section 1281.2 were not satisfied. [Citation.]” (Sky Sports, supra, 201
Cal.App.4th at p. 1369.) The court further noted that “until Hogan brought the class
certification motion, he could have narrowed the class to include only those employees
who did not sign arbitration agreements.” (Ibid.)
       In the instant case, as in Lee and Sky Sports, defendant’s motion to compel
arbitration was filed before any attempt by plaintiffs to certify a proposed class. Because
no motion to certify the class had been filed when the motion to compel arbitration was
heard, the trial court lacked personal jurisdiction over the putative class members.
Moreover, it is possible that a class certification motion, once filed, might be denied. If
that occurs, the motion to compel arbitration will be moot. Defendant’s petition was thus
premature, to the extent it sought to compel arbitration of the class claims.

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       Because no motion to certify the class had yet been made, the issues framed by the
parties in this appeal -- whether the arbitration agreements permit class arbitration; who
should decide, the arbitrator or the trial court, whether plaintiffs’ class action claims are
arbitrable; and who should certify a proposed class -- were not properly before the trial
court2 and cannot be reviewed by this court. We therefore dismiss defendant’s appeal
concerning the class action claims. (See Vivid Video, Inc. v. Playboy Entertainment
Group, Inc. (2007) 147 Cal.App.4th 434 [dismissing appeal of order determining who
decides arbitrability of plaintiff’s claims and leaving the question of what issues are
arbitrable for future determination].)
II. Arbitration of Tran’s EA claims
       The trial court erred by denying the petition to compel arbitration of Tran’s EA-
related claims. The RICs signed by Tran each contains a provision requiring arbitration
of “all disputes, claims or controversies arising out of or related to this contract.” Each of
Tran’s RICs also contains a provision incorporating the terms of his EA into the RIC:
“This agreement is subject to the terms and conditions contained in the Additional Terms
of This Contract on the backside of this Contract and your Enrollment Agreement, which
is incorporated herein by reference as though set forth in full.” (Italics added.)
       A party may be bound by an arbitration clause which has been incorporated by
reference from another agreement. (Boys Club of San Fernando Valley, Inc. v. Fidelity &
Deposit Co. (1992) 6 Cal.App.4th 1266, 1271; Chan v. Drexel Burnham Lambert, Inc.
(1986) 178 Cal.App.3d 632, 639; King v. Larsen Realty, Inc. (1981) 121 Cal.App.3d 349,
357 (King).) In order to be bound by the arbitration agreement under these
circumstances, the following standards must be met: “‘[T]he reference must be clear and
unequivocal, the reference must be called to the attention of the other party and [the

2       Because no issue concerning class certification was before the trial court, the trial
court’s comments that it, rather than an arbitrator, would certify a proposed class, provide
no basis for an appeal. Those comments will not be binding on the trial court when a
motion for class certification is filed, and the issue is properly before the court. An
arbitrator, rather than the trial court, may be the proper decision maker for that issue.
(See Green Tree Fin. Corp. v. Bazzle (2003) 539 U.S. 444, 452-453.)

                                               8
party] must consent thereto, and the terms of the incorporated document must be known
or easily available to the contracting parties.’” (Williams Constr. Co. v. Standard-Pacific
Corp. (1967) 254 Cal.App.2d 442, 454.) A valid incorporation by reference makes the
document referred to part of the incorporating contract as though recited verbatim.
(King, supra, 121 Cal.App.3d at p. 357.) “[I]n the event such incorporation is made, the
original agreement and those referred to must be considered and construed as one.
[Citations.]” (Bell v. Rio Grande Oil Co. (1937) 23 Cal.App.2d 436, 440; accord
Republic Bank v. Marine Nat. Bank (1996) 45 Cal.App.4th 919, 921.) The foregoing
standards were met here.
       Tran’s RICs expressly incorporate by reference the terms of his EA. The
reference is clear and unequivocal, and Tran’s signature immediately below that
reference is evidence of his consent thereto. Tran’s RICs and EA must therefore be
considered and construed as one agreement, and subject to the same arbitration provision.
(King, supra, 121 Cal.App.3d at p. 357.) In addition, “California has a ‘“strong public
policy in favor of arbitration”’ [citation], ‘. . . arbitration agreements should be liberally
interpreted, and arbitrations should be ordered unless the agreement clearly does not
apply to the dispute in question.’ [Citation.] ‘Doubts as to whether an arbitration clause
applies to a particular dispute are to be resolved in favor of sending the parties to
arbitration.’ [Citation.]” (Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th
1186, 1189.) Arbitration should be ordered “unless it is clear that the arbitration clause
cannot be interpreted to cover the dispute. [Citation.]” (United Transportation Union v.
Southern Cal. Rapid Transit Dist. (1992) 7 Cal.App.4th 804, 808.) The express
incorporation by reference of Tran’s EA into the RICs subjects Tran’s EA-related claims
to the arbitration provision contained in the RICs.3 The trial court erred by denying
defendant’s petition to compel arbitration of Tran’s EA-related claims.

3      The trial court expressly found the arbitration provisions in all the EAs and RICs,
including Tran’s RICs, were neither procedurally nor substantively unconscionable.

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III. Appealability of plaintiffs’ claims
       An order granting a motion to compel arbitration is generally not appealable.
(Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 648-649.) Such an
order is normally subject to review only on an appeal from a final judgment. (Code Civ.
Proc., §§ 906, 1294.2.) An appellate court has discretion, in exceptional situations, to
treat a purported appeal from a nonappealable order as a petition for writ of mandate.
(H. D. Arnaiz, Ltd. v. County of San Joaquin (2002) 96 Cal.App.4th 1357, 1366-1367.)
That discretion, however, should be exercised only in unusual and extraordinary
circumstances. (Ibid.) With respect to arbitration clauses, “the underlying policy [is] to
encourage parties to arbitrate first and litigate, if necessary, later.” (Blanton v.
Womancare, Inc. (1985) 38 Cal.3d 396, 408.)
       Plaintiffs have presented no extraordinary circumstances that would warrant the
issuance of a writ in this case. Their arguments on appeal simply reiterate those
presented in opposition to the petition to compel arbitration in the trial court below,
including the unconscionability agreements rejected by the trial court. Because there has
been no showing of unusual or extraordinary circumstances, we dismiss plaintiffs’
appeal.

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                                      DISPOSITION
       The order dated March 15, 2012, denying the petition to compel arbitration of
Tran’s EA-related claims is reversed and the trial court is directed to grant the petition to
compel arbitration of those claims. The order is otherwise affirmed. Plaintiffs’ cross-
appeal is dismissed as is defendant’s appeal of the order staying the class action claims.
The parties will bear their respective costs on appeal.
       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

                                                          ________________________, J.
                                                          CHAVEZ

We concur:

_________________________, P. J.
BOREN

_________________________, J.*
FERNS

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

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