IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 27, 2008
No. 07-20438 Charles R. Fulbruge III
Clerk
ITT EDUCATIONAL SERVICES INC
Plaintiff-Appellee
v.
ROBERTO ARCE; JESSE DELUNA; ALVIE LEE FULCHER; JOSE
GARCIA; WALFREDO HERRERA; BRADLEY HOOVER; MIKE LOPEZ;
ALEX PARDO; ADRIAN PARDO; ROBERTO ROMERO; WILLIAM SCOTT;
SHANNON STANLEY; MICHAEL WORSHAM; JOEL RODRIGUEZ; BETTY
STOVAL CLARK
Defendants-Appellants
Appeal from the United States District Court
for the Southern District of Texas
Before HIGGINBOTHAM, BENAVIDES, and DENNIS, Circuit Judges.
BENAVIDES, Circuit Judge:
This cases arises out of an arbitration proceeding between Appellants and
ITT Educational Services, Inc. (“ITT”). After the arbitration, Appellants sought
to reveal the arbitrator’s findings to third parties. Believing that such action
violated a contractual confidentiality provision, ITT filed suit for a temporary
restraining order and permanent injunctive relief, which the district court
granted. We AFFIRM.
I.
No. 07-20438
ITT provides technology-oriented postsecondary degree programs. Appellants
are fourteen former ITT students and their common counsel, Ms. Clark. Each student
signed an Enrollment Agreement with ITT that contained an arbitration clause. In
February 2005, Appellants–except for Joel Rodriguez–pursued arbitration against ITT
(“the Arce arbitration”). In June 2006, the arbitrator found in favor of Appellants. ITT
paid Appellants the amounts awarded under the arbitrator’s decision.
In July 2006, Rodriguez demanded arbitration against ITT (“the Rodriguez
arbitration”), and his claim is currently pending before a different arbitrator. On
November 17, 2006, Ms. Clark informed ITT that she planned to rely upon evidence
and findings from the Arce arbitration during the Rodriguez arbitration.
Consequently, ITT filed the present suit for declaratory relief under the Declaratory
Judgment Act, 28 U.S.C. § 2201, seeking: (1) a finding that the confidentiality
provisions were enforceable and (2) a permanent injunction preventing Appellants
from revealing any aspect of the Arce arbitration. Subsequently, ITT filed an Ex Parte
Application for a Temporary Restraining Order because Ms. Clark intended to publicly
file an unredacted copy of the arbitrator’s findings with the district court. The district
court granted the temporary restraining order.
On April 10, 2007, the district court conducted a preliminary injunction hearing
that, by stipulation of the parties, was converted to a bench trial on the merits
pursuant to Federal Rule of Civil Procedure 65(a)(2). On April 24, the district court
ruled in ITT’s favor, finding that the arbitration clause was severable under Prima
Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395 (1967), and the
confidentiality provision was thereby binding because it was not otherwise
unconscionable or void. Furthermore, the district court found that the requirements
for permanent injunctive relief were met and enjoined Appellants from “revealing any
aspect of the Arce arbitration proceedings, including any rulings, decisions, or awards
by the Arbitrator.” ITT Educ. Servs., Inc. v. Arce, No. H-07-204, slip op. at 19 (S.D.
Tex. Apr. 24, 2007).
2
No. 07-20438
Appellants filed a Motion for a New Trial or, in the alternative, a Motion to Alter
or Amend Judgment. The district court denied the motion, and this timely appeal
followed.
II.
We review the grant of a permanent injunction for abuse of discretion. N. Alamo
Water Supply Corp. v. City of San Juan, 90 F.3d 910, 916 (5th Cir. 1996). “The district
court abuses its discretion if it (1) relies on clearly erroneous factual findings when
deciding to grant or deny the permanent injunction[,] (2) relies on erroneous
conclusions of law when deciding to grant or deny the permanent injunction, or (3)
misapplies the factual or legal conclusions when fashioning its injunctive relief.” Id.
at 916-17.
III.
Appellants argue that the arbitrator’s findings constituted a finding of
fraudulent inducement. Accordingly, Appellants argue, the entire Enrollment
Agreement–including the confidentiality provision–is void under Texas law, such that
Appellants may disclose the results of the Arce arbitration. ITT disputes that the
arbitrator made a finding of fraudulent inducement. However, ITT argues that–even
if the arbitrator made such a finding–the district court nonetheless properly found that
the confidentiality provision is part of the arbitration clause and, thereby, severable
and enforceable under Prima Paint and its progeny. We agree with ITT.
