In Kilgore v. KeyBank, Nat. Ass’n, — F.3d —-, 2012 WL 718344 (9th Cir. 2012), the Court of Appeals found that California’s state law Broughton-Cruz exception to arbitration enforcement did not survive Concepcion. The facts were as follows:
Plaintiffs are former students of a private helicopter vocational school located in Oakland, California, and operated by Silver State Helicopters, LLC (“SSH”). According to Plaintiffs, SSH engaged in an elaborate, aggressive, and misleading marketing effort to attract students. Plaintiffs claim SSH 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. SSH’s “preferred lender” was KeyBank, and SSH gave prospective students loan application forms and other information about borrowing tuition money from KeyBank. To fund their helicopter training, Plaintiffs and each member of the putative class borrowed between $50,000 and $60,000 from KeyBank. Each Plaintiff signed a promissory note (“Note”), promising to repay KeyBank for the student loan. The transaction was structured so that KeyBank disbursed the entire loan proceeds to SSH before the student completed his training. Each Note contained an arbitration clause.
The Court of Appeals held that Concepcion preempted California’s state-law Broughton-Cruz rules – namely, the rule that an agreement to arbitrate could not be enforced in a case where the plaintiff is “functioning as a private attorney general, enjoining future deceptive practices on behalf of the general public.” The Court of Appeals held 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.” “But the very nature of federal preemption requires that state law bend to conflicting federal law—no matter the purpose of the state law. It is not possible for a state legislature to avoid preemption simply because it intends to do so. The analysis of whether a particular statute precludes waiver of the right to a judicial forum—and thus whether that statutory claim falls outside the FAA’s reach—applies only to federal, not state, statutes. . . . We read the Supreme Court’s decisions on FAA preemption to mean that, other than the savings clause, the only way a particular statutory claim can be held inarbitrable is if Congress intended to keep that federal claim out of arbitration proceedings. . . In the end, we circle back to the Supremacy Clause. The FAA is “the supreme law of the land,” U.S. Const. art. VI, and that law renders arbitration agreements enforceable so long as the savings clause is not implicated. The Broughton–Cruz rule “prohibits outright the arbitration of a particular type of claim”—claims for public injunctive relief. Concepcion, 131 S.Ct. at 1747. This prohibition cannot be described as a “ground[ ] as exist[s] at law or in equity for the revocation of any contract,” 9 U.S.C. § 2, because it “appl[ies] only to arbitration [and] derive[s] its meaning from the fact that an agreement to arbitrate is at issue,” Concepcion, 131 S.Ct. at 1746. Although the Broughton–Cruz rule may be based upon the sound public policy judgment of the California legislature, we are not free to ignore Concepcion‘s holding that state public policy cannot trump the FAA when that policy prohibits the arbitration of a “particular type of claim.” Therefore, we hold that “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 Court of Appeals went on to find the arbitration clause not-unconscionable. The Court of Appeals described what Concepcion left open on this point:
Concepcion did not overthrow the common law contract defense of unconscionability whenever an arbitration clause is involved. Rather, the Court reaffirmed that the savings clause preserves generally applicable contract defenses such as unconscionability, so long as those doctrines are not “applied in a fashion that disfavors arbitration.” Concepcion, 131 S.Ct. at 1747.
The Court of Appeals held that the arbitration clause that prominently disclosed the rights the consumer was giving up by agreeing to arbitration and which gave the consumer a 60-day period in which to opt out of the arbitration provision was not procedurally unconscionable and therefore had to be enforced under the FAA.