Second report on Ninth Circuit en banc argument: Kilgore v. KeyBank N.A.
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 Concepcionis distinguishable because a public injunction is a remedy and not aclaim. Pincus, who argued on behalf of AT&T at the US Supreme Courtin Concepcion, responded by citing to Mastrobono v. ShearsonLehman Hutton, Inc. (1995) 514 US 52, where punitive damages (aremedy) was preempted by the FAA.
Judge Smith then asked Pincus if Concepcion is controlling, and ifso why? Judge Smith wanted to know what public injunction Plaintiffs wereseeking where the helicopter training school in question had already shut down,asking “what are we protecting the public from?” Judge Hurwitz questionedwhether Concepcion bars any state rule from limiting arbitration, evenwhere public health and safety are concerned. Pincus responded that apublic injunction requires class certification raising UCL standingrequirements after Proposition 64, and contending class arbitration fallssquarely within the holding in Concepcion. Judge McKeown broughtup the savings clause under the FAA raising unconscionability as a generalcontract defense. Judge Callahan followed up with a question to Pincusasking whether a court or an arbitrator should decide the issue ofunconscionability. Pincus was quick to respond the Court should decidewhether an arbitration provision is deemed unconscionable.
Judge McKeown asked about whether there is an intersection between unconscionabilityand public policy, raising the U.S. Supreme Court’s recent decision in MarmetHealth Care Ctr., Inc. v. Brown, (2012) 132 S. Ct. 1201. JudgeMcKeown pondered whether a violation of public policy, as unconscionable wasleft open by Marmet. Then Judge Smith asked if the panel shouldwithhold its opinion until the Supreme Court rules on American Express Co.v. Italian Colors Restaurant. Pincus distinguished the case at baron state law versus federal law vindication of rights, urging the panel to findthe Amex case has no relevance on that basis.
The argument then shifted to Cruz/Broughton with Judge Watfordattempting to elicit a response to whether individualarbitration can be forced when a public injunction is being sought. Pincus pointedagain to the use of the class action device as mandated by Proposition 64,pointing specifically to Business and Professions Code §17203. JudgeCallahan asked Pincus if the panel were to agree with the Defendant’s positionand overrule Broughton and Cruz would it only be binding in federal courts or would it overrule California law. Pincus answered itwould only be persuasive authority in California.
Splitting the argument, Scott O’Connell stepped in for KeyBank stating thepanel need not overrule Broughton/Cruz because Plaintiffs here aresimply looking for debt relief and can obtain all relief with no need forrepresentative status because KeyBank no longer makes student loans forvocational training. Judge Watford then asked if the panel should waitfor the California Supreme Court to rule on Iskanian. Shockingly,KeyBank’s counsel was not familiar with the California case, but stated thatunder Concepcion and the supremacy clause, the case should be sent toarbitration. Judge Fletcher questioned whether the type of reliefsought in this case is a public injunction within the meaning of Cruz. Judge Pregerson then raised Proposition 64 standing requirements andcommented that a representative must be injured in order to seek a publicinjunction. Judge Watford asked O’Connell how he could obtain an order inarbitration 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 outthat only people who have not been victims, because they have not signedcontracts and are not subject to the arbitration clause, could bring arepresentative action; however, after Proposition 64 a representative must beinjured by the business practice. O’Connell admitted that there would be noprospective relief available where there is a general fraud on the public andan arbitration clause, unless brought by the Attorney General. Thediscussion 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 issuewas articulated.
Judge McKeown zeroed in on the specific arbitration provision at issue inthe KeyBank agreement seeking clarification on the opt-out provision and the60-day period in which to opt out and retain full access to the courts. JudgeMcKeown then circled back around to where do public policy andunconscionability intersect, adding a new query as to whether choice of venuecould also be considered unconscionable. O’Connell relied on theSupremacy Clause and reiterated that all claims must be arbitrated where avalid arbitration agreement is in place.
Judge Hurwitz raised Cruz/Broughton again and asked whether thequestion should be certified to the California Supreme Court. O’Connelldid not believe the question needed to be certified where there was nopossibility of future harm, because KeyBank no longer funds loans to trade andvocational schools.
