Federal Circuit Courts Issue More Rulings Enforcing Arbitration Agreements

Arbitration U.S. Supreme Court

On March 7, the U.S. Court of Appeals for the Ninth Circuit held that a national bank could compel arbitration of a dispute involving student loans. Kilgore v. KeyBank, Nat’l Ass’n, No. 09-16703, 2012 WL 718344 (9th Cir. Mar. 7, 2012). A group of students filed a class action in state court alleging that KeyBank violated state law in its offering of loans to students of a helicopter pilot school, which subsequently misappropriated the student loan funds. KeyBank removed the action to federal court and moved to compel arbitration. The district court denied the motion and KeyBank appealed. While the case was on appeal, the Supreme Court in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), set a new standard for assessing the enforceability of arbitration clauses. That new standard required the Ninth Circuit to hold in KeyBank that the Federal Arbitration Act preempts California’s rule prohibiting arbitration of claims for broad, public injunctive relief. The court also held that the arbitration clause was not procedurally unconscionable because it clearly provided a sixty-day opt-out provision and a “conspicuous and comprehensive explanation of the arbitration agreement.” The court did not address the issue of whether the arbitration agreement was substantively unconscionable. The U.S. Court of Appeals for the Eleventh Circuit recently issued two separate, but substantively similar, opinions regarding arbitration agreements, both in cases consolidated in the multidistrict overdraft fee litigation pending in the U.S. District Court for the Southern District of Florida. Hough v. Regions Financial Corp., No. 11-14317, 2012 WL 686311 (11th Cir. Mar. 5, 2012); Buffington v. SunTrust Banks, Inc., No. 11-14316, 2012 WL 660974 (11th Cir. Mar. 1, 2012). In both cases, based on Concepcion, the court previously vacated district court rulings that the banks’ arbitration clauses were substantively unconscionable under Georgia law because they contained a class action waiver. On remand, the banks renewed their motions to compel arbitration. The district court denied the motions again, this time on the ground that the arbitration clauses were substantively unconscionable under Georgia law because a provision granting the banks’ the unilateral right to recover their expenses for arbitration allocated disproportionately to the plaintiffs the risks of error and loss inherent in dispute resolution. The Eleventh Circuit held that, under Georgia law, an agreement is not unconscionable because it lacks mutuality of remedy. It also rejected the district court’s holding that the clauses were procedurally unconscionable because the contract did not meet the Georgia standard that for an agreement to be procedurally unconscionable it must be so one-sided that “’no sane man not acting under a delusion would make [it] and … no honest man would’ participate in the transaction.” The Eleventh Circuit vacated the district court’s orders and remanded both cases with specific instructions to compel arbitration.