Kramer v. Toyota: Ninth Circuit Rebuffs Toyota Arbitration Bid, Rejecting Equitable Estoppel Theory

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In a major win for consumers, the Ninth Circuit has affirmed a district court’s denial of Toyota’s petition to compel arbitration in a class action alleging brake defects in certain models of the automaker’s hybrid cars. See Kramer v. Toyota Motor Corp., __ F.3d __ (9th Cir. 2013), No. 12-55050. The court definitively sided with the plaintiffs, rejecting Toyota’s equitable estoppel argument, which sought to bind the plaintiffs to arbitration terms embodied in a contract that Toyota itself was not a signatory to. Apart from its effect on the Toyota brake defect litigation, the ruling is expected to be influential as to the numerous arbitration petitions pending in Ninth Circuit trial courts and beyond, particularly in consumer class actions where a viable equitable estoppel theory supporting arbitration is asserted.

The equitable estoppel issue arose around Toyota’s contention that the purchase agreements between the plaintiffs and the dealerships where they purchased the at-issue vehicles provided the contractual basis for arbitration, notwithstanding that Toyota was not a signatory to these agreements. See slip op. at 10. However, both the district court and Ninth Circuit took a more traditional view of contractual privity, with the appellate panel holding that “the arbitration agreements do not contain clear and unmistakable evidence that Plaintiffs and Toyota agreed to arbitrate.” Slip op. at 11. Further, and specifically bearing on Toyota’s equitable estoppel theory, the Ninth Circuit found none of the limited circumstances in which a nonsignatory may compel arbitration to be applicable. See slip op. at 24-25. In considerable detail, the decision finds neither that the plaintiffs brought claims “intertwined with” the purchase agreement nor that the plaintiffs’ claims were “intimately connected with the obligations of the” purchase agreement. Id.

Consequently, plaintiffs in numerous other class actions implicating equitable estoppel — such as so-called “lemon law” cases where automakers regularly advance equitable estoppel arguments premised on the purchase agreements between customers and dealers — are expected to benefit directly from the Kramer decision.