First report on Ninth Circuit en banc argument: Kilgore v. KeyBank N.A.

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 andcircumstance of an eleven-judge en banc panel of the 9th Circuit, it appearsthe Circuit is not likely to significantly alter the arbitrationjurisprudence.  Despite an hour of lively debate on the intricacies of theBroughton/Cruz exemption and the effect of the United States Supreme Court’sopinion in AT&T v. Concepcion, including a lengthy discussion ofwhether 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 staythe action or avoid reaching the ultimate issue.  The issue to be decidedwas whether or not there is an exemption to arbitration found in two California cases -- Broughton and Cruz – which carved out an exception for publicinjunctions, as not being subject to arbitration.

All of the judges, except forJudge Murguia, had something to say, and the two most junior jurists, Judges Watford andHurwitz, took a very active role in the questioning.  Judge Kozinski, however,seemed to set the tone from the start and throughout the questioning.  Atthe outset of the arguments, he questioned the Chamber of Commerce’s lawyer, Andrew Pincus (the attorney who also argued the Concepcion case forAT&T in front of the Supreme Court), about whether a public injunction wasa claim or a remedy.  Later, Judge Kozinski went toe to toe with Plaintiff’scounsel regarding whether California could categorically ban arbitrators fromordering injunctive relief.  The direct question was evaded and was neverreally answered by Plaintiff’s counsel James Sturdevant as he attempted to jokeback 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 opinionwould answer this very question and counsel was free to answer the question ornot or simply state that he didn’t know.  He was visibly agitated andcondescending and not pleased with Plaintiff’s counsel’s evasiveness.

On the flip side, in the mostdifficult moment for the defense, Judge Hurwitz challenged Andrew Pincus aboutthe intersection of arbitration and health and safety concerns.  He poseda hypothesis about poisoned water and whether an arbitration agreement would bethe only way for a consumer to assert a claim against a water district. Pincus, unflinching, indicated that yes, arbitration would be the onlyremedy (gotta love arbitration don’t you, the FAA trumps poisoned water). Judge Hurwitz seemed unconvinced by this explanation.  Later Judge Watfordasked defense attorney Scott O’Connell a similar question in terms of who couldaddress the alleged misconduct if no class member could as they were allsubject to individual arbitration under Concepcion.  The answerfrom defense counsel was that the Attorney General could bring a claim, orsomeone who did not sign the arbitration agreement (everyone did here). Defendant’s main argument was that the FAA is supreme and would trump any stateattempts to subdue arbitration even in sympathetic cases.   However,these exchanges likely will not likely find their way into the opinion becausethe Plaintiff had bigger problems.

Judge McKeown asked both sides onseveral occasions how the unconscionability analysis might intersect withpublic policy.  This seemed the best opening for Plaintiff, but theexchanges did not seem to satisfy her that it rose to the level that couldjustify striking the agreement.  Judge Smith followed up by asking if thecourt might consider staying this action so the Supreme Court could rule on theAmerican Express v. Italian Colors case in which certiorari was recently grantedand perhaps resolve the issue of “vindication ofrights.”  Judge Watford brought up the issue of severing the claims andallowing the District Court to supervise the public injunction once thearbitrator ruled on the merits of the individuals’ claim.  At timesthroughout the argument, Judges Kozinski, Tallman, Smith and even Hurwitzseemed to endorse this approach.  Judge Kozinski stated, in response toPlaintiff’s counsel’s argument, that perhaps putting the cart before the horsemade the most sense here.  He joked that this is certainly not unheard ofin California. 

Judge Hurwitz, also signalingthat it may be easier to refrain from wading through deeper waters, asked ifthis court might consider waiting for Iskanian to be decided by theCalifornia Supreme Court.  To the audible shock of many in the gallery,defense counsel was not familiar with that particular case.  To be fair toMr. O’Connell, he is from New Hampshire.  However, if you travel toCalifornia to argue a case in front of an en banc panel of the 9th Circuitregarding 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 thecourt that it was the court’s decision on unconscionability and not thearbitrator’s, there was generally very little discussion about theunconscionability analysis. 

Judge Hurwitz asked a series ofquestions of defense counsel including whether the question should certified tothe California Supreme Court and whether the 9th Cir. could conclude that theBroughton/Cruz exception in this case was not met.  Obviously defenseagreed with the latter, but concluded that certification did not make sensehere.

Plaintiff had a very toughtime.  I think this was due in part to Plaintiff’s counsel fighting thepanel where they agreed with him (or at least many sympathetic members). He also failed to convey the crux of his argument until late in theargument.  He had rehearsed talking points about the fact that sending thecase to arbitration first to deal with the individuals’ claims was not possiblebecause that would mean giving up a substantive right.  To summarizebriefly, the Plaintiffs were students of a vocational school who had loansthrough the bank Defendant.  Plaintiffs claimed that Defendant had violated a particular federal law and brought a single claim – underB&P §17200 – seeking an injunction ordering the Defendant (1) not toenforce its loans, and (2) not to report the defaults to credit reportingagencies for all students who had these loans.  As such, Plaintiffsargued that the case was not appropriate for arbitration because the arbitratorcould not decide whether public injunctive relief was appropriate.  Atfirst the Judges were confused.  Then Judge McKeown, in an apparentattempt to clarify what relief was being sought, stated that in reality whatwas being asked for was a declaratory judgment stating that Defendant can’tcollect the money from the individual Plaintiffs.  The Judges' recurringquestioning made it clear that they thought the arbitrator could decide thatquestion first and then let the court deal with the public injunction ifnecessary.  Obviously this would destroy the Plaintiffs’ case, butPlaintiffs’ counsel kept pounding the point that the relief sought could notproperly be awarded by the arbitrator.  While it’s easy for me to Mondaymorning quarterback, he needed a different approach in order to win theday.  He pounded the substantive right argument to death and in my opinionthe panel just wasn’t buying it.

Judge Pregerson got into the argumentlate, mowing over some of his colleagues who repeatedly yielded to the mostsenior judge on the bench.  At one point he answered the Plaintiffs’question.  When asked by Judge Christen why the arbitrator could not orderinjunctive relief, Judge Pregerson replied  “if they did it, they would be outof business in the future.”  While this comment rings true regarding a high-stakes case and the likelihood of a courageous arbitrator issuing an injunctionto stop illicit behavior, some of Judge Pregerson's other comments did not seem toindicate he favored the Plaintiffs’ position.

In the end, I expectthey 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 theBroughton/Cruz exception does not apply to this case at all.  Alternatively, they might not getthat 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, thecourt can supervise the issuance and compliance with the injunctiverelief.  What I can predict with some certainty is that this case isunlikely to find its way to the U.S. Supreme Court because this panel is goingto play it safe.

Thanks, Eric, for providing this report.  Tomorrow I will have the second report.