Kramer v. Toyota Motor Corp.

• Decision Date: 30 January 2013
• Docket Number: No. 12–55050.,12–55050.
• Citation: 705 F.3d 1122
• Parties: Jessica KRAMER, Plaintiff, and Alexsandra Del Real; Michael Choi; Michael Scholten, Individually and on Behalf of All Others Similarly Situated; Lu Li, Plaintiffs–Appellees, v. TOYOTA MOTOR CORPORATION, a Japanese corporation/a foreign corporation, DBA Toyota Motor North America, Inc.; Toyota Motor Sales, U.S.A., Inc., a California corporation/a foreign corporation, Defendants–Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

705 F.3d 1122

Jessica KRAMER, Plaintiff,
and
Alexsandra Del Real; Michael Choi; Michael Scholten, Individually and on Behalf of All Others Similarly Situated; Lu Li, Plaintiffs–Appellees,
v.
TOYOTA MOTOR CORPORATION, a Japanese corporation/a foreign corporation, DBA Toyota Motor North America, Inc.; Toyota Motor Sales, U.S.A., Inc., a California corporation/a foreign corporation, Defendants–Appellants.

No. 12–55050.

United States Court of Appeals,
Ninth Circuit.

Argued and Submitted Oct. 11, 2012.
Filed Jan. 30, 2013.

[705 F.3d 1123]

Theodore J. Boutrous Jr.; William E. Thomson; Blaine H. Evanson; Brandon J. Stoker, Gibson, Dunn & Crutcher LLP, Michael L. Mallow; Denise A. Smith–Mars; Rachel A. Rappaport, Loeb & Loeb LLP, Los Angeles, CA, for Defendants–Appellants.

Diogenes P. Kekatos, Seeger Weiss LLP, New York, NY; Vahn Alexander; Christopher B. Hayes, Faruqi & Faruqi, LLP, Marc L. Godino, Glancy Binkow & Goldberg LLP, Los Angeles, CA, for Plaintiffs–Appellees.

Appeal from the United States District Court for the Central District of California, Cormac J. Carney, District Judge, Presiding. D.C. No. 8:10–ml–02172–CJC–RNB.
Before: ANDREW J. KLEINFELD and M. MARGARET McKEOWN, Circuit Judges, and GORDON J. QUIST, Senior District Judge.^*

OPINION
QUIST, District Judge:

Toyota Motor Corporation and Toyota Motor Sales, U.S.A., Inc. (collectively “Toyota” or “Defendants”) seek review of the district court's denial of their motion to

[705 F.3d 1124]

compel arbitration. The district court held that Toyota, a nonsignatory to several agreements with arbitration provisions between Plaintiffs and various Toyota dealerships (hereinafter “Dealerships”), could not compel Plaintiffs to arbitrate with Toyota. The district court also found that Toyota had waived any right to compel arbitration by vigorously litigating this action in district court for nearly two years.

We have jurisdiction pursuant to 9 U.S.C. § 16(a)(1)(C), which provides for immediate interlocutory appeal of a district court's denial of a motion to compel arbitration. Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 86, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). For the reasons set forth below, we affirm the district court's order denying Toyota's motion to compel arbitration.

BACKGROUND

Plaintiffs are owners of Model Year 2010 Toyota Prius vehicles who purchased their new vehicles between June 2009 and February 2010 from Toyota dealerships in California, Texas, and Maryland. Plaintiffs bring this putative class action on behalf of themselves and others similarly situated who purchased or leased a Model Year 2010 Toyota Prius or Model Year 2010 Lexus HS 250h (collectively “Class Vehicles”) in the United States. Plaintiffs allege that they experienced defects in their antilock brake systems (ABS), resulting in increased stopping distances. Plaintiffs further allege that Toyota had notice of the defect as early as July 2009 but failed to disclose the defect and continued to manufacture and sell vehicles with defective ABS. Plaintiffs assert claims for violation of California's Consumers Legal Remedies Act, Cal. Civ.Code § 1750 et seq.; unfair competition, Cal. Bus. & Prof.Code § 17200 et seq.; false advertising, Cal. Bus. & Prof.Code § 17500 et seq.; breach of the implied warranty of merchantability, Cal. Com.Code § 2314; and common law breach of contract.

Plaintiffs purchased their vehicles on credit by entering into either a “Retail Installment Sale Contract” or “Purchase Agreement” with their respective dealerships. The agreements (hereinafter “Purchase Agreement(s)”) set forth the terms of the sales, including information regarding the purchase price, financing, insurance, warranties disclaimed by the dealer, warranties of buyer, and rescission rights. The Purchase Agreements also contained similarly worded arbitration provisions.¹ For example, the agreement entered by Plaintiff Michael Scholten states,

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN YOU AND U.S. DECIDED BY ARBITRATION, RATHER THAN IN COURT OR BY JURY TRIAL.

2. IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLAIM YOU MAY HAVE AGAINST US. YOU WILL GIVE UP ANY RIGHT TO CLASS ARBITRATION AND TO ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.

...

If either you or we elect, any claims or disputes arising out of this transaction, or relating to it, will be determined by binding arbitration and not by court action. This includes all claims and disputes arising out of, or relating to: the vehicle, your credit application, this contract,

[705 F.3d 1125]

the sale or financing of the vehicle, and any collection activities.

...

This Arbitration Clause applies, regardless of whether the claims or disputes arise in contract, tort, statute or otherwise. It also applies to any claim or dispute about the interpretation and scope of this Arbitration Clause. It also applies to any claim or dispute about whether a claim or dispute should be determined by arbitration.

Any claim or dispute is to be arbitrated by a single arbitrator who will arbitrate only your own claims and not the claims of a class of persons. You expressly waive any right you may have to arbitrate a class action.

Likewise, the arbitration clauses in the other Purchase Agreements employ the language “you” and “we” or “buyer” and “dealer” to identify who may elect arbitration. Toyota is not a signatory to any of the Purchase Agreements.

PROCEDURAL HISTORY

On February 4, 2010, the National Highway Traffic Safety Administration announced a formal investigation into allegations that Model Year 2010 Toyota Prius hybrid vehicles experienced momentary loss of braking capability. ² On February 8, 2010, Toyota voluntarily recalled the Class Vehicles to update the ABS software. Between February 8 and February 19, 2010, Plaintiffs filed separate class action lawsuits in several federal district courts. On April 9, 2010, the United States Judicial Panel on Multidistrict Litigation (JPML) issued a Transfer Order in In re: Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation (MDL 2151), pursuant to which the JPML transferred several actions to the Central District of California. On July 28, 2010, the present actions were consolidated by stipulation pursuant to 28 U.S.C. § 1407, and on November 22, 2010, the district court approved a negotiated protective order governing discovery.

On April 26, 2011, Plaintiffs filed the operative First Amended Complaint. The following day, the United States Supreme Court issued its decision in AT & T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), which abrogated Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005), and held enforceable class action waivers in certain arbitration agreements. Discover Bank had previously held class action arbitration provisions unconscionable and unenforceable in consumer contracts of adhesion under certain circumstances. 36 Cal.4th at 153, 30 Cal.Rptr.3d 76, 113 P.3d 1100.

On June 16, 2011, Toyota moved to dismiss Plaintiffs' claims pursuant to Federal Rule of Civil Procedure 12(b)(6), which the district court denied on September 12, 2011. The following day, Toyota informed Plaintiffs' counsel that Toyota intended to move to compel arbitration. On September 27, 2011, Toyota answered the First Amended Complaint, asserting arbitration as one affirmative defense. On October 10, 2011, Toyota moved to compel arbitration. The district court denied Toyota's motion on December 20, 2011, finding Toyota had waived any right to arbitrate by vigorously litigating the action, participating in discovery, and negotiating protective orders for nearly two years. The court also found that Toyota, as a nonsignatory

[705 F.3d 1126]

to the Purchase Agreements between Plaintiffs and Dealerships, could not compel arbitration, and equitable estoppel did not require arbitration.

DISCUSSION I.
A.

Toyota first argues that the district court erred by deciding whether Toyota had a right to compel arbitration, contending that the Purchase Agreements commit that question to an arbitrator.

We review de novo district court decisions about the arbitrability of claims. Momot v. Mastro, 652 F.3d 982, 986 (9th Cir.2011). With limited exceptions, the Federal Arbitration Act (FAA) governs the enforceability of arbitration agreements in contracts involving interstate commerce. See9 U.S.C. § 1 et seq. The FAA states that “[a] written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Id. § 2. The FAA reflects both a “liberal federal policy favoring arbitration,” Concepcion, ––– U.S. ––––, 131 S.Ct. at 1745 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)), and the “fundamental principle that arbitration is a matter of contract,” id. (quoting Rent–A–Center, West, Inc. v. Jackson, ––– U.S. ––––, 130 S.Ct. 2772, 2776, 177 L.Ed.2d 403 (2010)).

The scope of an arbitration agreement is governed by federal substantive law. Tracer Research Corp. v. Nat'l Envtl. Servs. Co., 42 F.3d 1292, 1294 (9th Cir.1994). “[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1131 (9th Cir.2000) (quoting Moses H. Cone, 460 U.S. at 24–25, 103 S.Ct. 927).

Nevertheless, “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he...