Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 1 of 15 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION EILEEN CARR, CLAYTON KOLB, SAMUEL STANTON, DONRICH YOUNG, JANE DOE I, JANE DOE II, and JANE DOE III, on behalf of themselves and all others similarly situated, v. Plaintiffs, GRAND CANYON UNIVERSITY, INC., and GRAND CANYON EDUCATION, INC. d/b/a GRAND CANYON UNIVERSITY, Defendants. Case No. 1-19-cv-01707-TCB RESPONSE IN OPPOSITION TO DEFENDANTS MOTION TO COMPEL ARBITRATION Plaintiffs Eileen Carr and Samuel Stanton ( Plaintiffs hereby oppose the Motion to Compel Arbitration filed by Defendants Grand Canyon University, Inc. and Grand Canyon Education, Inc. d/b/a Grand Canyon University (collectively, GCU. Shockingly, even though GCU has no right to demand arbitration based on binding federal regulations, Defendants have moved to compel arbitration without even mentioning the applicable regulations to the Court. Even more
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 2 of 15 indefensible is the fact that GCU is attempting to compel arbitration despite publicly informing its students that it will not enforce its arbitration clause. In light of these facts, GCU s request to compel arbitration must be rejected. A. The Borrower Defense Regulations Title IV of the Higher Education Act of 1965 ( HEA, 20 U.S.C. 1070, et seq., empowers the Secretary of Education to assist in making available the benefits of postsecondary education to eligible students... in institutions of higher education by providing various types of financial aid. Id. at 1070(a. The William D. Ford Federal Direct Loan Program ( Direct Loan Program allows students who attend participating institutions of higher education to obtain direct loans from the federal government to pay for their educational expenses. Id. at 1087a(a. Institutions of higher education that are selected to participate in the Direct Loan Program must enter into an agreement with the Secretary of Education that is allowed to include any provisions the Secretary determines are necessary to protect the interests of the United States and to promote the purposes of the Direct Loan Program. Id. at 1087d(a(6, 1087c. Moreover, the Secretary has the authority to make, promulgate, issue, rescind, and amend rules and regulations governing the Direct Loan Program. Id. at 1221e-3. In administering the Direct 2
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 3 of 15 Loan Program, the Secretary must also specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under the Direct Loan Program. Id. at 1087e(h. On November 1, 2016, the Department of Education promulgated the Borrower Defense Regulations. See 81 Fed. Reg. 75,926 (Nov. 1, 2016. The Regulations, which had an effective date of July 1, 2017, were designed to protect student loan borrowers from misleading, deceitful, and predatory practices of, and failures to fulfill contractual promises by, institutions participating in the Department s student aid programs. Id. at 75,926. Among the ways that the Department sought to protect student loan borrowers, and taxpayers, was to prohibit schools participating in the Direct Loan Program from enforcing mandatory, pre-dispute arbitration agreements and/or class action waivers. Id. at 75,926-27. Just two weeks prior to the Borrower Defense Regulations becoming effective, newly appointed Secretary of Education Betsy DeVos issued a Delay Notice that was published on June 16, 2017. See 82 Fed. Reg. 27,621. The Department did not engage in notice and comment or the formal rulemaking process prior to issuing the Delay Notice. The Department s attempt to delay the effective date of the Regulations resulted in three cases being filed against the 3
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 4 of 15 Department challenging the legality of the Delay Notice on various grounds. See Massachusetts v. U.S. Dep t of Educ., No. 1:17-cv-01331-RDM (D.D.C. filed July 6, 2017; Bauer v. U.S. Dep t of Educ., No. 1:17-cv-01330 (D.D.C. filed July 6, 2017; Wright v. DeVos, No. 3:17-cv-01066-PK (D. Or. filed July 9, 2017. Bauer and Massachusetts were consolidated and litigation proceeded to summary judgment. On September 12, 2018, the District Court entered an order granting the plaintiffs motion for summary judgment and denying the Department s cross-motion. See Bauer v. DeVos, 325 F. Supp. 3d 74 (D.D.C. 2018. Subsequently, the district court entered an order on September 17, 2018 vacating the Delay Notice (see 82 Fed. Reg. 27,621 and the Final Delay Rule dated February 14, 2018 (see 83 Fed. Reg. 6,458. See Bauer v. DeVos, 2018 WL 4483783 (D.D.C. Sept. 17, 2018. The orders made it clear that the Borrower Defense Regulations would be effective following a 30-day window during which the Department would have an opportunity to remedy deficiencies identified in the Delay Notice. Id. The Department subsequently announced it would not seek a delay of this ruling. E.g., Andrew Kreighbaum, DeVos Won t Seek Another Delay of Obama Borrower Defense Rule, Inside Higher Educ., Oct. 13, 2018 (Exh. 1 hereto. Thus, the Borrower Defense Regulations are now in effect. 4
