Judge: Armen Tamzarian, Case: 22STCV38870, Date: 2023-03-29 Tentative Ruling

Case Number: 22STCV38870    Hearing Date: March 29, 2023    Dept: 52

Defendant Hyundai Motor America’s Motion to Compel Binding Arbitration

Defendant Hyundai Motor America moves to compel arbitration of this action by plaintiffs Nanci Aleman Garcia and Kassandra Aleman Aguilar. 

Evidentiary Objections

Plaintiffs make three objections to defendant’s evidence.  Objection No. 2 is sustained.  Objection Nos. 1 and 3 are overruled.

Owner’s Booklet & Warranty Information

            The vehicle owner’s handbook and warranty information permits defendant to compel arbitration.  Section 4 of the warranty information provides:

BINDING ARBITRATION FOR CALIFORNIA VEHICLES ONLY

PLEASE READ THIS SECTION IN ITS ENTIRETY AS IT AFFECTS YOUR RIGHTS

If you purchased or leased your Hyundai vehicle in the State of California, you and we each agree that any claim or disputes between us (including between you and any of our affiliated companies) related to or arising out of your vehicle purchase, use of your vehicle, the vehicle warranty, representations in the warranty, or the duties contemplated under the warranty, including without limitation claims related to the failure to conform a vehicle to warranty, failure to repurchase or replace your vehicle, or claims for a refund or partial refund of your vehicle’s purchase price (excluding personal injury claims), but excluding claims brought under the Magnuson-Moss Warranty Act, shall be resolved by binding arbitration at either your or our election, even if the claim is initially filed in a court of law.  If either you or we elect to resolve our dispute via arbitration (as opposed to in a court of law), such binding arbitration shall be administered by and through JAMS Mediation, Arbitration and ADR Services (JAMS) under its Streamlined Arbitration Rules & Procedures. 

(Ameripour Decl., Ex. 3, p. 13.) 

Section 4 of the warranty information concludes, “If you purchased or leased your vehicle in California, your warranty is made subject to the terms of this binding arbitration provision.  By accepting benefits under this warranty, including having any repairs performed under warranty, you agree to be bound by these terms.  If you do not agree with these terms, please contact us at optout@hmausa.com within thirty (30) days of your purchase or lease to opt-out of this arbitration provision.”  (Ameripour Decl., Ex. 3, p. 14.) 

Plaintiffs argue they never manifested their consent to this arbitration provision.  They accepted via their conduct.  “[A] party may accept a contract by conduct, as well as by words.”  (Cavalry SPV I, LLC v. Watkins (2019) 36 Cal.App.5th 1070, 1081.)  “Through her conduct,” a party may accept written “terms, creating an enforceable written agreement.” (Id. at p. 1082.)

The warranty information expressly states the manner of acceptance is “accepting benefits under this warranty, including having any repairs performed under warranty.”  (Ameripour Decl., Ex. 3, p. 14.)  The gravamen of this action is to enforce the benefits due to plaintiffs under the warranty.  The complaint alleges, “Plaintiffs received an express written warranty in which Defendant HMA undertook to preserve or maintain the utility or performance of the Vehicle or to provide compensation if there is a failure in utility or performance for a specified period of time.”  (Comp., ¶ 9.)  Plaintiffs allege the vehicle has defects that “violate the express written warranties issued by Defendant HMA, as well as the implied warranty of merchantability.”  (Id., ¶ 12.)  They further allege they “presented the Vehicle for repair” (¶ 19) and gave defendant “a reasonable number of opportunities.  (¶ 20.)  But even assuming plaintiffs have not had any repairs performed under the warranty, bringing this action itself constitutes accepting benefits under the warranty.

Defendant may also enforce the warranty information’s arbitration provision under the doctrine of equitable estoppel.  “[A] nonsignatory ‘is estopped from avoiding arbitration if it knowingly seeks the benefits of the contract containing the arbitration clause.’ ”  (Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1070.)  This action seeks the benefits of the express written warranty, which contains the arbitration clause.     

Lease Contract

            Defendant may also enforce the arbitration provision in plaintiffs’ lease contract 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.”  (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (Felisilda).)  

Felisilda considered this issue based on a similar arbitration provision.  The Court of Appeal held the vehicle’s manufacturer, who did not sign the agreement, had the right to compel arbitration under the doctrine of equitable estoppel.  (Id. at p. 496.)  There, the sales contract provided, “Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to ... 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) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”  (Id. at p. 490.)  The Court of Appeal held the nonsignatory manufacturer could enforce this agreement.  (Id. at pp. 496-497.)

Felisilda’s reasoning applies equally here.  Plaintiffs entered a lease contract with non-party Baker Carlsbad, Inc.  (Ameripour Decl., Ex. 2.)  The lease includes the following arbitration provision: “Agreement to Arbitrate.  In the event of a claim or dispute between you and us (including our respective agents, employees, officers, directors, affiliates, subsidiaries and parents) (‘we’ or ‘us’), whether in contract, tort statute, or otherwise, arising under or relating to this Lease or the Leased Vehicle, your experience with us, or any resulting transaction or relationship, the claim or dispute must be resolved by binding arbitration.”  (Id., p. 5.) 

Plaintiffs’ complaint alleges claims arising under or relating to the leased vehicle and the resulting transaction or relationship with defendant—the express written warranty.  The lease resulted in the manufacturer’s warranty and created a relationship between plaintiffs and defendant.  Plaintiffs are therefore equitably stopped from refusing to arbitrate their complaint against defendant.

