Fraudulent Inducement Claims Must be Arbitrated

In a per curiam arbitrability opinion released today, the Texas Supreme Court held that a fraudulent inducement claim must be arbitrated, if the contract which was allegedly fraudulently induced contained an arbitration clause, even if the party seeking to compel arbitration is not a signatory to that contract. The case involves fraudulent inducement claims by a group of student electricians against a vocational College; they allege that the College induced them to enroll by making false promises that they would be eligible for journeyman or master electrician licenses upon graduation.

The College, with whom the students had entered into the arbitration agreements, was wholly owned by Kaplan Higher Education Corporation. When the students sued the College, the College moved to compel arbitration, and the students dropped their claims against the College, choosing instead to proceed against Kaplan. Kaplan was not a signatory to the enrollment agreement with the arbitration clause, and neither the trial court nor the Court of Appeals would compel arbitration. The Supreme Court, however, did, holding that “when an agreement between two parties clearly provides for the substance of a dispute to be arbitrated, one cannot avoid it by simply pleading that a nonsignatory agent or affiliate was pulling the strings.”

In Re: Kaplan, ___ S.W.3d ___ (Tex. 2007) (Cause No. 06-0072).

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