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Court of Appeal:
Ford Can’t Invoke Arbitration Clause in Sales Contract
While Dealership Has Right to Enforcement of Clause in Agreement With Purchaser, Grimes Says, Manufacturer Has No Such Right; Disagreement Expressed With Contrary View of Third District
By a MetNews Staff Writer
Arbitration agreements in contracts entered into by dealerships and purchasers of the vehicles they sell do not inure to the benefit of the manufacturer in a suit against it based on alleged defects in its products, the Court of Appeal for this district held yesterday.
The opinion by Justice Elizabeth A. Grimes of Div. Eight affirms an order by Los Angeles Superior Court Judge Amy Hogue denying a motion by the Ford Motor Company (“FMC”) to compel arbitration of four consolidated actions by purchasers of Ford vehicles.
Grimes wrote:
“Equitable estoppel does not apply because, contrary to FMC’s arguments, plaintiffs’ claims against it in no way rely on the agreements. FMC was not a third party beneficiary of those agreements as there is no basis to conclude the plaintiffs and their dealers entered into them with the intention of benefitting FMC. And FMC is not entitled to enforce the agreements as an undisclosed principal because there is no nexus between plaintiffs’ claims, any alleged agency between FMC and the dealers, and the agreements.”
Third District Case
FMC’s equitable estoppel argument was derived from the Third District Court of Appeal’s July 24, 2020, decision in Felisilda v. FCA US LLC. There, as in the action against FMC, the sales contract signed by the purchaser contained an arbitration clause and alluded to the manufacturer’s warranties.
In Felisilda, Justice Andrea L. Hoch said that “the sales contract was the source of the warranties at the heart of this case” and because the purchasers “expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the sales contract—they are estopped from refusing to arbitrate their claim against” the manufacturer.
Disagreeing, Grimes declared that “[t]he plaintiffs’ breach of warranty claims against” the manufacturer “in Felisilda were not based on their sale contracts with the dealers,” explaining that “manufacturer vehicle warranties that accompany the sale of motor vehicles without regard to the terms of the sale contract between the purchaser and the dealer are independent of the sale contract.”
She also rejected Hoch’s reasoning as to “third party” language, saying it applies only where the purchaser sues the dealer and a third party, such as an insurer, is implicated.
Such a clause, she wrote, “says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.”
Third-Party Beneficiary
FMC is not a third-party beneficiary of the sales contracts, Grimes said, because contracts reflect no intention to benefit a vehicle manufacturer.”
Rejecting FMC’s argument that it is the dealer’s undisclosed principal, entitled to the benefit of the arbitration clause, Grimes wrote:
“When FMC has to fix something under warranty, consumers can go to a dealer to get it fixed. This does not mean the dealers are FMC’s agents in connection with the sale of vehicles to consumers that the dealer bought from FMC.”
She went on to say: “[E]even if plaintiffs did adequately allege that the dealers acted as FMC’s agents in misrepresenting the qualities of the vehicles prior to sale, any nexus with the sale contracts, and thus the right to compel arbitration, is lacking. There are no allegations to support the conclusion that the dealers acted as FMC’s agent in executing the sale contracts.”
The case is Ford Motor Warranty Cases, B312261.
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