Judge: Anne Richardson, Case: 22STCV10004, Date: 2023-05-16 Tentative Ruling

Case Number: 22STCV10004    Hearing Date: May 16, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

MOVING PARTY:              Defendant Ford Motor Company.

OPPOSITION:                      [Unopposed]

Background

Plaintiff Richard A. Leu sues Defendant Ford Motor Co. pursuant to an April 17, 2023 Complaint alleging a lemon law claim arising from allegations that on or about September 19, 2017, Plaintiff purchased a 2016 Ford Focus (Vehicle) subject to express and implied warranties from Ford Motor Co., only for the Vehicle to suffer from nonconformity(s) to warranty, including, but not limited to, repeated failure of its engine management system evidenced by the ”check engine” warning light and engine misfiring in the Vehicle, which Ford Motor Co. was not able to conform to warranty despite a reasonable number of attempts to do so.

On September 14, 2022, Ford Motor Co. brought a motion to compel arbitration and stay action based on an arbitration provision contained in the sales contract for the Vehicle, as signed by Plaintiff and non-party dealership Perry Ford Mazda.

The motion is unopposed by Plaintiff Leu.

Ford Motor Co. has not filed a reply or notice of non-opposition.

Ford Motor Co.’s motion is now before the Court.

Request for Judicial Notice

Per Defendant Ford Motor Co.’s request, the Court TAKES JUDICIAL NOTICE of the Complaint and Answer in this action. (Mot., RJN, p. 2, Exs. 1-2; see Code Civ. Proc., §§ 452, subd. (d), 453.)

However, the Court DECLINES to take judicial notice of the entry of dismissal in Felisilda because its notice is not necessary for a disposition of this motion. (Mot., RJN, p. 2, Ex. 3.)

Motion to Compel Arbitration and Stay Action

Preliminary Consideration

The Court notes that the arbitration provision at issue is not contained in the copy of the sales contract provided by Ford Motor Co. with its motion. (Compare Mot., Vieux Decl., Ex. 1 [copy of sales contract containing no copy of the relevant arbitration provision], with Mot., Vieux Decl., Ex. 2 [copy of sample sales contract that allegedly shows the arbitration provision that is contained in the sales contract for the Vehicle but is not attached to Exhibit 1 of the Vieux declaration].)

For this reason alone, the Court denies the motion. However, in an abundance of caution and for judicial efficiency, the Court goes on to address Ford Motor Co.’s remaining arguments assuming, arguendo, that both the sales contract and the sample contract at Exhibits 1 and 2 of the Vieux declaration apply to Plaintiff in this case.

Standing – Equitable Estoppel

Though Ford Motor Co. is not expressly a party to the sales contract between Perry Ford Mazda and Plaintiff Leu, Ford Motor Co. argues that it may invoke the arbitration provision therein based on the doctrine of equitable estoppel, as held by the court of appeal in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486. (Mot., pp. 7-11.)

A litigant who is not a party to an arbitration agreement may invoke arbitration under the Federal Arbitration Act if the relevant state contract law allows the litigant to enforce the agreement. (Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1128 [citing Arthur Andersen LLP v. Carlisle (2009) 556 U.S. 624, 632].)

Under the doctrine of equitable estoppel, “a nonsignatory defendant may invoke an arbitration clause 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. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory against a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.) At bottom, “the linchpin for equitable estoppel is equity—fairness.” (Id. at p. 220.) A nonsignatory seeking to enforce an arbitration agreement has the burden to establish at least one of these circumstances applies. (Jones v. Jacobson (2011) 195 Cal.App.4th 1, 16.)

