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California Supreme Court:
Ford Cannot Compel Arbitration Based on Dealer Contract
Resolving Split, Opinion Says Automakers May Not Invoke Term Found in Purchase Agreements to Which They Are Not Parties Where Plaintiffs’ Claims Arise Out of Statutory Obligations, Not Contractual Ones
By a MetNews Staff Writer
Automakers may not compel the arbitration of claims by plaintiffs asserting liability under California’s lemon law for the purchase of allegedly defective vehicles based on a term in the dealer contract with the consumer providing that “any dispute between us” is to be resolved by alternative dispute resolution, the California Supreme Court held Thursday in consolidated cases involving the Ford Motor Company.
In a unanimous opinion authored by Justice Carol Corrigan, the court resolved a split in authority over whether car manufacturers are entitled to enforce the agreement to arbitrate as third-party beneficiaries of the contract based on estoppel principles, saying:
“We conclude this estoppel approach has no application here. Ford seeks to invoke an arbitration clause in a dispute flowing, not from the contract where the arbitration clause appears, but from obligations imposed by statute or conventional fraud duties. As plaintiffs’ claims are not intimately founded in or intertwined with the sales contracts, plaintiffs should not be estopped from pursuing their remedies against Ford in court.”
The question arose after five plaintiffs filed complaints against Ford alleging that the Fiesta and Focus models they had purchased from Southern California dealerships had defective transmissions that “reportedly could…cause accidents and injuries” and that the automaker concealed the issue from the public.
All of the pleadings asserted causes of action against the automobile giant for violations of the Song-Beverly Consumer Warranty Act, codified at Civil Code §1790 et seq., and two of the plaintiffs also claimed violations of the federal Magnuson-Moss Warranty, found at 15 U.S.C. §2301.
Moved to Compel
After the matters were consolidated, Ford moved to compel arbitration based on a provision in the purchase contract, which provides:
“Any claim or dispute, whether in contract, tort, statute or otherwise…between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, purchase, or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who did not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration….”
Then-Los Angeles Superior Court Judge Amy Hogue (now in private mediation) denied the motion and Div. Eight of this district’s Court of Appeal affirmed. In an opinion filed in April 2023 and written by then-Justice Elizabeth A. Grimes (now retired), the court acknowledged that the contract makes reference to third parties but opined:
“We do not read this…language as consent by the purchaser to arbitrate claims with…nonsignatories. Rather, we read it as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate.”
The court declined to follow the 2020 Third District decision in Felisilda v. FCA US LLC, which dealt with an identical arbitration clause and found that the car manufacturer was entitled to enforce the agreement to arbitrate. The Felisilda court held:
“Because the [plaintiffs] 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 FCA.”
Thursday’s opinion sides with this district and declares:
“We disapprove Felisilda v. FCA US LLC…to the extent it is inconsistent with our opinion.”
First Question
Corrigan said the “first question” the court must resolve is “what have these parties agreed to?” Answering the query, she wrote:
“The answer…is simple: Plaintiffs and Ford have not agreed to anything, much less to arbitrate any dispute between them. Further, nothing in the agreement between plaintiffs and the seller dealers expressed an intent to empower third parties to invoke the arbitration clause.”
As to the language dealing with non-signatories, she opined that “[t]he lower court’s reading here was correct,” reasoning:
“The ‘third party’ language in the arbitration clause means that if a buyer sues a dealer based on the condition of the vehicle, the dealer can elect to arbitrate that claim. The sales contract ‘says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.’ ”
Ford attempted to characterize the plaintiffs’ claims as contractual ones at their core, arguing that the statutory warranties at issue are intertwined with the sales agreements because they derive from the sale of goods.
The defendant points to case law establishing that parties seeking to vindicate terms of an agreement that are beneficial to them may not avoid a promise to arbitrate by couching their claims as unrelated to the contract or by suing a non-signatory.
Remarkably Different
Corrigan noted that the cases cited by Ford are “remarkably different” from those involved in the present action, saying:
“It is true that Ford would not owe any obligation to plaintiffs under a manufacturer’s warranty unless plaintiffs bought a Ford automobile….However, this but-for cause only explains how plaintiffs acquired ownership….[I]n determining whether plaintiffs are estopped from suing Ford, the essential concern is whether plaintiffs are trying to enforce contractual terms beneficial to them while avoiding their own contractual agreement to arbitrate….Here, as discussed, plaintiffs’ warranty and fraud claims do not seek to enforce any contractual term. Indeed, plaintiffs’ claims would be the same even if there were no sales and financing contract.”
Also rejecting Ford’s contention that the statutory warranties are part of the sales contracts because they form a basis of the bargain underlying the purchases, Corrigan remarked:
“Of course, a sales contract may contain express warranty provisions. But when a sales contract does not contain such provisions, nothing in these cases suggested that statutory warranty obligations automatically become actual terms of the sales contract itself. Indeed, the Song-Beverly Act expressly provides that implied warranties may be disclaimed by contract under certain circumstances.”
She declared:
“In sum, Ford cannot compel plaintiffs to arbitrate their claims against it. Properly read, the language of the arbitration clauses agreed to by plaintiffs and the dealers does not support an agreement to arbitrate with third parties. Further, plaintiffs’ claims flow not from the contracts but from separate statutory requirements and conventional fraud theories. They are not intimately founded in and intertwined with the contractual terms.”
The case is Ford Motor Warranty Cases, 2025 S.O.S. 1928.
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