Appeal from the United States District Court for the Northern District of California Thelton E. Henderson, Senior District Judge, Presiding D.C. No. 3:08-cv-02958-THE
The opinion of the court was delivered by: Trott, Circuit Judge:
D.C. No. 3:08-cv-02958-THE
Argued and Submitted December 5, 2011-San Francisco, California
Before: Stephen S. Trott and Carlos T. Bea, Circuit Judges, and Rebecca R. Pallmeyer, District Judge.*fn1
These consolidated appeals involve the sometimes delicate and precarious dance between state law and federal law. Matthew Kilgore and William Fuller ("Plaintiffs") brought this putative class action against KeyBank, N.A., Key Education Resources, and loan servicer Great Lakes Education Loan Services, Inc. (collectively, "KeyBank"), alleging violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, in connection with private student loans that KeyBank extended to Plaintiffs. Each of Plaintiffs' loan contracts contained an arbitration clause, which the district court declined to enforce. In Interlocutory Appeal No. 09-17603, we consider whether, in light of the Supreme Court's recent decision in AT&T Mobility, Inc. v. Concepcion, ___ U.S. ___, 131 S. Ct. 1740 (2011), the Federal Arbitration Act ("FAA" or "Act") preempts California's state law rule prohibiting the arbitration of claims for broad, public injunctive relief - a rule established in Broughton v. Cigna Health-plans of California, 988 P.2d 67 (Cal. 1999), and Cruz v. Pacificare Health Systems, Inc., 66 P.3d 1157 (Cal. 2003). We consider also whether the arbitration clause is unconscionable. We have jurisdiction pursuant to 9 U.S.C. § 16(a)(1)(C).
We conclude that (1) the FAA preempts the Broughton-Cruz rule and (2) the arbitration clause in the parties' contracts must be enforced because it is not unconscionable. Therefore, we do not reach the question, presented in Appeal No. 10-15934, whether the National Bank Act ("NBA") and the regulations of the Office of the Comptroller of the Currency ("OCC") preempt Plaintiff's UCL claims. Accordingly, in Interlocutory Appeal No. 09-16703, we reverse the district court's denial of KeyBank's motion to compel arbitration, vacate the judgment, and remand to the district court with instructions to enter an order staying the case and compelling arbitration. Because the disposition of that appeal renders the district court's subsequent dismissal order a nullity, we dismiss Appeal No. 10-15934 as moot.
Plaintiffs are former students of a private helicopter vocational school located in Oakland, California, and operated by Silver State Helicopters, LLC ("SSH"). According to Plaintiffs, SSH engaged in an elaborate, aggressive, and misleading marketing effort to attract students. Plaintiffs claim SSH was a "sham aviation school" that targeted limited-income individuals who could not afford to pay for their pilot training without taking out student loans. SSH's "preferred lender" was KeyBank, and SSH gave prospective students loan application forms and other information about borrowing tuition money from KeyBank.
To fund their helicopter training, Plaintiffs and each member of the putative class borrowed between $50,000 and $60,000 from KeyBank. Each Plaintiff signed a promissory note ("Note"), promising to repay KeyBank for the student loan. The transaction was structured so that KeyBank disbursed the entire loan proceeds to SSH before the student completed his training.
Each Note contained an arbitration clause, included in a separate section entitled "ARBITRATION." The arbitration clause informed Plaintiffs that they could opt out of the clause and that if they did not, Plaintiffs would be giving up their rights (1) to litigate any claim in court and (2) to proceed with any claim on a class basis:
IF ARBITRATION IS CHOSEN BY ANY PARTY WITH RESPECT TO A CLAIM, NEITHER YOU NOR I WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR HAVE A JURY TRIAL ON THAT CLAIM . . . . FURTHER, I WILL NOT HAVE THE RIGHT TO PARTICIPATE AS A REPRESENTATIVE OR MEMBER OF ANY CLASS OF CLAIMANTS . . . . I UNDERSTAND THAT OTHER RIGHTS THAT I WOULD HAVE IF I WENT TO COURT MAY ALSO NOT BE AVAILABLE IN ARBITRATION. THE FEES CHARGED BY THE ARBITRATION ADMINISTRATOR MAY BE GREATER THAN THE FEES CHARGED BY A COURT.
