¶ 1. The trial court denied defendant Virginia College's motion to compel arbitration. Because the plaintiffs failed to allege sufficient facts to support a claim that they were fraudulently induced to agree to the arbitration provision, we reverse and remand.
¶ 2. Virginia College
¶ 3. Plaintiffs' second amended complaint asserts claims of fraud in the inducement of the contract; negligence; negligent hiring, retention, supervision, and/or control; gross negligence; negligence per se; fraudulent misrepresentation; trespass to chattels; breach of contract; breach of fiduciary duty; breach of the implied covenants of good faith and fair dealing; conversion; fraud; unjust enrichment; civil conspiracy; tortuous interference with potential business relationships; and fraudulent inducement of the arbitration provision. Virginia College filed a motion to compel arbitration under the Agreement's arbitration clause, which provided that:
¶ 4. Plaintiffs responded to the motion to compel arbitration by filing a motion to invalidate the arbitration provision, arguing that the provision was unconscionable and that they were fraudulently induced to enter into the contract.
¶ 5. The trial court did not adjudicate plaintiffs' claim that the Agreement was unconscionable, finding instead that "the plaintiffs have pled facts sufficient to support a finding of fraud in the making of the agreement to arbitrate, thereby extinguishing the validity of the arbitration provision." The trial court, finding that the arbitration clause was "unenforceable and void," granted plaintiffs' motion to invalidate, and denied Virginia College's motion to compel arbitration.
¶ 7. The sole issue on appeal is whether the trial court incorrectly found that plaintiffs properly and sufficiently alleged fraud in the inducement of the arbitration provision. We review de novo a circuit court's grant or denial of a motion to compel arbitration.
¶ 8. The Federal Arbitration Act ("the Act") controls "[w]hen a commercial transaction involving interstate commerce includes an agreement to arbitrate disputes."
¶ 9. For the first time, we are called upon to consider a challenge to the validity of an arbitration provision based on an alleged fraud in the inducement of the agreement to arbitrate. Because the Act "creates a body of federal substantive law" applicable in both state and federal courts, United States Supreme Court decisions interpreting the Act control our disposition of this issue.
¶ 10. Generally, fraud in the inducement "arises when a party to a contract makes a fraudulent misrepresentation, i.e., by asserting information he knows to be untrue, for the purpose of inducing the innocent party to enter into a contract."
¶ 11. In Prima Paint Corp. v. Flood & Conklin Manufacturing Corp., Prima Paint refused to make payments under a consulting agreement with F & C Manufacturing on the grounds that F & C had fraudulently misrepresented its solvency at
¶ 12. In a followup decision addressing fraudulent inducement of contracts that include arbitration clauses, the Supreme Court stated that
¶ 13. A claim that a party was fraudulently induced to enter into a contract is not a sufficient basis for a trial judge to usurp the authority of the arbitrator to decide the issue, because federal law has clearly established that allegations of fraud in the inducement of a contract as a whole must be submitted to arbitration.
¶ 14. Virginia College argues that plaintiffs' fraud allegations are deficient because they allege fraud in the making of the overall Agreement, and that plaintiffs fail to allege any fraudulent misrepresentations specifically designed to persuade plaintiffs to arbitrate claims arising from the Agreement. We agree. The allegations of fraud — despite the generalized title of "Fraudulent Inducement of the Arbitration Provision" in the complaint — allege fraudulent inducement of the whole Agreement.
¶ 15. A claim of fraudulent misrepresentation concerning the arbitration provision requires Plaintiffs to make specific allegations concerning the arbitration provision itself, including:
¶ 16. But plaintiffs' allegations of fraud attach to the Agreement rather than the arbitration provision. So we must apply federal law, which requires such claims to be decided by an arbitrator.
¶ 17. In their complaint, plaintiffs do allege that the arbitration clause "gives these Defendants a `green light' to perpetrate all sorts of fraudulent acts — including charging these Plaintiffs for dormitory fees when Virginia College at Jackson does not even offer or provide student housing... all while hid[ing] behind the cover of an illegal arbitration provision." But these allegations — although situated under the heading "Fraudulent Inducement as to the Arbitration Provision" — address fraudulent acts that are alleged to have occurred after plaintiffs signed their Agreements, and not some action by Virginia College inducing them to agree to the arbitration clause.
¶ 18. Plaintiffs argued in their response to Virginia College's motion to compel that they "only consented to arbitration based solely upon fraudulent inducement and fraudulent misrepresentation of material facts regarding Virginia College's accreditation status." Similarly, in a sworn affidavit submitted to supplement plaintiffs' motion to invalidate, one plaintiff alleged: "[b]ut for the false statements made by Virginia College and the school's concealment of its true accreditation status, I would not have signed the Enrollment and Tuition Agreement."
¶ 19. But these allegations fail to allege that Virginia College officials misrepresented facts solely related to the arbitration clause itself. They do not allege, for example, that a Virginia College official stated that the clause would not be enforced in the event of a dispute, or that there was NO arbitration clause in the Agreement when, to their surprise, there actually was. Instead, their allegations touch upon the inducement of the overall contract, and for the courts to adjudicate these claims would be inconsistent with the dictates of
¶ 20. At oral argument, plaintiffs argued that the Agreement, and its arbitration clause, are unconscionable. But because the trial judge failed to address this claim, it is not ripe for our review.
¶ 21. Because plaintiffs failed to allege or demonstrate facts sufficient to support a claim of fraudulent inducement of the arbitration clause, we reverse and remand for proceedings consistent with this opinion.
¶ 22.
WALLER, C.J., RANDOLPH, P.J., LAMAR, KITCHENS, CHANDLER, PIERCE, KING AND COLEMAN, JJ., CONCUR.