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 5 of 15 B. The Borrower Defense Regulations Preclude GCU From Seeking Arbitration in this Case. The Borrower Defense Regulations preclude the enforcement of GCU s arbitration clause. See 81 Fed. Reg. 75926-01 (prohibiting schools from relying on an arbitration agreement to seek the dismissal, deferral, or stay of any aspect of a class action. The plain language of the Borrower Defense Regulations made it clear that the Department was amend[ing] the Direct Loan Program regulations to prohibit participating schools from using certain contractual provisions regarding dispute resolution processes, such as predispute arbitration agreements or class action waivers. Id.; see also 81 Fed. Reg. at 75,927 ( The final regulations also prohibit a school participating in the Direct Loan Program from obtaining an agreement, either in an arbitration agreement or in another form, that a borrower waive his or her right to initiate or participate in a class action lawsuit regarding such claims. The Borrower Defense Regulations also called for the amendment of 34 C.F.R. 685.300 to eliminate the use of pre-dispute arbitration agreements, whether or not they are mandatory, to resolve claims brought by a borrower against the school that could also form the basis of a borrower defense or to prevent a student who has obtained or benefited from a Direct Loan from participating in a class action suit related to borrower defense claim. See 81 Fed. Reg. at 76,049. 5
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 6 of 15 The Borrower Defense Regulations also made it clear that pre-existing arbitration agreements between a participating school and a student could not be enforced. See 81 Fed. Reg. at 76,067. Specifically, the regulations provided: Institutions that incorporated predispute arbitration agreements with Direct Loan program borrowers prior to the effective date of the final regulations must provide borrowers with agreements or notices containing specific language regarding a borrower s right to file a lawsuit against the institution when the class action concerns acts or omissions surrounding the making of the Direct Loan or provision of educational services purchased with the Direct. Id. (emphasis added. C. GCU s Public Pronouncements Regarding Arbitration. As required by the Borrower Defense Regulations, GCU has recently sent communications to students who were purportedly subject to pre-dispute arbitration agreements informing them that they are allowed to file a lawsuit, including a class action lawsuit and are not required to pursue such a claim in arbitration. See GCU Email (Exh. 2 hereto. The email, in its entirety, reads as follows: Dear Student, You are receiving this notice in light of the recent guidance from the Department of Education concerning certain provisions of the 2016 Borrower Defense to Repayment Regulations. Please note that GCU removed all predispute arbitration language from its Enrollment Agreements (EA in June 2017, prior to these regulations taking 6
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 7 of 15 effect; however, given you signed your EA prior to June 2017, this notice applies to you. GCU agrees not to use any predispute agreement to stop you from being part of a class action lawsuit in court or bringing a lawsuit if you assert a borrower defense claim, as that term is defined in 34 CFR 685.300(i(1. You may file a lawsuit, including a class action lawsuit, regarding such a claim or you may be a member of a class action lawsuit regarding such a claim even if you do not file it. This provision applies only to claims concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained. This provision does not apply to any other claims. We agree that only the court is to decide whether a claim asserted in the lawsuit is a borrower defense claim. What Does this Mean? Students who enrolled at GCU after June 2017 do not have arbitration agreements or class action waivers in their Enrollment Agreements. Students who enrolled prior to June 2017 may have arbitration agreements and class action waivers in their Enrollment Agreements, but GCU will not enforce those arbitration agreements and class action waivers if the student asserts a borrower defense claim against GCU. Please contact your Student Services Counselor with any questions. Sincerely, Grand Canyon University Id. GCU s pronouncement could not be clearer it will not use any pre-dispute agreement to stop students from being part of a class action lawsuit. This public repudiation of its arbitration rights is binding on GCU. E.g., Bailey v. Bicknell 7