There shall be no authority for any Claims to be arbitrated on a class action basis. Furthermore, an arbitration can only decide your or my Claim(s) and may not consolidate or join the claims of other persons that may have similar claims.
(boldface in original) (additional emphasis added). The arbitration clause included an opt-out provision: "This Arbitration Provision will apply to my Note . . . unless I notify you in writing that I reject the Arbitration Provisions within 60 days of signing my Note." (emphasis added) (boldface in original).
In addition, each Note included a choice of law clause:
THE PROVISIONS OF THIS NOTE WILL BE GOVERNED BY FEDERAL LAWS AND THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO CONFLICT OF LAW RULES.
The Note also contained a forum-selection clause designating, as the appropriate forum for the resolution of all disputes arising from the Notes, the county in which KeyBank has its principal place of business: Cuyahoga County, Ohio. KeyBank, however, does not argue on appeal that the forum-selection clause should have been enforced.
Plaintiffs signed the Notes immediately below several conspicuous statements contained in a box set off from the rest of the document. One of these statements provided,
I UNDERSTAND THAT THE MASTER STUDENT LOAN PROMISSORY NOTE GOVERNING MY LOAN CONTAINS AN ARBITRATION PROVISION UNDER WHICH CERTAIN DISPUTES (AS DESCRIBED IN THE ARBITRATION PROVISION) BETWEEN ME AND YOU AND/OR CERTAIN OTHER PARTIES WILL BE RESOLVED BY BINDING ARBITRATION, IF ELECTED BY ME OR YOU OR CERTAIN OTHER PARTIES. IF A DISPUTE IS ARBITRATED, THE PARTIES WILL NOT HAVE THE OPPORTUNITY TO HAVE A JUDGE OR JURY RESOLVE IT AND OTHER RIGHTS MAY BE SUBSTANTIALLY LIMITED.
(boldface in original) (additional emphasis added). Another statement was a warning: "CAUTION: IT IS IMPORTANT THAT I THOROUGHLY READ THE CONTRACT BEFORE I SIGN IT." A third statement in the box was a promise by the student: "I WILL NOT SIGN THIS AGREEMENT/NOTE BEFORE I READ IT (EVEN IF OTHERWISE ADVISED)."
Each Plaintiff also signed a Service Contract Agreement with SSH. In this Agreement, SSH described its vocational training services as including 175 flight hours, unlimited access to a flight simulator, ground school classes, and individual instruction "as needed." Included in the cost of training were textbooks, supplies, and other required materials. Plaintiffs claim that although the Agreement required all training to be completed within 18 months, SSH's lack of resources made it impossible to finish within that time.
SSH executives allegedly misappropriated the student loan funds it received from KeyBank "for their own personal benefit" and "knew [SSH] did not have and never would have sufficient equipment, trainers or maintenance personnel to meet its obligations under the Service Contract Agreements" within the required time period. Although Plaintiffs Kilgore and Fuller logged 185.8 and 310 hours of flight training respectively - more than the promised 175 hours - they did not complete all requirements for graduation before SSH closed its doors and filed for bankruptcy in February of 2008. They therefore did not receive a diploma, certificate or other accreditation for their training.
According to Plaintiffs, KeyBank had knowledge that "the private student loan industry - and particularly aviation schools - was a slowly unfolding disaster," yet continued to loan tuition money to students and disburse the loan proceeds to SSH. This knowledge was allegedly based on KeyBank's previous dealings with similar schools. In Plaintiffs' words, "KeyBank single-handedly fueled the meteoric rise of SSH which subsequent lenders gleefully continued."
Unable to take action against SSH because of the automatic stay, 11 U.S.C. § 362, Plaintiffs turned their focus to Key-Bank.
DISTRICT COURT PROCEEDINGS
On June 17, 2008, Plaintiffs filed suit against KeyBank in California state court.*fn2 After Plaintiffs filed their Second Amended Complaint, KeyBank removed the case to the U.S. District Court for the Northern District of California under 28 U.S.C. §§ 1441, 1446, and 1453. Plaintiffs asserted claims of unfair competition under California's UCL, which prohibits "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. Although Plaintiffs' Second Amended Complaint also included claims of aiding and abetting fraud and claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., these claims were omitted from Plaintiffs' Third Amended Complaint - the last complaint filed in this case.
Plaintiffs did not seek damages. Rather, they requested an order enjoining KeyBank from (1) "reporting to any credit agency any default by ...