Judge: David B. Gelfound, Case: 23CHCV02954, Date: 2024-06-26 Tentative Ruling

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Case Number: 23CHCV02954    Hearing Date: June 26, 2024    Dept: F49

LOS ANGELES SUPERIOR COURT

NORTH VALLEY DISTRICT

DEPARTMENT F49

MOTION TO COMPEL ARBITRATION

Motion filed: 5/7/24

MOVING PARTY: Defendant Hyundai Motor America (“HMA” or the “Moving Defendant”)

RESPONDING PARTY: Plaintiff Mathew Anthony Reinoso (“Reinoso” or “Plaintiff”)

NOTICE: OK.

RELIEF REQUESTED: An order from this Court (1) compelling Plaintiff to submit to arbitration as stated in the Owner’s Handbook and Warranty Information, and (2) staying proceedings pending the resolution of the arbitration.

TENTATIVE RULING: The motion is DENIED.

BACKGROUND

Plaintiff filed this Song-Beverly Consumer Warranty Act (“SBA”) lawsuit over alleged defects in his 2022 Hyundai Palisade (the “Subject Vehicle”), which was manufactured by Defendant HMA. Plaintiff purchased the Subject Vehicle in new condition on February 15, 2022, from a non-party authorized HMA dealership. (Comp. ¶ 9.)

On October 2, 2023, Plaintiff filed his Complaint alleging the following causes of action: (1) Violation of SBA – Breach of Express Warranty (against HMA), (2) Violation of SBA – Breach of Implied Warranty (against HMA), (3) Violation of SBA Section 1793.2 (against HMA), and (4) Negligent Repair (against Defendant AutoNation Hyundai Valencia (“AutoNation”)). Subsequently, HMA and AutoNation filed their respective Answers to the Complaint on November 2, 2023.

On May 7, 2024, HMA filed the instant Motion to Compel Arbitration (the “Motion”). Subsequently, on June 12, 2024, Plaintiff filed his Opposition, and HMA replied on June 18, 2024.

ANALYSIS

Under Code of Civil Procedure section 1281.2, “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy ... the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists,” unless the court finds that the right to compel arbitration has been “waived by the petitioner,” or that “grounds exist for rescission” of the arbitration agreement. (Code Civ. Proc., § 1281.2, subds. (a) & (b).)

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate.  (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219 (Condee).)  The burden then shifts to the plaintiff to prove the falsity of the agreement.  (Ibid.)  After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability.  (Ibid.)  The Court must grant a motion to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement.  (Ibid.; Code Civ. Proc., § 1281.2.)

A.    Request for Judicial Notice

Plaintiff requests the Court take judicial notice of one Appellate Court’s Opinion, in Mark Kielar v. Hyundai Motor American (Case No. C096773; Superior Court No. S-CV-0048230) Certified for Publication dated August 16, 2023. (Pl.’s Request for Judicial Notice, Ex. “1.”) Plaintiff claims this request is made pursuant to California Evidence Code sections 452 and 453.

“Judicial notice may be taken of the following matter ...: (a) The decisional, constitutional, and statutory law of any state of the United States and the resolutions and private acts of the Congress of the United States and of the Legislature of this state....(d) Records of (1) any court of this state or (2) any court of record of the United States or of any state of the United States.” (Evid. Code, § 452, subds. (a), (d).)

            Accordingly, the Court GRANTS the request for judicial notice.

B.     Applicability of Federal Arbitration Act (FAA)

The Federal Arbitration Act (“FAA”) applies to agreements to arbitrate disputes arising from a contract involving interstate commerce and it preempts all state laws and rules that conflict with its provisions or its objective of enforcing arbitration agreements.” (Acquire II, supra, 213 Cal.App.4th at p. 968; see 9 U.S.C. § 2 [FAA applies to a “contract evidencing a transaction involving commerce”].)

The United States Supreme Court has interpreted “involving commerce” as the functional equivalent of “affecting commerce,” even where the parties did not contemplate an interstate commerce connection. (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 281.) The commerce clause power could be exercised to preempt state law without showing any effect upon interstate commerce if, in the aggregate, the economic activity represents “‘a general practice ... subject to federal control.’” (Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56-57.) “Only that general practice need bear on interstate commerce in a substantial way.” (Ibid.)

Here, HMA asserts that Plaintiff’s claims are subject to arbitration under the FAA because (1) the warranty explicitly states, “This Binding Arbitration Agreement shall be governed by and interpreted under the Federal Arbitration Act, 9 U.S.C. sections 1-16,” and (2) automotive sales necessarily involve interstate commerce. (Mot. at pp. 4-5.)

Plaintiff does not contest the applicability of the FAA but instead challenges the validity and enforceability of the arbitration agreement.

The Court notes that although the arbitration agreement at issue is included in the Owner’s Handbook and Warranty Information (“Warranty Handbook”), as opposed to the Retail Installment Sales Contract (“RISC”) that Plaintiff entered into for the purchase of the Subject Vehicle, which directly involves interstate commerce. The Court nonetheless finds that warranties for consumer products distributed in interstate commerce implicate the FAA, provided HMA successfully meets its burden to demonstrate the existence of an arbitration agreement.

