Judge Christopher K. Lui, Case Number: 22STCV11576, Date: 2023-10-03 Tentative Ruling

Pursuant to California Rule of Court 3.1308(a)(1), the Court does not desire oral argument on the motion addressed herein. Counsel must contact the staff in Department 76 to inform the Court whether they wish to submit on the tentative, or to argue the matter. As required by Rule 3.1308(a), any party seeking oral argument must notify ALL OTHER PARTIES and the staff of Department 76 of their intent to appear and argue.

Notice to Department 76 may be sent by email to smcdept76@lacourt.org or telephonically at 213-830-0776.

Per Rule of Court 3.1308, if notice of intention to appear is not given, the Court may adopt the tentative ruling as the final ruling.

Plaintiff sues Defendants for failure to bring the subject vehicle into compliance with applicable warranties.

Defendant Nissan North America, Inc. moves to compel arbitration and stay this action.

Defendant Nissan North America, Inc.’s motion to compel arbitration and stay this action is DENIED.

Nos. 1 and 2: OVERRULED. Plaintiff does not dispute that this is a copy of the contract she signed. While the Court could continue the hearing for a stronger evidentiary foundation, the Court prefers to address this motion on the merits now.

(1) The Appellate Court’s Opinion, in Martha Ochoa v. Ford Motor Company (B312261) Certified for Publication dated April 4, 2023, affirming the Trial Court’s Order denying Defendant Ford Motor Company’s Motion to Compel Arbitration (Exh. 1); (2) The Appellate Court’s Opinion, in Mark Kielar v. Hyundai Motor America (Case No. C096773; Superior Court No. S-CV-0048230) Certified for Publication dated August 16, 2023, that the Trial Court erred in ordering arbitration (Exh. 2); (3) Ninth’s Circuit, February 12, 2022, Opinion, in Ngo v. BMW of North America, LLC et al., (9th Cir. 2022) 23 F.4th 942.

Defendant Nissan North America, Inc. moves to compel arbitration and stay this action.

Under California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (Blake v. Ecker (2001) 93 Cal.App.4th 728, 741 overruled on other grounds by Le Francois v. Goel (2005) 35 Cal.4^th 1094.) A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356-57.)

On February 23, 2021, Plaintiff entered into a Retail Installment Sale Contact with non-party Ross Nissan of El Monte to purchase a new 2020 Nissan Rogue Versa. (Sharp Decl., Exh. B[1].) Plaintiff’s signature and initials appear throughout the agreement. Plaintiff has not filed an opposition challenging the fact that she signed this document.

The Contract (Sharp Decl., Exh. C) includes the following arbitration clause which states in pertinent part as follows:

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

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 your credit application, purchase or 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. If federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Clause shall not apply to such claim or dispute. Any claim or dispute is to be arbitrated by a single arbitrator on an individual basis and not as a class action. You expressly waive any right you may have to arbitrate a class action. You may choose the American Arbitration Association, 1633 Broadway, 10^th Floor, New York, New York 10119 (www.adr.org), or any other organization subject to our approval. You may get a copy of the rules of an arbitration organization by contacting the organization or visiting its website. . . .

Agreement to Arbitrate: By signing below, you agree that, pursuant to the Arbitration Provision on the reverse side of this contract, you or we may elect to resolve any dispute by neutral, binding arbitration and not by a court action. See the Arbitration Provision for additional information concerning the agreement to arbitrate.

YOU AGREE TO THE TERMS OF THIS CONTRACT. YOU CONFIRM THAT BEFORE YOU SIGNED THIS CONTRACT, WE GAVE IT TO YOU, AND YOU WERE FREE TO TAKE IT AND REVIEW IT. YOU ACKNOWLEDGE THAT YOU HAVE READ ALL PAGES OF THIS CONTRACT, INCLUDING THE ARBITRATION PROVISION ON THIS PAGE, BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY FILLED-IN COPY WHEN YOU SIGNED IT.

The Court finds that Plaintiff agreed to arbitrate the Song-Beverly Act, Magnuson-Moss, and implied warranty (“statutory”) claims asserted in the Complaint.

The Court addresses Defendant’s argument as to whether the question of arbitrability has been delegated to the arbitrator.

Courts have held that “‘[t]here 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.’” (Aanderud, supra, 13 Cal.App.5th at p. 892.)

First, the arbitration clause does not incorporate a specific arbitration forum’s rules by reference. While the clause mentions the American Arbitration Association, it also leaves open the possibility that some other organization may conduct the arbitration. As such, there is no incorporation of any specific arbitration forum’s rules that may constitute a clear delegation, which courts have found to be possible. (See, e.g., Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 892-93.)

The purported delegation clause in the subject arbitration provision reads as follows:

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 your credit application, purchase or 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.

Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 892 addressed the language in the subject arbitration clause that:

[The parties] “agree to arbitrate all disputes, claims and controversies arising out of or relating to … (iv) the interpretation, validity, or enforceability of this Agreement, including the determination of the scope or applicability of this Section 5 [the “Arbitration of Disputes” section]. …” This language delegates to the arbitrator questions of arbitrability and is clear and unmistakable evidence that the parties intended to arbitrate arbitrability. (See, e.g., Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1560 [173 Cal. Rptr. 3d 241] [noting delegation clause that provided “ ‘[t]he arbitrator has exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this binding arbitration agreement’” was clear and unmistakable]; Momot v. Mastro (9th Cir. 2011) 652 F.3d 982, 988 [language that delegated authority to arbitrator to determine “‘the validity or application of any of the provisions of’” the arbitration clause was a clear and unmistakable agreement to arbitrate the question of arbitrability].)

(Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 892 [bold emphasis and underlining added].)

The Aanderud court used the term “arbitrability” to refer to questions of “interpretation, validity or enforceability” and “scope or applicability.” (Id. at 892.) Based upon this holding, the reference in the subject arbitration clause that the parties delegate any claim or dispute including “the interpretation and scope” of the arbitration provision, and “the arbitrability of this claim or dispute,” is a clear and unmistakable delegation of the issues of validity and enforceability, i.e., as to the defense of unconscionability, which affects validity or enforceability. “The doctrine of unconscionability is a defense to the enforcement of a contract or a term thereof. (Civ. Code, § 1670.5; California Grocers Assn. v. Bank of America (1994) 22 Cal. App. 4th 205, 213 [27 Cal. Rptr. 2d 396].)” (Marin Storage & Trucking, Inc. v. Benco Contracting & Eng'g, Inc. (2001) 89 Cal. App. 4th 1042, 1049.)

The Court finds that the delegation of the question of “arbitrability” delegates issues of scope, applicability, interpretation, validity and enforceability, including the question of unconscionability, to the arbitrator.

However, absent a clear delegation of the question of whether third persons are entitled to enforce the arbitration agreement, the Court will decide whether moving Defendant Nissan North America—which is not a party to the arbitration agreement—may enforce the arbitration agreement. The Court must decide issues of contract formation, i.e., whether the parties agreed to arbitrate at all.

[W]e conclude that although the delegation clause provides that the arbitrator “shall have exclusive authority to resolve any dispute relating to … formation of the arbitration policy,” as a matter of law, the question whether the parties entered into an agreement to arbitrate anything at all is for a court to decide.

To the extent that Defendant Nissan North America, which is not a signatory to the arbitration agreement, argues that it is a third-party beneficiary of the arbitration clause in the Sales Contract, this argument is not persuasive, as there is no language whereby the parties expressly made a third party the beneficiary of the arbitration clause.

To invoke the third party beneficiary exception, Tweed and TFI had to show that the arbitration clause of the account agreement was “made expressly for [their] benefit.” (Civ. Code, § 1559.) It is “not necessary that the [*839] beneficiary be named and identified as an individual. A third party may enforce a contract where he shows that he is a member of a class of persons for whose benefit it was made.” (Garratt v. Baker (1936) 5 Cal.2d 745, 748 [56 P.2d 225]; accord, Cargill, Inc. v. Souza (2011) 201 Cal.App.4th 962, 967 [134 Cal. Rptr. 3d 39].)

(Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 838-39.)

Defendant Nissan North America does not fall within the class of “our employees, agents, successors or assigns.” There is no intent to benefit a class of persons other than these. Notably, Felisilda, discussed below, did not rely upon a third party beneficiary theory. Moreover, in both Ochoa[2] and Montemayor[3], discussed below, the Second District rejected a third party beneficiary claim on the part of the manufacturer, based on identical language.

As for equitable estoppel, the Court has duly considered the Second District’s decision in (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324 (hereinafter, “Ochoa”) and, to the extent it departs with the Third District’s decision in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, this Court will choose to follow Ochoa. “[W]here there is more than one appellate court decision, and such appellate decisions are in conflict. . . . the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.” (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456.) Indeed, with the recent decision in Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5^th 958, the Second District Court of Appeal has made it clear that it will not follow Felisilda.

In accordance with Ochoa and Montemayor, this Court finds that Plaintiff is not equitably estopped from denying that Nissan may enforce the arbitration agreement against Plaintiff. Plaintiff’s claims are not based upon the terms of the sale in the contract. In this regard, the Court adopts the reasoning set forth in Ochoa, which was based on the same arbitration language:

That the Felisilda plaintiffs and the dealer agreed in their sale contract to arbitrate disputes between them about the condition of the vehicle does not equitably estop the plaintiffs from asserting FCA has no right to demand arbitration. Equitable estoppel would apply if the plaintiffs had sued FCA based on the terms of the sale contract yet denied FCA could enforce the arbitration clause in that contract. (Felisilda, supra, 53 Cal.App.5th at pp. 495–496.) That is not what the plaintiffs did in Felisilda.

