Judge: Anne Richardson, Case: 22STCV32416, Date: 2023-10-11 Tentative Ruling

Case Number: 22STCV32416    Hearing Date: October 11, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Plaintiffs Dayane Flores Olmedo and Claudia Olmedo sue Defendant American Honda Motor Co., Inc. and Does 1 through 10 pursuant to an October 4, 2022 Complaint alleging claims of (1) Violation of Song-Beverly Act – Breach of Express Warranty and (2) Violation of Song-Beverly Act – Breach of Implied Warranty.

The claims arise from allegations that, among other things, on August 20, 2020 Plaintiffs entered a warranty contract with American Honda related to a 2020 Honda HR-V (Vehicle) and that the Vehicle manifested nonconformities during the warranty period—e.g., brakes, exterior, and suspension defects and nonconformities—which Honda was unable to conform to warranty within a reasonable number of attempts.

On August 9, 2023, American Honda moved to compel arbitration in this action pursuant to the terms of Plaintiff’s lease agreement for the Vehicle. The signatories to that agreement are Plaintiff Dayane Flores [Olmedo] and Honda of Downtown Los Angeles (the dealership).

On September 28, 2023, Plaintiffs opposed the motion.

On October 4, 2023, American Honda replied to the opposition.

American Honda’s motion is now before the Court.

Request for Judicial Notice

The Court TAKES judicial notice of the Complaint and Answer in this action, as well as the fact that trial is set for May 14, 2024. (Mot., RJN, pp. 1-2; see Evid. Code, §§ 452, subds. (d), (h), 453.)

Evidentiary Objections

Opposition Evidentiary Objection

Objection No. 1: OVERRULED.

Motion to Compel Arbitration and Stay Proceedings

Legal Standard

The Federal Arbitration Act (“FAA”), while a federal statute, applies in California courts and requires state courts to enforce arbitration agreements as required by the federal common law developed under the FAA. (See Southland Corp. v. Keating (1984) 465 U.S. 1, 15-16; Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1074-78, superseded by statute on another ground as stated in Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928, 937.).) The FAA preempts and invalidates state law and state judicial decisions that disfavor arbitration or require arbitration provisions to pass higher scrutiny. (Southland Corp. v. Keating, supra, at p. 12; Perry v. Thomas (1987) 482 U.S. 483, 490.) If the parties designate the FAA applies, then California arbitration law is preempted. (See, e.g., Rodriguez v. American Techs., Inc. (2006) 136 Cal.App.4th 1110, 1121-1122.) However, courts have found that where the FAA is found not to apply, the California Arbitration Act (Code Civ. Proc. § 1280 et seq.) applies. (See Valencia v. Smyth (2010) 185 Cal.App.4th 153, 178.)

 A court’s inquiry is limited to a determination of (1) whether a valid arbitration agreement exists and (2) whether the arbitration agreement covers the dispute. (9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostics Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130; Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84; see Simula, Inc. v. Autoliv, Inc. (9th Cir. 1999) 175 F.3d 716, 720 [if the finding is affirmative on both counts the FAA requires the Court to enforce the arbitration agreement in accordance with its terms].) “An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” (United Steelworkers of America v. Warrior & Gulf Navigation Co. (1960) 363 U.S. 574, 582-583.) 

 Moreover, the general rule is that the FAA governs all agreements to arbitrate in contracts “involving interstate commerce.” (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.) The term “involving” commerce “is broad and is indeed the functional equivalent of “affecting’ commerce.” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 273-274.) The defendant bears the burden of proving applicability of the FAA by showing that its activities constitute interstate commerce. (Hoover v. Am. Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207.) Failure to demonstrate that the agreement affects interstate commerce renders the FAA inapplicable. (See Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 687-688; Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 212.)

Even where the FAA governs the interpretation of arbitration clauses, California law governs whether an arbitration agreement has been formed in the first instance. (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 893.) 

 The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) “Once that burden is satisfied, the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition.” (Lacayo v. Cataline Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257.) “The trial court sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Ruiz v. Moss Bros. Auto Group, Inc., supra, at p. 842.) 

On a petition to compel arbitration, the court must grant the petition unless it finds (1) no written agreement to arbitrate exists, (2) the right to compel arbitration has been waived, (3) grounds exist for revocation of the agreement, or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues. (Code Civ. Proc., § 1281.2; see Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

In determining the enforceability of an arbitration agreement, the court considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue.” (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) If these issues are satisfied in favor of the movant, (3) the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition. (Lacayo v. Cataline Restaurant Group Inc., supra, 38 Cal.App.5th at p. 257.)

Order Compelling Arbitration and Staying Proceedings: GRANTED.

I.

Whether Arbitration Agreement Exists

“Parties are not required to arbitrate their disagreements unless they have agreed to do so. [Citation.] A contract to arbitrate will not be inferred absent a ‘clear agreement.’ [Citation.] When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation. [Citation] In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact. [Citation.]” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1092-93 [applying California law].) The court is only required to make a finding of the agreement’s existence, not an evidentiary determination of its validity. (Condee v. Longwood Management Corp., supra, 88 Cal.App.4th at p. 219.)

