Judge Alison Mackenzie, Case Number: 22STCV19260, Date: 2024-04-15 Tentative Ruling

Judge: Alison Mackenzie, Case: 22STCV19260, Date: 2024-04-15 Tentative Ruling

Case Number: 22STCV19260 Hearing Date: April 15, 2024 Dept: 55

NATURE OF PROCEEDINGS: Motion for Reconsideration of the Court’s Order Granting Defendant Ford Motor Company’s Motion to Compel Arbitration.

BACKGROUND

MANUEL AGUILAR (“Plaintiff”) filed a Complaint against Defendants FORD MOTOR COMPANY and BLUESKY DIVERSIFIED, INC., dba PUENTE HILLS FORD (“Defendants”) alleging that he purchased a new 2021 Ford Explorer, having serious defects and nonconformities to warranty including engine, electrical, emission, structural, and transmission system defects, which caused dangerous driving conditions. The causes of action are: 1. Violation of Song-Beverly Act - Breach of Express Warranty; 2. Violation of Song-Beverly Act - Breach of Implied Warranty; 3. Violation of The Song-Beverly Act Section 1793.2; and 4. Negligent Repair.

Defendants moved to compel arbitration based on the arbitration clause in the clause in the Retail Installment Sales Contract (“Sales Contract”) between Plaintiff and the dealer. Defendants argued that they can enforce the arbitration provision in the Sales Contract under the doctrine of equitable estoppel and as third-party beneficiaries of the Sales Contract. Plaintiffs opposed the motion. On 2/16/23, the Court granted Defendants’ motion, relying on the holding in Felisilda v. FCA US LLC (2020) 53 Cal.App.5 486, 496.

On 8/29/23, the Court denied Plaintiff’s motion for reconsideration. Plaintiff now again requests an order reconsidering the order compelling arbitration, on grounds including that several appellate courts have opined differently than the decision in Felisilda. Defendant Ford (“Defendant”) opposes the motion.

LEGAL STANDARD

CCP section 1008(a) provides that a party may, within 10 days of service of an order, seek reconsideration of an order “based upon new or different facts, circumstances, or law.” Section 1008(c) further provides that the Court may, at any time, reconsider a prior order if it determines there has been a change in the law. Le Francois v. Goel (2005) 35 Cal.4th 1094, 1107 [holding that section 1008 does “not limit the court’s ability, on its own motion, to reconsider its prior interim orders so it may correct its own errors.”]. In Kerns v. CSE Ins. Group (2003) 106 Cal.App.4th 368—a case cited favorably by the Supreme Court in Le Francois—it was explained that this inherent authority exists so that courts may “achieve substantial justice” in situations that do not fall within the technical letters of CCP § 1008. Successor judges have authority to alter orders issued by their predecessors who are unavailable in the case after reassignment. In re Marriage of Nicholas (2010) 186 Cal.App.4th1566, 1577-78. Orders compelling arbitration are subject to reconsideration as with other order types. Pinela v. Neiman Marcus Grp., Inc. (2015) 238 Cal.App.4th 227, 239.

ANALYSIS

Doctrine of Equitable Estoppel

The doctrine of equitable estoppel authorizes “a nonsignatory defendant [to] invoke an arbitration clause [in a contract] to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations.” JSM Tuscany, LLC v. Sup.Ct. (2011) 193 Cal.App.4th 1222, 1237, internal quotations omitted; Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218.) Controlling authority on this issue in the context of a Song-Beverly Act claim used to be the Third District Court of Appeal decision in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486. The Court of Appeal in Felisilda held that the doctrine of equitable estoppel enabled the manufacturer of the automobile that was the subject of the plaintiffs’ Song-Beverly Act claims to enforce the arbitration clause in the sales contract between the plaintiffs and the dealership from which they purchased the vehicle.

