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
The opinion of the court was delivered by: Hurwitz, Circuit Judge
Argued and Submitted En Banc December 11, 2012--Pasadena, California
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
The en banc court reversed the district court's dismissal of plaintiffs' claims, reversed the denial of defendants' motion to compel arbitration, and remanded with instructions to the district court to compel arbitration.
In an appeal involving 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 en banc court held that the district court should have compelled arbitration under California law. The en banc court held that the arbitration clause was neither substantively nor procedurally unconscionable under California law. The en banc court held also that this case does not fall under the narrow "public injunction" exception to the Federal Arbitration Act that was recognized in Davis v. O'Melveny & Myers, 485 F.3d 1066, 1082-84 (9th Cir. 2007).
Judge Pregerson dissented. Judge Pregerson would hold that the arbitration clause was unconscionable, and thus unenforceable.
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.
Silver State Helicopters, LLC ("SSH") operated a flighttraining 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 virtually all 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."*fn2
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. *fn3 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."*fn4
Defendants timely removed the case to the District Court for the Northern District of California, and filed a motion to*fn5 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),*fn6 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). *fn7 ...