Kilgore v. Keybank: Ninth Circuit Issues Decision on Arbitration of "Public Injunction" Actions

The Ninth Circuit yesterday issued its decision in Kilgore v. Keybank, N.A., ___ F.3d ___ (4/11/13), which considered whether a district court erred in denying a defendant's motion to compel arbitration of an action seeking injunctive relief on behalf of approximately 120 individuals who had borrowed money from the bank to attend a now-defunct helicopter school. The Court reversed the district court order denying the motion to compel.

First, the Court held that the arbitration agreement was neither substantively nor procedurally unconscionable. "Plaintiffs claimed below that the Note’s ban on class arbitration is unconscionable under California law, but that argument is now expressly foreclosed by Concepcion, 131 S. Ct. at 1753. Plaintiffs’ assertion that students may not be able to afford arbitration fees fares no better." Slip op. at 12-13.

Second, and of greater interest, the Court declined to decide whether Concepcion overrules California's Broughton-Cruz rule, which prohibits arbitration of "public injunction" cases that are brought for the benefit of the general public rather than the party bringing the action. Slip op. at 16. "Even assuming the continued viability of the Broughton-Cruz rule, Plaintiffs’ claims do not fall within its purview." Ibid. Instead, the injunctions requested related only to past harms and would benefit only the approximately 120 putative class members. Slip op. at 17.

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. 

Slip op. at 17-18. The opinion is available here. 

I am very pleased that James Sturdevant of The Sturdevant Law Firm, who argued in the Ninth Circuit for the plaintiffs, and Donald Falk of Mayer Brown LLP, who represents the defendant, have agreed to join us for a Watch List webinar on Kilgore.  I will post as soon as I have the date.  In the mean time, don't forget that we will present our Watch List program on Comcast Corp. v. Behrend (discussed here) on April 16 at noon.