In Prima Paint, the Supreme Court held that unless parties intend otherwise,
“arbitration clauses as a matter of federal law are ‘separable’ from the contracts in
which they are embedded.” Id. at 402. The Supreme Court subsequently reinforced
this notion in Buckeye Check Cashing, Inc. v. Cardegna, stating that: “[A]s a matter of
substantive federal arbitration law, an arbitration provision is severable from the
remainder of the contract. . . . [W]e conclude that because respondents challenge the
Agreement, but not specifically its arbitration provisions, those provisions are
enforceable apart from the remainder of the contract.” 546 U.S. 440, 445-46 (2006)
(finding that Prima Paint applies in state as well as federal courts); see also Doctor’s
Assocs., Inc. v. Distajo, 66 F.3d 438, 452 (2d Cir. 1995) (finding that, under Prima
3
No. 07-20438
Paint, “arbitration clauses are ‘separable’ from void or voidable provisions of a
contract”). In short, Prima Paint “favor[s] . . . the separate enforceability of arbitration
provisions.” Buckeye Check Cashing, 546 U.S. at 449.
ITT argues that the confidentiality provision at issue is part and parcel of the
arbitration clause. Thus, ITT argues, even if the arbitrator made a finding of
fraudulent inducement, the arbitration clause–including its confidentiality
provision–is “separable” and remains valid and enforceable under Prima Paint and the
arbitration clause’s severability provision. We agree with ITT based upon the
language of the arbitration clause in the Enrollment Agreements. Under the heading
“Resolution of Disputes,” the arbitration clause provides that:
If the Dispute is not resolved pursuant to the School’s Student
Complaint/Grievance Procedure or through other informal means, then
the Dispute will be resolved by binding arbitration between the parties.
. . . Both Student and the School agree that this Agreement involves
interstate commerce and that the enforceability of this Resolution of
Disputes section will be governed by the Federal Arbitration Act, 9 U.S.C.
§ 1-9 (“FAA”). The arbitration between Student and the School will be
conducted in accordance with the American Arbitration Association’s
(“AAA”) Commercial Arbitration Rules (“Commercial Rules”) . . . subject
to the following modifications:
...
(c) The substantive law which will govern the interpretation of this
Agreement and the resolution of any Dispute will be the law of the state
where the School is located.1
...
(g) All aspects of the arbitration proceeding, and any ruling,
decision or award by the arbitrator, will be strictly confidential. The
parties will have the right to seek relief in the appropriate court to
prevent any actual or threatened breach of this provision.
...
If any provision of this Agreement or its application is invalid or
unenforceable, the remainder of this Agreement will not be impaired or
affected and will remain binding and enforceable.
We find that the confidentiality provision in subparagraph (g) is part of the arbitration
clause. First, all of the relevant language is included in one section under the heading
1
It is undisputed that Texas law is the relevant state law.
4
No. 07-20438
“Resolution of Disputes,” and the confidentiality provision is a subparagraph of the
arbitration clause. Second, the arbitration clause states that disputes will be resolved
by binding arbitration “subject to the following modifications,” including the
confidentiality provision. Finally, prior case law holds that procedural
requirements–such as adopting the rules of an arbitration association, choice of law
provisions, confidentiality requirements, and rules governing discovery–can be part
of an arbitration clause. See Scherk v. Alberto-Culver Co., 417 U.S. 506, 508 (1974)
(“[T]he contract contained an arbitration clause providing that ‘any controversy or
claim . . .’ would be referred to arbitration before the International Chamber of
Commerce in Paris, France, and that ‘[t]he laws of the State of Illinois . . . shall apply
. . . .”); Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 163 (5th Cir.
2004) (“The final paragraph on the back of the form contains an arbitration clause . .
. stat[ing] that any arbitration would be confidential, and it includes a severability
clause . . . .”); Id. at 164 n.5 (“The arbitration provision [with Sprint Spectrum LP] is
several paragraphs long, but the portion concerning discovery provides as follows . .
. .”).
Appellants argue that the district court erred in applying the Prima Paint
doctrine because it has never been extended to contractual provisions other than
arbitration or forum selection clauses.2 Appellants argue that applying Prima Paint
to a confidentiality provision would impermissibly extend the doctrine. We disagree.
