A federal appeals court has struck down Toyota Motor Corp.’s attempt to arbitrate claims that it failed to inform consumers about defects in the anti-lock braking systems of certain Prius and Lexus vehicles.
About a dozen cases against Toyota have been coordinated as multidistrict litigation in Santa Ana before U.S. District Judge Cormac Carney. The cases followed Toyota’s recall of 150,000 2010 Prius and 2010 Lexus HS 250h models due to the defect, which prevented the anti-lock braking systems from engaging properly, sometimes resulting in accidents.
Toyota moved to compel arbitration of the claims on Oct. 10, 2011, after the U.S. Supreme Court ruled in AT&T Mobility v. Concepcion that class action waivers in arbitration agreements were enforceable. Carney decided on Dec. 20, 2011, that Toyota could not enforce arbitration clauses in purchase agreements to which its dealers, and not the company itself, were party. In any event, Carney said, Toyota had waived any right to compel arbitration by aggressively litigating for nearly two years.
Before the U.S. Court of Appeals for the Ninth Circuit, Toyota attorney Theodore Boutrous, co-chairman of the appellate and constitutional law group at Los Angeles-based Gibson, Dunn & Crutcher, argued that his client had a right to have the arbitration question put before an arbitrator, as required under the purchase agreements. He insisted that Toyota could enforce arbitration, even if it wasn’t a party to the agreement, because the consumer claims were intertwined with buying a Toyota vehicle and the actions of the dealerships.
“That was their threshold argument: Whether or not this should be arbitratable — or it should be decided by an arbitrator, not a district court,” said Diogenes Kekatos, a partner at Seeger Weiss in New York, who argued for the plaintiffs before the Ninth Circuit. “And, putting that aside, these claims belong in arbitration because Toyota claimed they were related to purchase agreements. Obviously, we strongly disagreed with Toyota’s characterization of the claims and their relationship to the purchase contracts.”
A unanimous panel on Wednesday sustained Carney, finding that an arbitrator did not need to handle the matter because Toyota wasn’t a party to the purchase agreements. The panel also agreed that Toyota could not enforce arbitration based on the consumer claims.
“Toyota is correct that plaintiffs’ claims presume a transaction involving a purchase of a class vehicle,” the court said. “The claims do not, however, rely upon the existence of a purchase agreement.”
Toyota spokeswoman Celeste Migliore issued an emailed statement about the ruling: “While Toyota respects the Ninth Circuit’s decision, we believe the arbitration provisions in the purchase agreements are valid and it is appropriate that the plaintiffs should be compelled to arbitrate their claims against Toyota per the contract’s provisions. In our view, the plaintiffs should not be allowed to ignore a binding requirement to have their claims regarding their vehicles resolved by an arbitrator, especially when the very purchase agreements they are relying on to sue Toyota contain this clearly enforceable arbitration provision.”
Toyota made a similar motion to compel arbitration in separate multidistrict litigation over defects associated with sudden acceleration in its vehicles. In that case, brought on behalf of putative class of consumers in California, New York and Florida, U.S. District Judge James Selna found on March 12, 2012, that Toyota had waived its right to compel arbitration of most of the claims because it had aggressively pursued a defense in the litigation. As for the remaining claims, Selna found that Toyota had no right to enforce the arbitration provisions because it wasn’t a party to the purchase and lease agreements. Toyota, represented by Boutrous, had appealed the decision before the Ninth Circuit.
On Dec. 28, Selna preliminarily approved a $1.3 billion settlement resolving all consumer claims alleging sudden acceleration. In letters to the Ninth Circuit, Boutrous and co-lead plaintiffs attorney Steve Berman, managing partner of Hagens Berman Sobol Shapiro in Seattle, asked that oral argument in the appeal of the arbitration ruling be held in abeyance in light of the settlement. The Ninth Circuit is scheduled to hear oral arguments on that issue on March 6 in Pasadena.
Selna has scheduled a June 14 hearing regarding final approval of the sudden-acceleration settlement.
Meanwhile, in the anti-lock braking system cases, both sides have moved forward with the litigation while the arbitration issue was on appeal.
On Jan. 9, Carney rejected certification of a class of California consumers who had purchased or leased the 2010 Prius or 2010 Lexus HS 250h, concluding that most of the named plaintiffs had not established a true defect since Toyota, through its recall, had rectified the problem by installing updated software. Others had problems too individualized to include in a class action, he wrote.
Amanda Bronstad is a reporter with The National Law Journal, a Recorder affiliate.