Auto Makers Cannot Force Consumers into Arbitration
Today, in a victory for consumers, the 9th Circuit Court of Appeals held that auto makers cannot force consumers into binding arbitration in lemon law cases. The case arose after a federal district judge in Santa Ana held that the car buyer was not entitled to his day in court, but instead had to take his claims to binding arbitration. The judge based his decision on an arbitration clause in the purchase contract. Car dealers typically include arbitration clauses in the fine print on the reverse side of the contract that on their face preclude buyers from suing the dealer. In this case, Porsche, the manufacturer tried to piggy-back on the dealer's arbitration clause.
The buyer was seeking damages due him under the federal Magnuson Moss Warranty Act, a federal lemon law.
On appeal, Porsche argued the arbitration clause was binding on the buyer and that the buyer could not proceed in court with his warranty claims based on the federal MMA. The Court rejected that argument citing a FTC rule published in 1975 interpreting the MMA which rule prohibits car manufacturers from forcing consumers into arbitration schemes in lemon law cases. The FTC recognized that the manufacturers would set up arbitration panels unfavorable to car buyers. The case is Kolev v Euromotors West and Porsche Cars North America, No. 09-55963.