Under Appellants’ theory of the case, an arbitrator’s finding that an agreement was
fraudulently induced would be extended so that, after the arbitration was completed,
it is determined that the arbitration clause–including the confidentiality
provision–was invalid. Consequently, the arbitrator would not have had jurisdiction
2
Prima Paint was extended to forum selection clauses in Scherk v. Alberto-Culver Co.
because “[a]n agreement to arbitrate before a specified tribunal is, in effect, a specialized kind
of forum-selection clause that posits not only the situs of suit but also the procedure to be used
in resolving the dispute.” 417 U.S. 506, 519 (1974). Thus, “an arbitration or forum-selection
clause in a contract is not enforceable if the inclusion of that clause in the contract was the
product of fraud or coercion.” Id. at 519 n.14 (emphasis added). Prima Paint was subsequently
extended to choice of law provisions. See Haynsworth v. The Corp., 121 F.3d 956, 963 (5th Cir.
1997).
5
No. 07-20438
in the first instance to arbitrate the dispute, and any findings would be void for lack
of jurisdiction. Thus, the findings of the arbitrator would in essence strip the
arbitrator of the jurisdiction to make such findings. Prima Paint should not be read
in this manner because it essentially permits the arbitrator to rule on the validity of
the arbitration clause in the first instance–a duty that is reserved for the courts.3 See
Buckeye Check Cashing, 546 U.S. at 445-46. Rather, under Prima Paint and the
structure and content of the arbitration clause, the clause should be considered
“separable” and any alleged finding of fraudulent inducement does not taint the
validity of the arbitration clause as a whole or its confidentiality provision in
particular.
IV.
Appellants next dispute the district court’s grant of permanent injunctive relief.
To obtain permanent injunctive relief, a plaintiff must demonstrate: “(1) that it has
suffered an irreparable injury; (2) that remedies available at law, such as monetary
damages, are inadequate to compensate for that injury; (3) that, considering the
balance of hardships between the plaintiff and defendant, a remedy in equity is
warranted; and (4) that the public interest would not be disserved by a permanent
injunction.” eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). A
permanent injunction is generally only granted where, as here, a full trial on the
merits has occurred. See Univ. of Tex. v. Camenisch, 451 U.S. 390, 396 (1981).
3
Appellants rely upon Glazer v. Lehman Brothers, Inc., 394 F.3d 444 (6th Cir. 2005).
At first glance, the Sixth Circuit’s language appears to support Appellants: “Prima Paint did
not hold that arbitration provisions in contracts are ‘severable’ to such an extent that they
should be considered separate and distinct contracts. Rather, the Supreme Court held merely
that arbitration clauses should be reviewed to determine whether the dispute should be
referred to arbitration . . . .” Id. at 452-53. However, Glazer involved a denial of a motion to
compel arbitration and “the validity of arbitration clauses when claims of fraudulent
inducement are raised concerning the making of those clauses, as opposed to the entire
agreement.” Id. at 450 (emphasis added). Thus, Glazer is distinguishable because this case
does not involve allegations of fraudulent inducement as to the arbitration clause. Moreover,
Glazer contains language directly supporting ITT: “Thus, even if there was fraudulent
inducement to sign the contract as a whole, by the terms of Sections 3 and 4 of the FAA, the
arbitration clause is severable and will only be voided for some error in its making.” Id. at 452
(emphasis added).
6
No. 07-20438
Appellants argue that the district court improperly granted permanent
injunctive relief because: (1) the evidence was insufficient to support a finding that ITT
would suffer an injury absent an injunction or that any alleged injury would be
irreparable; (2) ITT did not establish that any injury would outweigh the damage the
injunction might cause Appellants, especially regarding the Rodriguez arbitration; and
(3) enforcing a confidentiality clause to conceal evidence and findings of wrongdoing
violates public policy. Appellants’ arguments are unavailing.
A plaintiff must allege “specific facts” to support a finding of irreparable injury.
See Kemlon Prods. & Dev. Co. v. United States, 638 F.2d 1315, 1322 (5th Cir. 1981).
ITT has met this burden. Furthermore, we agree with the district court that ITT will
suffer irreparable harm because there is “no cure for the breach of the confidentiality
agreement.” Toon v. Wackenhut Corr. Corp., 250 F.3d 950, 954 (5th Cir. 2001) (finding
irreparable harm where plaintiffs’ counsel intentionally disclosed terms of a settlement
agreement in violation of the relevant confidentiality provision). If Ms. Clark filed an
unredacted copy of the arbitrator’s opinion, such information could be used against ITT
in the Rodriguez arbitration, as well as open the door to innumerable other suits by
ITT students. Appellants’ assertion that the district court impermissibly created a per
se rule that there is never a cure for breach of a confidentiality agreement lacks merit.
