Yesterday, the Center, along with a cavalcade of prominent consumer, worker and advocacy organizations, filed an amicus brief urging the California Supreme Court to implement recent decisions of the U.S. Supreme Court and reject an arbitration-specific version of equitable estoppel that allows corporate defendants to enforce arbitration clauses against consumers with whom they never signed a contract.
The Center’s amicus brief––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––explains that the arbitration-specific standard asserted by defendant Ford Motor Company deviates from California contract law, violates recent U.S. Supreme Court precedent on the Federal Arbitration Act (FAA), and disregards the history and purpose of equitable estoppel. Equitable estoppel is a longstanding legal doctrine that protects parties who faced harm after they relied on intentional misrepresentations by another party. An arbitration-specific version of estoppel emerged in the 2000s in response to federal decisions that seemed to afford arbitration agreements special treatment as the result of a purported “policy favoring arbitration." As the Center’s brief explains, however, the Supreme Court has now made clear––in Morgan v. Sundance, Inc. (2022) and elsewhere––that the FAA does not permit arbitration-specific contract rules. Arbitration agreements must be treated the same as all other types of contracts. And that means that California contract law, which embraces the traditional version of equitable estoppel, controls the outcome of this case––and requires a rejection of Ford’s argument that a stranger to an arbitration agreement should still be able to enforce it.
History is on our side. Equitable estoppel is a centuries-old common-law doctrine that is founded on principles of equity and fair dealing. Its mandate is simple: no person may profit from their own wrongdoing. For example, if an insurance company makes indications to insureds that their claims will be paid and convinces them not to sue, equitable estoppel prevents the company from later asserting that they brought their claims too late. At its core, equitable estoppel is about preserving litigants’ expectations, protecting harmed parties, and promoting fair dealing.
In recent years, however, some lower courts in California––misreading U.S. Supreme Court opinions declaring a “policy favoring arbitration”––have adopted a version of equitable estoppel specific to arbitration cases that contorts the doctrine into something wholly different. Instead of evaluating a defendant’s equitable estoppel claim using the traditional principle of detrimental reliance, the courts have examined whether a plaintiff’s claims “rely” on a contract containing an arbitration clause. Corporate defendants have used this arbitration-specific standard to argue that although they have no arbitration agreement with the plaintiff, the plaintiff, often a consumer or worker, is “equitably estopped” from refusing to arbitrate because an arbitration clause exists in some other contract purportedly connected to their claims.
In this case, several different consumers whose Ford Fiestas had faulty transmissions brought claims against Ford under California’s Song-Beverly Consumer Warranty Act (popularly known as the Lemon Law), which protects buyers from defective vehicles. Ford (the manufacturer of the vehicles) sought to send the cases into private arbitration, arguing that it could enforce the arbitration clause in the sales contracts that the plaintiffs signed with their dealers because the warranty claims against Ford are so intertwined with the sales contract that plaintiffs should be “estopped” from refusing to arbitrate them. The lower court disagreed and held instead that the plaintiffs’ claims in no way relied on the sales contracts.
The Center’s brief urges the California Supreme Court to affirm that decision and not to treat arbitration cases differently from any other contract claim. As the US Supreme Court has now clarified in Morgan v. Sundance, Inc. and elsewhere, the FAA requires that arbitration agreements be treated like any other agreement––and it requires rejection of Ford’s upside-down version of estoppel that applies only to arbitration. In every other context, equitable estoppel applies only if a party has relied to its detriment on another’s words or conduct. In a case like this one, where Ford was neither party to nor named in the sales contracts, and where the buyers never made any representation of any kind to Ford, detrimental reliance is not present. Ergo, equitable estoppel cannot apply.
At base, the Center’s brief argues, this case is about fair play as well as history. Courts should not allow equitable estoppel, a doctrine rooted in fairness, to be used as a weapon to force plaintiffs into arbitration with defendants they never entered an agreement with. After all, arbitration is a matter of contract––of consent, not coercion.
We trust that the highest court in the Golden State will agree.