California Employment Lawyer

English: Diamond Katana aircraft owned by American School of Aviation, an FAA Part 141 flight school based in Atwater, California. (Photo credit: Wikipedia)

In a ruling that was expected to have a broad impact on mandatory employment arbitration agreements, the Ninth Circuit today compelled arbitration in Kilgore v. Keybank, National Association, but avoided a broad ruling vitiating the Broughton-Cruz rule.  Kilgore v. Keybank, National Association, No. 09-16703, __ F.3d __ (9th Cir. Apr. 11, 2013) (en banc).  The appeal involved a putative class action by former students of a failed flight-training school who seek broad injunctive relief against the bank that originated their student loans among others.  The en banc court held that the arbitration agreement was not unconscionable under California law and reversed and remanded with instructions to compel arbitration.

Arbitration Clause

The Court quoted the relevant part of the arbitration clause as follows:

IF ARBITRATION IS CHOSEN BY ANY PARTY WITH RESPECT TO A CLAIM, NEITHER YOU NOR I WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR HAVE A JURY TRIAL ON THAT CLAIM . . . . FURTHER, I WILL NOT HAVE THE RIGHT TO PARTICIPATE AS A REPRESENTATIVE OR MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION. . . . I UNDERSTAND THAT OTHER RIGHTS I WOULD HAVE IF I WENT TO COURT MAY ALSO NOT BE AVAILABLE IN ARBITRATION. . . .

Defendants sought a broad ruling that the U.S. Supreme Court’s 2011 ruling in Concepcion vitiated the Broughton-Cruz rule that makes unenforceable arbitration agreements that bar certain claims for public injunctive relief.  The Ninth Circuit did not reach this question:

Even assuming the continued viability of the Broughton-Cruz rule, Plaintiffs’ claims do not fall within its purview. Public injunctive relief “is for the benefit of the general public rather than the party bringing the action.” Broughton, 988 P.2d at 78. A claim for public injunctive relief therefore does not seek “to resolve a private dispute but to remedy a public wrong.” Id. at 76. Whatever the subjective motivation behind a party’s purported public injunction suit, the Broughton rule applies only when “the benefits of granting injunctive relief by and large do not accrue to that party, but to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered.” Id.

The court concluded that the injunctive relief claim fell outside the “narrow exception to the rule that the FAA requires state courts to honor arbitration agreements.”

The central premise of Broughton-Cruz is that “the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy, which as a consequence will likely lead to the diminution or frustration of the public benefit if the remedy is entrusted to arbitrators.” Broughton, 988 P.2d at 78. That concern is absent here, where Defendants’ alleged statutory violations have, by Plaintiffs’ own admission, already ceased, where the class affected by the alleged practices is small, and where there is no real prospective benefit to the public at large from the relief sought.

Judge Pregerson filed a dissenting opinion, in which he found the arbitration clause unconscionable and thus unenforceable.

Attorneys

Andrew A. August and Kevin F. Rooney, Pinnacle Law Group, LLP; James C. Sturdevant (argued) and Whitney Huston, The Sturdevant Law Firm, San Francisco, California, for Plaintiffs-Appellees/Appellants.

W. Scott O’Connell (argued), Courtney Q. Brooks, and Kristen M. Yasenka, Nixon Peabody LLP, Manchester, New Hampshire; Matthew A. Richard, Todd C. Toral, and Stephanie Karnavas, Nixon Peabody LLP, San Francisco, California, for Defendants-Appellants/Appellees.

David Horton, Davis, California; Hiro N. Aragaki, Los Angeles, California, for Amici Curiae Law Professors. Hiro N. Aragaki and David Doeling, Los Angeles, California, for Amici Curiae Arbitration Professors.

Donald M. Falk, Mayer Brown LLP, Palo Alto, California; Andrew J. Pincus (argued), Evan M. Tager, Archis A. Parasharami, and Scott M. Noveck, Mayer Brown LLP; Robin S. Conrad and Kate Comerford Todd, National Chamber Litigation Center, Inc., Washington, D.C., for Amicus Curiae The Chamber of Commerce of the United States of America.

Steve Bullock and Kelley L. Hubbard, Office of the Montana Attorney General, Helena, Montana, for Amicus Curiae State of Montana.

Arthur D. Levy; Nancy Barron, Kemnitzer, Barron & Krieg LLP, San Francisco, California, for Amicus Curiae The National Association of Consumer Advocates and The National Consumer Law Center.

Ellen Lake, Oakland, California; Terisa E. Chaw, The Employee Rights Advocacy Institute for Law & Policy; Rebecca M. Hamburg, National Employment Lawyers Association; Cliff Palefsky, McGuinn, Hillsman & Palefsky, San Francisco, California, for Amici Curiae National Employment Lawyers Association, The Employee Rights Advocacy Institute for Law & Policy, and California Employment Lawyers Association.

Mark A. Chavez, Chavez & Gertler LLP, Mill Valley, California, for Amicus Curiae The National Consumer Law Center, National Association ofConsumer Advocates, Public Citizen and National Consumers League.

C. Dawn Causey and Gregory F. Taylor, American Bankers Association, Washington, D.C., for Amici Curiae American Bankers Association, Consumer Bankers Association, and the Clearing House Association, L.L.C.

By CHARLES H. JUNG