Antitrust Law Daily Wrap Up, ADVERTISING—D.N.J.: Honda can force arbitration on New Jersey consumers claiming deceptive destination fees, (Jul 19, 2023)

By E. Darius Sturmer, J.D.

Arbitration provisions in complaining consumers’ leasing and purchase agreements are valid and enforceable, though questions as to the scope of the provisions in the leasing agreement must be left to that arbitrator.

A group of New Jersey consumers alleging that American Honda Motor Co. (“Honda”) violated the New Jersey Consumer Fraud Act (“NJCFA”) by artificially inflating the purchase prices of its vehicles through shady “destination and handling” fees must arbitrate their putative class claims pursuant to the arbitration provisions in their respective automobile lease and purchase agreements, the federal district court in Camden, New Jersey, has decided. The court found that the arbitration clauses in the lease and purchase agreements were valid and enforceable. It determined that although the arbitrability of the leasing plaintiffs’ claims had to be left to an arbitrator, those claims were within the scope of their arbitration clause. Based upon these conclusions, said the court, the claims “must be compelled to arbitration.” The consumers could not evade the arbitration clause on the ground that Honda was not a signatory to one of the agreements. Honda’s motion to compel arbitration was granted, and the matter was stayed pending the results of arbitration (Harmon v. American Honda Motor Co., Inc., July 12, 2023, O'Hearn, C.).

The plaintiffs are three consumers who entered into lease agreements with Honda franchised dealers between 2018 and 2021 and one consumer who purchased a Honda from a franchised dealer in June 2021. All of their relevant lease and purchase agreements contained mandatory arbitration provisions. The plaintiffs assert that prior to entering the agreements, they viewed the “Monroney stickers” attached to their vehicles, which listed charges for “Destination and Handling” ranging from $930 to $1,175, and they believed those fees to represent Honda’s costs to deliver the vehicles to their respective dealerships.

The consumers alleged in their October 2022 complaint that Honda, by neglecting to itemize or disclose the metric used to calculate the fees, “arbitrarily inflates the purchase prices of its vehicles at the expense of New Jersey consumers.” They claimed this constitutes deceptive and unconscionable business practices in violation of the NJCFA and that the conduct resulted in Honda’s unjust enrichment.

Honda responded by filing a motion to compel arbitration, along with a concurrent motion to dismiss.

Analysis. Noting that it was apparent based on documents implicitly relied upon in the plaintiffs’ complaint that their claims were subject to an enforceable arbitration clause, the court considered the motion under a Rule 12(b)(6) standard, viewing the allegations in the light most favorable to the plaintiffs. Through that lens, it conducted a three-step analysis: first, by taking note of the elements a plaintiff must plead to state a claim; second, by identifying and disregarding accusations not entitled to the assumption of truth; and third, by determining whether the facts alleged are sufficient to show that the plaintiff has a plausible claim for relief.

Validity of agreement. Addressing first whether there existed a valid arbitration agreement under New Jersey law, the court found that the arbitration clauses signed by the plaintiffs plainly met the state’s standards. The lease agreements’ clauses identified the bound parties, the types of disputes subject to arbitration, the process for initiating arbitration, and the process to opt out of the clause, noted the court. Moreover, the leasing plaintiffs not only initialed the pages of the lease agreements containing the full arbitration clauses, but also initialed additional acknowledgments of the provision elsewhere in their agreements. The clause in the purchase agreement clearly and unambiguously communicated in bold text that consumer agreed to arbitrate all claims, disputes, or controversies arising out of or related to the agreement, added the court.

The court rejected an attempt by the plaintiffs to evade the arbitration clauses by claiming that American Honda Motor Co. was not a signatory to the purchase agreement. The company was clearly and specifically identified by name as a party to the arbitration provisions in the lease agreements, the court observed, “clearly indicating Plaintiffs’ intent to arbitrate claims against it and rendering their argument unpersuasive.” Though the purchaser plaintiff argued, and Honda admitted, that it was not a signatory to the arbitration provision in the purchase agreement she signed, she was nevertheless estopped from avoiding her obligation to arbitrate because her claims were plainly within the provision’s scope and New Jersey courts have recognized the standing of non-signatory parties to compel arbitration based on equitable principles. As her claims arose directly out of her payment obligation under the purchase agreement, she was equitably estopped from avoiding her obligation to arbitrate under that same contract, the court explained.

The court also turned away the plaintiffs’ argument that the lease and purchase agreements containing the arbitration provisions were unconscionable and thus enforceable, concluded that they had presented no material facts to support those assertions. To the contrary, restrictions that the clauses placed upon Honda’s right to unilaterally modify the agreement rendered that agreement non-illusory and thus enforceable.

Scope of agreement. The court agreed with Honda that the purchasing plaintiff’s claims were within the scope of the agreement and that the arbitrability of the leasing plaintiffs’ claims had to be left to an arbitrator. The arbitration agreements signed by the leasing plaintiffs contained delegation clauses that explicitly delegated to an arbitrator the question of whether their claims were within the scope of the agreement, noted the court.

The Case is No. 1:22-cv-06150-CPO-SAK.

Attorneys: Ross H. Schmierer (Kazerouni Law Group, APC) for David Harmon. Michael Lawrence Mallow (Shook, Hardy & Bacon LLP) for American Honda Motor Co., Inc.

Companies: American Honda Motor Co., Inc.

Cases: Advertising FranchisingDistribution StateUnfairTradePractices NewJerseyNews