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Class Action Defense Cases-Lee v. Southern California: Class Action Plaintiff In Putative CLRA/UCL Class Action Not Bound By Arbitration Agreements Signed By Class Members California Court Holds

California Appellate Court Holds that Class Action Plaintiff cannot be Compelled to Arbitrate Claims Simply Because Class Members Signed Arbitration Agreements, as that Fact is not Relevant Until Motion to Certify Class Action, and in any Event Injunctive Relief Claims were not Subject to Arbitration

Plaintiff filed a putative class action against Southern California University for Professional Studies (SCUPS) alleging violations of California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) for failing to refund prepaid tuitions to its students. Lee v. Southern Cal. Univ. for Prof. Studies, 148 Cal.App.4th 782, 784 (Cal.App. 2007). Defense attorneys moved to compel arbitration, arguing that even though the class action representative was not directly subject to arbitration, 408 of the 519 putative class members had signed enrollment agreements with arbitration clauses and plaintiff, as their representative, was therefore bound to arbitrate her claims. Id., at 785. The trial court disagreed, denying the defense motion to compel arbitration of the putative class action. SCUPS appealed, and the appellate court affirmed.

The California Court of Appeal explained that this was not a close case because the plaintiff had not signed an arbitration agreement: “The most fundamental reason [that plaintiff is not bound to arbitrate her claims] is that arbitration requires consent; the parties must mutually agree to resolve their disputes in an alternate forum.” Lee, at 786. The appellate court stated that the fact a significant number of putative class members may be bound by an arbitration clause was not relevant at this stage of the proceedings, explaining at page 786: “[SCUPS’] entire argument assumes the existence of a valid arbitration agreement. This is, at best, completely premature, and at worst, simply inapplicable. At the moment, the only plaintiff before the court is Lee, who did not sign an arbitration agreement.”

Moreover, the Court of Appeal held that the UCL claim would not be subject to arbitration because the class action complaint seeks only injunctive relief, rather than restitution or disgorgement. Lee, at 787. Accordingly, even if the class action plaintiff had herself signed an arbitration agreement, “Lee’s claim for damages under the CLRA would be arbitrable[,] [b]ut her claims for injunctive relief, under either the CLRA or UCL, would not be.” Id.

The appellate court also observed that the only enrollment agreements with arbitration clauses were signed by not law students, while the 111 putative class members that did not sign an arbitration agreement (including plaintiff) were law students, Lee, at 785, so when plaintiff files her motion to certify a class action, she may seek to narrow the proposed class so as to exclude students who signed arbitration agreements, id., at 786.

The Court of Appeal summarized its holding at page 788 as follows: “SCUPS offers no cause holding that a nonparty to an arbitration clause can be required to arbitrate simply because a case is filed as a class or representative action.” Accordingly, the appellate court affirmed the trial court order denying the defense motion to compel arbitration and awarded the plaintiff her costs on appeal. Id., at 789.

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