Judge Bruce G. Iwasaki, Case Number: 23STCV10025, Date: 2023-10-02 Tentative Ruling

This is a Song-Beverly action. The Complaint alleges that on March 28, 2022, Plaintiff Veronica Marie Cortez purchased a 2022 Honda Accord Hybrid (Vehicle). Thereafter, the Vehicle suffered from “nonconformity to warranty to, including, but not limited to, brake system, electrical, vehicle stops on its own, low speed brake control problem, steering, and other defects.” The Complaint further alleges Defendant American Honda Motor Co., Inc., (Defendant or Defendant Honda) refused or failed to make necessary repairs. The Complaint seeks restitution under Song-Beverly pursuant to express and implied warranties.

On July 7, 2023, Defendant American Honda Motor Co., Inc. filed a motion to compel arbitration pursuant to Plaintiff’s Retail Installment Sales Contract – Simple Finance Charge (Sales Contract). Plaintiff opposes the motion.

Plaintiff’s objections to Defendant’s evidence are ruled as follows: Nos. 1-2 are sustained.

Under Code of Civil Procedure section 1281.2, a court may order arbitration of a controversy if it finds that the parties have agreed to arbitrate that dispute. Because the obligation to arbitrate arises from contract, the court may compel arbitration only if the dispute in question is one in which the parties have agreed to arbitrate. (Weeks v. Crow (1980) 113 Cal.App.3d 350, 352.) Since arbitration is a favored method of dispute resolution, arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question. (Id. at p. 353; Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.)

In ruling on a petition to compel arbitration, a court must determine two threshold matters: first, whether a valid agreement to arbitrate exists; and second, whether that agreement encompasses the dispute at issue. (See Code Civ. Proc. § 1281.2.)

By way of background, on March 28, 2022, Plaintiff entered into a Sales Contract with non-party, dealer Honda of Downtown Los Angeles. (Dao Decl., Ex. A.) In moving for arbitration, Defendant Honda – not to be confused with Honda of Downtown Los Angeles – requests a court order compelling Plaintiff to arbitrate its claims pursuant to this Sales Contract.

Acknowledging that it is a non-party to the Sales Contract and its related arbitration provision, Defendant Honda argues compelling Plaintiff’s claims to arbitration is still proper based on the doctrine of equitable estoppel. Plaintiff relies heavily on the holding in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 for.[1]

The doctrine of equitable estoppel is an exception to “ ‘the general rule that a nonsignatory to an agreement cannot be compelled to arbitrate and cannot invoke an agreement to arbitrate, without being a party to the arbitration agreement.’ [Citations.] [¶] ... Under that doctrine, as applied in ‘both federal and California decisional authority, 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.’ [Citations.] ‘By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.’ [Citations.] ‘The rule applies to prevent parties from trifling with their contractual obligations.’ ” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236-1237.)

In Felisilda, the plaintiff filed a complaint against a dealership and a manufacturer alleging a violation of the Song-Beverly Act based on the manufacturer's express warranties. (Felisilda, supra, 53 Cal.App.5th at p. 491.) The plaintiff and the dealership had entered into a sales contract with an arbitration provision.[2] (Id. at p. 490.) The dealership moved to compel arbitration of the entire matter, including claims as to the nonsignatory manufacturer. (Id. at p. 491.) In affirming the trial court's decision to order the entire case to arbitration based on the doctrine of equitable estoppel, the Court of Appeal explained “the sales contract was the source of the warranties at the heart of this case.” (Id. at p. 496.)

Felisilda is an outlier; several California appellate courts have since declined to follow it. (See e.g., Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 [Second District]; Kielar v. Superior Court of Placer County (2023) 94 Cal.App.5th 614 [Third District]; Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958 [Second District].)

Rather, the more persuasive legal authority arises from the cases cited by Plaintiff, Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324[3] and Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958. These authorities explained Felisilda’s statement that “the sales contract was the source of the warranties” was flawed because “manufacturer vehicle warranties that accompany the sale of motor vehicles without regard to the terms of the sale contract between the purchaser and the dealer are independent of the sale contract.” (Ford Motor Warranty Cases, supra, 92 Cal.App.5th at p. 1334; accord Montemayor, supra, 92 Cal.App.5th at p. 969; see also Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, 949 [“the express and implied warranties arise ‘independently of a contract of sale’ ”].)

Here, Plaintiff has only sued the manufacturer, Defendant Honda. The Complaint alleges: “Defendant AMERICAN HONDA MOTOR CO., INC. offered an “express warranty” to plaintiff pursuant to the Act.” (Compl., ¶ 8.) Further, “[t]he sale of the aforementioned subject vehicle was also accompanied by defendant AMERICAN HONDA MOTOR CO., INC.’s implied warranty of fitness.” (Compl., ¶ 9.) There is no breach of contract cause of action in the Complaint and no mention of the Sales Contract.

