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Ninth Circuit Grants Rehearing En Banc In Kilgore v. KeyBank To Determine Whether California May Exempt Claims For “Public” Injunctions From Arbitration

Posted in Arbitration

In an effort to avoid the enforcement of arbitration agreements after AT&T Mobility v. Concepcion, the plaintiffs’ bar has sought to invoke provisions of California’s Unfair Competition Law and Consumers Legal Remedies Act that allow for consumers to pursue claims for injunctive relief on behalf of the “general public.” They point to two pre-Concepcion decisions of the California Supreme Court—Broughton v. Cigna Healthplans, 988 P.2d 67 (Cal. 1999) and Cruz v. PacifiCare Health Sys., Inc., 66 P.3d 1157 (Cal. 2003)—in which that court had declared such claims non-arbitrable.

Earlier this year, a panel of the Ninth Circuit held in Kilgore v. KeyBank, NA, 673 F.3d 947 (9th Cir. 2012), that the Federal Arbitration Act (FAA) preempts the Broughton/Cruz rule. The panel decision pointed out that, in Concepcion, the Supreme Court had explained that “‘[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.’” Id. at 957 (quoting Concepcion). The panel noted that “[t]he district courts in California have been working diligently to discern precisely whether the Broughton-Cruz rule has survived Concepcion. They have come to different conclusions.” Id. at 959. But in the end, the panel found the issue a simple one: “We hold that the Broughton-Cruz rule does not survive Concepcion because the rule ‘prohibits outright the arbitration of a particular type of claim’—claims for broad public injunctive relief.” Id. at 960.

Last week, the Ninth Circuit granted the plaintiffs’ petition for rehearing en banc, which had been supported by a number of amicus briefs by organizations aligned with the plaintiffs’ bar. The issue is an important one: Most consumer class actions filed in California already are accompanied by a claim for public injunctive relief under the UCL or CLRA. If the en banc court were to determine that—despite Concepcion’s clear language declaring preempted any state-law rule that “prohibits outright the arbitration of a particular type of claim”—such claims are non-arbitrable, plaintiffs’ lawyers will likely deluge the courts in California  with even more lawsuits seeking “public injunctions” and be able to create the same settlement leverage by bringing a claim for a public injunction that they were able to create through a traditional damages class action before Concepcion was decided.

Accordingly, the stakes in Kilgore are high indeed.