Neither our decision nor that of the district court creates a per se rule–rather, based
upon the facts presented before us, we conclude that ITT has no cure available to them
and, thereby, faces irreparable harm.
Regarding the balance of hardships, Appellants argue that the permanent
injunction deprives Rodriguez of the right to introduce all relevant and admissible
evidence, including evidence developed in past proceedings, thereby hampering his
ability to prove his case. This argument lacks merit. Rodriguez’s alleged burden is
exactly what he voluntarily contracted for when he signed the Enrollment Agreement
and initiated the pending arbitration against ITT pursuant to the confidentiality
provision. Rodriguez’s burden is not heightened by our decision and he is free to
pursue his case in the same manner as any other litigant; we merely hold that he may
not rely upon confidential evidence developed during the Arce proceeding. Arbitration
7
No. 07-20438
is conducted in the contracted-for manner, so requiring Rodriguez to arbitrate
accordingly (i.e., pursuant to a confidentiality requirement) is not an undue hardship.
Finally, regarding alleged public policy concerns, Appellants argue that there
is a public interest in permitting prospective ITT students to know of the arbitrator’s
findings. However, this Court has previously held that a confidentiality provision
similar to the one at issue here is not unconscionable or otherwise contrary to public
policy. See Iberia Credit Bureau, 379 F.3d at 175-76. The district court, therefore,
correctly concluded that the arbitration proceeding should be enforced in accordance
with the bargained-for terms of the Enrollment Agreement and properly granted ITT
permanent injunctive relief.
V.
Federal Rule of Civil Procedure 65(d) requires an injunction to “state its terms
specifically” and “describe in reasonable detail–and not by referring to the complaint
or other document–the act or acts restrained or required.” Appellants argue that the
district court’s injunction preventing them from “revealing any aspect of the Arce
arbitration proceedings, including any rulings, decisions, or awards by the Arbitrator”
is vague and overbroad. Specifically, Appellants argue that the injunction fails to
specifically identify the enjoined conduct and contains no exception for appealing the
injunction, responding to process, or for communicating with counsel. Appellants’
arguments lack merit.
“[T]he broadness of an injunction refers to the range of proscribed activity, while
vagueness refers [to] the particularity with which the proscribed activity is described.”
U.S. Steel Corp. v. United Mine Workers, 519 F.2d 1236, 1246 n.19 (5th Cir. 1975).
“‘Vagueness’ is a question of notice, i.e., procedural due process, and ‘broadness’ is a
matter of substantive law.” Id.
Appellants rely upon John Doe #1 v. Veneman, where this Court found an
injunction overbroad because it permitted release of personal information that “was
not properly before the district court” and because it applied to records that were not
requested, thereby violating the Administrative Procedures Act. 380 F.3d 807, 818-19
(5th Cir. 2004). Appellants’ reliance on Veneman is misplaced, however, because the
8
No. 07-20438
injunction at issue here did not exceed the scope of activity properly before the district
court. Furthermore, Appellants’ argument that the injunction prevents them from
appealing the injunction, communicating with counsel, responding to process, or
utilizing publicly available materials is unfounded. For example, communicating with
Ms. Clark will not “reveal” any prohibited material–especially given that she
represented Appellants at the arbitration–and Appellants have been able to appeal the
injunction by filing documents under seal. Finally, Appellants’ argument that the
injunction’s language is not sufficiently specific also fails because the language of the
injunction closely tracks the bargained-for contractual language of the confidentiality
provision.4 The injunction is no broader than the language that the private parties
contracted for; it notes the specific arbitration that is subject to the injunction and
specifies that the term “aspect” includes “rulings, decisions or awards.” We find that
the injunction is neither vague nor overbroad.
VI.
Therefore, the judgment of the court below is AFFIRMED.
4
Appellants contend that the injunction’s language is improper under Rule 65(d)
because it references another document. However, the injunction does not reference or cite the
confidentiality provision or any other document. Nonetheless, Appellants argue that the
injunction is impermissible under U.S. Steel Corp. v. United Mine Workers, where this Court
held an injunction was overbroad despite “the fact that the order was couched in the exact
words of the contract arbitration clause.” 519 F.2d 1236, 1245 (5th Cir. 1975). The Court in
U.S. Steel, however, rested its conclusion upon the fact that the injunction at issue violated §
9 of the Norris-LaGuardia Act and the complex rules governing labor injunctions. Id. at 1245-
46. The same concerns are not implicated in this case.
9