Judge: Colin Leis, Case: 22AHCV00599, Date: 2023-01-17 Tentative Ruling

Case Number: 22AHCV00599    Hearing Date: January 17, 2023    Dept: 3

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - NORTHEAST DISTRICT

I.         INTRODUCTION

          On August 23, 2022 Plaintiff Raul Carbajal (“Plaintiff”) filed a complaint against Defendants FCA US, LLC (“Defendant FCA”) and Bravo Chrysler Dodge Jeep Ram of Alhambra (“Defendant BRAVO”) arising out of Plaintiff’s purchase of a 2019 Chrysler Pacific from Defendant BRAVO.  Plaintiff alleges six causes of action.  As to Defendant FCA, Plaintiff alleges four cause of action for violation of the Song-Beverly Act and one for fraudulent inducement-concealment.

          On October 31, 2022, Defendant FCA filed a motion to compel arbitration and stay action.

          On January 3, 2023, Plaintiff filed a dismissal of Defendant Bravo and an opposition to Defendant FCA’s motion.

Moving Arguments

          Defendant FCA contends that it has standing to enforce the arbitration agreement under the doctrine of equitable estoppel per Felisilda and it did not waive its right to compel arbitration.  (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486.) 

Opposition Arguments

          In opposition, Plaintiff contends the following.  The Court must apply federal law to determine first whether the Arbitration Provision itself is enforceable before any other provision is analyzed.  Under 9^th Circuit precedent in Ngo, a defendant cannot use equitable estoppel to enforce an arbitration agreement when the signatory defendant is not a party to the action.  (Ngo v. BMW of N. Am., LLC (9th Cir. 2022) 23 F.4th 942, 949.)  Ngo is controlling authority under federal law and it is distinguishable from Felisilda.  Additionally, Plaintiff made no agreement with Defendant FCA to arbitrate any dispute through arbitration and Defendant FCA is not a third-party beneficiary. 

Reply Arguments

          In reply, Defendant FCA contends the following.  Plaintiff misinterprets the Arbitration Provision.  Felisilda is binding California precedent, not Ngo.  In Felisilda, the dismissal of the dealer had no bearing on the Court’s determination that a manufacturer is entitled to compel arbitration under equitable estoppel when certain conditions are met.

II.        DISCUSSION

A.   Federal Law

          Plaintiff contends that the Court must apply federal law to determine whether the Arbitration Provision itself is enforceable because the Arbitration Provision states, “[i]f federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute.”  (Declaration of Azemoon; Exhibit “A”.)  Under 9^th Circuit precedent in Ngo, a defendant cannot use equitable estoppel to enforce an arbitration agreement when the signatory defendant is not a party to the action.  (Ngo, 23 F.4th at 949.)  According to Plaintiff, since federal law holds that the dispute at issue is not subject to binding arbitration, the Arbitration Provision is not applicable to this dispute.

          Defendant FCA responds that Plaintiff misinterprets the Arbitration Provision; the correct interpretation is that after the matter is compelled to arbitration, the arbitrator should apply the FAA to govern the arbitration.  In pertinent part, the Arbitration Provision states that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act…and not by any state law concerning arbitration.”  (Azemoon Decl.; Exhibit “A”.)  Defendant FCA provides authority in support of its argument through Felisilda.  There, the Court rejected the application of federal law in interpreting the same arbitration provision.  (Felisilda, 53 Cal.App.5th 486.)

          Based on the foregoing, the Court agrees with Defendant FCA that the Arbitration Provision does not require application of federal substantive law to determine whether the Arbitration Provision itself is enforceable.  Rather, the Arbitration Provision provides for FAA’s procedural laws and does not provide for applying substantive law to determine the enforceability of the Arbitration Provision.  Further, decisions of the lower federal courts on federal issues are not binding on this court, although they are entitled to great weight.  (Id. citing People v. Bradley (1969) 1 Cal.3d 80, 86.)  Ngo, a 9^th Circuit case, is therefore only persuasive authority.

          Felisilda is explicitly distinguished in Ngo on the grounds that in Felisilda, the signatory defendant was a defendant in the litigation at bar, whereas in Ngo, the signatory defendant was absent.  (Ngo 23 F.4th at 950.)  However, no language in the decision in Felisilda appears to be premised on the presence of the signatory party to the arbitration agreement in the litigation at bar.  Rather, as discussed below, it is the language of the Arbitration Provision itself that made it binding regarding the non-signatory defendant. 

B.   Equitable Estoppel

          The parties agree that Defendant FCA is not a signatory to the sales contract with the Arbitration Provision.  Generally, only parties to a contract containing an arbitration agreement may enforce that arbitration clause. (Thomas v. Westlake (2012) 204 Cal.App.4^th 605, 613.)  There are exceptions to the general rule.  Under one such exception, the doctrine of equitable estoppel, a nonsignatory defendant may move to enforce an arbitration clause.  (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236.)  “‘In any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.’” (Felisilda, 53 Cal.App.5th at 498.)   