Here, American Honda argues that it has standing to invoke the arbitration clause in Dayane Flores and Honda of Downtown Los Angeles’s lease agreement because, though it is a nonsignatory, the arbitration agreement explicitly allows for “American Honda Motor Co., Inc.” to invoke the arbitration agreement in that sales contract, thus making American Honda a third-party beneficiary capable of invoking arbitration. (Mot., p. 17; see Mot., Vault Decl., Ex. 1, Arbitration [Plaintiff Dayane Flores “agree[s] that any claim that [she] may have in the future must be resolved through binding arbitration” where “[Plaintiff], Honda, or any involved third-party may pursue a claim,” and where “Honda means … [among other things,] American Honda Motor Co., Inc” …].)

In opposition, Plaintiffs make various arguments for the proposition that neither of the third-party beneficiary and equitable estoppel doctrines permit American Honda to invoke the arbitration agreement. (Opp’n, pp. 3-10.)

In reply, American Honda argues that the arbitration clause explicitly includes American Honda and allows them to compel arbitration pursuant to the lease agreement. (Reply, pp. 3-5.)

The Court finds in favor of American Honda.

“‘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 (2017) 18 Cal.App.5th 295, 301 (Jensen); 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.) 

The lease agreement for the Vehicle is clear. First, American Honda Motor Co., Inc. may benefit from the lease agreement’s arbitration clause, which includes American Honda within the meaning of “Honda,” thus facially allowing American Honda to invoke the arbitration agreement against Plaintiff’s claims. (Mot., Vault Decl., Ex. 1, Arbitration ¶ 52.) Second, a motivating purpose of the lease agreement for the Vehicle must have been to benefit American Honda because American Honda is listed as a party that can invoke the arbitration clause through American Honda’s inclusion in the definition of “Honda.” Third, permitting American Honda to move for arbitration pursuant to the lease agreement’s terms is consistent with the objectives of the contract and within the reasonable expectations of the parties because the definition of “Honda” within the context of the arbitration agreement includes “American Honda Motor Co., Inc.”

The fact that American Honda is specifically listed as a party that can invoke the arbitration clause thus distinguishes this case from Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, rev. granted, July 19, 2023. There, by contrast, the court found “there is no basis to conclude that the Plaintiffs and the dealers entered into [the agreements] with the intention of benefitting [Ford Motor Company].” (Id. at p. 1329.) By contrast, here, there is.

The Court thus determines that there is an arbitration agreement between Plaintiffs and American Honda based on the arbitration clause in the lease agreement for the Vehicle, which shows grounds for finding that American Honda is a third-party beneficiary of that lease agreement’s arbitration clause.

II.

Scope of, and Defenses to, the Arbitration Agreement

“‘[P]arties may agree to have an arbitrator decide not only the merits of a particular dispute but also ‘“‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.”’ [Citation.] But ‘[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is “clea[r] and unmistakabl[e]” evidence that they did so.’ [Citation.] This is a ‘heightened standard,’ and it ‘pertains to the parties’ manifestation of intent, not the agreement’s validity.’ [Citation.]” (Najarro v. Superior Court (2021) 70 Cal.App.5th 871, 879-880 (Najarro).) 

However, “[c]ourts have held that ‘there is no clear and unmistakable delegation to the arbitrator’ to decide arbitrability where the contract ‘includes a severability clause stating a court of competent jurisdiction may excise an unconscionable provision.’” (Id. at p. 880.) “In other words, pursuant to an exception …, if a severability clause states that a court may excise unconscionable provisions, the delegation clause does not meet the heightened standard necessary for enforcement, because it is no longer clear that only the arbitrator may decide issues such as unconscionability.” (Ibid. [emphasis in original]; accord. Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 891 [“‘There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. [Citation.] Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.’ [Citations.]”].)

Here, American Honda argues that the arbitration clause in the lease agreement for the Vehicle contains a delegation clause that assigns to the arbitrator the power to rule on “all issues relating to the interpretation, construction, enforceability and applicability of th[e] [arbitration clause] provision.” (Mot., p. 18, citing to Mot., Vault Decl., Ex. 1, Arbitration.)

Plaintiffs’ opposition and American Honda’s reply thereafter fail to raise arguments related to this point.

The Court finds in favor of American Honda.

The arbitration clause at issue specifies that “[t]he arbitrator shall … decide all issues relating to the interpretation, construction, enforceability and applicability of th[e] [arbitration clause] provision” and that the “arbitrator may order relief permitted by law.” The arbitration clause completely fails to mention severability or revocability based on things like fraud, duress, or unconscionability. (Mot., Vault Decl., Ex. 1, Arbitration.) Thus, there is a clear and unmistakable delegation to the arbitrator relating to the scope of and defenses to the enforcement of the arbitration agreement. As such, this Court does not have the authority to rule upon those questions.

American Honda’s motion is accordingly GRANTED.

III.

Stay of Action

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.” (Code Civ. Proc., 1281.4.)

Here, the Court finds it appropriate to STAY this action pending the outcome of the arbitrability determination. If the arbitrator determines that Plaintiffs’ claims against American Honda are arbitrable, the action will remain STAYED until a final outcome is reached in the arbitration or until the Court otherwise specifies. 

Conclusion

Defendant American Honda Motor Co., Inc.’s Motion to Compel Arbitration and Stay Proceedings is GRANTED.

The Court STAYS this action pending the outcome of the arbitrability determination. If the arbitrator determines that Plaintiffs’ claims against American Honda are arbitrable, the action will remain STAYED until a final outcome is reached in the arbitration or until the Court otherwise specifies.