On January 30, 2013, the U.S. Court of Appeals for the Ninth Circuit affirmed the lower court’s decision in the multidistrict Toyota Motor Corp. Hybrid Brake Marketing Sales Practices and Products Liability Litigation, holding that the plaintiffs’ consumer fraud claims against Toyota, relating to faulty brakes in 2010 Prius models and 2010 Lexus hybrid HS 250h models, were not subject to arbitration.
Citing the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion—which overturned state laws that categorically preclude enforcement of class action waivers in certain arbitration agreements—Toyota moved to compel arbitration with the plaintiff car-buyers, based on an arbitration clause in the purchase agreements with their dealers. Toyota filed the motion only after failing in its effort to obtain dismissal of the plaintiffs’ lawsuit on the merits. The district court, however, refused to order arbitration because Toyota was not a signatory to the purchase agreements. In other words, the district court said that the arbitration clause was limited to the plaintiffs and the dealerships, not Toyota.
On appeal, Toyota argued that even though it was a nonsignatory, plaintiffs should nevertheless be compelled to arbitrate their consumer fraud claims because the claims are intertwined with the purchase. The U.S. Court of Appeals for the Ninth Circuit rejected this “equitable estoppel” argument, agreeing with the plaintiffs that their consumer fraud claims against Toyota, which relate to the faulty brakes in their vehicles, are not intertwined with the purchase agreements with the dealers, which dealt with matters of financing and insurance.
In particular, the Court of Appeals noted that no court would need to examine the purchase agreements in order to resolve the plaintiffs’ claims. It also rejected Toyota’s argument that a provision in the arbitration clauses required that the issue of whether the claims belong in arbitration be addressed, in the first instance, by an arbitrator rather than the district court, pointing out that Toyota could not rely on that jurisdictional clause because, as a non-signatory to the purchase agreements, it lacked standing to do so. Having rejected Toyota’s contention that the plaintiffs’ claims are intertwined with the agreements, the Court of Appeals saw no need to address the plaintiffs’ alternative argument that, even if their claims were subject to arbitration, Toyota had forfeited any right to seek arbitration by playing a game of “heads-I-win/tails-you-lose” and filing its motion to compel arbitration only after failing in its bid to seek dismissal of the case on the merits.
Toyota marks a significant victory for consumers, especially in cases involving consumer fraud. This decision further signifies that the Supreme Court in Concepcion did not articulate a bright- line rule in deciding cases where mandatory arbitration clauses are in dispute. As we predicted in our previous blog, which examined Concepcion in detail, mandatory arbitration clauses will continue to be a hot-button issue in the courts and hopefully more cases like Toyota will arise giving more protection to consumers.
The case was argued before the Ninth Circuit Court of appeals by Seeger Weiss partner Diogenes P. Kekatos. The court’s decision is published at 705 F.3d