Judge: Anne Richardson, Case: 22STCV13189, Date: 2023-04-12 Tentative Ruling

Case Number: 22STCV13189    Hearing Date: April 12, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Plaintiff Edgar M. Avendano sues Defendant Nissan North America, Inc. and Does 1 through 10 pursuant to a Complaint alleging (1)-(3) three lemon law claims and (4) a single concealment fraud claim. The lemon law claims are based on allegations that on February 29, 2020, Plaintiff purchased a new 2020 Nissan Altima (“Subject Vehicle”), with Nissan North America warranting the Subject Vehicle and agreeing to preserve or maintain the utility or performance of the Subject Vehicle or to provide compensation if there was a failure in such utility or performance, but where the Subject Vehicle was delivered to Plaintiff with serious defects and nonconformities related to warranty, and later developed other serious defects and nonconformities related to warranty, including, but not limited to, engine, electrical, emission, suspension, and transmission system defects, which Nissan North America’s authorized repair facilities were not able repair after a reasonable number of attempts to conform the Subject Vehicle to express warranties. The fraud claim is premised on allegations that Nissan North America intentionally concealed and failed to disclose to Plaintiff facts relating to the Automatic Emergency Braking and Forward Collision Warning Systems Defect, causing damages to Plaintiff.

On October 25, 2022, Nissan North America moved to compel arbitration of the Complaint’s claims on the ground that Nissan North America may invoke an arbitration clause in the sales contract for the purchase of the Subject Vehicle between Plaintiff and non-party dealership Cerritos Nissan, either through the theory of equitable estoppel or through third-party beneficiary status.

On March 29, 2023, Plaintiff opposed the October 25th motion to compel.

On April 5, 2023, Nissan North America replied to the March 29th opposition.

Nissan North America’s motion to compel arbitration and stay action is now before the Court.

Request for Judicial Notice

The Court DECLINES to take judicial notice of the court of appeals decision in Ochoa v. Ford Motor Co. and the Ninth Circuit’s decision in Ngo v. BMW of North America, LLC et al. (Ngo) because while the Court discusses these decisions, they are (now) published decisions and their notice is not required for the disposition of this motion. (Opp’n, RJN, Exs. 1-2; see Evid. Code, §§ 452, subd. (d), 453.)

Evidentiary Objections

Plaintiff’s Opposition Objections

Objections No. 1-2: OVERRULED.

Defendant’s Reply Objections

Objections No. 1-4: OVERRULED.

Motion to Compel Arbitration and Stay Action

Standing – Equitable Estoppel

Though Nissan North America is not expressly a party to the sales contract between Cerritos Nissan and Plaintiff Avendano, Nissan North America argues that it may invoke the arbitration clause 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., 14:6-18:19.)

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, 218-19.) 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, 491-92, 494.) The Court of Appeal for the Third Appellate District 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. 496-97.)

Nissan North America argues that plaintiff can be compelled to arbitrate his claims against Nissan North America pursuant to the arbitration clause in the sales contract for the Subject Vehicle because, like in Felisilda, Plaintiff’s claims arise out of or relate to the condition of the Subject Vehicle, and because the sales contract for the purchase of the Subject Vehicle underlies Plaintiff’s claims, equitable estoppel applies and compelling arbitration is equitable.

In opposition, Plaintiff argues that plaintiff’s claims are not founded in the sales contract for the purchase of the Subject Vehicle but rather the claims are brought pursuant to Nissan North America’s statutory obligations under the Song-Beverly Consumer Warranty Act, which is an obligation separate from the sales agreement between Plaintiff and Cerritos Nissan, and the Complaint does not even reference the sales contract.

In reply, Nissan North America argues that Nissan North America need not be a signatory to the sales contract for the purchase of the Subject Vehicle to invoke the arbitration clause therein because a reading of the arbitration clause encompasses claims brought by Plaintiff against a manufacturer insofar as the clause compels the arbitration of “‘[a]ny claim or dispute, … which arises out of or relates to your ... purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract)[]’”, and Felisilda compels a conclusion that this action’s claims must be arbitrable because the arbitration clause in Felisilda is identical to the arbitration clause in this action and the allegations made in Felisilda, like here, involve breach of warranty claims against a manufacturer regarding a vehicle’s condition.

The Court agrees with Plaintiff Avendano.

Despite Nissan North America’s arguments, Felisilda is distinguishable from the facts of this current action. The plaintiffs in that case sued both the manufacturer, FCA US LLC, and the dealership, Elk Grove Dodge, and alleged that FCA US LLC had breached express warranty accompanying the sale of the vehicle. (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at pp. 491-92, 499.) Here, on the other hand, Plaintiffs brought this action against the manufacturer, Nissan North America. Plaintiffs did not include non-party dealership Cerritos Nissan in the Complaint.