Moreover, as in Kielar v. Superior Court of Placer County (2023) 94 Cal.App.5th 614, the Sale Contract contains a “Warranties Seller Disclaims” provision, which states: “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, and there will be no implied warranties of merchantability or of fitness for a particular purpose. This provision does not affect any warranties covering the vehicle that the manufacturer may provide.” (Dao Decl., Ex. A, p. 5 [emphasis added].) (Kielar, supra, 94 Ca.App.5^th at p. 620 [warranty “was not part of the sales contract with the dealership”].)

Somewhat disingenuously, Defendant argues that Plaintiff is asking this Court to rely “solely on non-binding federal authority and argues the Court should ignore binding California Court of Appeal precedent and follow these federal court orders and opinions.” (Reply 1:27-2:1.) Defendant then goes on only to address Plaintiff’s citation to Ngo v. BMW of North America, LLC (9th Cir.2022) 23 F.4th 942 – ignoring the plethora of other California authorities cited above.

Under these circumstances Felisilda is not controlling on this Court: “[w]hen there is a division in Court of Appeal opinions, a trial court chooses which line of authority to follow.” (The Urban Wildlands Group, Inc. v. City of Los Angeles (2017) 10 Cal.App.5th 993, 1002.) The Court follows the more recent line of cases rejecting Felisilda.

Based on the foregoing, Plaintiff's claims arise out of Defendant Honda’s express and implied warranties, and not the Sales Contract between Plaintiff and the dealership. Thus, equitable estoppel does not apply to allow Defendant, as a non-signatory, to enforce the arbitration provision in the Sales Contract.

Lastly, Defendant also argues the threshold question of arbitrability should be decided by the arbitrator – not the court – based on the Sale Contract’s delegation clause.

The arbitration provision here specifically provides: “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)…, shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.” (Dao Decl., Ex A, p. 7.)

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.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 242; see Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 68, 69, fn. 1.) The “clear and unmistakable” test reflects a “heightened standard of proof” that reverses the typical presumption in favor of the arbitration of disputes. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 787.)

Here, however, Defendant’s delegation argument fails for the same reason as the equitable estoppel argument: there is no binding enforceable agreement to arbitrate between Defendant and Plaintiff. That is, Defendant cannot invoke the right to the benefits of the Sales Contract because it was not a party to the agreement; thus, the threshold issue of whether Defendant, as a nonsignatory, may compel Plaintiff to submit to arbitration under the Sales Contract must be decided by this Court. (Benaroya v. Willis (2018) 23 Cal.App.5th 462, 469 [“ ‘The question of whether a nonsignatory is a party to an arbitration agreement is one for the trial court in the first instance.’ ”].)

Moreover, several cases have found that a similar/identical delegation provision is not enforceable as to a non-signatory. (See e.g., In re ZF-TRW Airbag Control Units Products Liability Litigation (C.D. Cal., Sept. 27, 2021, No. LAML1902905JAKFFMX) 2021 WL 5069003, at *3; Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1127; Vincent v. BMW of North America, LLC (C.D. Cal., Nov. 26, 2019, No. CV 19-6439 AS) 2019 WL 8013093, at *4.)

Based on the foregoing, Defendant Honda has not carried its burden of demonstrating the existence of a valid, binding arbitration agreement between Plaintiff and Defendant Honda.[4]

[1] In Reply, Defendant also raised a third-party beneficiary theory in this case. The moving papers contains a Table of Contents entry stating “AHM May Compel Arbitration As A Third-Party Beneficiary,” but the body of the Memorandum of Points and Authorities contains no such argument. In opposition, Plaintiff argues that Defendant cannot rely on the third-party beneficiary doctrine to prevail on this motion. (Opp. 9:6-11:5.) Defendant argued that it is a “third-party beneficiary” in its reply memorandum. (Reply 3:2-4:15.) Defendant asserted: “Felisilda v. FCA US LLC, 53 Cal.App.5th 486, (2020), the only binding authority at issue, supports BMW NA’s [sic] motion to compel arbitration as a third-party beneficiary.” (Reply 6:13-14.) However, Felisilda was not decided based on a third party beneficiary finding. Moreover, this newly raised third-party beneficiary argument has been waived as a result of Defendant’s failing to raise it in the moving papers. In any event, Plaintiff’s opposition argument on this issue is well-taken. (See Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1336-1340 [relying on the analysis in Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, 947-948].)

[2] The arbitration provision in Felisilda is an identical arbitration provision to the one at issue in this proceeding and is also identical to the provision at issue in Kielar v. Superior Court of Placer County (2023) 94 Cal.App.5th 614, 620 which declined to follow the ruling in Felisilda.

[3] Defendant refers to this case as Ocha in reply.

[4] As an additional grounds for denial, Defendant has failed to carry its burden by failing to present admissible evidence demonstrating the existence of a valid agreement. (See Court’s Evidentiary Rulings)

Department 58