Judge: Craig Griffin, Case: Joseph v. Hyundai Motor America, Date: 2023-07-17 Tentative Ruling
The Motion to Compel Arbitration brought by Defendant Hyundai Motor America is DENIED, on the basis the moving party is not a signatory to the relevant agreement and equitable estoppel does not apply, pursuant to both, Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324 and Montemayor v. Ford Motor Company (June 26, 2023, B320477) ___ Cal.Rptr. 3d___ [2023 WL 4181909]). Additionally, pursuant to both Ford Warranty and Montemayor, Defendant is not a third-party beneficiary to the relevant agreement.
Initially, it is undisputed the Federal Arbitration Act (“FAA”) applies to the instant motion. The Federal Arbitration Act requires the existence of a valid arbitration agreement, before arbitration can be compelled. (See 9 U.S.C. §2). “[I]t is a cardinal principle that arbitration under the FAA ‘is a matter of consent, not coercion.’” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.) “Thus, ‘a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’” (Ibid.) “If a party to a civil action asks the court to compel arbitration of the pending claim, the court must determine in a summary proceeding whether an ‘agreement to arbitrate the controversy exist.’” (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 754.) “Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)
In support of this motion, Defendant provides a Retail Installment Sale Contract (“RISC”) executed by Plaintiff Shane Joseph. (¶4 of Ameripour Declaration and Exhibit 2 thereto.) Plaintiff does not dispute the authenticity of this agreement or his signature thereon. The parties dispute whether this agreement is enforceable by non-signatory Defendant Hyundai Motor America.
“Although the FAA preempts any state law that stands as an obstacle to its objective of enforcing arbitration agreements according to their terms…we apply general California contract law to determine whether the parties formed a valid agreement to arbitrate their dispute.” (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 1332.) Similarly, “[u]nder certain circumstances, a nonsignatory to an arbitration agreement may seek to enforce it against a signatory.” (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 1332.) “Whether such enforcement is permissible is a question of state law.” (Ibid.)
Here, moving Defendant asserts entitlement to enforce the arbitration provision in the RISC, pursuant to equitable estoppel. Additionally, Defendant asserts entitlement to enforce the agreement as a third-party beneficiary.
“Under the doctrine of equitable estoppel, ‘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.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.) “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.” (Id. at 496.) “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.” (Ibid.) “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 an inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.” (Ibid.). “In determining whether the plaintiffs’ claim is founded on or intimately connected with the sales contract, we examine the facts of the operative complaint.” (Id. at 495.)
Here, Plaintiff’s claims against Defendant arise from alleged express and implied warranties. (¶8 and ¶22 of Complaint.) Relying on the allegation that “Plaintiff’s purchase of the subject vehicle was accompanied by HYUNDAI MOTOR AMERICA’s implied warranty of merchantability” (¶22 of Complaint), Defendant asserts Plaintiff has conceded the warranties are intertwined with the purchase contract. (Reply: 5:17-18 and 6:8-11). However, the fact that warranties accompany a purchase does not, in itself, demonstrate that the warranties are intertwined with a purchase contract. (Montemayor v. Ford Motor Company (June 26, 2023, B320477) ___ Cal.Rptr. 3d___ [2023 WL 4181909 at 7].)
Similarly, Defendant asserts that, absent a purchase contract, Plaintiff would not have standing to pursue Song-Beverly claims (Motion: 7:13-18 and 9:7-17). While Defendant asserts that “[t]here would be no claim for breach of warranty under the Song-Beverly Act but for these relationships” (Motion: 14:16-17), “but for” causation is not the standard for applying “equitable estoppel.” (DMS Services, LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1356-1357.) While purchase from a dealer is necessary for certain Song-Beverly claims, the assertion this fact establishes equitable estoppel “confuses the concept of ‘claims founded in and intertwined with the agreement containing the arbitration clause’ with but-for causation.” (Ibid.)
Indeed, Defendant’s argument is similar to one rejected in Montemayor v. Ford Motor Company (June 26, 2023, B320477) ___ Cal.Rptr. 3d___ [2023 WL 4181909]: “To be sure, the Montemayors would not have sued Ford for the defective condition of the vehicle but for the sale of the vehicle by AutoNation pursuant to the sales contract. And Ford provided an express warranty to the Montemayors as a result of the sale. But that does not mean Ford’s obligation to provide a non-defective vehicle under its separate express warranty is in any way founded on an obligation imposed by the sales contract or is intertwined with those obligations.” (Id. at 7.) “[T]he fact the Montemayors purchased the defective vehicle from AutoNation pursuant to the sales contract, and as a result of their purchase they received separate express warranties from Ford, does not mean their causes of action against Ford based on those express warranties are founded in the sales contract.” (Ibid.)
Ultimately, a review of the complaint confirms that Plaintiff’s claims arise from the alleged warranties and not any express provisions of the Retail Sales Installment Contract.
The Court notes that a split in authority exists, as to the relationship between warranties and sales contracts. This Court opts to follow the holdings in Ford Warranty and Montemayor and, consequently, finds that the warranty claims are not inextricably bound up with the obligations imposed by the RISC.
