Mercedes-Benz Emissions v.

• Court: Court of Appeals for the Third Circuit
• Decided: January 10, 2020
• Docket: 19-1484
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ____________

No. 19-1484

In re: MERCEDES-BENZ EMISSIONS LITIGATION

ULYANA LYNEVYCH; JOHN LINGUA; JIMMY BIRD; JONATHAN MOSE; ARTHUR DASCHKE; RICHARD YANUS; WALTER LOUIS; KEITH CANIERO; CAROLINE A. LEDLIE; CHANDRAKANT PATEL; TIFFANY KNIGHT; SUSAN ALBERS; CRAIG THORSON; SHELBY A. JORDAN; GWENDOLYN ANDARY; SCOTT MORGAN; HENRY SILVERIO; DEDRICK WATKINS; TERRENCE GARMEY; WENDELL DINGLE; SEID DILGISIC; JORGE SALVADOR SERVIN; ANDREW DEUTSCH; DEVIN DOWNS; FREDDIE T. HOLBROOK; GEOFFREY C. CUNNINGHAM; BILLY FOX; LORRIE VIDAL; JAMES EDWARDS; SHEILA REED; ZBIGNIEW KURZAWA; JANICE SHEEHY; BRADFORD SMITH; GUSTAVO FRAGA-ERRECART; ROBERT TREPPER; JAMES SCHAFER; VINCENT MINERVA; HENRY SILVERADO; JEFF FINDLAY; ANDREW H. RUBEY; CHRISTOPHER GATES; DARRELL FELLER; STEPHEN CARROLL; DAVID I. ASHCRAFT; LARS DANNENBERG; ADRIAN CLIVE ROBERTS; RANDOLPH ROLLE; GINA MCVEY; ANTHONY CAPUTO; CATHERINE ROBERTS; KEITH HALL; FLAVIO MOY; A. ERIC NGWASHI; BOBBY HAMILTON; MARYANA MELNYK; PAUL HERRMANN; LYNN DOHERTY MUNOE; BRENDA ONEAL; CHARLES WOLFORD; THOMAS WEISS; JOHN LAURINO; ANDREW DEUTSCH; MICHAEL MEDLER; DR. GREGORY CHAN; LARS DANNBERG; HASSAN ZAVAREEI, on behalf of himself and all others similarly situated; HAGOP BAZRGANIAN; ROBERT GERSHBERG; MELANIE JOHNSON; DEREK STEELBERG

v.

MERCEDES-BENZ USA, LLC, A Delaware Limited Liability Company; DAIMLER AG; ROBERT BOSCH LLC; ROBERT BOSCH GMBH; DAIMLER TRUCKS NORTH AMERICA LLC; DETROIT DIESEL CORPORATION; DAIMLER VANS USA, LLC; DAIMLER VEHICLE INNOVATIONS, LLC, a New Jersey Limited Liability Company; DAIMLER NORTH AMERICA CORPORATION, a New Jersey Corporation; CALSTAR MOTORS, a Mercedes Benz Dealer; CARRIE KENNY, an individual; DOES 1 through 100, inclusive MERCEDES-BENZ USA, LLC, and DAIMLER AG, Appellants

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 2:16-cv-881) District Judge: Honorable Jose L. Linares __________________

Argued October 30, 2019

Before: HARDIMAN, PHIPPS, and NYGAARD, Circuit Judges.

(Filed: January 10, 2020)

Matthew J. Kemner Troy M. Yoshino Squire Patton Boggs 275 Battery Street Suite 2600 San Francisco, CA 94111

Daniel W. Nelson Lucas C. Townsend [ARGUED] Gibson Dunn & Crutcher 1050 Connecticut Avenue, N.W. Washington, DC 20036 Counsel for Appellants Mercedes Benz USA, LLC, and Daimler AG

James E. Cecchi Lindsey H. Taylor Carella Byrne Cecchi Olsteing Brody & Agnello 5 Becker Farm Road Roseland, NJ 07068

Steven W. Berman Hagens Berman Sobol Shapiro 1301 2nd Avenue Suite 2000 Seattle, WA 98101

2 Kevin K. Green [ARGUED] Hagens Berman Sobol Shapiro 533 F Street Suite 207 San Diego, CA 92101 Counsel for Appellees Gwendolyn Andary and Darrell Feller

____________

OPINION* ____________

PHIPPS, Circuit Judge.

