Kramer v. Toyota Motor Corp.

Signatory and nonsignatory entities in a contract are presumptively not in agreement to arbitrate arbitrability if the contract does not specifically include nonsignatory entities in the signatories’ agreement to arbitrate arbitrability.

Toyota Motor Corporation (“Toyota”) filed an interlocutory appeal, challenging the district court’s denial of its motion to compel arbitration. Toyota was a nonsignatory to agreements involving arbitration clauses between car buyers (the plaintiff class) and dealerships selling Toyota cars. The underlying class action involved claims against Toyota regarding vehicles with defective anti-lock brake systems and the lack of timely disclosure by Toyota of the defects. The district court held that Toyota could not compel the plaintiffs in the class to arbitrate their claims because Toyota’s status as a nonsignatory to the purchase agreements prevents it from invoking the benefits of the agreements. Toyota argued that the purchase agreements stated that the arbitrator decides the application of the arbitration provision, and in turn, “whether a nonsignatory may compel [members of the class action] to arbitrate.” Because the arbitration agreements “[did] not contain clear and unmistakable evidence that Plaintiffs and Toyota agreed to arbitrate arbitrability,” the Ninth Circuit agreed that the members of the class action are entitled to assert their claims in court. Toyota also argued that the plaintiff class is “equitably estopped from avoiding arbitration.” Federal law provides that a nonsignatory “to an arbitration agreement may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement.” Interpreting California law, the Court found, however, that the plaintiff class was not estopped from avoiding arbitration, because as signatories, they were not reliant on the terms of the contract in asserting their claims, nor were their claims “intimately founded in and intertwined with the underlying contract.” The Court further agreed with the district court’s determination that none of the claims made by the plaintiff class arose under the purchase agreements. AFFIRMED.