As explained by the Court in Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, “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.” (Id. at 1334.) The Court in Ford Warranty further explained: “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.” (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 1335.) “[O]ur Supreme Court [has] 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 1336.) Based on the above, the court in Ford Motor Warranty Cases held that “Plaintiff’s claims in no way rely on the sale contracts” and, consequently, “[e]quitable estoppel does not apply.” (Ibid.)
Here, similar to the circumstances in Ford Warranty, the agreement herein disclaims any affect on manufacturer warranties stating: “If you do not get a written warranty…the Seller makes no warranties…This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.” (¶4 of Ameripour Declaration and Exhibit 2 thereto.) Additionally, similar to the circumstances in Ford Warranty, Plaintiff herein is not asserting any claims against Defendant, based on the terms of the RISC. (See Complaint, generally.)
Thus, as was the case in Ford Warranty, “plaintiffs’ claims are based on [Hyundai’s] statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty,” and not on the RISC. (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 1335.)
The court in Montemayor adopted the reasoning in Ford Warranty. (Montemayor v. Ford Motor Company (June 26, 2023, B320477) ___ Cal.Rptr. 3d___ [2023 WL 4181909 at 5].) The Montemayor court held that “Ford’s obligations arose out of its express written warranty, not the sales contract.” (Ibid.) The Montemayor court explained: “The Montemayors’ causes of action against Ford are explicitly based on allegations of ‘an express written warranty, including a 3-years/ 36,000[-]mile express bumper to bumper warranty’ that the Montemayors alleged they received ‘[i]n connection with the purchase of the vehicle…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,’ equitable estoppel does not apply.” (Id. at 8.)
This Court finds the reasoning in Ford Warranty and Montemayor to be persuasive and opts to follow the same.
Similar to the above cases, Defendant asserts Plaintiff’s claims fall within the arbitration provision, given language referencing third parties and the condition of the vehicle; however, the Court in Ford Warranty “also disagree[d] with the Felisilda court’s interpretation of the sale contract as broadly calling for arbitration of claims ‘against third party nonsignatories.’” (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 1334.) Citing the identical language discussed in Felisilda and included herein, referring to “any such relationship with third parties who do not sign this lease,” the Ford Motor Warranty court explained: “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 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.’” (Id. at 1334-1335.) “It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.” (Id. at 1335.)
The court in Montemayor, once again, adopted the reasoning outlined in Ford Warranty. (Montemayor v. Ford Motor Company (June 26, 2023, B320477) ___ Cal.Rptr. 3d___ [2023 WL 4181909 at 8].)
Again, this Court finds the reasoning in Ford Warranty and Montemayor to be persuasive and opts to follow the same.
Next, Defendant asserts entitlement to enforce the Agreement as a third-party beneficiary. “As a general rule, only a party to an arbitration agreement may enforce the agreement.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.) However, “’[a] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.’” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 827.)
In order to determine whether Defendant is a “third party beneficiary,” this court must “carefully examin[e] 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.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 829-830.) “All three elements must be satisfied to permit the third party action to go forward.” (Id. at 830.)
Here, as was the case in Ford Warranty, and for the same reasons stated therein, “the sale contract[] reflect[s] no intention to benefit a vehicle manufacturer under Goonewardene.” (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 1338; See also Montemayor v. Ford Motor Company (June 26, 2023, B320477) ___ Cal.Rptr. 3d___ [2023 WL 4181909 at 9].) Similar to Ford Warranty, the RISC herein limits the ability to compel arbitration to the Buyer, Seller-Creditor and certain individuals associated therewith. (¶4 of Ameripour Declaration and Exhibit 2 thereto.) Here, the agreement identifies the Buyer as Plaintiff Shane Joseph and the Seller-Creditor as non-party Tustin Hyundai. (¶4 of Ameripour Declaration and Exhibit 2 thereto.) As was the case in Ford Warranty, the RISC’s “direct benefits are expressly limited to those persons who might rely on it to avoid proceeding in court – the purchaser, the dealer, and the dealer’s employees, agents, successors or assigns.” (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 1338.)
Additionally, as explained by the Court in Montemayor v. Ford Motor Company (June 26, 2023, B320477) ___ Cal.Rptr. 3d___ [2023 WL 4181909], “[t]he fact the arbitration provision identified several categories of non-parties who were subject to the arbitration provision (employees, agents, successor, and assigns) undermines the argument the language envisioned that disputes arising from third-party relationships would endow unnamed third parties outside of those categories standing to demand arbitration.” (Id. at 7.)
The above holdings apply with equal force herein, as the instant action includes the same contractual language and Defendant identifies no other language, which it asserts demonstrates an intent to benefit Hyundai Motor America. (¶4 of Ameripour Declaration and Exhibit 2 thereto; See also Motion: 6:7-11.)
Based on all of the above, the motion to compel arbitration is denied.
Defendant’s Request for Judicial Notice is granted, pursuant to Evidence Code section 452, subdivision (d).