Felisilda is not in keeping with the present weight of authorities. In Kielar v. Sup.Ct. (2023) 94 Cal.App.5th 614, the Third District Court of Appeal expressly repudiated Felisilda. The Court issued a preemptory writ of mandate directing the trial court in the case to vacate an order compelling arbitration of plaintiff’s Song-Beverly Act claims against the automobile manufacturer based on an arbitration clause in the purchase agreement between the plaintiff and the dealer from which the plaintiff purchased the automobile. Id. at p. 617. The trial court order in Kielar was premised on Felisilda’s view that the doctrine of equitable estoppel applied in this context. Ibid. The Third District in Kielar stated that it disagreed with Felisilda and held that the doctrine does not apply. Id., at p. 620.

In abandoning Felisilda, the Third District in Kielar adopted instead the rulings of Division Eight of the Second District in the Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 and Division Seven of the Second District in Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958. See Kielar, supra, 94 Cal.App.5th at p. 620 (discussing Ford Motor and Montemayor). The Courts in Ford Motor and Montemayor rejected the reasoning of Felisilda and held that Song-Beverly Act claims against a non-signatory automobile manufacturer are not intimately founded in and intertwined with the obligations in the contract containing the arbitration clause between the plaintiff and the dealer from which the plaintiff purchased the automobile at issue, and therefore the manufacturer could not invoke the doctrine of equitable estoppel to enforce the arbitration clause. Ford Motor, supra, 89 Cal.App.5th at p. 1333, 1335-36; Montemayor, supra, 92 Cal.App.5th at pp. 969-971.

A few weeks after Keilar was decided, the First District Court of Appeal joined the anti-Felisilda chorus. It did so in Yeh v. Sup. Ct. (2023) 95 Cal.App.5th 264. In that case, the First District expressed agreement with the reasoning of Ford Motor, Montemayor, and Keilar and held that an automobile manufacturer’s warranties are not part of the sales contract between a buyer of the automobile and the dealer from which the buyer purchased the automobile.

With Felisilda jettisoned by the very District that issued it, there is no persuasive precedent supporting the manufacturer’s contention that it can avail itself of the doctrine of equitable estoppel to enforce the arbitration clause in a sales contract. All the precedents -- Ford Motor, Montemayor, Kielar, and Yeh -- say the opposite. Those precedents control. They render the doctrine of equitable estoppel off limits to a car manufacturer. Given this sweeping change in the law, the Court reconsiders its prior order and enters another instead, denying the motion to compel arbitration.

Felisilda remains alone and isolated in a split of authority, after Kielar disagreed with it, but did not expressly overrule it. See Kielar, supra, 94 Cal.App. 5th at 617 (“we join those recent decisions that have disagreed with Felisilda and conclude the court erred in ordering arbitration.”).

Third Party Beneficiary Status

Manufacturer defendants have contended that they should be treated as a third-party beneficiary of the sales contract with the right therefore to enforce the arbitration clause in that agreement. But this argument also collides head on with precedent that is directly on point and directly to the contrary. That precedent is Montemayor and Ford Motor. The Courts in those cases rejected the pleas of an automobile manufacturer that it is a third-party beneficiary of arbitration clauses in the agreements between purchasers of the automobiles and the dealers that sold the automobiles.

The test for determining if a non-party to a contract is a third-party beneficiary of the contract is whether (1) the third party would benefit from the contract; (2) a motivating purpose of the parties to the contract was to benefit the third party; and (3) allowing a third party to sue one of the parties for breach of contract is consistent with the expectations of the parties. Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830. Applying that test and stopping after the second prong, the Courts in Montemayor and Ford Motor held that nothing in the sales agreements between the purchasers and the dealers directly benefited Ford and there was nothing in the agreements evincing an intent by the parties to benefit Ford. Montemayor, supra, 92 Cal.App.5th at pp. 973-974; Ford Motor, supra, 89 Cal.App.5th at p. 1338. The same is true of the sales contract here.

In minutes, the formerly assigned Judge primarily relied on Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 496-497 (“Because the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the sales contract—they are estopped from refusing to arbitrate their claim against FCA.”). However, since then, the law has evolved greatly.

In sum, Montemayor and Ford Motor compel the conclusion that third-party beneficiary status is not a hook for enforcement by the manufacturer, of an arbitration clause in a sales contract.

CONCLUSION

The Court grants the motion for reconsideration on its own motion, vacates and sets aside the order compelling arbitration, lifts the stay issued, and instead enters an order denying the motion to compel arbitration.