Department 58

Hearing Date: September 26, 2024

Case Name: Israel Garcia-Wood, et al. vs Ford Motor Company, et al.

Case No.: 24STCV15391

Motion: Motion to Compel Arbitration

Moving Party: Ford Motor Company

Responding Party: Israel Garcia-Wood and Carlos Andres Garcia-Wood

Tentative Ruling: The Motion to Compel Arbitration is denied.

This is a Song Beverly Action. On June 20, 2024, plaintiffs Israel Garcia-Wood and Carlos Andres Garcia-Wood (Plaintiffs) filed suit against defendants Ford Motor Company (Ford) and Sunrise Ford of North Hollywood (Sunrise; collectively Defendants). Plaintiffs allege on August 6, 2022, they entered into a warranty contract with Ford for a 2022 Ford F150 (subject vehicle) which was manufactured and/or distributed by Ford. Plaintiffs further allege that when they received the subject vehicle, it had a series of defects and nonconformities to the warranty including, but not limited to, transmission defects, engine defects, electrical defects and body defects. Plaintiffs assert claims under the Song Beverly Act as well as for breaches of the warranty, and fraudulent inducement. Plaintiffs also assert a negligent repair claim against Sunrise.

On August 7, 2024, Ford filed its motion to compel arbitration pursuant to Plaintiff’s Retail Installment Sales Contract (RISC) which Plaintiffs entered into with Sunrise. Plaintiffs oppose.

The motion to compel arbitration is denied.

Evidentiary Issues

Plaintiffs’ request for judicial notice of Exhibits A-G is granted. (Evid. Code, § 452, subd. (d).) Ford’s objection to the request for judicial notice is overruled.

Legal Standard

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.)

Analysis

Existence of a Valid Agreement

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 August 6, 2022, Plaintiffs entered into a Sales Contract with Sunrise. (Harvey Decl., Ex. 1) In moving for arbitration, Ford requests a court order compelling Plaintiff to arbitrate his claims pursuant to this RISC.

Acknowledging that it is a non-party to the RISC and its related arbitration provision, Ford argues that an order compelling plaintiff to arbitration is still proper based on the doctrine of equitable estoppel and or as a third-party beneficiary. Ford relies heavily on the holding in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486.

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. (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.)

Several California appellate courts have since declined to follow Felisilda. (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]; Yeh v. Superior Court of Contra Costa Ctny. (2023) 95 Cal.App.5th 264 [First District]; Davis v. Nissan North America Inc (2024) 100 Cal.App.5th 825 [Fourth District].)

Rather, the more persuasive legal authority arises from the cases cited by Plaintiff, Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 and Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958. These authorities explained that Felisilda’s statement that “the sales contract was the source of the warranties” was flawed because the “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, Plaintiffs have sued the manufacturer and the dealership from which it purchased the subject vehicle. However, only Ford moves to compel arbitration. The complaint alleges Plaintiffs entered into a warranty contract with Ford and “it contained various warranties, including but not limited to the bumper-bumper warranty, powertrain warranty, emission warranty, etc.” (Compl., ¶8.) Further “[t]hese causes of action arise out of the warranty obligations of [Ford] in connection with a motor vehicle for which [Ford] issued a written warranty.” (Compl., ¶11.) There is no breach of contract cause of action in the complaint and no mention of the RISC.

Moreover, as in Kielar v. Superior Court of Placer County (2023) 94 Cal.App.5th 614, the RISC 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.” (Harvey Decl., Ex. 1 p. 4 [emphasis added].) (Kielar, supra, 94 Ca.App.5^th at p. 620 [warranty “was not part of the sales contract with the dealership”].)

Ford argues that Plaintiffs are asking the Court to follow irrelevant federal cases. (Reply 16:08-17:18.) Ford addresses Plaintiff’s citation to Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1222 – ignoring the California cases cited above. Ford also argues the Ford Motor Warranty Cases are non-binding case law because the Supreme Court has granted review, while Felisilda is the binding, on point case law.

Felisilda is not controlling. “When 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, Plaintiffs’ claims arise out of Ford’s express and implied warranties, and not the RISC between Plaintiffs and Sunrise. Thus, equitable estoppel does not apply to allow Ford, as a non-signatory, to enforce the arbitration provision in the RISC.

Ford also argues the threshold question of arbitrability should be decided by the arbitrator – not the court – based on the RISC’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.” (Harvey Decl., Ex 1, 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, Ford’s delegation argument fails for the same reason as the equitable estoppel argument: there is no binding enforceable agreement to arbitrate between Ford and Plaintiffs. That is, Ford cannot invoke the right to the benefits of the RISC because it was not a party to the agreement; thus, the threshold issue of whether RISC, as a non-signatory, may compel Plaintiffs to submit to arbitration under the RISC 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.’ ”].)

Finally, Ford argues that it may enforce the arbitration provision as a third-party beneficiary.

“A third party beneficiary is someone who may enforce a contract because the contract is made expressly for his benefit. [Citation.] The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract. [Citation.] The mere fact that a contract results in benefits to a third party does not render that party a third party beneficiary. [Citation]” (Montemayor, supra, 92 Cal.App.5th at p. 973 [internal quotation marks and brackets omitted].)

“In Goonewardene [v. ADP, LLC (2019) 6 Cal.5th 817, 830], the Supreme Court held that in considering third party beneficiary contract claims, a court should ‘carefully examine[ ] the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.’ [Citation] ‘All three elements must be satisfied to permit the third party action to go forward.’ ” (Montemayor, supra, 92 Cal.App.5th at p. 973.)

Here, however, Ford does not present evidence of the relationship between itself and the dealership which sold the subject vehicle demonstrating the motivating purpose of the RISC was for Ford’s benefit. Nor can the court conclude that permitting Ford to enforce the arbitration agreement is consistent with the objectives of the contract or the reasonable expectation of the consumer signing the agreement (the third Goonewardene factor).

In Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1338 the court adopted similar reasoning in finding that the defendant there was not a third party beneficiary. Following Ngo v. BMW of North America (9th Cir. 2022) 23 F.4th 942, 946-950, it described its reasoning in relevant part as follows: “[The Ngo Court] found that allowing BMW to enforce the arbitration provision would not be consistent with the ‘ “objectives of the contract” and the reasonable expectations of the contracting parties.’ [Citation.] Among the reasons it offered was that the clause specifically identified who could compel arbitration, demonstrating that ‘the parties knew how to give enforcement powers to non-signatories when they wished to but gave none to BMW.... [¶] ... [¶] ... BMW’s relative proximity to the contract confirms that the parties easily could have indicated that the contract was intended to benefit BMW—but did not do so.’ ”

Applying that logic, the Court of Appeal stated the drafter of the agreement could have simply named the defendant in that case – “directly or by class as the vehicle’s manufacturer – as a person entitled to compel arbitration. But they did not. What they said was that ‘EITHER YOU OR WE’—the purchaser or the dealer [or the financing company] —‘MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION,’ and reiterated that arbitrable disputes ‘shall, at your or our’—the purchaser’s or the dealer’s or financing company’s —‘election, be resolved by neutral, binding arbitration . . . .’ ” (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1339.)

Following that decision, the court here concludes that defendant has not established the third Goonewardene factor, and therefore cannot enforce the agreement as a third-party beneficiary.

Based on the foregoing, Ford has not carried its burden of demonstrating the existence of a valid binding arbitration agreement between Plaintiffs and Ford.

CONCLUSION

Accordingly, Ford’s motion to compel arbitration is denied.