James C. Sturdevant appearing for Plaintiffs launched into his opening andstated that Broughton/Cruz should be analyzed by California. JudgeTallman was the first to interrupt Sturdevant’s prepared argument asking whatcould be wrong with compelling the individual representatives to arbitration,and then litigate the public injunction claim to restrain the businesspractice after. Sturdevant was adamant that only public injunctive reliefwas requested in the operative complaint. Judge Tallman observed theindividual representatives actually wanted individual relief in the form of debtrelief. Chief Judge Kozinski echoed that the Plaintiffs here were tryingto get out from under their student loan debt and he could not see how it is notan individual claim. Sturdevant made an attempt to reframe relief soughtas prohibiting KeyBank from debt collection enforcement and restraining KeyBank from negatively affecting plaintiffs’ credit reporting. Judge McKeownattempted to clarify the relief as (1) declaratory relief so plaintiffs nolonger owe money and (2) separately to correct KeyBank’s businesspractices. Chief Judge Kozinski asked Sturdevant why plaintiffs could notlitigate before an arbitrator. Sturdevant stood firm that Plaintiffs wereseeking a public injunction and therefore their substantive rights would not bevindicated. Chief Judge Kozinski re-asked the same question andSturdevant again stood firm that the claims cannot be arbitrated because allrelief 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 cartbefore the horse?” The precursor to the horse and the cart analogy wasushered in by Judge Hurwitz repeatedly pressuring Plaintiffs’ counsel toconcede liability of individual claims to an arbitrator, and only after anindividual plaintiff succeeds in arbitration, would a claim for publicinjunction be brought in district court. Plaintiffs’ counsel would notconcede and repeated on more than one occasion that it would eliminateplaintiffs’ substantive rights. Judge Tallman pushed on the form ofrelief and questioned Sturdevant about whether the initial complaint soughtsolely public injunctive relief. Sturdevant referred back to the secondand third amended complaints and could not answer as to the originalcomplaint.
Judge Smith shifted the focus back to the class vehicle and sought agreementthat without the class allegations, all plaintiffs have are individualclaims. Sturdevant answered in the affirmative, but again clarified thatthe plaintiffs would not be able to vindicate all their substantiverights. 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. JudgeSmith admitted to struggling with public injunction based on the case-specificfacts and raised bifurcation as an option. Sturdevant repeatedbifurcation is not a viable option where a party then cannot vindicate allof its statutory rights.
Chief Judge Kozinski asked whether California could eliminate the authorityof an arbitrator with respect to public relief and stay consistent with theFAA. Sturdevant stated that this is not a question in this case. Chief JudgeKozinski asked Sturdevant to answer his question. Sturdevant stated thatit was not like being at the optometrist. Chief Judge Kozinski said thatthe panel’s opinion most certainly would be like being in front of theoptometrist, 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 towhether California can restrict arbitration. Sturdevant finally repliedthat California couldn’t take away a fundamental right.
Judge Pregerson, who commented that he has known Sturdevant for years, posedthe question, “what is the bottom line of your lawsuit?” Sturdevantanswered that the lawsuit is to protect the students and others like them. JudgePregerson inquired as to why each of these students cannot arbitrateindividually. Sturdevant answered that the operative complaint does notseek individual relief, but seeks broad public relief. Judge Pregerson finishedup questioning asking what would the injunction restrain KeyBank fromdoing? Sturdevant stated that KeyBank would be restrained from makingloans in the future that violate the Holder Rule.
Judge Hurwitz continued with fact intensive clarification naming twodistinct groups (1) helicopter students and (2) future students. Notingthere are approximately 500 people in the first group. As for the futuregroup, Judge Hurwitz inquired as to the ongoing business behavior and whetherthe alleged bad acts are continuing. Sturdevant pointed to the thirdamended complaint as the operative complaint and deferred to needing to findthe evidence, but the allegations are that after the Holder Rule wasviolated, KeyBank continued to pay money to the school, unnecessarilyindebting plaintiffs.
Judge McKeown brought the discussion back to standing and again cited the Marmetcase and back to Concepcion. Sturdevant commented in Marmet WestVirginia prohibited any arbitration clauses in all nursing home claims. JudgeMcKeown wanted to know why this case is not the same. Sturdevant statedthat there is an inherent conflict where the claims for relief cannot be issuedor administered by an arbitrator.
Judge Tallman asked why the plaintiffs cannot first go to arbitration andthen go to the District Court and get enforcement and relief. Chief JudgeKozinski wanted to know why arbitrators cannot issue injunctive relief. Sturdevant argued that there is an inherent conflict. Chief JudgeKozinski asked the same question again. Judge Christen asked whether anarbitrator can enter or enforce a public injunction. Sturdevant againstated that there is an inherent conflict and there are no cases to supportsuch an act. Judge Pregerson commented, “if they did it they’d be out ofbusiness.”
KeyBank’s counsel closed with a citation to Preston v. Ferrer(2008) 552 U.S. 346, with Chief Judge Kozinski noting case-specific factsof the cooling off period of 60 days.
Questioning closed with Judge Pregerson asking why KeyBank got out of thevocational student loan business and why KeyBank continued to pay thehelicopter school.
APPEARANCES:
AndrewJ. Pincus– Chamber of Commerce, Amicus for KeyBank
ScottO’Connell – KeyBank
James C. Sturdevant – Plaintiffs’ Counsel
PANEL:
(2) Murguia,Mary H.
(5) Pregerson,Harry
(6) Kozinski,Alex
(10) Christen,Morgan