Concepcion’s Continuing Domino Effect: Case Law in California, Washington, and Pennsylvania Preempted By FAA
Three state law decisions relating to arbitration were toppled recently, based on application of the U.S. Supreme Court’s preemption decision in Concepcion.
In Kilgore v. Keybank, __ F.3d __, 2012 WL 718344 (9th Cir. Mar. 7, 2012), the Ninth Circuit held that California case law, which precluded arbitration of claims asking for public injunctive relief, was preempted by the Federal Arbitration Act. The California rule (called the Broughton-Cruz rule) was based on the judgment of its highest court that only courts should address claims for injunctive relief under public statutes (like the Consumers Legal Remedies Act and Unfair Competition Law), because courts are better suited for supervising injunctive relief and are more accountable to the public. Although federal district courts had been split on how to apply Concepcion to the Broughton-Cruz rule, the Ninth Circuit held California’s rule was preempted.
The Ninth Circuit expressed reservation about its outcome, however, noting that forcing arbitration of public injunctive relief may “reduce the effectiveness of state laws like” the Unfair Competition Law and may not serve the purpose of the state legislature. It also hinted that it felt the Broughton-Cruz rule was based upon sound policy judgments. “These concerns, however, cannot justify departing from the appropriate preemption analysis as set forth by the Supreme Court in Concepcion.” Id. at *10. In order to clear up any confusion about whether state legislatures had the power to preclude arbitration of claims, the court clarified that those constraints must come from federal statutes.
The Ninth Circuit also applied Concepcion to clarify that a decision from the Washington Supreme Court, finding that class action arbitration waivers are unconscionable, is preempted by the FAA. Coneff v. AT&T Corp., __ F.3d __, 2012 WL 887598 (9th Cir. Mar. 16, 2012).
Finally, the Third Circuit applied Concepcion to find that a Pennsylvania precedent, which concluded class action waivers were generally unconscionable in consumer cases, was preempted. Quilloin v. Tenet Healthsystem Philadelphia, __ F.3d __, 2012 WL 833742 (3d Cir. Mar. 14, 2012). The Third Circuit cited its decision in Litman, where it found New Jersey precedent was preempted by the FAA, and noted “the Pennsylvania law is even more egregious than the New Jersey law” because it “has often prohibited class action waivers based on their arbitration-specific context.” Id. at *9.
As these decisions demonstrate, the Supreme Court’s ruling in Concepcion is likely to continue to play out for many more months, giving parties who are compelling arbitration good ammunition to counter state law precedent suggesting the arbitration agreement is unenforceable.