Yesterday, I had a report by Eric Kingsley on Tuesday's Ninth Circuit en banc argument in Kilgore v. KeyBank National Assn., No. 09-16703 (9th Cir.).
Today, I have this report by Edie Mermelstein of the Law Offices of F. Edie Mermelstein in Huntington Beach. Thank you, Edie!
To kick off oral argument, Andrew Pincus, appearing as amicus for KeyBank, representing the Chamber of Commerce, was asked by Chief Judge Kozinski if Concepcion is distinguishable because a public injunction is a remedy and not a claim. Pincus, who argued on behalf of AT&T at the US Supreme Court in Concepcion, responded by citing to Mastrobono v. Shearson Lehman Hutton, Inc. (1995) 514 US 52, where punitive damages (a remedy) was preempted by the FAA.
Judge Smith then asked Pincus if Concepcion is controlling, and if so why? Judge Smith wanted to know what public injunction Plaintiffs were seeking where the helicopter training school in question had already shut down, asking “what are we protecting the public from?” Judge Hurwitz questioned whether Concepcion bars any state rule from limiting arbitration, even where public health and safety are concerned. Pincus responded that a public injunction requires class certification raising UCL standing requirements after Proposition 64, and contending class arbitration falls squarely within the holding in Concepcion. Judge McKeown brought up the savings clause under the FAA raising unconscionability as a general contract defense. Judge Callahan followed up with a question to Pincus asking whether a court or an arbitrator should decide the issue of unconscionability. Pincus was quick to respond the Court should decide whether an arbitration provision is deemed unconscionable.
Judge McKeown asked about whether there is an intersection between unconscionability and public policy, raising the U.S. Supreme Court’s recent decision in Marmet Health Care Ctr., Inc. v. Brown, (2012) 132 S. Ct. 1201. Judge McKeown pondered whether a violation of public policy, as unconscionable was left open by Marmet. Then Judge Smith asked if the panel should withhold its opinion until the Supreme Court rules on American Express Co. v. Italian Colors Restaurant. Pincus distinguished the case at bar on state law versus federal law vindication of rights, urging the panel to find the Amex case has no relevance on that basis.
The argument then shifted to Cruz/Broughton with Judge Watford attempting to elicit a response to whether individual arbitration can be forced when a public injunction is being sought. Pincus pointed again to the use of the class action device as mandated by Proposition 64, pointing specifically to Business and Professions Code §17203. Judge Callahan asked Pincus if the panel were to agree with the Defendant’s position and overrule Broughton and Cruz would it only be binding in federal courts or would it overrule California law. Pincus answered it would only be persuasive authority in California.
Splitting the argument, Scott O’Connell stepped in for KeyBank stating the panel need not overrule Broughton/Cruz because Plaintiffs here are simply looking for debt relief and can obtain all relief with no need for representative status because KeyBank no longer makes student loans for vocational training. Judge Watford then asked if the panel should wait for the California Supreme Court to rule on Iskanian. Shockingly, KeyBank’s counsel was not familiar with the California case, but stated that under Concepcion and the supremacy clause, the case should be sent to arbitration. Judge Fletcher questioned whether the type of relief sought in this case is a public injunction within the meaning of Cruz. Judge Pregerson then raised Proposition 64 standing requirements and commented that a representative must be injured in order to seek a public injunction. Judge Watford asked O’Connell how he could obtain an order in arbitration forbidding a Defendant from continuing unlawful activities. O’Connell admitted, “you can’t get it.”
Judge Fletcher keyed in on the Proposition 64 standing issue, pointing out that only people who have not been victims, because they have not signed contracts and are not subject to the arbitration clause, could bring a representative action; however, after Proposition 64 a representative must be injured by the business practice. O’Connell admitted that there would be no prospective relief available where there is a general fraud on the public and an arbitration clause, unless brought by the Attorney General. The discussion then moved to additional standing concerns revolving around Article III standing and Judge Hurwitz noted that Defendant had removed the case to federal court and there is a statutory issue. No resolution to this issue was articulated.
Judge McKeown zeroed in on the specific arbitration provision at issue in the KeyBank agreement seeking clarification on the opt-out provision and the 60-day period in which to opt out and retain full access to the courts. Judge McKeown then circled back around to where do public policy and unconscionability intersect, adding a new query as to whether choice of venue could also be considered unconscionable. O’Connell relied on the Supremacy Clause and reiterated that all claims must be arbitrated where a valid arbitration agreement is in place.
Judge Hurwitz raised Cruz/Broughton again and asked whether the question should be certified to the California Supreme Court. O’Connell did not believe the question needed to be certified where there was no possibility of future harm, because KeyBank no longer funds loans to trade and vocational schools.
