Metropolitan News-Enterprise


Tuesday, October 29, 2013


Page 1


Ninth U.S. Circuit Court of Appeals Rules:

Claims for Injunctive Relief No Longer Exempt From Arbitration




Claims for “public injunctive relief” are not exempt from arbitration under the Federal Arbitration Act, which preempts a contrary California rule, the Ninth U.S. Circuit Court of Appeals ruled yesterday.

Partially reversing a ruling by U.S. District Judge David O. Carter of the Central District of California, the panel held that a putative class of plaintiffs must arbitrate all of their claims against a group of for-profit colleges, and not merely their damage claims as ordered by the district judge.

Kevin Ferguson and Sandra Muniz originally brought separate, putative class actions against Corinthian Colleges, Inc. and a host of related educational entities that it owned, alleging that Corinthian misrepresented its costs, accreditation, quality and career prospects that it offered to its graduates. The plaintiffs sought both money damages and injunctive relief under California’s unfair completion law, false advertising law and Consumer Legal Remedies Act, among other claims.

Their cases were eventually consolidated in the district court.

Arbitration Clause

Corinthian argued that its student enrollment agreements contained an arbitration clause, and sought to compel arbitration of the claims based on its terms. Carter granted Corinthian’s motion to compel arbitration for most of the claims, but declined to compel arbitration for a number of claims seeking injunctive relief—citing the California Supreme Court’s so-called “Broughton-Cruz rule” which held that arbitration could not be compelled for claims seeking a “public injunction.”

In an opinion written by Judge Richard R. Clifton, the Ninth Circuit said the Broughton-Cruz rule was preempted by the Federal Arbitration Act and is “clearly irreconcilable with intervening Supreme Court authority,” including AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), and Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201 (2012).

Concepcion  held that the FAA preempted state laws that prohibited compelled arbitration contracts for claims involving class-actions.

Goodbye to Broughton-Cruz

The Ninth Circuit explicitly overruled its previous decisions which had approved and relied on the Broughton-Cruz rule.

“We reject the argument that because an injunction is technically a remedy rather than a cause of action, the Broughton-Cruz rule is insulated from the FAA,” Clifton wrote.

Among the cases that are no longer controlling in the Ninth Circuit, Clifton wrote, are Davis v. O’Melveny & Meyers, 485 F.3d 1066 (9th Cir. 2007). The court held there that an arbitration agreement could not ““prohibit—i.e., require arbitration of—judicial actions seeking such public injunctive relief.”

That aspect of the Davis decision to is no longer valid, Clifton said, noting that the court had not previously analyzed “whether that rule contravened the FAA.”

Scope of Agreement

The Ninth Circuit panel also agreed that “an arbitrator generally has the authority to enter injunctive relief against a party that has entered into an arbitration agreement” and that, contrary to plaintiffs’ alternative arguments, the claims at issue fell within the scope of the signed arbitration agreements.

The court left open the issue of what would happen in the event the arbitrator eventually concludes that Corinthian violated California law but has no personal authority to issue an injunction under the terms of the specific arbitration agreement at issue, stating that such questions are best addressed “in the context of an actual case.”

Judges Richard Tallman and Consuelo Callahan concurred in the opinion.

The case is Ferguson v. Corinthian Colleges, 11-56965.


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