Case Number: 22STCV16519    Hearing Date: April 5, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

MOVING PARTY:              Defendant Nissan North America, Inc.

OPPOSITION:                      Plaintiffs Cathy Zhou and Jonathan Huang.

REPLY:                                 Defendant Nissan North America, Inc.

Background

Plaintiffs Cathy Zhou and Jonathan Huang (“Plaintiffs”) sue Defendant Nissan North America, Inc. (“Nissan North America”) pursuant to three Song Beverly Consumer Warranty Act (“SBA” lemon law) claims—breach of express warranty, breach of implied warranty, and failure to repair within 30 days or a reasonable time—on the ground that on January 31, 2022, Plaintiffs purchased a new 2022 Nissan Leaf (“Subject Vehicle”) subject to express statutory warranties to Plaintiffs from Nissan North America 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, only for the Subject Vehicle to be delivered to Plaintiffs with serious defects and nonconformities including, but not limited to, steering, electrical, and structural system defects, with Nissan North America’s authorized repair facilities failing to conform the Subject Vehicle to warranty within 30 days and/or commence repairs within a reasonable time.

On October 12, 2022, Nissan North America moved to compel arbitration and stay this action pursuant to an arbitration agreement contained in the January 31, 2022 sales contract for the purchase of the Subject Vehicle, as between Plaintiffs and non-party dealership Raceway Nissan.

Plaintiffs opposed the motion on March 22, 2023, to which Nissan North America replied on March 28, 2023.

Request for Judicial Notice

The Court TAKES Judicial Notice of the Complaint in this action per the request of Defendant Nissan. (Evid. Code, §§ 452, subd. (d), 453; see Mot., 2:4-7, 2:12-14, Ex. 1.)

The Court, however, DECLINES Defendants Nissan’s request to take judicial notice of the decision in Felisilda v. FCA US LLC because it is not necessary to take judicial notice of a published decision; moreover, the Court has sufficient grounds upon which to rule on this motion. (Evid. Code, §§ 452, subds. (d), (h), 453; see Mot., RJN, 2:8-11, 2:15-17, Ex. 2.)

The Court also DECLINES Plaintiffs’ request to take judicial notice of the court of appeals’ tentative opinion in Martha Ochoa v. Ford Motor Company and the Ninth Circuit’s opinion Ngo v. BMW of North America, LLC et al.; again, it is not necessary to take judicial notice of a published decision as to the Ngo case, and as for the tentative Ochoa decision, this is not a final decision, lacks any precedential value, and is not a record of any decision in the case. (Evid. Code, §§ 452, subds. (d), (h), 453; see Opp’n, RJN, 2:3-11, Exs. 1-2.)

Evidentiary Objections

Defendant Nissan’s Evidentiary Objections on Reply

Objection Nos. 1-4: OVERRULED.

None: SUSTAINED.

Preliminary Consideration

The Court notes that Nissan North America’s reply’s points and authorities are more than ten pages long, in contravention of the Rules of Court. (See Cal. Rules of Court, rule 3.1113, subd. (d).) Rather than considering the reply to be a “late-filed” paper however (Cal. Rules of Court, rule 3.1113, subd. (g)), the Court considers only the first ten pages of the reply’s points and authorities, i.e., from page 1, line 24 of the reply, to page 11, line 23 therein.

Motion to Compel Arbitration and Stay Proceedings

Standing – Equitable Estoppel

Though Nissan North America is not expressly a party to the arbitration agreement between Raceway Nissan and Plaintiffs, Nissan North America argues that it may invoke the arbitration agreement therein based on the doctrine of equitable estoppel, based on the case Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486. (Mot., 13:24-17:10.)

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.)

Nissan North America argues in relevant part that the principles of Felisilda and like precedent apply to the instant case because there is an arbitration agreement between Plaintiffs and Raceway Nissan, where Plaintiffs’ claims against Nissan North America arise out of the sales contract for the Subject Vehicle and Plaintiffs’ claims are “‘intimately founded in and intertwined with” the alleged obligations of their sales contract’” because they “expressly allege[] that this action arises from a contract for the sale and purchase of an automobile and express warranties that accompanied its sale to Plaintiffs” and “Nissan[ North America]’s liability … on its alleged failure to repair the [Nissan Leaf] to conform to ‘express warranties that accompanied the sale of the subject vehicle….’” (Mot., 14:14-22 [citing to Goldman v. KPMG, LLC and Felisilda].)

