Soto v. Honda: Federal Court Again Rebuffs Attempt to Compel Arbitration

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A strong body of law continues to develop denying defendants’ attempts to compel arbitration and, as a practical matter, elude meaningful enforcement of workplace- and consumer-protection laws. Most recently, the highly respected Judge Susan Illston, in California’s Northern District, rejected an attempt by American Honda Motor Co. (as a third-party non-signatory to a sale contract) to enforce an arbitration clause in a class action alleging defects in the Honda Accord. See Soto v. Amer. Honda Motor Co., Inc., No. 12-1377 (N.D. Cal. Oct. 3, 2012) (order denying motion to compel arbitration) (available here).

The at-issue arbitration clause was entered into between the plaintiff and the dealership where he bought his Accord, which in turn assigned the Installment Sale Contract comprising the arbitration clause to American Honda Finance Corp. (“AHFC”). See order at 2. American Honda Motor Co. was never a party to the contract. Accordingly, American Honda advanced three related theories in attempting to compel arbitration despite not being a party to the sale contract: (1) a theory that the contract incorporates third parties; (2) an equitable estoppel theory based on the plaintiff’s own reliance on the contract containing the arbitration clause; and (3) an agency theory, premised on the close business relationship between American Honda and AHFC. See id. at 4. Judge Illston serially rejected each of the three theories advanced by American Honda and, consequently, denied the motion to compel arbitration. See id. at 5-9.

The direct incorporation theory was easily rejected as a matter of literal contract interpretation. See id. at 5. The provision that American Honda had posited as the source of it being expressly incorporated as a beneficiary of the Installment Sale Contract was held, instead, to “refer to a secondary sale of the car, and not the relationship with the manufacturer AHM.” Id. So, too, was American Honda’s equitable estoppel theory rejected, as the plaintiffs’ product defect claims were found not to be closely intertwined with or dependent on the Installment Sales Contract. See id. at 5-7. For similar reasons, the court also rejected American Honda’s agency theory, finding that “AHFC’s agency relationship to AHM is limited to the financing of Honda vehicle sales and leases; it has no involvement with AHM’s design and manufacture of vehicles. Id. at 8.

The class action will thus remain in the Northern District, where the plaintiffs’ allegations of a “systemic design defect that results in burning motor oil at a faster rate than intended” will be adjudicated under statutes including California’s Consumer Legal Remedies Act, Unfair Competition Law, and the Magnuson-Moss Warranty Act. Id. at 1.