Dissenting Judge Pregerson Attaches “Dense, Small Print, And Blurry Nine-Page Contract” As Appendix
We posted on December 16, 2012 about the Kilgore v. Keybank oral argument to the Ninth Circuit, sitting en banc. The case involves a putative class action by former students of a failed helicopter flight-training school seeking injunctive relief against the bank that originated their student loans and the loan servicer. The complaint alleged defendants violated the California Unfair Competition Law (UCL), because the Note and contracts with students failed to include language required by the Federal Trade Commission’s “Holder Rule.” This rule requires consumer credit contracts to include language that a holder of the consumer credit contract is subject to claims and defenses which the debtor could assert against the seller of goods or services. In the case of the flight school, students took out loans that the lender quickly resold on the secondary market, and the students of the failed school were left “holding the bag.” The district court found the contractual arbitration clause to be unconscionable. The Court of Appeals, sitting en banc, has now reversed, holding that the arbitration requirement, which includes a class waiver, is not unconscionable, and does not fit into the narrow “public injunction” exception to the arbitration requirement. Kilgore v. Keybank, No. 09-16703 (9th Cir. April 11, 2013) (Hurwitz, J., author) (for publication).
The en banc majority rejected the argument that the Note’s ban on class arbitration is substantively unconscionable under California law; that issue was foreclosed by AT&T Moblility v. Concepcion, 131 S.Ct. 1740 (2011). The risk that students will be saddled with prohibitive arbitration costs was rejected as “too speculative”. The procedural unconscionability argument was also rejected, primarily because the arbitration clause allowed “students to reject arbitration within sixty days of signing the Note.”
A carve-out from the arbitration requirement has been judicially created in Broughton v. Cigna Healthplans of Cal., 988 P.2d 67 (Cal. 1999). Where plaintiffs function as a private attorney general, enjoining future deceptive practices on behalf of the general public, injunction claims are not arbitrable. The hot issue is whether Broughton has also been preempted by the Federal Arbitration Act and Concepcion. However, the Court avoided deciding this important issue by determining that the students were acting to further their own interests, and the action complained about was past rather than prospective action.
Judge Pregerson, dissenting, attaches an an Appendix “the dense, small print, and blurry nine-page contract that Silver State thrust on the students at career fairs and open houses.”
Among the points made by Judge Pregerson are that this is a “take it or leave it” consumer contract introducing at least some procedural unconscionability under the circumstances. Of course, there is the 60 day provision allowing for an opt-out – tough to get around, and never mind that students don’t read the provisions. As to “substantive unconscionability”, a confidentiality provision requires the parties to maintain confidentiality of any claim they arbitrate. This works against plaintiffs who can’t share information, and in favor of the defendant that gets to arbitrate separately with each plaintiff. Filing a civil action costs less than $500; filing the same claim in arbitration runs more than $4000. Finally – and this is interesting – one of the two arbitrators named in the contract ruled in favor of banks and credit card companies, and against consumers 94 % of the time. Judge Pregerson is alone in his dissent.