In opposition and relevant part, Plaintiffs argue that its claims are not intertwined with the sales contract for the purchase of the Subject Vehicle because their “complaint doesn’t even reference, let alone rely on, that financing agreement,” but instead “seek[s] to enforce [Nissan North America]’s statutory obligations under the Song-Beverly Act to adequately repair, replace, or repurchase the defective car” such that Plaintiffs are not seeking to “invoke the duties and obligations of [Nissan North America] under the financing agreement with Raceway, while avoiding its arbitration clause” (Opp’n, 9:24-10:4, 10:21-23);

“[T]he financing agreement in fact disclaims any effect on a manufacturer’s warranty” (Opp’n, 10:23-24);

According to authority cited by Plaintiffs, “a warranty issued by a manufacturer who is not a party to a sales contract with the plaintiff is ‘not part of [the] contract of sale’” (Opp’n, 11:3-9);

Felisilda is distinguishable where “plaintiffs there were car-buyers who ‘assert[ed] a single cause of action’ against both their car dealership, with which they had agreed to arbitrate, and their vehicle’s manufacturer, with which they had not” and where “it was the dealership, not the manufacturer, that moved to compel arbitration” (Opp’n, 11:10-14);

“As the Ninth Circuit put it recently in Ngo [v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942]: Because of its posture, ‘Felisilda does not address the situation’ presented here, ‘where the non-signatory manufacturer attempted to compel arbitration on its own’” (Opp’n, 11:20-21); and

Nissan North America’s reading that Felisilda stands for the proposition that “that equitable estoppel would have allowed the car manufacturer itself, standing alone, to compel arbitration of the claim against it based on the dealership’s arbitration clause - even though the plaintiff did not seek to rely on the terms of the dealership’s contract to hold the manufacturer liable” poses “serious problems” because it “would mean that Felisilda ignored the longstanding principles that govern equitable estoppel in California - and it would put Felisilda in conflict with numerous other Court of Appeal decisions,” particularly where Felisilda “is more sensible if read to narrowly apply to the circumstances before it - where the party compelling arbitration was, in fact, a signatory (the dealership) - than if read as a broader pronouncement on equitable estoppel” (Opp’n, 12:3-13).

In reply, Defendants argue that:

Felisilda and not cases like Ngo are controlling to California trial court’s determination of whether equitable estoppel applies to a sales contract for the purchase of a vehicle (Reply, 2:18-3:15); the Ngo decision is inconsistent with established Ninth Circuit precedent (Reply, 3:16-4:9); Plaintiffs’ arguments that Felisilda is inapposite fail where the arbitration agreement is identical to that in Felisilda, the claims there and here relate(d) to a vehicle’s condition and the warranties that accompanied the sale of the vehicle at issue, and breach of warranty claims are grounded in the condition of such vehicle (Reply, 4:13-26); a reading of Felisilda shows that a non-signatory is not required to be present at the signing of an arbitration agreement to compel arbitration (Reply, 5:1-14, 10:6-15); reliance on federal case law is nonbinding and precedent cited by Plaintiffs was expressly rejected in Felisilda (Reply, 5:15-6:5); Plaintiffs’ arguments that this case arises from statutory and not contractual duties is not availing where, according to authority cited by Nissan North America, “‘[t]he terms of a manufacturer’s express warranty are considered part of the sales agreement’” and “Song-Beverly Act defines an express warranty as ‘[a] written statement arising out of a sale to the consumer of a consumer good pursuant to which the manufacturer, distributor, or retailer undertakes to preserve or maintain the utility or performance of the consumer good or provide compensation if there is a failure in utility or performance’” (Reply, 7:22-13); Plaintiffs’ argument that the Complaint fails to even reference the sales contract between Plaintiffs and Raceway Nissan is unavailing because “it is undisputed that Plaintiffs’ warranty relationship with Nissan arose with their car purchase” where Plaintiffs “allege as much in their Complaint” and where “Plaintiffs allege that Nissan violated warranties they received with their Sales Contract” (Reply, 8:14-22); review of the terms of extrinsic evidence beyond the sales contract is not proper because Raceway Nissan never entered such agreements and because extrinsic evidence is only considered where the contract is vague or ambiguous, which the sales contract is not (Reply, 8:23-9:7); the argument that the sales contract disclaims manufacturer warranties is unavailing where such warranties are intimately intertwined with the obligations of the sales contract and where absent such an agreement, Plaintiffs themselves would lack standing to bring this SBA action against Nissan North America (Reply, 9:8-23); and reliance on Goldman by Plaintiffs is unavailing because “it affirms that a nonsignatory (Nissan) can enforce an arbitration clause when the signatory (Plaintiffs) asserts claims against the nonsignatory related to the contract with the arbitration clause, i.e., the Sales Contract” (Reply, 9:24-10:5).

