(CN) - Former students of a shuttered flight school must arbitrate claims against KeyBank, the full 9th Circuit ruled Thursday, saying their credit issues do not require an injunction.
Matthew Kilgore and William Fuller had hoped to snare a public injunction for a class of approximately 120 students whom Silver State Helicopters trained in flight before the school went bankrupt in 2008. The former students sued KeyBank, Key Education Resources and Great Lakes Education Loan Services.
Calling Silver State a "sham" that siphoned tuition money for its executives, Kilgore and Fuller said the Oakland, Calif.-based school had closed shop before they could complete the training for which they had taken up to $60,000 in loans.
The class said KeyBank was liable for fraud and racketeering as the school's preferred lender. They said Keybank knew of the financial disaster awaiting students of aviation schools, but approved loans it knew could never be repaid.
U.S. District Judge Thelton Henderson refused the companies' motion to compel arbitration and ultimately dismissed the case for failure to state a claim.
A three-judge panel of the 9th Circuit reversed in March 2012, saying the trial court should never have reached the merits of the case since the loans contained enforceable arbitration agreements under the Supreme Court's ruling in AT&T v. Concepcion .
After vacating that decision in favor of a December 2012 en banc hearing , a 10-judge majority reached the same conclusion Thursday.
"We hold that this case does not fall under the narrow 'public injunction' exception to the Federal Arbitration Act we recognized in Davis v. O'Melveny & Myers, and remand with instructions to compel arbitration," Judge Andrew Hurwitz wrote for the majority.
Kilgore and Fuller do not meet the requirements for public injunctive relief because it "plainly would benefit only the approximately 120 putative class members," the ruling states.
Looking for a silver lining, counsel for Kilgore and Fuller noted that the opinion vacated Judge Henderson's ruling on the merits.
"It gives us a clean slate to arbitrate this," Pinnacle Law Group attorney Andrew August said. "Although initiating arbitration is expensive, Keybank said they would pay filing fee."
He noted the offer was likely made "to avoid any adverse ruling in the trial court," but he strongly believes it will hold at least with respect to Kilgore and Fuller.
"This isn't like Concepcion case or one of the consumer cases where there's 50 cents at stake," August said. "A lot of these students owe in excess of six figures."
KeyBank's attorney, W. Scott O'Connell with Nixon Peabody, said the ruling marks the death knell for the public injunction exception.
"I personally believe that the doctrine is not long for this world," O'Connell said.
"When the right case comes along, the court will be hard pressed to reconcile it with Concepcion."
The ruling notes that Concepcion foreclosed the plaintiffs from taking issue with the ban in the promissory notes on class arbitration.
"Nothing else in the arbitration clause in the note suggests substantive unconscionability," Hurwitz wrote.
