Sixth Circuit Finds Arbitration Agreement For Price-Fixing Suit Unenforceable
On February 24, 2020, the United States Court of Appeals for the Sixth Circuit affirmed a district court ruling that an arbitration provision in a warranty clause did not apply to antitrust claims brought by auto parts distributors against manufacturers of automotive shock absorbers. In re: Auto. Parts Antitrust Litig. VIP, Inc. v. KYB Corp., No. 19-1150, 2020 WL 881263 (6th Cir. Feb. 24, 2020). Defendants were seeking to use the provision to compel plaintiffs to arbitrate price-fixing claims. The district court found the provision was not enforceable in these circumstances, and the Sixth Circuit affirmed.
Defendants, KYB Corporation and KYB Americas Corporation, manufacture and distribute car parts throughout the United States. Plaintiffs are distributors who purchase shock absorbers from defendants through buying groups and resell them to customers. Plaintiffs brought suit alleging that defendants were involved in a conspiracy to fix the prices of shock absorbers. Defendants brought a motion to compel arbitration arguing that (1) plaintiffs are bound by an arbitration clause under a limited warranty, and (2) the issue of arbitrability should be delegated to the arbitrator.
The district court, and ultimately the Sixth Circuit, disagreed, holding that the arbitration provision in the limited warranty was not enforceable against plaintiffs because its language was limited to purchasers who are end users of shock absorbers and did not apply to distributors like plaintiffs. The Sixth Circuit also held that it is only proper to delegate the question of arbitrability to an arbitrator if a valid arbitration agreement exists in the first instance. Here, it did not.
In reaching its decision, the Sixth Circuit relied primarily on the language of the limited warranty, which read: “Any disagreement, dispute, controversy or claim arising out of or relating to this Limited Warranty or the KYB Product(s) must be brought in the original retail purchaser’s individual capacity and shall be settled by binding bilateral arbitration….” Id. at *3 (emphasis added).
The Sixth Circuit chastised defendants for quoting this provision in their briefs but omitting the language related to whom the arbitration provision applied. The Sixth Circuit noted that a plain reading of the limited warranty established that the provision applied to “individual retail purchasers.” The Circuit Court also found that the language of the limited warranty clearly delineated between distributors and end consumers.
The Circuit Court also rejected defendants’ attempt to contrast the “who” and the “what” provisions of the limited warranty. The Sixth Circuit explained that the broad language of the “what-kind-of-claim” provision—“Any disagreement, dispute, controversy or claim arising out of or relating to this Limited Warranty of the KYB product(s)”—did not affect the “who”—“original retail purchaser”—limitation of the limited warranty’s arbitration provision.