Ninth Circuit: Injunctive Relief Claims Relating Only to Past Harms to a Limited Class Are Not Exempt From Arbitration

by Pillsbury Winthrop Shaw Pittman LLP

Following the U.S. Supreme Court’s decision favoring arbitration clauses in AT&T Mobility LLC v. Concepcion, the Ninth Circuit Court of Appeals held in Kilgore v. KeyBank, N.A. that the Federal Arbitration Act (“FAA”) preempts the California Broughton-Cruz rule that prohibited arbitrating claims for injunctive relief under California’s Unfair Competition Law. Then, on rehearing en banc, the Ninth Circuit again enforced the arbitration agreement, but without reaching the broader preemption issue.

In Kilgore v. KeyBank, N.A., No. 09-16703, 2013 WL ________ (Apr. 11, 2013), the Ninth Circuit, sitting en banc, upheld an arbitration clause in an injunctive relief case brought under California's Unfair Competition Law (“UCL”). The Ninth Circuit held that the complaint sought only private, as opposed to public, injunctive relief. The Court did not reach the broader issue of whether FAA preempts California’s “Broughton-Cruz rule” – named after the decisions in Broughton v. Cigna Healthplans, 21 Cal. 4th 1066 (1999) and Cruz v. Pacificare Health Systems, Inc., 30 Cal. 4th 1157 (2003), in which the California Supreme Court refused to enforce arbitration clauses in cases seeking public injunctive relief. The Kilgore decision leaves open the question of whether and to what extent the Broughton-Cruz rule survives U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. ___, 131 S. Ct. 1740 (2011) (“Concepcion”).

Background of the Underlying Dispute and District Court Proceedings

Plaintiffs, former students of a private helicopter vocational school, took out loans with KeyBank to pay for their helicopter training. Before they completed their training, the school filed for bankruptcy. KeyBank paid the school the full amount of each Plaintiff’s loan. Plaintiffs alleged that the school was a “sham aviation school” that targeted limited-income individuals who could not afford to pay for their pilot training without taking out student loans. The students could not sue the school because it had filed for bankruptcy protection. Instead, they filed a putative class action against the school’s “preferred lender,” KeyBank. They asserted claims of unfair competition under the UCL. Plaintiffs did not ask for damages. Instead, they asked for an order enjoining KeyBank from (1) reporting any default by class members under their loan’s promissory note (“Note”), (2) enforcing the Notes against class members, and (3) “engaging in false and deceptive acts and practices” with respect to consumer credit contracts involving purchase money loans.

KeyBank moved to compel arbitration. The Notes contained an arbitration clause, which was included in a separate section entitled “ARBITRATION.” The arbitration clause informed Plaintiffs that they could opt out of the clause within 60 days of signing, and that if they did not opt out, they would give up their right to litigate any claim in court and to proceed with any claim on a class basis. Conspicuous statements immediately above Plaintiffs’ signature lines restated that the student understood that the Note contained an arbitration clause, warned of the importance of thoroughly reading the Note before signing, and stated that the student would not sign the Note before he or she read it.

The district court applied California law and denied KeyBank’s motion to compel arbitration. It held that California’s Broughton-Cruz rule prohibited Plaintiffs from arbitrating their injunctive relief claims, and the arbitration clause was unenforceable. While KeyBank’s appeal was pending, the U.S. Supreme Court issued its Concepcion decision.

The Panel Opinion Addressed Concepcion’s Effect on the Broughton-Cruz Rule

On appeal, the Ninth Circuit initially held that the FAA preempted the Broughton-Cruz rule. The panel applied the analysis in Concepcion and held that the Broughton-Cruz rule prohibited outright the arbitration of particular types of claims, and therefore “the analysis is simple: The conflicting [Broughton-Cruz] rule is displaced by the FAA. Concepcion, 131 S. Ct. at 1747. Concepcion allows for no other conclusion.” The panel then considered and rejected Plaintiffs’ unconscionability argument. It noted that unconscionability under California law has both a procedural and a substantive element, both of which must be satisfied for a court to hold an arbitration agreement unenforceable. The panel found no procedural unconscionability, and enforced the arbitration agreement without reaching the element of substantive unconscionability.

The Court later granted Plaintiffs’ petition for rehearing en banc, and ordered that the panel opinion would not be cited as precedent by or to any court of the Ninth Circuit.

The En Banc Opinion Orders Arbitration on Narrower Grounds

Sitting en banc, the Ninth Circuit reached the same result as the panel, but on different grounds. The Court first addressed Plaintiffs’ unconscionability argument, considering both the substantive and procedural elements. It held that Concepcion “expressly foreclosed” Plaintiffs’ argument that the agreement’s ban on class arbitration made it substantively unconscionable, and the “risk” that Plaintiffs might not be able to afford arbitration fees was “too speculative” to justify invalidating the arbitration agreement. The Court then held that there was no procedural unconscionability. The arbitration clause contained an “opt out” provision that allowed students to reject arbitration within 60 days of signing the Note, and appeared in its own section, clearly labeled, in boldface type.

In contrast to the prior panel opinion, the en banc decision did not consider whether the FAA preempts the Broughton-Cruz rule. For all practical purposes, the injunctive relief requested related only to past harms allegedly suffered by the members of the limited putative class. The relief sought by Plaintiffs would benefit only the approximately 120 putative class members, and KeyBank had completely withdrawn from the private school loan business. “Even assuming the continued viability of the Broughton-Cruz rule, Plaintiffs’ claims do not fall within its purview.”


Kilgore is significant for two reasons. First, it leaves open an important question - whether the Broughton-Cruz rule has survived Concepcion – an issue on which the federal district courts in California have reached different conclusions. Second, it suggests additional guidance to maximize enforcing arbitration agreements and class action waivers. Plaintiffs increasingly attack arbitration agreements through the “generally applicable” defense of unconscionability. Kilgore identifies factors that will be considered sufficient for the Ninth Circuit to uphold an arbitration agreement. Clients might be well-served to review their arbitration agreements in light of Kilgore.

Click here to read Kilgore v. KeyBank, N.A., No. 09-16703 (Apr. 11, 2013)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Winthrop Shaw Pittman LLP | Attorney Advertising

Written by:

Pillsbury Winthrop Shaw Pittman LLP

Pillsbury Winthrop Shaw Pittman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.