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 8 of 15 Minerals, Inc., 819 F.2d 690, 692 (7th Cir. 1987; Int l Bhd. of Elec. Workers Local 159 v. Circuit Elec., LLC, 2005 WL 3408017, at *2 (W.D. Wisc. Dec. 9, 2005 ( When a party to an agreement proclaims that it no longer considers the obligation to arbitrate binding, then a request to arbitrate is futile and the other side may proceed directly to court. GCU s attempt to walk back its repudiation of arbitration must be rejected. D. Plaintiffs Claims Clearly Relate to the Provision of Educational Services for Which Federal Direct Loans Were Obtained. Despite failing to even acknowledge the Borrower Defense Regulations in the motion, it is anticipated that GCU will attempt to argue that Plaintiffs claims are not subject to the prohibition on pre-dispute agreements. Such an argument, however, would be entirely without merit. Both the Borrower Defense Regulations and GCU s public pronouncement state that GCU cannot use a pre-dispute agreement to stop Plaintiffs from being part of a class action lawsuit or bringing a lawsuit if they assert a borrower defense claim, as that term is defined in 34 C.F.R. 685.300(i(1. The claims asserted by Ms. Carr and Mr. Stanton as well as the other Plaintiffs qualify as a borrower defense claim. Section 685.300(i(1 defines the term Borrower defense claim as a claim that is or could be asserted as a borrower defense as defined in 685.222(a(5. 34 C.F.R. 685.222(a(5, provides, a borrower defense refers 8
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 9 of 15 to an act or omission of the school attended by the student that relates to the making of a Direct Loan for enrollment at the school or the provision of educational services for which the loan was provided. (emphasis added. Plaintiffs claims relate to the provision of educational services by GCU for which the loans at issue were provided. See Amended Complaint, 52, 64. Both Ms. Carr and Mr. Stanton clearly allege that they took out Direct Loans to pursue their doctoral programs at GCU. Id. Similarly, both Plaintiffs take issue with GCU s provision of the educational services the doctoral program for which they took out those loans. Id. at 52-56, 64-67. Any suggestion that Plaintiffs claims do not relate to the provision of educational services for which the loan was provided is baseless. E. Only this Court Is Allowed to Determine Whether Plaintiffs Claims Relate to the Provision of Educational Services for Which the Loan Was Provided. In their motion, Defendants contend that any issues relating to the scope or validity of the arbitration agreement must be decided by an arbitrator and not this Court. See Dkt. No. 7-1, pp. 11-13. This argument is also contradicted by the Borrower Defense Regulations and GCU s public pronouncement. The Borrower Defense Regulations explicitly provide that only the court is to decide whether a claim asserted in the lawsuit is a claim regarding the making of 9
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 10 of 15 the Direct Loan or the provision of educational services for which the loan was obtained. See 81 Fed. Reg. at 76,030. GCU s email to its students contains the same language: We agree that only the court is to decide whether a claim asserted in the lawsuit is a borrower defense claim. See Exh. 2. It is clear that only this Court is empowered to make this determination. GCU s attempt to ignore this unequivocal requirement must be rejected. F. No GCU Affiliate Is Entitled to Compel Arbitration. GCU also contends that Grand Canyon Education, Inc. is allowed to enforce the arbitration clause. See Dkt. No. 7-1, pp. 18-20. This argument fails for two reasons. First, since GCU does not have the right to rely on its pre-existing arbitration agreement as a result of the Borrower Defense Regulations, it is obvious that Grand Canyon Education does not have these rights either. Defendants admit that GCE s purported right to seek arbitration springs from GCU s contractual rights. Because GCU s contractual rights have been extinguished, so to have GCE s. GCE s argument also fails because it was the entity that contracted with Ms. Carr and Mr. Stanton for educational services and those contracts are the ones that contained the arbitration agreements and class action waivers that cannot be enforced. GCU s recent public pronouncement informed its students that those 10
