Ferguson v. Corinthian Colleges

The Federal Arbitration Act preempts the “Broughton-Cruz rule that claims for public injunctive relief cannot be arbitrated.”

Current and former students (“Plaintiffs”) brought a class action suit alleging that Corinthian Colleges, Inc. (“Corinthian”) deceptively enticed prospective students to enroll. The district court granted in part Corinthian’s motion to compel arbitration, but followed California’s Broughton-Cruz rule in declining to compel arbitration under California’s unfair competition law (“UCL”), false advertising law (“FAL”), and Consumer Legal Remedies Act (“CLRA”). Corinthian argued that the Federal Arbitration Act (“FAA”) preempts California’s Broughton-Cruz rule. Pursuant to the Supremacy Clause of the United States Constitution, the FAA prohibits application of any state statute that invalidates an arbitration agreement. The Broughton- Cruz rule is California’s recognition that because of the conflict between arbitration and the purposes of CRLA, arbitration could not be compelled for such claims for a “public injunction.” This holding extends to claims under the UCL and the FAL. The Supreme Court has held that when a state statute is in conflict with outright arbitration it is displaced by the FAA. Applying the Broughton-Cruz rule in this case prohibits outright arbitration of the particular type of claim and is therefore preempted by the FAA. The Plaintiffs argued that the public injunction claims do not fall within the scope of their arbitration agreements. The Ninth Circuit looked at the terms of the enrollment agreement, resolving issues of the scope of the agreement in favor of arbitration, and concluded that the claims did fall within the scope of the agreement. The district court was directed to grant the motion as to all claims, including the injunctive relief claims. REVERSED and REMANDED.