Judge: Armen Tamzarian, Case: 22STCV19888, Date: 2023-07-10 Tentative Ruling

Case Number: 22STCV19888    Hearing Date: July 10, 2023    Dept: 52

Defendants Nissan North America, Inc. and K Motors SJC, LLC’s Motion to Compel Arbitration and Stay Proceedings

            Defendants Nissan North America, Inc. and K Motors SJC, LLC dba Glendale Nissan move to compel arbitration of the complaint by plaintiff Ernesto Patino and to stay this action.  Defendants may not enforce the arbitration agreement between plaintiff and non-party auto dealer Universal City Nissan.  Defendants did not sign the agreement. 

Equitable Estoppel

Defendants rely on the doctrine of equitable estoppel and the opinion in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (Felisilda).  “[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.”  (Id. at p. 495.)

After defendants filed this motion, the Second District Court of Appeal issued an opinion disagreeing with Felisilda.  In Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (Ford), the Court of Appeal held equitable estoppel did not apply to consumers’ claims under the Song-Beverly Consumer Warranty Act, which “in no way rely on the sales contracts.”  (Id. at p. 1336.)  “[I]ndependent manufacturer warranties are not part of, but are independent from, retail sale contracts.”  (Ibid.)      

The court finds Ford more persuasive than Felisilda.  (See Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 456 [“where there is more than one appellate court decision, and such appellate decisions are in conflict,” the trial court “can and must make a choice between the conflicting decisions”].) 

As in Ford, plaintiff’s claims are not founded in the contract with the arbitration provision.  Plaintiff alleges four causes of action: (1) breach of express warranty, (2) intentional misrepresentation, (3) fraud by concealment, and (4) negligent repair. 

The first cause of action for breach of express warranty does not arise from the contract.  The manufacturer’s warranty is independent from the sale contract.  The sales contract expressly disclaims all warranties and acknowledges that the manufacturer’s warranties are independent.  “If you do not get a written warranty, and the Seller does not enter into a service contract within 90 days from the date of this contract, the Seller makes no warranties, express or implied, on the vehicle.  …  This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.”  (Polyakov Decl., Ex. 1, p. 2, ¶ 4.) 

Plaintiff’s second and third causes of action for fraud also do not arise from the sale contract.  Plaintiff does not allege he relied on misrepresentations made in the contract.  He alleges Nissan made misrepresentations in their marketing materials.  (Comp., ¶¶ 75-79.)  Plaintiff does not seek to enforce any terms of the contract.     

Finally, plaintiff’s fourth cause of action for negligent repair does not arise from the contract.  Plaintiff alleges K Motors “breached its duty to … use ordinary care and skill by failing to properly store, prepare and repair of [sic] the Subject Vehicle in accordance with industry standards.”  (Comp., ¶ 111.)  That duty is independent of the sales contract.  Even if not affiliated with the manufacturer or an authorized repair facility, any mechanics who undertook repairs would owe the same duties to their consumer.

As plaintiff argues, he “would have exactly the same claims even if their dealership hadn’t financed their car purchase, and therefore there was no financing contract at all.”  (Opp., p. 6.)  His claims therefore are not intertwined with the contract.  Equitable estoppel does not permit defendants to enforce the arbitration agreement. 

Third Party Beneficiaries

Defendants also argue they may enforce the arbitration agreement as third party beneficiaries.  For a third party beneficiary to enforce an arbitration agreement, “the parties to the contract must have intended the third party to benefit.”  (Ford, supra, 89 Cal.App.5th at p. 1337.)  “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.’ ”  (Ibid.)

Defendants do not meet this burden.  Ford held that equivalent auto sales contracts “reflect no intention to benefit a vehicle manufacturer.”  (Ford, supra, 89 Cal.App.5th at p. 1338.)  “[N]othing in the sale contracts or their arbitration provision offers any direct ‘benefit’ to” defendants and “there is no indication that a benefit to [defendants] was the signatories’ ‘motivating purpose.’ ”  (Ibid.)  Permitting defendants “to enforce the arbitration provision as a third party beneficiary would be inconsistent with the ‘reasonable expectations of the contracting parties’ [citation] where they twice specifically vested the right of enforcement in the purchaser and the dealer only.”  (Id. at p. 1340.)  The same reasoning applies here.

Defendants rely on the provision that the agreement requires arbitration of “ ‘[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).’ ”  (Motion, p. 13; Reply, p. 8.)  As Ford found, “this reference concerns what may be arbitrated, not who may arbitrate.  Who may enforce an arbitration agreement is a separate matter from the types of disputes the agreement covers.”  (89 Cal.App.5th at p. 1339.)

Defendants may not enforce the arbitration agreement as third party beneficiaries.

Delegation to Arbitrator

            Finally, defendants argue that an arbitrator, not this court, must determine the question of arbitrability.  “Parties to an arbitration agreement may agree to delegate to the arbitrator, instead of a court, questions regarding the enforceability of the agreement.”  (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 241.) 

The agreement’s delegation clause does not apply because “[t]he parties to this litigation did not agree to arbitrate arbitrability.”  (Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1128.)  “[T]he agreement to arbitrate arbitrability does not apply” because, as discussed above, plaintiff did not agree to arbitrate any disputes with the nonsignatory defendants.  (Ibid.; accord Donovan v. Coinbase Global, Inc. (N.D. Cal., Jan. 6, 2023, No. 22-CV-02826-TLT) --- F.Supp.3d ---, 2023 WL 2124776, at *6 [delegation requires “clear and unmistakable evidence that a signatory agreed to arbitrate arbitrability with a nonsignatory”].) 

Disposition

            Defendants Nissan North America, Inc. and K Motors SJC, LLC dba Glendale Nissan’s motion to compel arbitration and stay proceedings is denied.