The Court agrees with Plaintiffs.

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 Raceway Nissan in the Complaint.

Additionally—and contrary to Nissan North America’s arguments in reply (Reply, 9:8-23)—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.” (Mot., Kashani Decl., Ex. 3, Sales Contract, Other Important Agreements, § 4, Warranties Seller Disclaims.)

Further, the arbitration agreement in the sales contract expressly defines claims as those “between you and us or our employees, agents, successors or assigns.” (Mot., Kashani Decl., Ex. 3, Sales Contract, Arbitration Agreement.) Neither the selling dealership, Raceway Nissan, nor one of its “employees, agents, successors, or assigns” is named in this action or is seeking to enforce the arbitration provision.

The Court last notes that 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 before the Court here, Plaintiffs are not trying to use the arbitration clause to their 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 Plaintiffs are equitably estopped from preventing Nissan North America from arbitrating.

Thus, Felisilda is distinguishable from the current case. 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.”

Standing – Third-Party Beneficiary

When a petitioner seeks to compel arbitration as to a non-signatory to the arbitration agreement, there are six theories which may support the petition: “‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary …. [Citations.]” (Benaroya v. Willis (2018) 23 Cal.App.5th 462, 469.) “A third-party beneficiary may enforce a contract expressly made for his benefit. [Citation.] And although the contract may not have been made to benefit him alone, he may enforce those promises directly made for him. [Citations.]” (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 943.) With regard to arbitration clauses, a third-party beneficiary wishing to invoke an arbitration clause has to show that the arbitration clause itself was made expressly for its benefit. (Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 838.)

Nissan North America argues that it may enforce the arbitration agreement in the sales contract for the purchase of the Subject Vehicle because it is a third-party beneficiary thereto where an intent to benefit Nissan as third-party beneficiary is clear from the “Plaintiffs agree[ing] 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).’” (Mot., 17:13-18:9.) Nissan North America also argues that Felisilda serves as grounds to find that Defendants are third-party beneficiaries to the sales contract insofar as Felisilda held that the plaintiffs’ “agreement to the sales contract constituted express consent to arbitrate their claims regarding vehicle condition even against third parties” and because “Plaintiffs seek to hold Nissan [North America] liable based on the warranty relationships between them both,” i.e., Plaintiffs and Nissan North America. (Reply, 18:9-20.)

In opposition, Plaintiffs argue that:

Nissan North America is not an incidental beneficiary of the sales contract because (1) the contract is between Plaintiffs and non-party dealership Raceway Nissan and its employees, agents, successors, or assigns, which does not included Nissan of North America, (2) by limiting the parties who could enforce the arbitration clause to Plaintiffs and Raceway, the arbitration clause demonstrates an intent not to benefit Nissan North America or anyone else who falls outside the contract’s definition of “you” and “we,” (3) permitting Defendant to enforce the clause would be inconsistent with the objectives of the contract” and violate “the reasonable expectations of the contracting parties where the objective of the financing agreement was to finance Plaintiffs’ vehicle purchase, and (4) the objective of the arbitration clause specifically was to enable only Plaintiffs and Raceway to compel arbitration (Opp’n, 13:25-14:22);

Nissan North America is not an incidental beneficiary of the sales contract because Ngo makes it clear that, among other things, in facts indistinguishable from this case, the text of the sales contract was “‘pellucid’” and the right to compel arbitration was limited “‘to a specific buyer and a specific dealership’” (Opp’n, 14:23-15:1; see Opp’n, 14:1-6);