          Felisilda is particularly instructive. The Felisildas brought a Song-Beverly cause of action against a local automobile dealership, Elk Grove Dodge Chrysler Jeep (“Elk Grove”), and the manufacturer, FCA US LLC (“FCA”).  The Felisildas and the local dealer were parties to a sales contract that contained an arbitration clause.  FCA was not a signatory to the agreement.  Elk Grove moved to compel arbitration.  The lower court granted the motion and ordered all the parties, including FCA to arbitration, whereupon the Felisildas dismissed Elk Grove.  The action, nevertheless, proceeded to arbitration solely between the Felisildas and FCA.  After the arbitrator found for FCA and the trial court confirmed the award, the Felisildas appealed the judgment of the court.  Among the contentions on appeal was whether the trial court had authority to “order the Felisildas to arbitrate their claim against FCA because FCA was a nonsignatory to the sales contract.”  (Felisilda, supra., 53 Cal.App.5th at 489.)  The Felisilda panel affirmed the trial court’s order.  The Court found that by signing the sales contract, “the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the sales contract—[and] they are estopped from refusing to arbitrate their claim against FCA.”  (Id. at p. 497.) 

          The holding in Felisilda was grounded on the express provisions of the sales contract and the Felisildas’ causes of action.  First, upon examining the terms of the sale contract, the court there noted that the Felisildas agreed to arbitrate “[a]ny 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 … [the] condition of this vehicle.”  (Id. at p. 490.)  Second, after reviewing the Felisildas’ complaint where they alleged violations of warranties they received because of the purchase contract, the Court of Appeal found the Felisildas’ claim “directly relates to the condition of the vehicle”  (Id. at p. 497.) 

          Here, there is no discernable difference between the facts in this case and Felisilda.  For example, the Arbitration Provision provided in the sales contract here and in Felisilda have the same pertinent language: arbitrable claims include claims “which arise out of or relates to…[the] condition of this vehicle…”  (Azemoon Decl.; Exhibit “A”; Felisilda, 53 Cal.App.5th at p. 490.)  Also, the pleadings that the Court of Appeal found demonstrated that the Felisilda’s claim was based upon the vehicle’s condition, mirror the language of the operative complaint in this matter.  Specifically, Plaintiff alleged that all his causes of action arise out of the warranty obligations provided by FCA and FCA’s purported breach of the said warranties.  (Complaint  ¶ 12, 38, and 47; Azemoon Decl.; Exhibit “B”.)  Similarly, the Felisilda’s complaint states “the express warranties accompanied the sale of the vehicle.” (Felisilda, 53 Cal.App.5th at p. 496.)  In sum, Plaintiff explicitly agreed to arbitrate claims arising from the condition of the vehicle, including with third parties who did not sign the contract, and “the sales contract [here] was the source of the warranties at the heart of the case.”  (Ibid.)  Accordingly, the holding of Felisilda is controlling.  

          Plaintiff contends that the case here is factually distinct from Felisilda because the signatory selling dealer is not part of the lawsuit at the time of the hearing on this motion (Plaintiff filed a dismissal of the signatory selling dealer on 01/03/2023).  In Felisilda, while the actual moving party for the motion to compel arbitration was a signatory, the signatory dealer was dismissed by the time the Court of Appeals addressed FCA’s standing to compel arbitration.  The Court of Appeals still found that “the Felisildas’ claim against FCA directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract.”  (Felisildas, 53 Cal.App.5th at 497.)  The Court does not find that such a fine parsing of the Felisilda decision is significant to the holding.

C.   Third-Party Beneficiary

          Defendant FCA contends that it is a third party beneficiary pursuant to the sales contract’s express language, as recognized in Felisilda.  The sales contract here provides that the Arbitration Provision is binding on “any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract…” (Azemoon Decl.; Exhibit “A”.)  Since Plaintiff is suing under the warranties granted by Defendant FCA because of the sales contract, Defendant FCA is a third party.  Third-party beneficiaries can enforce arbitration agreements.  (Felisilda,, 53 Cal.App.5th at 497.)  The Court should thus find that Defendant is a third-party beneficiary who can enforce the arbitration agreement. 

            Plaintiff attempts to show Defendant FCA is not a third-party who can enforce the contract by citing the Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817.  Goonewardene provides that a third-party beneficiary can enforce a contract when it (1) benefits from the contract, (2) a purpose of the contract was made to benefit the third-party, and (3) when permitting the third-party to enforce the contract would be reasonably expected by the signatories.  (Id. at 830.)  Plaintiff contends Defendant FCA failed to meet the second and third factors.  However, the Court finds that all they are met here since the contract to buy the 2019 Chrysler Pacifica car explicitly covered third-parties, such as the very foreseeable Defendant FCA.  

          Plaintiff made no arguments on unconscionability or Defendant FCA’s request for a stay if the motion is granted.

          Therefore, Defendant FCA’s motion to compel arbitration and stay action is GRANTED.

III.      CONCLUSION

            Defendant FCA’s motion to compel arbitration and stay action is GRANTED.

Moving party to give notice. 

            Parties who intend to submit on this tentative must send an email to the Court at alhdept3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court’s website at www.lacourt.org.  Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter.  Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue.  If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.