Additionally—and despite Nissan North America’s arguments in reply—the sales contract sufficiently disclaims any written warranties from the manufacturer, making a distinction between the arbitration agreement therein and “any warranties covering the vehicle that the vehicle manufacturer may provide.” (Opp’n, Armakarian Decl., Ex. 4, Sales Contract, Other Important Agreements, § 4, Warranties Seller Disclaims; compare Mot., Sharp Decl., Exs. B-C [failing to include a complete copy of the sales contract, particularly portion of sales contract containing warranty disclaimer].)

Further—contrary to Nissan North America’s reading of the sales contract—the arbitration clause in the sales contract expressly defines claims as those “between you and us or our employees, agents, successors or assigns” (Opp’n, Armakarian Decl., Ex. 4, Sales Contract, Arbitration Provision), which the Court reads narrowly to encompass Plaintiff and Cerritos Nissan, or any or Cerritos Nissan’s employees, agents, successors or assigns, where Nissan North America is not shown to be encompassed under such terms.

Moreover—contrary to Nissan North America’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 clause 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 Nissan North America 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 notes that the above reasoning was recently employed by the court of appeal in the Ford Motor Warranty cases to find that claims by a signatory vehicle purchaser against the vehicle’s manufacturer did not arise from the sales contract for the purchase of a vehicle given that the claims did not rely on the sales contract where “[t]he sale contracts include no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arise” and “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.” (Ford Motor Warranty Cases (April 4, 2023) __ Cal. Rptr.3d __ [2023 WL 2768484 *1, *5-*6].) 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 and adopts its holding for the purposes of this motion. 

Third-Party Beneficiary

Nissan North America also argues that it may invoke the arbitration clause in the sales contract because it is a third-party beneficiary thereto because the arbitration clause’s language extends to third parties who do not sign this contract, citing Felisilda. Defendant also argues that given that Plaintiff seeks to hold Nissan North America liable based on the warranty relationship between him and Nissan North America, Nissan North America has standing to compel arbitration of the Complaint’s claims through the sales contract’s arbitration clause.

In opposition, Plaintiff argues that California imposes a high bar for third-party beneficiary status and the sales contract here does not seek to benefit Nissan North America. Plaintiff also argues that permitting Nissan North America to invoke the arbitration clause in the sales contract would be inconsistent with the objectives of the contract and violate the reasonable expectations of the contracting parties, and that Ngo compels this conclusion through similar reasoning, and that any fraud claim pleaded in the Complaint does not arise from warranty or contract, but rather, from tort liability.

In reply, Nissan North America argues that the arbitration clause in the sales contract specifically allows third parties who did not sign the contract to compel arbitration as to claims arising out of the agreement that relate to the condition of the vehicle, which is the case here, and that the arbitration clause in the sales contract expressly referenced claims arising out of relationships with third parties like Nissan North America. It argues that the arbitration clause therein has a broad scope and because there exists a close relationship between Nissan North America and the dealership, Cerritos Nissan, where Plaintiff’s claims arise out of the purchase of the Subject Vehicle and its sales contract.

The Court agrees with Plaintiff Avendano.

While Nissan North America points to the arbitration agreement’s language that arbitration can apply to any relationship with third parties who do not sign the sales contract, a holistic reading of the entire arbitration clause leads the Court to conclude that only Plaintiff and Cerritos Nissan or its “employees, agents, successors or assigns” have the ability to trigger arbitration. (See Opp’n, Armakarian Decl., Ex. 4, Sales Contract, Arbitration Agreement.) Otherwise stated, only Plaintiff and Cerritos Nissan or its “employees, agents, successors or assigns” have the ability to submit to arbitration (1) claims related to Plaintiffs’ purchase or the condition of the Subject Vehicle or (2) claims related to any relationship with a third party that resulted from the purchase or condition of the Subject Vehicle. (See Ford Motor Warranty Cases, supra.)

Arbitration Conclusion

For the above reasons, the Court DENIES Nissan North America’s motion to compel arbitration.

The Court therefore need not reach arguments as to scope of the arbitration agreement (Mot., 19:15-20:20) and stay of this action (Mot., 20:21-21:3).

Conclusion

Defendant Nissan North America, Inc.’s Motion to Compel Arbitration and Stay Action is DENIED because Nissan North America has failed to present adequate grounds for standing to compel arbitration of Plaintiff’s claims based on the language of the arbitration clause in the sales contract for the purchase of the Subject Vehicle at issue in this action, either through equitable estoppel grounds or third-party beneficiary status.