Celebratory fireworks were in order last week, when the California Supreme Court unanimously ruled that Ford Motor Company could not invoke an arbitration clause against consumers with whom they never signed a contract. The decision is a win for consumers and advocates in the fight against forced arbitration.
As a refresher: Plaintiffs purchased Ford Focus and Fiesta vehicles from various car dealerships. At the time of the sale, each buyer signed a form contract with the dealer that contained a mandatory arbitration provision. When their cars proved to be dangerously defective, something Ford allegedly knew and concealed from the public, Plaintiffs sued the manufacturer to remedy those defects.
Ford then moved to compel arbitration—despite the fact that the company was not a party to the contracts with an arbitration provision. Ford’s argument went: Plaintiffs agreed to arbitrate any claims pertaining to the sales contracts with the dealers. Although they sued Ford, not the dealers, plaintiffs still attempted to benefit from the sales contract and should therefore be bound by their agreement to arbitrate. Thus, plaintiffs should be equitably estopped from avoiding arbitration and pursuing their claims in court.
Ford’s argument can be traced to some lower courts’ decisions which morphed a centuries-old equitable estoppel doctrineinto an arbitration-specific doctrine that gives arbitration agreements preferential treatment. Traditionally, equitable estoppel has existed to prevent people from going back on their word or actions if another party had detrimentally relied on those representations. But some lower courts have created an arbitration-specific version of equitable estoppel that ignores the detrimental reliance requirement and instead asks only whether a plaintiff’s claims are basedon a contract containing an arbitration clause.
The Center—joined by the Consumer Federation of California, Consumers for Auto Reliability and Safety, Housing and Economic Rights Advocates, Impact Fund, Katharine and George Alexander Community Law Center, National Association of Consumer Advocates, National Consumer Law Center, Public Counsel, Public Justice, Towards Justice, and UC Berkeley Center for Law and Work—filed an amicus brief urging the Court to do away with this strain of equitable estoppel entirely. The brief explained that the U.S. Supreme Court’s decision in Morgan v. Sundance made clear that the Federal Arbitration Act does not permit arbitration-specific contract rules. That is, arbitration agreements must be treated the same as all other contracts. And in every context other than arbitration, equitable estoppel applies only if a party has detrimentally relied on another’s words or conduct.
Without reaching the question whether arbitration-specific equitable estoppel survives Morgan v. Sundance, theCaliforniaSupreme Court held that the estoppel approach did not apply in the present case. The Court explained that the plaintiffs’ causes of action against Ford did not depend on or invoke the dealers’ sales contracts, and the plaintiffs did not seek any benefit from those contracts. Instead, the plaintiffs’ claims flowed from statutory requirements under California’s lemon laws and warranty laws, as well as conventional fraud theories.
As Justice Corrigan’s opinion for the unanimous Court put it:
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.
And there it was. A complete victory for the plaintiffs. Kudos to the vehicle purchasers and to their stellar counsel at Gupta Wessler, Jenn Bennett and Matt Wessler. Though the Court’s reasoning was narrower than what the Center and its allies advocated for, the outcome is a decided and very welcome win against forced arbitration. Huzzah!