Pestarino v. Ford Motor Company

Background

Andrew Pestarino filed a “lemon law” action against Ford Motor Company. His first amended complaint asserted two claims under California’s Song-Beverly Consumer Warranty Act: breach of the implied warranty of merchantability and breach of express warranty. The claims arose from Pestarino’s purchase of a new Ford F-250 from Frontier Ford, a dealership that was not a party to the lawsuit.

Ford removed the case to federal court based on diversity jurisdiction. Ford then moved to compel arbitration and stay the action based on an arbitration provision in the retail installment sale contract between Pestarino and Frontier Ford. Ford was not a party to that contract. The provision covered disputes related to the vehicle purchase, its condition, the contract, or resulting relationships, including relationships with third parties that did not sign the contract.

Legal standard

The Federal Arbitration Act generally requires courts to enforce valid arbitration agreements. Before compelling arbitration, a court must determine whether the parties have an agreement to arbitrate and whether that agreement covers the dispute. A person or company that did not sign the agreement may enforce it only if applicable state contract law permits enforcement.

Agency argument

Ford argued that it could enforce the arbitration provision because Pestarino alleged an agency relationship involving Ford and Frontier Ford. The court rejected that argument. It explained that the cited California decision involved multiple defendants connected by alleged agency relationships, while this case involved only one defendant—Ford. The court also found that Ford had not argued or shown that Frontier Ford acted as Ford’s agent when signing the sale contract. The allegation that Frontier Ford serviced the vehicle did not establish a connection to the arbitration provision in the sale contract.

Equitable-estoppel argument

Ford also argued that Pestarino should be prevented from avoiding arbitration under equitable estoppel, a doctrine that can sometimes allow a nonsignatory to enforce an arbitration clause. Ford contended that Pestarino’s warranty claims were closely connected to the sale contract because he would not have received the vehicle or Ford’s warranties without entering that contract.

The court relied on the Ninth Circuit’s decision in Kramer, which held that a vehicle purchaser’s claims against a manufacturer do not become subject to an arbitration clause in a dealership sales contract merely because the vehicle purchase was necessary for the claims to arise. The relevant question was whether Pestarino’s claims depended on the terms of the sale contract. The court concluded that the claims instead arose from Ford’s alleged warranty obligations and did not rely on the sale contract’s terms. The court found Ford’s contrary authority unpersuasive and followed the reasoning of later district court decisions rejecting similar arguments.

Disposition

Because Ford did not establish that it could enforce the arbitration provision in the contract between Pestarino and Frontier Ford, the court denied Ford’s motion to compel arbitration and stay the action. The order terminated docket entry ECF 14. The court did not reach Pestarino’s separate arguments concerning the language of Ford’s written warranty.

Judge Beth Labson Freeman signed the order on June 15, 2020.