The sales contract does not benefit Nissan North America because only Plaintiffs and Raceway Nissan and its employees, agents, successors, or assigns (“we”) were allowed to compel arbitration, limiting beneficiaries of the contract to Plaintiffs and Nissan Raceway; otherwise stated, the sales contract does not benefit Nissan North America because “[a]lthough the sales contract defines the kinds of claims that may be arbitrated broadly, it expressly restricts the parties who may compel arbitration of those claims to Plaintiffs and Raceway” and nowhere “provide[s] for a third party,” like Defendant, “the ability to elect arbitration or to move to compel arbitration” (Opp’n, 15:14-23, 16:17-20); and

The sales contract does not benefit Nissan North America because Nissan North America’s reading of the arbitration is overbroad where its interpretation thereof would result in a situation where “[Nissan North America] benefits from any arbitration clause in any contract - and, for that matter, any term in any contract [Nissan North America] wishes it could take advantage of” such that if “Mitsubishi Motors contracted to buy semiconductors at a great price, Nissan would benefit from that contract - despite having nothing to do with it - because Nissan, too, could use inexpensive semiconductors” (Opp’n, 16:21-17:5).

In reply, Nissan North America argues that:

“The arbitration clause contained in the [sales contract] also allows ‘third parties’ who do not sign the contract to compel arbitration in connection with claims that arise out of the agreement that relate to the ‘condition of the Vehicle’” (Reply 10:17-21, 10:25-27);

“[I]t is well-settled that an entity need not be mentioned in an arbitration provision or even a sales contract to qualify as a third-party beneficiary under California law” (Reply 10:23-25);

“Nissan [North America] can also compel arbitration as third party beneficiary because of the arbitration provision’s broad scope and the close relationship between Nissan and Raceway Nissan” because the “arbitration provision requires Plaintiff to arbitrate any claim that ‘arises out of or relates to’ the purchase or condition of his vehicle or any resulting relationship ‘including any such relationship with third parties who do not sign’” and where the claims here arise from the lease and sales contract, the condition of the Subject Vehicle, and the resulting warrantor-warrantee relationship that arose when Plaintiffs executed the sales contract (Reply, 11:1-12); and

Any argument that Nissan North America’s warranty predated the sales contract is unavailing where the warrantor-warrantee relationship between the parties arose at the time of the sales contract (Reply, 11:13-20.)

The Court rejects analysis of the remaining arguments on reply. (See Preliminary Consideration,above.)

The Court further agrees with Plaintiffs.

Nissan North America points to the arbitration agreement’s language that arbitration can apply to “any such relationship with third parties who do not sign t[he sales] contract;” however, a holistic reading of the entire clause leads the Court to conclude that only Plaintiffs and Raceway Nissan or its “employees, agents, successors or assigns” have the ability to trigger arbitration. (See Mot., Kashani Decl., Ex. 3, Sales Contract, Arbitration Agreement.) Otherwise stated, only Plaintiffs and Raceway 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.

Nissan North America thus fails to present any grounds for proper standing under the sales contract for the purchase of the Subject Vehicle, as between Plaintiffs and Raceway Nissan. This motion is accordingly DENIED.

Standing – Question of Arbitrability for Arbitrator or Court to Decide

The question of whether the arbitrator or this Court should decide whether Plaintiffs’ claims against Nissan North America are arbitrable is moot, particularly in light of Nissan North America’s own arguments that the only question for the arbitrator is “whether the arbitration agreement covers Plaintiffs’ claims”—i.e., scope of the arbitration agreement—after the Court has decided the questions of whether “a valid arbitration agreement exists” and whether “it [i.e., Nissan North America] can enforce it [i.e., the arbitration agreement in the sales contract for the purchase of the Subject Vehicle]” (Mot., 19:20-25), questions which the Court has resolved against Nissan North America.

Conclusion

Defendant Nissan North America, Inc.’s Motion to Compel Arbitration and Stay of Proceedings is DENIED because Nissan North America has failed to provide adequate grounds to show that it has standing to enforce the arbitration agreement in the sales contract for the purchase of the Subject Vehicle, as between Plaintiffs Cathy Zhou and Jonathan Huang and non-party dealership Raceway Nissan, either through the doctrine of equitable estoppel, or as a third-party beneficiary.