Kilgore v. Keybank, Nat'l Ass'n

Decision Date11 April 2013
Docket Number10–15934.,Nos. 09–16703,s. 09–16703
Citation718 F.3d 1052
PartiesMatthew C. KILGORE, individually and on behalf of all others similarly situated; William Bruce Fuller, individually and on behalf of all others similarly situated; Plaintiffs–Appellees, v. KEYBANK, NATIONAL ASSOCIATION, successor in interest to KeyBank USA, N.A.; Key Education Resources, a division of KeyBank National Association; Great Lakes Education Loan Services, Inc., a Wisconsin corporation, Defendants–Appellants, Matthew C. Kilgore, individually and on behalf of all others similarly situated; William Bruce Fuller, individually and on behalf of all others similarly situated, Plaintiffs–Appellants, v. KeyBank, National Association, successor in interest to KeyBank USA, N.A.; Key Education Resources, a division of KeyBank National Association; Great Lakes Education Loan Services, Inc., a Wisconsin corporation, Defendants–Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

OPINION TEXT STARTS HERE

Andrew A. August and Kevin F. Rooney, Pinnacle Law Group, LLP; James C. Sturdevant (argued) and Whitney Huston, The Sturdevant Law Firm, San Francisco, CA, for PlaintiffsAppellees/Appellants.

W. Scott O'Connell (argued) and W. Daniel Deane, Nixon Peabody LLP, Manchester, NH; and Sarah Andre and Matthew A. Richards, Nixon Peabody LLP, San Francisco, CA, for DefendantsAppellants/Appellees.

David Horton, Davis, CA; Hiro N. Aragaki, Los Angeles, CA, for Amici Curiae Law Professors.

Hiro N. Aragaki and David Doeling, Los Angeles, CA, for Amici Curiae Arbitration Professors.

Donald M. Falk, Mayer Brown LLP, Palo Alto, CA; Andrew J. Pincus (argued), Evan M. Tager, Archis A. Parasharami, and Scott M. Noveck, Mayer Brown LLP; Robin S. Conrad and Kate Comerford Todd, National Chamber Litigation Center, Inc., Washington, D.C., for Amicus Curiae The Chamber of Commerce of the United States of America.

Steve Bullock and Kelley L. Hubbard, Office of the Montana Attorney General, Helena, MT, for Amicus Curiae State of Montana.

Arthur D. Levy; Nancy Barron, Kemnitzer, Barron & Krieg LLP, San Francisco, CA, for Amicus Curiae The National Association of Consumer Advocates and The National Consumer Law Center.

Ellen Lake, Oakland, CA; Terisa E. Chaw, The Employee Rights Advocacy Institute for Law & Policy; Rebecca M. Hamburg, National Employment Lawyers Association; Cliff Palefsky, McGuinn, Hillsman & Palefsky, San Francisco, CA, for Amici Curiae National Employment Lawyers Association, The Employee Rights Advocacy Institute for Law & Policy, and California Employment Lawyers Association.

Mark A. Chavez, Chavez & Gertler LLP, Mill Valley, CA, for Amicus Curiae The National Consumer Law Center, National Association of Consumer Advocates, Public Citizen and National Consumers League.

C. Dawn Causey and Gregory F. Taylor, American Bankers Association, Washington, D.C., for Amici Curiae American Bankers Association, Consumer Bankers Association, and the Clearing House Association, L.L.C.

Appeal from the United States District Court for the Northern District of California, Thelton E. Henderson, Senior District Judge, Presiding. D.C. No. 3:08–cv–02958–TEH.

Before: ALEX KOZINSKI, Chief Judge, HARRY PREGERSON, M. MARGARET McKEOWN, WILLIAM A. FLETCHER, RICHARD C. TALLMAN, CONSUELO M. CALLAHAN, MILAN D. SMITH, JR., MARY H. MURGUIA, MORGAN CHRISTEN, PAUL J. WATFORD, and ANDREW D. HURWITZ, Circuit Judges.

Opinion by Judge HURWITZ; Dissent by Judge PREGERSON.

OPINION

HURWITZ, Circuit Judge:

This appeal involves a putative class action by former students of a failed flight-training school who seek broad injunctive relief against the bank that originated their student loans and the loan servicer. The central issue is whether the district court should have compelled arbitration. We hold that this case does not fall under the narrow “public injunction” exception to the Federal Arbitration Act we recognized in Davis v. O'Melveny & Myers, 485 F.3d 1066, 1082–84 (9th Cir.2007), and remand with instructions to compel arbitration.

I.
A.

Silver State Helicopters, LLC (“SSH”) operated a flight-training school in Oakland, California. SSH referred to KeyBank, N.A. (KeyBank) as a “preferred lender” in marketing materials and encouraged prospective students to borrow from KeyBank. KeyBank financed virtuallyall SSH student tuition; Great Lakes Educational Loan Services (Great Lakes) serviced the loans.