Unconscionability

Plaintiffs contend both agreements are unconscionable.  They are not.  Unconscionability requires both procedural and substantive unconscionability using a sliding scale.  (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 185 (Serafin).)  “No matter how heavily one side of the scale tips . . . both procedural and substantive unconscionability are required for a court to hold an arbitration agreement unenforceable.”  (Kilgore v. KeyBank, Nat. Ass'n (9th Cir. 2012) 673 F.3d 947, 963, citing Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).)

Plaintiffs purport to argue the warranty information’s arbitration provision is unconscionable.  They show moderate procedural unconscionability.  Procedural unconscionability focuses on “‘oppression’ or ‘surprise’ due to unequal bargaining power… .” (Armendariz, supra, 24 Cal.4th at p. 114.)  “Procedural unconscionability occurs when the stronger party drafts the contract and presents it to the weaker party on a ‘take it or leave it basis.’” (Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393, disapproved of on other grounds by Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237.)  “By itself, however, adhesion establishes only a ‘low’ degree of procedural unconscionability.”  (Davis v. Kozak (2020) 53 Cal.App.5th 897, 907.)  The weaker party’s lack of “any realistic opportunity to look elsewhere for a more favorable contract” also contributes to oppression.  (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1572.)

The warranty information was drafted by defendant.  Plaintiffs had no opportunity to negotiate it once they leased the vehicle.  Though the warranty information permits plaintiffs to opt out (Ameripour Decl., Ex. 3, p. 14), that provision is itself surprising.  They had to opt out within 30 days of leasing the vehicle, but the opt-out provision is part of the owner’s handbook and warranty information.  It would not be obvious to one leasing a vehicle that they must promptly read the warranty information and opt out or risk losing certain rights.

Plaintiffs, however, show no substantive unconscionability in the warranty information’s arbitration provision.   Substantive unconscionability “focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results.”  (Serafin, supra, 235 Cal.App.4th at p. 177, internal quotes omitted.)  Plaintiffs make no true attempt to show this arbitration provision is substantively unconscionable.  Though their opposition uses the term “unconscionable,” the substance of their argument on this subject is that they never agreed or manifested their consent to it.  (Opp., pp. 2-3.)  That goes to the existence of a contract—not whether it is unconscionable.  The arbitration agreement is fair.  It contains no overly harsh or one-sided provisions.   

The lease contract is also not unconscionable.  Plaintiffs show some procedural unconscionability.  The more powerful party drafted the contract.  Plaintiffs had no reasonable opportunity to negotiate it.  Plaintiffs, however, could have leased a different vehicle or leased a vehicle from someone else.  Plaintiffs therefore show only a low degree of procedural unconscionability.        

Plaintiffs show no substantive unconscionability.  They argue the agreement is substantively unconscionable for three reasons.  First, they argue it allows for a choice of arbitrators but only if the lessor approves.  It provides, “Arbitration must proceed only with the American Arbitration Association (AAA) or JAMS, or any organization that you choose subject to our approval.”  (Ameripour Decl., Ex. 2, p. 6.)  That does not make it unfair or one sided.  The American Arbitration Association and JAMS are neutral providers of arbitration services.  Using a different arbitration organization requires the consent of both sides.

Second, plaintiffs argue the agreement is unfair because it requires them to pay the costs of arbitration.  The agreement provides, “If you wish to begin arbitration against us but you cannot afford to pay the organization’s or arbitrator’s costs, we will advance those costs if you ask us in writing.  …  If you lose the arbitration, the arbitrator will decide whether you must reimburse us for money we advanced for you for the arbitration.  If you win the arbitration, we will not ask for reimbursement of money we advanced.  Additionally, if you win the arbitration, the arbitrator may decide that you are entitled to be reimbursed your reasonable attorneys’ fees and costs (if actually paid by you).”    (Ameripour Decl., Ex. 2, p. 6.)  The agreement therefore does require defendant to pay plaintiffs’ fees—or at least to advance them—but only in some circumstances.

As plaintiffs note, however, “the California Arbitration Act (‘CAA’), prohibits shifting arbitral expenses to a consumer.  (Code Civ. Proc. § 1284.3, subd. (a).)”  (Opp., p. 5.)  Courts “assume that the arbitrator will operate in a reasonable manner in conformity with the law.”  (Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 984.)  California law requires defendant to pay all fees for this arbitration.  The court assumes the arbitrator will follow that requirement.

Assuming this fee provision is unconscionable, it is severable.  “The strong legislative and judicial preference is to sever the offending term and enforce the balance of the agreement” unless the agreement is “permeated by unconscionability.”  (Lange v. Monster Energy Company (2020) 46 Cal.App.5th 436, 453, internal quotes, citations, and alterations omitted.)  The court will therefore sever this provision and require defendant to pay plaintiffs’ arbitration fees.

Finally, plaintiffs argue the arbitration agreement deprives them of their right to jury trial.  That is the point of every arbitration agreement.  That is not unfairly harsh and does not shock the conscience.  “Inherent in an arbitration agreement is a waiver of trial by jury—a waiver that is not precluded by the Constitution or the Code of Civil Procedure.”  (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1117, fn. 7.)  And this waiver is mutual. 

Disposition

            Defendant Hyundai Motor America’s motion to compel arbitration is granted.

Plaintiffs Nanci Aleman Garcia and Kassandra Aleman Aguilar are ordered to arbitrate this action against defendant.  The court hereby severs all text in either arbitration agreement requiring plaintiffs to pay fees unique to arbitration.  Defendant must pay plaintiffs’ arbitration fees in accordance with Code of Civil Procedure section 1284.3.  

            The court hereby stays the entire action pending resolution of the arbitration proceeding between plaintiffs and defendant Hyundai Motor America.