Eleventh Circuit Holds University Cannot Arbitrate Student’s Breach of Contract and Misrepresentation Claims

Carlton Fields
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Carlton Fields

In Young v. Grand Canyon University, the Eleventh Circuit Court of Appeals held that the U.S. District Court for the Northern District of Georgia was wrong to compel arbitration of a student’s breach of contract and misrepresentation claims against a university, as federal regulation 34 C.F.R. § 685.300(e)-(f) prohibits a college or university that accepts federal student loan money from enforcing pre-dispute arbitration agreements when a student brings a “borrower defense claim.”

Plaintiff Donrich Young was enrolled in a doctoral degree program at Grand Canyon University in Arizona and took out federal loans to pay for the program. As part of Young’s admissions process, GCU required him to sign a comprehensive arbitration agreement, which stated that any dispute arising from his enrollment would be resolved by binding arbitration.

Young and seven other students filed a class action suit against GCU claiming that GCU misrepresented to students that they could finish a doctoral degree in 60 credit hours — but in reality, GCU designed its program so that finishing in 60 credit hours is unlikely, which then required students to take and pay for additional research continuation courses. Young and the other students asserted claims for breach of contract, intentional misrepresentation, unjust enrichment, and violations of the Arizona Consumer Fraud Act. The district court dismissed the claims brought by all plaintiffs, except Young, on personal jurisdiction grounds.

GCU then moved to compel arbitration pursuant to the agreement Young had signed as part of his admissions application. The district court granted GCU’s motion to compel, holding that Young’s breach of contract, misrepresentation, and statutory fraud claims were not “borrower defense claims” as defined by the federal regulation at issue and, therefore, were not subject to the regulation’s prohibition on pre-dispute arbitration agreements.

The regulation defines “borrower defense claim” as a “claim that is or could be asserted as a borrower defense as defined in § 685.222(a)(5), including a claim other than one based on § 685.222(c) or (d) that may be asserted under § 685.222(b) if reduced to judgment.” The main disagreement between the parties was whether the phrase “including a claim other than” means to include or exclude claims based on section 685.222(c) or (d) — i.e., claims alleging breach of contract and substantial misrepresentation. The district court interpreted the phrase to exclude breach of contract and substantial misrepresentation claims from the regulation’s definition of “borrower defense claim” and ordered Young’s claims to arbitration.

On appeal, the Eleventh Circuit disagreed, finding that the regulation’s definition of “borrower defense claim” includes breach of contract and substantial misrepresentation claims and therefore shields those claims from arbitration. The panel noted that the district court’s interpretation defies common sense, questioning: “Why would a regulation that all acknowledge was designed to protect student-loan borrowers exclude the most basic, heartland claims that they are likely to bring?” The panel also recognized that the district court’s strained interpretation would include non-contract and non-misrepresentation claims only if reduced to judgment, which would render the “if reduced to judgment” aspect of the borrower defense claim protection meaningless. As a result, the panel reversed the district court’s decision.

Young v. Grand Canyon University, Inc., No. 19-13639 (11th Cir. Nov. 16, 2020).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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