By: Jeremy Cloyd
California law has recently been changed and clarified to curb corporations’ ability to abuse inapplicable arbitration agreements. One of Altair Law’s clients has benefited from these changes while attempting to hold the manufacturer of a defective product responsible for the amputation of his hand.
Altair Law represents several individuals whose upper limbs were crushed and/or amputated when an off-road vehicle lost stability and overturned. The off-highway vehicle industry has known for years that riders’ hands and arms can be crushed when they instinctively extend their limbs to brace themselves, or when their arms are forced outside the vehicle during a rollover. Hundreds of people have been disabled in this way. Simple, inexpensive safety features such as window nets can prevent these injuries, yet some manufacturers have refused to implement them.
Polaris Industries manufactures and sells a four-wheel offroad vehicle called a RZR that lacks such safety features. Over the last couple years, Polaris has fought the claims of one victim of this design not on the merits but by trying to force him into arbitration. Polaris argues an arbitration provision in the RZR’s purchase contract relating to financing – an agreement to which Polaris was not even a party – requires Altair’s client to arbitrate. The Placer County Superior Court initially ruled that the arbitration provision was irrelevant because it was part of a financing agreement and the RZR was a cash purchase.
Although the trial court found the arbitration provision inapplicable, Polaris’s appeal automatically stayed the litigation and the Superior Court vacated the trial date. Thirteen months later, the Court of Appeal, in an unpublished decision, reversed and remanded to the Superior Court to address plaintiffs’ remaining grounds for opposing arbitration.
Before the trial court had an opportunity to conduct further proceedings, the California Supreme Court decided Ford Motor Warranty Cases (2025) 17 Cal.5th 1122, which limited the ability of manufacturers like Polaris to compel arbitration based upon sales agreements to which they are not a party. In Ford, vehicle owners brought breach of warranty claims against the manufacturer who, in turn, sought to compel the claims into arbitration. Although the manufacturer was not a party to the sales contract, it argued that the plaintiffs were equitably estopped from avoiding arbitration because their warranty claims were “intimately founded in and intertwined with” the sales contract. Id. at 1133.
The Supreme Court disagreed with Ford and explained the correct question was whether “plaintiffs are trying to enforce contractual terms beneficial to them while avoiding their own contractual agreement to arbitrate.” Id. at 1136. Ford could not compel arbitration because Plaintiffs’ “claims flow[ed] not from the contracts but from separate statutory requirements and conventional fraud theories. They are not intimately founded in and intertwined with the contractual terms.” Id. at 1138.
Polaris similarly argued that Altair’s client was required to arbitrate even though Polaris was not a party to – or even mentioned – in the vehicle’s sales contract. Polaris’s position was even weaker than Ford’s given that product liability claims are even more independent of the sales contract than the warranty claims were in Ford. The Placer County Superior Court agreed Ford controlled and denied Polaris’s motion to compel arbitration a second time.
Polaris appealed again but the law on automatic stays had since changed. Code of Civil Procedure § 1294(a) was amended to revoke automatic stays pending appeal of an order denying arbitration: “Notwithstanding Section 916, the perfecting of such an appeal [from an order dismissing or denying a petition to compel arbitration] shall not automatically stay any proceedings in the trial court during the pendency of the appeal.” The purpose of this change was to curb corporate abuse of interlocutory appeals to delay injury victims’ day in court:
SB 365 gives courts the discretion to prevent corporations from using a common delay tactic against workers and consumers – in both private and public enforcement actions – when a court has determined that a particular case cannot not be sent to arbitration. Current law allows corporate defendants to pause a consumer, government, or worker’s case by simply filing an appeal of a trial court’s denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years. This bill gives courts discretion to allow consumers, governments, or workers to move their case forward if a company files an appeal, rather than waiting for years while the appeal is heard. SB 365 will level the playing field for consumers, governments, and workers who deserve to move their case forward when a company or employer violates their rights.
California Bill Analysis, S.B. 365 Sen., 7/12/2023.
Polaris and other similarly situated corporations must now show exceptional circumstances to stay litigation while appealing the denial of a motion to compel arbitration. A trial court’s power to issue a discretionary stay “should be sparingly employed and reserved for the exceptional situation.” People ex. rel. San Francisco Bay Conservation and Development Commission v. Town of Emeryville (1968) 69 Cal.2d 533, 537.
Corporate defendants have argued that the United States Supreme Court’s decision in Coinbase, Inc. v. Bielski (2023) 599 U.S. 736 preempts California’s amended Section 1294. Coinbase involved an appeal of a federal district court’s order denying arbitration holding that a federal district court must stay its proceedings during an interlocutory appeal. Id. at 738, 747. Coinbase noted that the legislature could have authorized an interlocutory appeal without staying district court proceedings and that their silence indicated stays were mandatory. Id. at 743-744. In contrast, the California legislature was not silent and took action to curb the abuse of automatic stays to delay trial court proceedings. At least for now, the Placer County Superior Court has agreed that the case against Polaris must proceed to trial in September 2026.