This interlocutory appeal about compelled arbitration arises out of a broader

dispute regarding Mercedes BlueTEC diesel vehicles. That wider controversy involves a

putative class action of individual buyers who purchased Mercedes BlueTEC diesel

vehicles from Mercedes dealerships, believing that those vehicles were ‘clean diesel’

when allegedly they were not. From those allegations, 60 named plaintiffs bring an array

of claims as a nationwide class for violations of federal law and as thirty-three subclasses

for violations of various state laws. Those claims are directed not against the dealerships

but rather against two manufacturers, Mercedes-Benz USA, LLC and Daimler AG, as

well as their software suppliers. The two manufacturer defendants, the ‘Mercedes

Manufacturers,’ moved to dismiss the initial complaint, and that led to several cycles of

amended complaints and subsequent motions to dismiss.

* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not constitute binding precedent.

3 The Mercedes Manufacturers take this appeal from the District Court’s partial

denial of their motion to dismiss the Fourth Consolidated and Amended Class Action

Complaint. Although that motion presented numerous bases for dismissal, only one of

those – the request to compel arbitration – is at issue in this interlocutory appeal. That

request to compel arbitration relates to two named plaintiffs, Gwendolyn Andary and

Darrell Feller, who purchased vehicles from Mercedes dealerships, one located in

California, the other in Virginia. In seeking to compel arbitration, the Mercedes

Manufacturers rely on the terms of the purchase agreements between those dealerships

and Andary and Feller. But those purchase agreements do not mention the Mercedes

Manufacturers, nor are the Mercedes Manufacturers signatories to those agreements. On

the briefing before it, the District Court rejected the argument that the purchase

agreements compelled Andary and Feller to arbitrate with the Mercedes Manufacturers

directly or as third-party beneficiaries. The Mercedes Manufacturers noticed an

interlocutory appeal as permitted by the Federal Arbitration Act. See 9 U.S.C.

§ 16(a)(1)(C).

Neither side appears content with the record for this interlocutory appeal. For the

first time on appeal, the Mercedes Manufacturers raise a ‘gateway’ arbitrability defense.

Meanwhile, Andary, Feller, and the other named plaintiffs have augmented the District

Court docket during the pendency of this appeal. Andary and Feller filed a joint notice of

voluntary dismissal under Civil Rule 41 in an attempt to dismiss themselves, without

prejudice, as named plaintiffs. See Fed. R. Civ. P. 41(a)(1)(A)(i). Shortly afterwards, the

remaining named plaintiffs filed a Fifth Consolidated and Amended Class Action

4 Complaint, which did not include either Andary or Feller as a named plaintiff. That

amended pleading did, however, define the putative nationwide class and two subclasses

such that Andary and Feller would be included as class members. Based upon those

filings, Andary and Feller moved to dismiss this appeal as moot, even though they remain

as putative class members under the most recent amended complaint.

From this unusually fluid posture, two central issues emerge on appeal. First is the

question of whether this appeal is moot. Second is the issue of whether the District Court

erred in not compelling Andary or Feller to arbitrate with the Mercedes Manufacturers.

For the reasons set forth below, we hold that this appeal is not moot, and we will vacate

the District Court’s order in part and remand for the District Court to evaluate the

Mercedes Manufacturers’ motion to compel arbitration on state-law grounds.

I

The post-appeal filings in the District Court do not moot this appeal. Once the

Mercedes Manufacturers noticed this appeal, jurisdiction over Andary’s and Feller’s

claims was divested from the District Court and vested in this court. See Griggs v.

Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982) (“The filing of a notice of appeal

is an event of jurisdictional significance – it confers jurisdiction on the court of appeals

and divests the district court of its control over those aspects of the case involved in the

appeal.”); see also Hudson United Bank v. LiTenda Mort. Corp., 142 F.3d 151, 158

(3d Cir. 1998) (“[J]urisdiction that is originally and properly vested in the district court

becomes vested in the court of appeals when a notice of appeal is filed.”); Venen v.

Sweet, 758 F.2d 117, 120-21 (3d Cir. 1985). Because the District Court did not retain

5 jurisdiction over Andary’s and Feller’s claims, their suit could not be altered through

operation of the Civil Rules during the pendency of this appeal. See generally Fed. R.

Civ. P. 1 (providing that the Civil Rules “govern the procedure in all civil actions and

proceedings in the United States district courts” (emphasis added)); cf. Fed. R. App.

