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Protecting Public Rights

posted by Amy Schmitz

Contracts professors, policymakers, consumer groups and others have become particularly interested in another post-AT&T Mobility LLC v. Concepcion case.  The United States Court of Appeals for the Ninth Circuit recently agreed to an en banc rehearing of Kilgore v. Keybank, 673 F.3d 947 (9th Cir. 2012).  The issue in this case is whether Concepcion precludes courts from preserving judicial access for public injunctions under state consumer protection statutes by invoking the public policy exemption from the Federal Arbitration Act's ("FAA") mandate that courts enforce arbitration agreements according to their terms.  The en banc hearing is set for some time in December of this year.

The case is important on many levels.  It raises fundamental questions about the reach of FAA preemption in the wake of Concepcion, in which the United States Supreme Court held that the FAA preempted courts from using California unconscionability law to strike a class relief waiver and order class arbitration.  Moreover, the case implicates states' power to protect individuals' access to meaningful injunctive relief in order to enforce and protect public rights under state statutes, such as consumer protection statutes.  

Indeed, Kilgore has raised eyebrows because the panel in that case read Concepcion to eclipse Broughton v. CIGNA Healthplans of California, 988 P.2d 67 (Cal. 1999) and Cruz v. Pacificare Health Sys., Inc. 66 P.3d 1157 (Cal. 2003),  in which the California Supreme Court had allowed litigation of claims for public injunctions under California's Consumer Legal Remedies Act and Unfair Competition Law despite arbitration clauses in the parties' agreements.  The parties had to arbitrate their contract and other claims in accordance with the FAA's mandate, but the public policy exception preserved their access to enforcement injunctions in order to protect statutory public rights.  The California court reasoned that the FAA did not preclude states from allowing its citizens to vindicate their statutory rights.  Furthermore, courts are uniquely equipped to handle claims for injunctive relief.  It is a silly exercise to have an arbitrator determine whether injuncitve relief is proper to the extent that arbitrators lack the state power to immediately force compliance with their orders.  In other words, consumers who obtain an arbitral order showing their right to injunctive relief against a "bad actor" would have to expend more time and resources to have that order enforced in a court if the "bad actor" fails to comply with the arbitral order.  In addition, arbitrators usually lose jurisdiction over a case after the final award has issued, therefore raising problems for the parties if and when they seek modification or other assistance with continuing injunctive relief.  

Bottom  line:  Injunctive relief is practically different from ordering money damages and serves special purposes in enforcing public rights.  Concepcion reinforced the FAA's preemption power to stop states from discriminating against arbitration, but it does not quash all state ability to protect public rights.  The United States Supreme Court endorsed the importance of judicial access for public enforcement claims in E.E.O.C. v. Waffle House, Inc., 534 U.S. 279 (2002), in holding that the EEOC could pursue its claims against an employer despite an arbitration clause in the employees' agreements with their employer.  It therfore seems that states should be permitted to allow for similar enforcement of public rights.  


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