Metropolitan News-Enterprise


Thursday, January 31, 2013


Page 1


Panel Rejects Toyota Arbitration Bid Based on Dealer Contracts




Customers suing Toyota Motor Corporation and its U.S. distributor based on defects in their new cars cannot be required to arbitrate their claims based on clauses in their purchase agreements with Toyota dealers, the Ninth U.S. Circuit Court of Appeals ruled yesterday.

The panel affirmed U.S. District Judge Cormac J. Carney’s order denying Toyota’s motion to compel arbitration of a putative class action by California, Texas, and Maryland purchasers of 2010 Prius vehicles, who claim their antilock brakes failed to work properly. The plaintiffs also allege that Toyota was aware of the problem as early as July 2009 but failed to remedy it.

Several suits were filed within days of an announcement by the National Highway Traffic Safety Administration that it was investigating whether the 2010 Prius had a defect causing momentary loss of braking capability. Actions filed in other districts were transferred to the Central District of California by the Judicial Panel on Multidistrict Litigation, and the actions were subsequently consolidated.

Motion to Dismiss

Toyota moved to dismiss, and also to compel arbitration, following the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion (2011) 131  S. Ct.  1740. The high court held in that case, contrary to California precedent, that class action waivers in arbitration agreements are generally enforceable.

Carney ruled that the motion, having been made after more than two years of litigation, was untimely. He also ruled that Toyota was not a party to the purchase agreements, and thus could not rely on those agreements’ arbitration clauses, and that Toyota could not compel arbitration on an equitable estoppel theory.

In an opinion by visiting District Judge Gordon J. Quist of the Western District of Michigan, the appellate panel rejected Toyota’s claim that the issue of whether it could enforce the arbitration clauses should itself have been resolved by an arbitrator, rather than by Carney.

While the arbitration clauses provided that issues of arbitrability were subject to arbitration, Quist explained, those provisions, like the rest of the agreement, could only be enforced by a party to the agreements, absent language to the contrary. “Given the absence of clear and unmistakable evidence that Plaintiffs agreed to arbitrate arbitrability with nonsignatories, the district court had the authority to decide whether the instant dispute is arbitrable,” Quist wrote.

Equitable Estoppel Argument

The judge went on to reject Toyota’s equitable estoppel argument, distinguishing cases holding that a litigant may not claim right to enforce a contract while simultaneously arguing that it was not bound by the arbitration clause of that same agreement, and that a nonsignatory may compel arbitration of an agreement if the claims against it are ““intimately founded in and intertwined with” the underlying contract.

The plaintiffs’ claims that Toyota violated consumer protection laws, engaged in unfair competition and false advertising by making false representations regarding the safety of the vehicles, and breached the implied warranty of merchantability are not intertwined with the purchase agreements, Quist concluded. He noted that the dealer contracts expressly stated that the dealer is not a party to the warranty, and said the plaintiffs’ other claims were based on the alleged conduct of Toyota, not on the purchase agreements or the conduct of the dealers.

Senior Judge Andrew Kleinfeld and Judge M. Margaret McKeown joined in the opinion.

Counsel on appeal were Theodore J. Boutrous Jr., William E. Thomson, Blaine H. Evanson and Brandon J. Stoker of Gibson, Dunn & Crutcher LLP, and Michael L. Mallow, Denise A. Smith-Mars, and Rachel A. Rappaport of Loeb & Loeb LLP for the defendants, and Vahn Alexander and Christopher B. Hayes of Faruqi & Faruqi and Marc L. Godino of Glancy Binkow & Goldberg LLP for the plaintiffs.

The case is Kramer v. Toyota Motor Corporation, 12-55050.


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