Every SSH student borrowing from KeyBank executed a promissory note (“Note”). The Note contained an arbitration clause, located in a section entitled “ARBITRATION,” which provided, in relevant part:

IF ARBITRATION IS CHOSEN BY ANY PARTY WITH RESPECT TO A CLAIM, NEITHER YOU NOR I WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR HAVE A JURY TRIAL ON THAT CLAIM.... FURTHER, I WILL NOT HAVE THE RIGHT TO PARTICIPATE AS A REPRESENTATIVE OR MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION.... I UNDERSTAND THAT OTHER RIGHTS I WOULD HAVE IF I WENT TO COURT MAY ALSO NOT BE AVAILABLE IN ARBITRATION....

There shall be no authority for any Claims to be arbitrated on a class action basis. Furthermore, an arbitration can only decide your or my Claim(s) and may not consolidate or join the claims of other persons that may have similar claims.

The Note further provided that [t]his Arbitration Provision will apply to my Note ... unless I notify you in writing that I reject the arbitration provisions within 60 days of signing my Note.” 1

B.

Matthew Kilgore and William Fuller (Plaintiffs) were SSH students, who each borrowed over $50,000 from KeyBank. The Oakland school failed before they could graduate. After the school's demise, Plaintiffs brought this putative class action suit against KeyBank and Great Lakes (collectively, Defendants) in California Superior Court, seeking to enjoin Defendants from reporting loan defaults to credit agencies and from enforcing Notes against former students. 2 The gravamen of the complaint was that Defendants had violated the California Unfair Competition Law (“UCL”), Cal. Bus. & Prof.Code §§ 17200– 17210, because the Note and SSH's contracts with students failed to include language specified in the Federal Trade Commission's “Holder Rule.” 3

Defendants timely removed the case to the District Court for the Northern District of California,4 and filed a motion to compel arbitration. After the district court denied the motion, Kilgore v. Keybank, Nat'l Ass'n, No. C 08–2958 TEH, 2009 WL 1975271, at *1 (N.D.Cal. July 8, 2009),5 Defendants appealed. We have jurisdiction over Defendants' appeal under 9 U.S.C. § 16(a)(1)(C).

After Defendants filed their notice of appeal, the district court allowed Plaintiffs to file a third amended complaint. The court then granted Defendants' motion to dismiss for failure to state a claim upon which relief can be granted. Kilgore v. KeyBank, 712 F.Supp.2d 939, 947–58 (N.D.Cal.2010).6 Plaintiffs appealed, and we have jurisdiction under 28 U.S.C. § 1291.7

II.

Plaintiffs argue that the district court erred by dismissing their third amended complaint, and Defendants argue that the district court erred by refusing to compel arbitration. Under the Federal Arbitration Act, if Defendants are correct, the district court should never have reached the merits of Plaintiffs' claims. See9 U.S.C. § 3 (requiring stay of civil action during arbitration). Therefore, we begin with whether the district court erred in declining to compel arbitration, a decision we review de novo. Chalk v. T–Mobile USA, Inc., 560 F.3d 1087, 1092 (9th Cir.2009).

A.

The Federal Arbitration Act (“FAA”) makes an agreement to arbitrate “valid, irrevocable, and enforceable.” 9 U.S.C. § 2. The FAA was intended to “overcome an anachronistic judicial hostility to agreements to arbitrate, which American courts had borrowed from English common law,” Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 625 n. 14, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), that resulted in courts' refusals to enforce agreements to arbitrate,” Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Recent opinions of the Supreme Court have given broad effect to arbitration agreements. See, e.g., Marmet Health Care Ctr., Inc. v. Brown, ––– U.S. ––––, 132 S.Ct. 1201, 1203–04, 182 L.Ed.2d 42 (2012) (per curiam) (upholding arbitration provision despite state law prohibiting pre-dispute agreements to arbitrate personal injury and wrongful death claims); AT&T Mobility LLC v. Concepcion, –––U.S. ––––, 131 S.Ct. 1740, 1753, 179 L.Ed.2d 742 (2011) (holding that the FAA preempted a California rule that made class action waivers unconscionable); Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 109, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001) (confining FAA exemption for workers engaged in interstate commerce to transportation workers).

The FAA “mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). The basic role for courts under the FAA is to determine (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.2000).

B.

Section 2 of the FAA contains a savings clause, which provides that arbitration agreements are “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. This savings clause “preserves generally applicable contract defenses.” Concepcion, 131 S.Ct. at 1748. Plaintiffs advance two theories as to why the FAA savings clause defeats the arbitration clause in the Note. We find neither availing.

1.

Under the FAA savings clause, state law that “arose to govern issues concerning the validity, revocability, and enforceability of...

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