Yesterday, an en banc panel of the Ninth Circuit heard oral argument in Kilgore v. KeyBank National Assn., No. 09-16703 (9th Cir.). The audio recording of the argument has already been posted and is available at this link.
I've received two reports on the argment from attorneys who attended in person. First, Eric Kingsley of Kingsley & Kingsley in Encino provided the following detailed recap:
Despite the pomp and circumstance of an eleven-judge en banc panel of the 9th Circuit, it appears the Circuit is not likely to significantly alter the arbitration jurisprudence. Despite an hour of lively debate on the intricacies of the Broughton/Cruz exemption and the effect of the United States Supreme Court’s opinion in AT&T v. Concepcion, including a lengthy discussion of whether or not Justice Thomas joined in the majority view (he did reluctantly), the court seems inclined to kick the can down the road and find a way to stay the action or avoid reaching the ultimate issue. The issue to be decided was whether or not there is an exemption to arbitration found in two California cases -- Broughton and Cruz – which carved out an exception for public injunctions, as not being subject to arbitration.
All of the judges, except for Judge Murguia, had something to say, and the two most junior jurists, Judges Watford and Hurwitz, took a very active role in the questioning. Judge Kozinski, however, seemed to set the tone from the start and throughout the questioning. At the outset of the arguments, he questioned the Chamber of Commerce’s lawyer, Andrew Pincus (the attorney who also argued the Concepcion case for AT&T in front of the Supreme Court), about whether a public injunction was a claim or a remedy. Later, Judge Kozinski went toe to toe with Plaintiff’s counsel regarding whether California could categorically ban arbitrators from ordering injunctive relief. The direct question was evaded and was never really answered by Plaintiff’s counsel James Sturdevant as he attempted to joke back to the Chief Judge about it not being an ophthalmologist’s office. (In other words a Yes or No question). Judge Kozinski retorted that the opinion would answer this very question and counsel was free to answer the question or not or simply state that he didn’t know. He was visibly agitated and condescending and not pleased with Plaintiff’s counsel’s evasiveness.
On the flip side, in the most difficult moment for the defense, Judge Hurwitz challenged Andrew Pincus about the intersection of arbitration and health and safety concerns. He posed a hypothesis about poisoned water and whether an arbitration agreement would be the only way for a consumer to assert a claim against a water district. Pincus, unflinching, indicated that yes, arbitration would be the only remedy (gotta love arbitration don’t you, the FAA trumps poisoned water). Judge Hurwitz seemed unconvinced by this explanation. Later Judge Watford asked defense attorney Scott O’Connell a similar question in terms of who could address the alleged misconduct if no class member could as they were all subject to individual arbitration under Concepcion. The answer from defense counsel was that the Attorney General could bring a claim, or someone who did not sign the arbitration agreement (everyone did here). Defendant’s main argument was that the FAA is supreme and would trump any state attempts to subdue arbitration even in sympathetic cases. However, these exchanges likely will not likely find their way into the opinion because the Plaintiff had bigger problems.
Judge McKeown asked both sides on several occasions how the unconscionability analysis might intersect with public policy. This seemed the best opening for Plaintiff, but the exchanges did not seem to satisfy her that it rose to the level that could justify striking the agreement. Judge Smith followed up by asking if the court might consider staying this action so the Supreme Court could rule on the American Express v. Italian Colors case in which certiorari was recently granted and perhaps resolve the issue of “vindication of rights.” Judge Watford brought up the issue of severing the claims and allowing the District Court to supervise the public injunction once the arbitrator ruled on the merits of the individuals’ claim. At times throughout the argument, Judges Kozinski, Tallman, Smith and even Hurwitz seemed to endorse this approach. Judge Kozinski stated, in response to Plaintiff’s counsel’s argument, that perhaps putting the cart before the horse made the most sense here. He joked that this is certainly not unheard of in California.
Judge Hurwitz, also signaling that it may be easier to refrain from wading through deeper waters, asked if this court might consider waiting for Iskanian to be decided by the California Supreme Court. To the audible shock of many in the gallery, defense counsel was not familiar with that particular case. To be fair to Mr. O’Connell, he is from New Hampshire. However, if you travel to California to argue a case in front of an en banc panel of the 9th Circuit regarding an issue of California law, you should know of similar issues being heard in that state’s supreme court. I was embarrassed for him.
While both sides agreed with the court that it was the court’s decision on unconscionability and not the arbitrator’s, there was generally very little discussion about the unconscionability analysis.
Judge Hurwitz asked a series of questions of defense counsel including whether the question should certified to the California Supreme Court and whether the 9th Cir. could conclude that the Broughton/Cruz exception in this case was not met. Obviously defense agreed with the latter, but concluded that certification did not make sense here.
Plaintiff had a very tough time. I think this was due in part to Plaintiff’s counsel fighting the panel where they agreed with him (or at least many sympathetic members). He also failed to convey the crux of his argument until late in the argument. He had rehearsed talking points about the fact that sending the case to arbitration first to deal with the individuals’ claims was not possible because that would mean giving up a substantive right. To summarize briefly, the Plaintiffs were students of a vocational school who had loans through the bank Defendant. Plaintiffs claimed that Defendant had violated a particular federal law and brought a single claim – under B&P §17200 – seeking an injunction ordering the Defendant (1) not to enforce its loans, and (2) not to report the defaults to credit reporting agencies for all students who had these loans. As such, Plaintiffs argued that the case was not appropriate for arbitration because the arbitrator could not decide whether public injunctive relief was appropriate. At first the Judges were confused. Then Judge McKeown, in an apparent attempt to clarify what relief was being sought, stated that in reality what was being asked for was a declaratory judgment stating that Defendant can’t collect the money from the individual Plaintiffs. The Judges' recurring questioning made it clear that they thought the arbitrator could decide that question first and then let the court deal with the public injunction if necessary. Obviously this would destroy the Plaintiffs’ case, but Plaintiffs’ counsel kept pounding the point that the relief sought could not properly be awarded by the arbitrator. While it’s easy for me to Monday morning quarterback, he needed a different approach in order to win the day. He pounded the substantive right argument to death and in my opinion the panel just wasn’t buying it.
Judge Pregerson got into the argument late, mowing over some of his colleagues who repeatedly yielded to the most senior judge on the bench. At one point he answered the Plaintiffs’ question. When asked by Judge Christen why the arbitrator could not order injunctive relief, Judge Pregerson replied “if they did it, they would be out of business in the future.” While this comment rings true regarding a high-stakes case and the likelihood of a courageous arbitrator issuing an injunction to stop illicit behavior, some of Judge Pregerson's other comments did not seem to indicate he favored the Plaintiffs’ position.
In the end, I expect they will stay the case pending one of the other cases before our, or the nation’s, highest court. Also possible is a very narrow opinion that says that the Broughton/Cruz exception does not apply to this case at all. Alternatively, they might not get that far, though the arguments flow from the same analysis, and instead they may order the arbitration bifurcated. The arbitration will go first and if the Plaintiffs win, the court can supervise the issuance and compliance with the injunctive relief. What I can predict with some certainty is that this case is unlikely to find its way to the U.S. Supreme Court because this panel is going to play it safe.
Thanks, Eric, for providing this report. Tomorrow I will have the second report.