James C. Sturdevant appearing for Plaintiffs launched into his opening and stated that Broughton/Cruz should be analyzed by California. Judge Tallman was the first to interrupt Sturdevant’s prepared argument asking what could be wrong with compelling the individual representatives to arbitration, and then litigate the public injunction claim to restrain the business practice after. Sturdevant was adamant that only public injunctive relief was requested in the operative complaint. Judge Tallman observed the individual representatives actually wanted individual relief in the form of debt relief. Chief Judge Kozinski echoed that the Plaintiffs here were trying to get out from under their student loan debt and he could not see how it is not an individual claim. Sturdevant made an attempt to reframe relief sought as prohibiting KeyBank from debt collection enforcement and restraining KeyBank from negatively affecting plaintiffs’ credit reporting. Judge McKeown attempted to clarify the relief as (1) declaratory relief so plaintiffs no longer owe money and (2) separately to correct KeyBank’s business practices. Chief Judge Kozinski asked Sturdevant why plaintiffs could not litigate before an arbitrator. Sturdevant stood firm that Plaintiffs were seeking a public injunction and therefore their substantive rights would not be vindicated. Chief Judge Kozinski re-asked the same question and Sturdevant again stood firm that the claims cannot be arbitrated because all relief sought would take the form of a public injunction.
“California, an unusual cart”
Chief Judge Kozinski posed the question, “What’s wrong with putting the cart before the horse?” The precursor to the horse and the cart analogy was ushered in by Judge Hurwitz repeatedly pressuring Plaintiffs’ counsel to concede liability of individual claims to an arbitrator, and only after an individual plaintiff succeeds in arbitration, would a claim for public injunction be brought in district court. Plaintiffs’ counsel would not concede and repeated on more than one occasion that it would eliminate plaintiffs’ substantive rights. Judge Tallman pushed on the form of relief and questioned Sturdevant about whether the initial complaint sought solely public injunctive relief. Sturdevant referred back to the second and third amended complaints and could not answer as to the original complaint.
Judge Smith shifted the focus back to the class vehicle and sought agreement that without the class allegations, all plaintiffs have are individual claims. Sturdevant answered in the affirmative, but again clarified that the plaintiffs would not be able to vindicate all their substantive rights. Judge Smith questioned the need for prospective relief noting KeyBank no longer issues these types of notes. Sturdevant stated that KeyBank continues to engage in school funding and continues to violate the FTC’s “Holder Rule” [16 C.F.R. § 433.2] which is the predicate violation under the UCL. Judge Smith admitted to struggling with public injunction based on the case-specific facts and raised bifurcation as an option. Sturdevant repeated bifurcation is not a viable option where a party then cannot vindicate all of its statutory rights.
Chief Judge Kozinski asked whether California could eliminate the authority of an arbitrator with respect to public relief and stay consistent with the FAA. Sturdevant stated that this is not a question in this case. Chief Judge Kozinski asked Sturdevant to answer his question. Sturdevant stated that it was not like being at the optometrist. Chief Judge Kozinski said that the panel’s opinion most certainly would be like being in front of the optometrist, as the answer to the question will be either “yes” or “no.” Chief Judge Kozinski continued to push and wanted to hear Sturdevant’s reply to whether California can restrict arbitration. Sturdevant finally replied that California couldn’t take away a fundamental right.
Judge Pregerson, who commented that he has known Sturdevant for years, posed the question, “what is the bottom line of your lawsuit?” Sturdevant answered that the lawsuit is to protect the students and others like them. Judge Pregerson inquired as to why each of these students cannot arbitrate individually. Sturdevant answered that the operative complaint does not seek individual relief, but seeks broad public relief. Judge Pregerson finished up questioning asking what would the injunction restrain KeyBank from doing? Sturdevant stated that KeyBank would be restrained from making loans in the future that violate the Holder Rule.
Judge Hurwitz continued with fact intensive clarification naming two distinct groups (1) helicopter students and (2) future students. Noting there are approximately 500 people in the first group. As for the future group, Judge Hurwitz inquired as to the ongoing business behavior and whether the alleged bad acts are continuing. Sturdevant pointed to the third amended complaint as the operative complaint and deferred to needing to find the evidence, but the allegations are that after the Holder Rule was violated, KeyBank continued to pay money to the school, unnecessarily indebting plaintiffs.
Judge McKeown brought the discussion back to standing and again cited the Marmet case and back to Concepcion. Sturdevant commented in Marmet West Virginia prohibited any arbitration clauses in all nursing home claims. Judge McKeown wanted to know why this case is not the same. Sturdevant stated that there is an inherent conflict where the claims for relief cannot be issued or administered by an arbitrator.
Judge Tallman asked why the plaintiffs cannot first go to arbitration and then go to the District Court and get enforcement and relief. Chief Judge Kozinski wanted to know why arbitrators cannot issue injunctive relief. Sturdevant argued that there is an inherent conflict. Chief Judge Kozinski asked the same question again. Judge Christen asked whether an arbitrator can enter or enforce a public injunction. Sturdevant again stated that there is an inherent conflict and there are no cases to support such an act. Judge Pregerson commented, “if they did it they’d be out of business.”
KeyBank’s counsel closed with a citation to Preston v. Ferrer (2008) 552 U.S. 346, with Chief Judge Kozinski noting case-specific facts of the cooling off period of 60 days.
Questioning closed with Judge Pregerson asking why KeyBank got out of the vocational student loan business and why KeyBank continued to pay the helicopter school.
Andrew J. Pincus– Chamber of Commerce, Amicus for KeyBank
Scott O’Connell – KeyBank
James C. Sturdevant – Plaintiffs’ Counsel
(2) Murguia, Mary H.
(5) Pregerson, Harry
(6) Kozinski, Alex
(10) Christen, Morgan