P. 42 (providing for the voluntary dismissal of an appeal). But both the notice of

voluntary dismissal and the Fifth Consolidated and Amended Class Action Complaint

were filed in the District Court while this appeal was pending. Because the District Court

did not have jurisdiction over Andary and Feller’s suit at those times, neither filing moots

this appeal.

Without mootness as a bar, this court has jurisdiction over this appeal. The

District Court had jurisdiction over the federal causes of action, see 28 U.S.C. § 1331, as

well as the related state-law causes of action, see 28 U.S.C. §§ 1332, 1367. And under

the Federal Arbitration Act, this court has jurisdiction over an interlocutory appeal of the

District Court’s denial of the Mercedes Manufacturers’ motion to compel arbitration. See

9 U.S.C. § 16(a)(1)(C).

II

The remainder of this appeal focuses on whether the District Court erred by not

compelling Andary and Feller to arbitrate with the Mercedes Manufacturers. According

to the Mercedes Manufacturers, the purchase agreements between the dealerships and

Andary and Feller require arbitration with the Mercedes Manufacturers. But the

Mercedes Manufacturers were not signatories to those purchase agreements. And the

purchase agreements require arbitration only with the dealerships or specific categories of

6 other entities, such as the dealerships’ “employees, agents, successors or assigns.” The

Mercedes Manufacturers do not contend that they qualify as an employee, agent,

successor, or assign of either dealership. Rather, as non-signatories without any express

mention in the arbitration clauses, they invoke three legal theories on appeal to compel

arbitration: (i) a ‘gateway’ arbitrability defense; (ii) equitable estoppel; and (iii) a third-

party beneficiary theory. But the first of those arguments – ‘gateway’ arbitrability – was

not raised before the District Court and has been forfeited. See United States v. Jones,

565 U.S. 400, 413 (2012) (considering an argument not raised below as forfeited);

Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 249 (3d Cir. 2013) (“We

generally refuse to consider issues that the parties have not raised below.”). The

remaining two issues have not been forfeited because the District Courted analyzed a

third-party beneficiary theory that implicated principles of equitable estoppel.

In evaluating those two arguments, it is necessary at the outset to identify the

applicable substantive law. Traditional principles of state law govern arbitration clauses,

but it is not clear which state’s substantive law should apply here. See Arthur Andersen

LLP v. Carlisle, 556 U.S. 624, 630-31 (2009) (looking to state law to determine whether

an arbitration clause is enforceable with respect to a third party); see also In re Remicade

(Direct Purchaser) Antitrust Litig., 938 F.3d 515, 519-22 (3d Cir. 2019); Aliments Krispy

Kernels, Inc. v. Nichols Farms, 851 F.3d 283, 289 (3d Cir. 2017). The lawsuit was filed

in New Jersey, yet Andary is a California resident who purchased her car in California,

and Feller is a Washington state resident who purchased his car in Virginia. Andary’s

7 purchase agreement indicates that federal law and California law apply, while Feller’s

purchase agreement has no provision regarding applicable law.

From these facts, a choice-of-law analysis is needed to resolve the question of

which state substantive law governs the construction of these arbitration clauses. See

Aliments Krispy Kernels, 851 F.3d at 289 (“Because we look to applicable state law to

determine whether the parties agreed to arbitrate, we begin with a choice-of-law

analysis.”); White v. Sunoco, Inc., 870 F.3d 257, 263 (3d Cir. 2017). But in advancing

their arguments on compelled arbitration, the parties have not provided any choice-of-law

analysis on appeal. Nor did the District Court conduct such an analysis.

That is a problem: without a choice-of-law analysis and subsequent application of

the appropriate state substantive law, it cannot be conclusively determined whether

Andary’s and Feller’s purchase agreements compel them to arbitrate with the Mercedes

Manufacturers. The choice-of-law analysis should have been performed by the District

Court. See Singleton v. Wulff, 428 U.S. 106, 120 (1976) (“It is the general rule, of course,

that a federal appellate court does not consider an issue not passed upon below.”);

Freeman, 709 F.3d at 249 (“We generally refuse to consider issues that the parties have

not raised below.”); see also Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198, 205

(1956) (stating in dicta that remand is appropriate when there is a “question in doubt or

deserving further canvass” regarding state law governing an arbitration clause).

Accordingly, we will vacate the District Court’s order and remand this matter to the

District Court for consideration of the Mercedes Manufacturers’ third-party beneficiary

and equitable estoppel arguments under applicable state law.