In Felisilda, the plaintiffs purchased an automobile pursuant to a sales contract with an arbitration clause and later sued their vehicle’s nonsignatory manufacturer and the signatory dealership, with the dealership moving for compelled arbitration, which the trial court granted. After this, plaintiffs dismissed the dealership from the action and arbitrated the action against the manufacturer, ultimately losing before the arbitrator and having judgment rendered against them thereon by the trial court, leading plaintiff to appeal on various grounds, including that the trial court erred by including the nonsignatory manufacturer in the arbitration. (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 491-492, 494.) The court of appeal determined that “[b]ecause the [plaintiffs] expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party nonsignatories to the sales contract – they [were] estopped from refusing to arbitrate their claim against [the manufacturer].” (See Id. at pp. 496-497.)

In its motion, Ford Motor Co. generally argues that it may invoke the arbitration provision in the sales contract for the Vehicle based on an application of Felisilda to the facts of this case, where Felisilda is binding on this Court and where Leu’s claims against Ford are inextricably intertwined with the sales contract based on the Complaint’s express warranty being an additional term of the sales contract. (See Mot., pp. 7-10.) Ford Motor Co. also argues that any attempt to distinguish Felisilda on the grounds that, for example, Perry Ford Mazda is not a party to this action, is unavailing because the fact that Leu chose for strategic reasons not to sue the selling dealership should make no difference where a requirement that the signatory dealership be a party to this action would subvert California law by allowing plaintiffs to easily avoid arbitration agreements. (See Mot., pp. 10-11.)

No opposition or reply are on file.

The Court disagrees with Ford Motor Co because, despite Ford Motor Co.’s arguments, Felisilda is distinguishable from the facts of the current action.

The plaintiffs in Felisilda sued both the nonsignatory manufacturer and the signatory dealership. (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at pp. 491-492, 499.) Here, on the other hand—and despite the arguments raised by Ford Motor Co. as to subversion of California law (Mot., pp. 10-11)—Plaintiff brought this action against the manufacturer, Ford Motor Co. without including non-party dealership Perry Ford Mazda in the Complaint, making the alleged facts of this case distinguishable from Felisilda.

Additionally, the sales contract sufficiently disclaims any written warranties from the manufacturer, thus making a distinction between the arbitration agreement and “any warranties covering the vehicle that the vehicle manufacturer may provide.” (Mot., Vieux Decl., Ex. 2, Sales Contract, Other Important Agreements, § 4, Warranties Seller Disclaims.)

Further, the arbitration provision in the sales contract expressly defines ‘claims’ as those “between you and us or our employees, agents, successors or assigns” (Mot., Vieux Decl., Ex. 2, Sales Contract, Arbitration Provision), which the Court reads narrowly to encompass Plaintiff and Perry Ford Mazda, or any of Perry Ford Mazda’s employees, agents, successors or assigns, where Ford Motor Co. is not shown to be encompassed under such terms.

Moreover—contrary to Ford Motor Co.’s reading of Felisilda—the basis of equitable estoppel that was relied on by the Felisilda Court is not present here. As Felisilda stated, “‘[t]he fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute ... should be resolved.’” (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 496 [quoting Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 306, 226, quoting NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 84, 100].) But in the case at bar, Plaintiff is not trying to use the arbitration provision to his advantage against one defendant (or in one forum) and simultaneously trying to avoid arbitration against another defendant (or avoid arbitration in another forum). Hence, there is no basis to hold that Plaintiff is equitably estopped from preventing Ford Motor Co. from arbitrating. As reasoned in Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, 950, “[i]t makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer. … Felisilda does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own.”

Last, the Court cites to Ford Motor Warranty Cases, which found that claims by a signatory vehicle purchaser against the vehicle’s manufacturer did not arise from the sales contract for the purchase of the vehicle because the claims did not rely on the sales contract where “[t]he sale contracts include[d] no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems ar[o]se” and “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale[s] contract as part of the sale[s] contract.” (Ford Motor Warranty Cases (Ford Motor Warranty Cases (2023) 306 Cal.Rptr.3d 611, 620-621.) This decision is binding on this Court, and to the degree that it is inconsistent with the decision in Felisilda, the Court agrees with the reasoning in the Ford Motor Warranty Cases.

