Toyota Loses Bid to Force Arbitration in Prius, Lexus Class Action

In 2010, the National Highway Traffic Safety Administration began a formal investigation into claims that 2010 Toyota Prius vehicles were experiencing momentary loss of braking capability. A few days later, Toyota announced a voluntary recall of the affected Prii and 2010 Lexus HS 250h vehicles to repair a software glitch that was the alleged culprit. According to the Plaintiffs, Toyota knew about the issues as early as June 2009 but did nothing.

The vehicles were purchased pursuant to written agreements with independent dealerships. Each agreement included a broad arbitration clause that allowed either party to choose arbitration, and allowed the arbitrator to decide the scope of the arbitration. The agreements also waived the right to participate in class action litigation.

It was these provisions that Toyota sought to rely upon to force the plaintiffs into arbitration. The district court did not grant Toyota's wish, however, as Toyota was a nonsignatory to the purchase agreements and equitable estoppel did not apply. Furthermore, the court held that Toyota waived its right to force arbitration by participating actively in this litigation since early 2010.

The Ninth Circuit agreed wholeheartedly. They agreed that Toyota was a nonsignatory, as the purchase agreements explicitly stated that they were between the dealers and the customers.

Toyota also argued that the scope of arbitration was to be decided by the arbitrators per the agreement.

Typically arbitrability of claims is determined by the judiciary, unless there is unmistakable evidence that the parties agreed to "arbitrate arbitrability" (say that three times fast) in the written agreement. Even if they did here, the agreement is clear that the arbitration clause applies to "you" and "us", meaning the dealership and the customer - not Toyota.

As for equitable estoppel, it applies in arbitration cases (1) when a signatory relies on the contract in asserting its claims against the nonsignatory or the claims are "intimately founded in and intertwined with the underlying contract" and (2) when the signatory alleges interdependent and concerted misconduct by the nonsignatory and another signatory and the allegations are ... connected with the ... [contract]."

The plaintiffs' complaints are based on breach of implied warranty, state consumer protection laws, and things of that ilk. The claims do not reference or incorporate terms of the written agreements. The breach of contract claim refers to Toyota's representations about its commitments to repairs and safety - not any promise in the sales agreements.

The court also notes that this case differs greatly from typical estoppel cases. Estoppel is applied where the plaintiff's conduct requires it in the name of fairness, such as a plaintiff that tried to enforce a purchase agreement while opposing the arbitration clause. The maxim of "he who takes the benefit must bear the burden" rules.

The easier question of whether litigating actively waived Toyota's right to force arbitration at this juncture (from similar cases, we'd guess "duh") was bypassed by the Ninth due to the above realization that there was no right to enforce.

Related Resources:

• Kramer V. Toyota Motor Corp. (Ninth Circuit Court of Appeals)
• Ninth Circuit Downshifts Porsche Arbitration Dispute (FindLaw's Ninth Circuit Blog)
• Court Says Foreign Arbitration Clause Barred by Carmack Amendment (FindLaw's Ninth Circuit Blog)