ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, February 6, 2013

Ninth Circuit Affirms Denial of Toyota's Motion to Compel Arbitration of Class Action

PriusOwners of the model year 2010 Prius and Lexus HS 250h brought suit against Toyota alleging that defects in the cars' anti-lock brake systems (ABS) caused increased stopping distances.  They also allege that Toyota knew of the problem but failed to disclose that knowledge.

Members of the class entered into purchase agreements with Toyota dealerships that included arbitration provisions and also provided that owners of the cars would give up any right to participate in class action lawsuits if their disputes went to arbitration.  Toyota sought to compel arbitration, but the District Court denied the motion on multiple grounds. First, becasue Toyota had vigorously litigated the case in federal court for two years, the District Court found that it had waived its right to move for arbitration.  Second, the District Court found that, since Toyota was not a signatory to purchase agreements that contained the arbitration clauses, it could not move to compel arbitration.  Nor would the District Court hold that plaintiffs are equitably estopped from avoiding arbitration

On appeal in Kramer v. Toyota Motor Corp., Toyota argued that, since arbitrators may decide issues of interpretation, scope, and applicability of arbitration agreements, it was for the arbitrator to decide whether a non-signatory to the arbitration agreement could invoke it.  The Ninth Circuit distinguished cases that had permitted the arbiter to decide such issues on the ground that in those cases, the parties had agreed to have the arbiter decide them.  Here, plaintiffs had never agreed to submit any of their disputes with Toyota to arbitration.

The Ninth Circuit was equally unmoved by Toyota's argument that plaintiffs should be equitably estopped from resisting arbitration.  This doctrine applies where: 1) a signatory relies on the terms of a written agreement in asserting claims against the non-signatory or the claims are intertwined with the agreement and 2) a signatory alleges concerted action bewteen the non-signatory and a signatory and that action is intimately connected to the agreement.  

The Ninth Circuit found that none of plaintiffs claims inimately relied on the purchase ageements; they merely referenced the purchase agreements.   With respect to the second prong of the test, the Ninth Circuit noted that "California state contract law does not allow a nonsignatory to enforce an arbitration agreement based upon a mere allegation of collusion or interdependent misconduct bewteen a signatory and nonsignatory."  The Ninth Circuit found that the complaint did not allege systematic collusion between the dealerships and Toyota and that any collusion that was alleged was not inextricably related to the purchase agreement.  

Since the Ninth Circuit found that Toyota had no right to compel arbitration, it did not address the District Court's finding that it had waived that right.  


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