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 11 of 15 who enrolled prior to June 2017 may have arbitration agreements and class action waivers in their Enrollment Agreements, but GCU will not enforce those arbitration agreements and class action waivers if the student asserts a borrower defense claim against GCU. See Exh. 3 (emphasis added. Both Ms. Carr and Mr. Stanton have arbitration agreements in Enrollment Agreements that predate June 2017. See Decl. of Kathleen Hall, 7, 9 (establishing dates of August 2012 and May 2014 respectively (Dkt. No. 7-2. In light of the fact that GCU was being operated by Grand Canyon Education during this time period, GCU s pronouncement clearly applies to any contractual rights that Grand Canyon Education might have had prior selling the university to a new entity. The fact that Grand Canyon Education recently sold the university to a new entity, Grand Canyon University, Inc., (see Dkt. No. 7-1, p. 18 does not mean that it is not bound by the Borrower Defense Regulations or GCU s public pronouncements. Defendants suggestions to the contrary should be rejected. G. GCU and Its Counsel Have Full Knowledge of the Regulations. In light of the fact that the Borrower Defense Regulations are now in effect, GCU s failure to even mention them in the arbitration motion is astounding. GCU is well aware of the Borrower Defense Regulations and their impact on this case, having dealt with this issue in a separate case styled Ward v. Grand Canyon 11
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 12 of 15 Education, Inc., Case No. 17-A-03474-9 (Gwinnett Super. Ct.. In Ward, GCU initially prevailed on its arbitration motion, only to have the Georgia Court of Appeals vacate the judgment and remand the case based on the Borrower Defense Regulations. See Opinion (Exh. 3 hereto. GCU s failure to even mention the Borrower Defense Regulations within its Memorandum of Law see Dkt. No. 7-1 can only be viewed as an attempt to either mislead the Court or gain an improper advantage by sandbagging Plaintiffs. Why else would GCU fail to address this dispositive issue? Due to Defendants strategy, Plaintiffs are left to guess as to what arguments Defendants may make in their reply as to why the Borrower Defense Regulations are not applicable. Given Defendants decision to employ this strategy, Plaintiffs anticipate seeking leave to file a sur-reply brief to address the new arguments that will be raised in Defendants reply brief. GCU s failure to notify the Court about the Borrower Defense Regulations could be sanctionable. E.g., Nelson v. Patel, 2009 WL 5183814, at *5 (C.D. Cal. Dec. 22, 2009 (entering show cause order as to why party should not be sanctioned for failure to acknowledge controlling authority; Cousin v. D.C., 142 F.R.D. 574, 577 (D.D.C. 1992 (imposing sanctions under Rule 11 for failure to disclose controlling authority in violation of Rule of Professional Conduct 3.3. 12
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 13 of 15 Given the controlling nature of the Borrower Defense Regulations, GCU had an obligation to disclose them to the Court. See Ga. Rule of Prof. Conduct 3.3(a(3. CONCLUSION Plaintiffs claims against GCU relate to the provision of educational services for which Federal Direct Loans were obtained. Therefore, the Borrower Defense Regulations explicitly preclude GCU from seeking to compel arbitration. Furthermore, the Court should hold GCU to its pubic pronouncement that it will not enforce arbitration when students assert a borrower defense claim against GCU. The motion to compel arbitration must be denied. 13
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 14 of 15 DATED this 21st day of May, 2019. Respectfully submitted, BY: WEBB, KLASE & LEMOND, LLC /s/ E. Adam Webb E. Adam Webb Georgia Bar No. 743910 G. Franklin Lemond, Jr. Georgia Bar No. 141315 1900 The Exchange, S.E. Suite 480 Atlanta, Georgia 30339 (770 444-9325 (770 217-9950 (fax Adam@WebbLLC.com Franklin@WebbLLC.com Attorneys for Plaintiffs 14
Case 1:19-cv-01707-TCB Document 12 Filed 05/21/19 Page 15 of 15 CERTIFICATE OF SERVICE I hereby certify that on this 21st day of May, 2019, I caused the foregoing document to be electronically filed with the Clerk of Court using the CM/ECF system which automatically sends email notification of such filing to all attorneys of record. /s/ G. Franklin Lemond, Jr. G. Franklin Lemond, Jr. 15