Ninth Circuit Downshifts Porsche Arbitration Dispute - U.S. Ninth Circuit
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Ninth Circuit Downshifts Porsche Arbitration Dispute

The Ninth Circuit giveth, and the Ninth Circuit taketh away.

On Wednesday, the Ninth Circuit Court of Appeals backtracked from its September ruling in the Porsche arbitration dispute. The court struck down a mandatory arbitration requirement last year, allowing car owners with warranty claims to take manufacturers to court.

The plaintiff in the case, Diana Kolev sued Porsche Cars North America, Inc. (Porsche) and the dealership where she purchased her pre-owned Porsche 911 Turbo. Kolev claimed that her car developed serious mechanical problems during the warranty period and the dealership refused to honor her warranty claims. She alleged breach of implied and express warranties under the Magnuson-Moss Warranty Act (MMWA), and breach of contract and unconscionability under California law.

The district court granted the dealership's petition to compel arbitration pursuant to the mandatory arbitration provision in the sales contract that Kolev signed when she bought the car. It also stayed the action against Porsche. After the arbitrator resolved most of the claims in favor of the dealership, the district court confirmed the arbitration award.

Kolev appealed, arguing that the MMWA barred the provision mandating pre-dispute binding arbitration of her warranty claims against the dealership. Although the text of the MMWA does not specifically address the validity of pre-dispute mandatory binding arbitration, the FTC construed the MMWA as barring pre-dispute mandatory binding arbitration provisions covering written warranty agreements.

The Ninth Circuit Court of Appeals sided with Kolev, finding that written warranty provisions that mandate pre-dispute binding arbitration are invalid under the MMWA and that the district court therefore erred in enforcing Porsche's warranty clause by compelling mandatory arbitration.

So why the change of heart?

The ruling was at odds with federal appellate circuits -- which is nothing new for the Ninth -- but now it could be at odds with the California Supreme Court.

Last year, a California appellate court ruled in a separate car case that a Mercedes-Benz dealer's mandatory arbitration clause was "unconscionable," reports Thomson Reuters News & Insight. Since the California Supreme Court decided to take the Mercedes case after the Ninth Circuit issued its opinion in the Porsche arbitration dispute, the federal appellate court withdrew its ruling.

The Ninth Circuit Court of Appeals will issue a new opinion in the Porsche arbitration dispute after the California Supreme Court rules on mandatory arbitration in Sanchez v. Valencia Holding Co. LLC.

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