Earlier today, the Ninth Circuit issued its en banc opinion in Kilgore v. KeyBank NA. The court had granted en banc review to decide whether the Federal Arbitration Act preempts California’s so-called “Broughton/Cruz” rule, which declares that claims for “public” injunctive relief under California consumer protection statutes are unsuitable for, and exempt from, arbitration.
As we have discussed in prior blog posts—and argued in an amicus brief on behalf of the U.S. Chamber of Commerce—the answer should be easy. The Supreme Court stated in AT&T Mobility LLC v. Concepcion 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.” That is exactly what the Broughton/Cruz rule does.
But the Ninth Circuit decided that there was no need to address that issue in this case, stating: “Defendants argue that Davis [v. O’Melveny & Myers]”—a prior case applying Broughton/Cruz—“was vitiated by Concepcion, and the Broughton-Cruz rule no longer exempts a public injunction claim from arbitration. We need not reach that broad argument. Even assuming the continued viability of the Broughton-Cruz rule, Plaintiffs’ claims do not fall within its purview.” The court went on to explain why the claim at issue did not in fact seek relief on behalf of the general public and thus did not even qualify for the Broughton/Cruz exemption as a matter of California law.
The court’s analysis on this point is helpful to defendants; since Concepcion, plaintiffs have (as in Kilgore itself) sought to recast damages class actions as injunction-only class actions in an attempt to invoke the Broughton/Cruz doctrine and avoid arbitration. The Ninth Circuit’s restrictive reading of the state-law doctrine means that it will be harder for plaintiffs’ lawyers to use this gambit to try to circumvent Concepcion.
There is some additional good news in Kilgore for businesses: The court made clear that any argument that a prohibition of “class arbitration is unconscionable under California law” is “now expressly foreclosed by Concepcion.” That conclusion seems clear from Concepcion itself, but a number of plaintiffs have sought to convince federal district courts that some wiggle room remains. This aspect of Kilgore’s holding should make those efforts even more of an uphill battle.
Ultimately, the court put off for another day the more significant question of FAA preemption for those cases in which plaintiffs have properly pleaded (as a matter of California law) a claim for public injunctive relief. And while the vast majority of federal district courts in California to address the question have held that the FAA preempts Broughton/Cruz, there are some outlier decisions going the other way.
Kilgore’s bottom line is: important additional progress in ensuring the enforceability of arbitration agreements, but more litigation needed before California’s Broughton/Cruz loophole is finally eliminated.