Same Judges, Two Different Outcomes

Yesterday, consumers, employees, and others who are subject to mandatory arbitration agreements that inhibit their ability to present their claims got a big win and a big loss in the U.S. Court of Appeals for the Ninth Circuit—from the very same panel. The same three judges, Richard Clifton, Richard Tallman, and Consuelo Callahan, in cases argued and decided on the same day, issued major decisions that both enhanced and limited the ability of plaintiffs to avoid arbitration proceedings that do not adequately protect their rights. Judge Clifton wrote the opinions in both cases—Chavarria v. Ralphs Grocery and Ferguson v. Corinthian Colleges.

In Chavarria, the court held that an arbitration agreement was unconscionable and unenforceable under California law because an employer effectively forced employees to sign it; it gave the employer the ability to hand-pick the arbitrator anytime an employee brought a claim against it; it required the employee to bear half of the arbitrator's fees unless the U.S. Supreme Court specifically said otherwise, and it allowed the employer to change the rules of arbitration at any time. Among other things, the court noted that the fact that the employer said "please" when asking employees to sign the agreement—which explicitly said it was enforceable whether or not the employee signed—did nothing to make the agreement any fairer. And, the court held, the application of California law to strike down such an unfairly one-sided agreement was not preempted by the Federal Arbitration Act (FAA).

In Ferguson, however, the same judges held that another principle of California law is preempted by the FAA—namely, the so-called "Broughton-Cruz rule," under which California courts have held that claims for injunctive relief for the public's benefit cannot be subjected to mandatory arbitration. Ferguson was a case brought by former students at for-profit educational institutions who claimed they'd been misled into incurring large student loans they'd be unlikely to be able to pay off once they graduated. They sought not only damages, but also injunctions against the defendant under California's consumer protection laws.

The district court held those claims for injunctions couldn't be forced into arbitration under the Broughton-Cruz rule, but the court of appeals held otherwise. The Ninth Circuit had previously ducked the Broughton-Cruz issue in a case called Kilgore v. Keybank, but this time there was no avoiding it, and the court held that it ran directly contrary to recent Supreme Court authority stating that the FAA preempts a state-law rule that "prohibits outright the arbitration of a particular type of claim." The panel saw no way around that principle, not even the argument that compelling arbitration would prevent the plaintiffs (and the public) from vindicating their rights under state law. 

On the latter point, the panel relied heavily on Justice Kagan's terrible statement in her dissenting opinion in American Express v. Italian Colors Restaurant that "[w]e have no earthly interest (quite the contrary) in vindicating" rights under state law. I expect the court would have reached the same result in Ferguson even without that quotation, but it didn't help matters, and it may do more mischief in years to come.

Leave a Reply

Your email address will not be published. Required fields are marked *