Dana Jennings and Joseph Furlong each bought a car from Carvana, a nationwide online used car dealer. On the day of their purchases, each signed three separate documents: a “retail purchasing agreement,” a “retail installment sales contract,” and an arbitration agreement.

The purchasers filed a class action lawsuit against Carvana alleging that Carvana breached a contractual promise to properly license, title, and register their vehicles with Pennsylvania. Carvana moved to compel arbitration, but the district court denied the motion, finding that the arbitration agreements were not enforceable under Pennsylvania’s Motor Vehicle Sales Finance Act because they were not expressly incorporated into the retail installment sales contracts signed by the purchasers.

On appeal, the Third Circuit affirmed. Under Pennsylvania’s Motor Vehicle Sales Finance Act, a contract governing an installment sale of a vehicle must: (1) be in writing; (2) contain all agreements between the buyer and the installment seller relating to the installment sale of the motor vehicle; and (3) be signed by the buyer and seller. The second requirement creates a so-called one-document rule, which provides that no other agreement is enforceable as part of the sale unless it is included within the installment sales contract, in this case, the retail installment sales contract.

But here, the arbitration agreements were separate from the retail installment sales contracts. In addition, the retail installment sales contract included an integration clause, which expressly stated that the contracts constituted the complete and exclusive agreements between the parties. Because of the integration clause, the parol evidence rule applied and precluded consideration of other written agreements entered into by the parties.

Carvana argued that because all the agreements were executed on the same day and as part of the same transaction, they should collectively be deemed one contract, which would render the arbitration agreements enforceable. The Third Circuit disagreed, pointing out that although the “same transaction concept” exists in Pennsylvania, the contracts relating to the same transaction are enforceable only if they reference or incorporate one another, which the agreements here did not do.

As a result, the Third Circuit affirmed the district court’s ruling that the arbitration agreements were unenforceable and remanded for further proceedings.

Jennings v. Carvana, LLC, No. 22-2948 (3d Cir. Mar. 21, 2024).