Monday, April 29, 2013
A little over a year ago, we reported on a Ninth Circuit case, Kilgore v. Key Bank. Here is a summary of the panel's opinion:
The issue in Kilgore was whether California’s public policy favoring the litigation (rather than arbitration) of claims seeking public injunctions could trump the [Federal Arbitration Act (FAA)] post-Concepcion as it did pre-Concepcion in two California Supreme Court cases, Broughton and Cruz. The Ninth Circuit reluctantly concluded that the Broughton-Cruz line of cases is no longer viable post-Concepcion. As the Supreme Court made clear in Marmet, about which we blogged last month, Concepcion’s reach is broad enough to preempt state public policies other than the specific one addressed in Concepcion. The fact that a state legislature specifically intended to avoid federal preemption under the FAA is irrelevant.
The Court then addressed the unconscionability of the arbitration clause. The Court noted that the arbitration clause at issue here was not buried in the contract and specified the rights that plaintiffs waived under arbitration. In addition, the contract contained clear instructions on how to opt-out. Finding no procedural unconscionability, the Court saw no need to address potential substantive unconscionability in the arbitration clause. The case was remanded to the District Court with instructions to compel arbitration.
On rehearing en banc, the Ninth Circuit held that the case does not fall within the "public injunction" exception to the FAA, recognized in Broughton, Cruz, and Davis v. O'Melveny & Myers, and thus the Ninth Circuit vacated the District Court's denial of the defendant's motion to compel arbitration and remanded with instructions to compel aribration. That exception only applies where 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.” The Ninth Circuit found that not to be the case in Kilgore and thus it was able to compel arbitration while leaving the Broughton-Cruz exception to the FAA intact for now.
Judge Pregerson dissented, finding the challenged arbitration clause unconscionable.