Standing – Third Party Beneficiary

Ford Motor Co. also argues that it has standing to invoke the arbitration provision in the sales contract for the Vehicle—as shown in the sample contract attached to the Vieux declaration as Exhibit 2—because it is clear that the intent of the sales contract was to benefit Ford Motor Co. (Mot., pp. 11-12.) Ford Motor Co. reaches this conclusion by arguing that Leu agreed to arbitrate any claim related to the sales contract, including “‘[a]ny claim or dispute … which arises out of or relates to … any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract),’” and arguing that “[b]ecause the Arbitration Provision explicitly embraces the type of claim Leu asserts against Ford—which encompass claims arising out of relationships with third parties who do not sign the sales contract—Leu’s warranty claims necessarily require hi[m] to contend that Ford benefitted from the sales contract.” (Mot., pp. 11-12.)

No opposition or reply are on file.

The Court disagrees with Ford Motor Co. because a plain reading of the arbitration provision compels the conclusion that the agreement did not intend to directly benefit Ford Motor Co.

“‘A third[-]party beneficiary is someone who may enforce a contract because the contract is made expressly for his benefit.’” (Jensen v. U-Haul Co. of California, supra, 18 Cal.App.5th at p. 301; see also Civ. Code, § 1559 [“A contract, made expressly for the benefit of a third person, may be enforced by him …”].) A person “only incidentally or remotely benefited” from a contract is not a third-party beneficiary. (Lucas v. Hamm (1961) 56 Cal.2d 583, 590.) To show the contracting parties intended to benefit it, a third party must show that, under the express terms of the contract at issue and any other relevant circumstances under which the contract was made: (1) “the third party would in fact benefit from the contract”; (2) “a motivating purpose of the contracting parties was to provide a benefit to the third party”; and (3) permitting the third party to enforce the contract “is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

A holistic reading of the entire arbitration provision leads the Court to conclude that only Plaintiff and Perry Ford Mazda or its “employees, agents, successors or assigns” have the ability to trigger arbitration such that (1) Ford Motor Co. is not intended to benefit from the Vehicle’s sales contract, (2) the sales contract exhibits no purpose to provide a benefit to Ford Motor Co., and (3) permitting Ford Motor Co. to enforce the contract is beyond the objectives of the sales contract and reasonable expectations of Plaintiff Leu and Perry Ford Mazda. (See Mot., Vieux Decl., Ex. 2, Sales Contract, Arbitration Provision; see also Goonewardene v. ADP, LLC, supra, 6 Cal.5th at p. 630.) This is because, as drafted, the sales contract’s arbitration provision only allows Plaintiff and Perry Ford Mazda or its “employees, agents, successors or assigns” to submit to arbitration either (1) claims related to Plaintiff’s purchase or the condition of the Vehicle or (2) claims related to any relationship with a third party that resulted from the purchase or condition of the Vehicle. Such a framework, at most, incidentally benefits Ford Motor Co. insofar as Perry Ford Mazda could perhaps submit to arbitration Plaintiff’s claim against Ford Motor Co., but where Ford Motor Co. itself does not have the power to invoke the arbitration provision in the sales contract. (See Ford Motor Warranty Cases, supra, at pp. 623-624 [discussing Goonewardene elements and reaching similar conclusion].)

Standing – Conclusion

Having failed to raised valid grounds for invocation of the arbitration provision in the sales contract for the Vehicle, Ford’s motion to compel arbitration and stay action is DENIED. 

Conclusion

 Defendant Ford Motor Company’s Motion to Compel Arbitration and Stay Action is DENIED because Ford Motor Co. has failed to present adequate grounds for standing to compel arbitration of Plaintiff’s lemon law claim based on the language of the arbitration provision in the sales contract for the purchase of the Vehicle at issue in this action, either through equitable estoppel grounds or third-party beneficiary status.