The plaintiffs' breach of warranty claims against FCA in Felisilda were not based on their sale contracts with the dealers. We disagree with Felisilda that “the sales contract was the source of [FCA's] warranties at the heart of this case.” (Felisilda, supra, 53 Cal.App.5th at p. 496.) As we discuss further below, 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.

We also disagree with the Felisilda court's interpretation of the sale contract as broadly calling for arbitration of claims “against third party nonsignatories.” (Felisilda, supra, 53 Cal.App.5th at p. 497.) The Felisilda court relied on the following italicized language to conclude that third parties could enforce the arbitration provision: “‘Any claim or dispute, whether in contract, tort, statute or otherwise … , between you and us or our employees, agents, successors or assigns, which arises out of or relates to … purchase or condition of this vehicle, the cont[r]act 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 … .’” (Id. at p. 498.)

We do not read this italicized language as consent by the purchaser to arbitrate claims with third party nonsignatories. Rather, we read it as a further [*1335] delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate. They agreed to arbitrate disputes “between” themselves —“‘you and us’”—arising out of or relating to “relationship[s],” including “‘relationship[s] with third parties who [did] not sign th[e] [sale] contract[s],’” resulting from the “‘purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.’” (Felisilda, supra, 53 Cal.App.5th at p. 496, italics omitted.)

Purchasers, like plaintiff Mathew Davidson-Codjoe, whose sale contract we described above, can elect to buy insurance, theft protection, extended warranties and the like from third parties, and they can finance their transactions with those third parties under the sale contracts. The “third party” language in the arbitration clause means that if a purchaser asserts a claim against the dealer (or its employees, agents, successors or assigns) that relates to one of these third party transactions, the dealer can elect to arbitrate that claim. It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.

Most of the plaintiffs attached their sale contracts as an exhibit to their complaints. Some did so in support of general allegations about when they bought their vehicles and to identify their vehicles by make and model. Others attached their sale contracts in support of allegations the sale contracts were accompanied by implied warranties under the Song-Beverly Consumer Warranty Act. But no plaintiffs alleged violations of the sale contracts' express terms. Rather, plaintiffs' claims are based on FMC's statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty. Certain plaintiffs also sued on theories of breach of implied warranty of merchantability and fraudulent inducement. Not one of the plaintiffs sued on any express contractual language in the sale contracts. The sale contracts include no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arise. To the contrary, the sale contracts disclaim any warranty on the part of the dealers, while acknowledging no effect on “any warranties covering the vehicle that the vehicle manufacturer may provide.” In short, the substantive terms of the sale contracts relate to sale and financing and nothing more.

FMC's argument that plaintiffs' manufacturer warranty claims are founded in the sale contracts because California law treats all warranty claims as contract claims is not supported by California law. California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract. In [*1336] Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57 [27 Cal. Rptr. 697, 377 P.2d 897] (Greenman), our Supreme Court distinguished between, on the one hand, warranty obligations flowing from the seller to the buyer by contract, and, on the other hand, manufacturer warranties “that arise[] independently of a contract of sale between the parties.” (Id. at p. 61, italics added; see also Corporation of Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514 [32 Cal. Rptr. 144] (Cavanaugh) [manufacturer's express warranty “was not part of a contract of sale between the manufacturer and the plaintiff” (italics added)].)

Again, the “‘“fundamental point”’” of using equitable estoppel to compel arbitration is to prevent a party from taking advantage of a contract's substantive terms while avoiding those terms requiring arbitration. (Felisilda, supra, 53 Cal.App.5th at p. 496.) Plaintiffs' claims in no way rely on the sale contracts. Equitable estoppel does not apply.

(Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 1334-36 [bold emphasis added].)

We disagree with the decision of our colleagues in the Third District in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 [266 Cal. Rptr. 3d 640] (Felisilda) that estoppel applies to enable the nonsignatory manufacturer to enforce the arbitration provision in a similar sales contract. We conclude Ford cannot enforce the arbitration provision in the sales contract because the Montemayors' claims against Ford are founded on Ford's express warranty for the vehicle, not any obligation imposed on Ford by the sales contract, and thus, the Montemayors‘ claims are not inextricably intertwined with any obligations under the sales contract. Nor was the sales contract between the Montemayors and AutoNation intended to benefit Ford. We affirm.

Accordingly, moving Defendant Nissan North America is not entitled to enforce the arbitration agreement against Plaintiff.

[1] Submitting photos taken in a car that are blurry when zoomed in is not the preferred exhibit practice.

[2] (Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1338-40 [discussing inapplicability of third party beneficiary theory].)

[3] (Montemayor v. Ford Motor Co. (2023) 92 Cal. App. 5th 958, 972-74 [discussing inapplicability of third party beneficiary theory].)