The Court will therefore continue to evaluate the validity of the arbitration agreement, contained within the Owner’s Handbook and Warranty Information, under the FAA framework.

C.    Existence of An Arbitration Agreement

It is a cardinal principle that arbitration under the FAA “is a matter of consent, not coercion.” (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 479 (Volt)) The party seeking arbitration bears the burden of proving the existence of an arbitration agreement by the preponderance of the evidence. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle).) “‘[A] party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’” (AT & T Technologies v. Communications Workers (1986) 475 U.S. 643, 648; see Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 384–385.)

In determining the rights of parties to enforce an arbitration agreement within the FAA's scope, courts apply state contract law while giving due regard to the federal policy favoring arbitration. (Volt, supra, 489 U.S. at p. 474.)

In California, “‘[g]eneral principles of contract law determine whether the parties have entered a binding agreement to arbitrate.’” (Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 420 (Craig).) Generally, an arbitration agreement must be memorialized in writing. [Citation.] A party's acceptance of an agreement to arbitrate may be express, as where a party signs the agreement. A signed agreement is not necessary, however, and a party's acceptance may be implied in fact.” (Pinnacle, supra, 55 Cal.4th at pp. 234-236.) An essential element of any contract is the consent of the parties, or mutual assent, which must be communicated by each party to the other. (Donovan v. RRL Corp. (2001) 26 Cal.4th 261, 270.)

            In Romo v. Y-3 Holdings (2001) 87 Cal.App.4th 1153 (Romo), the appellate court examined whether the language of an arbitration provision in an employee handbook, combined with other documents, created a binding agreement to arbitrate claims arising from a separately signed employment contract. In Romo, the employer sought to compel arbitration based on a three-page arbitration agreement found with a 44-page employee handbook. Despite the employee’s acknowledgment of receiving the handbook and agreeing to its policies, neither party had signed the arbitration agreement itself. (Romo, supra, at pp. 1156-1159.) The Romo court concluded that the arbitration was not agreed upon, which lacked mutual consent due to the absence of signatures. (Id. at pp. 1159-1160.)

            Here, HMA presents the three-page Arbitration Agreement verbatim, attached to the Motion. The agreement states, in pertinent part, “If you purchased or leased your Hyundai vehicle in the State of California, you and we, Hyundai Motor America, each agree that any claim or disputes between us (including between you and any of our affiliated companies) related to or arising out of your vehicle purchase, advertising for the vehicle, use of your vehicle, the performance of the vehicle, and service relating to the vehicle, the vehicle warranty, representations in the warranty, or duties contemplated under the warranty… shall be resolved by binding arbitration at either your or our election, even if the claim is initially filed in a court of law.” (Mot. at p. 1, Willette Decl. ¶ 3, Ex. “B.”)

            In a situation analogous to Romo, the three-page Arbitration Agreement is contained in a 48-page Warranty Handbook. Moreover, HMA provides no contention to Plaintiff’s claims that he received the Warranty Handbook after the vehicle purchase (signing the RISC) and did not sign the Arbitration Agreement within it. (Opp’n. at pp. 6, 9.)

Thus, the Court determines that the Arbitration Agreement within the Warranty Handbook is deemed as a distinct and separate agreement from the RISC. The absence of Plaintiff’s separate signature does not support HMA’s claim that Plaintiff agreed to arbitrate.

Furthermore, HMA has not provided any evidence that the RISC, which Plaintiff signed with the nonparty dealership, contains references to its purported Arbitration Agreement, or any indication of Plaintiff’s consent to abide by it. This omission notably contrasts with the case in Romo, where there was an explicit acknowledgment from the employee about receiving the handbook and agreeing to its policies. (Romo, supra, 87 Cal.App.4th at p. 1156.) This comparison further weakens HMA’s position, highlighting its failure to meet the burden of demonstrating the existence of an agreement that Plaintiff assented to.

            Therefore, the Court concludes that Plaintiff did not agree to arbitrate or consent to the Arbitration Agreement contained within the Warranty Handbook. Consequently, Plaintiff cannot be compelled to submit to arbitration for any dispute to which he has not agreed to submit.

D.    HMA’s Equitable Estoppel Argument

It is established law that a plaintiff may be equitably estopped from repudiating the arbitration clause contained in a contract if his or her claims against a non-signatory defendant are “intimately founded in and intertwined” with the underlying contract obligations” that are subject to the arbitration clause. (Boucher v. Alliance Title Co, Inc. (2005) 127 Cal.App.4th 262, 271 (Boucher); Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218.) Notably, this theory is premised on the existence of an underlying contract containing an arbitration clause to which the plaintiff agreed.

            Here, HMA argues that Plaintiff’s claims of breach of express warranty are based on the specific contractual obligations outlined in the Warranty Handbook. Thus, HMA argues that Plaintiff, having voluntarily accepted the benefit under HMA’s express warranty, should be estopped from repudiating the Arbitration Agreement contained in the same document. (Reply, at pp. 7-8.) HMA cites precedents where plaintiffs were estopped from repudiating the arbitration clause against a non-signatory defendant. (Reply, at p. 8.) However, the Court finds HMA’s application of the equitable estoppel doctrine to this argument unpersuasive.

            The Court notes that HMA mischaracterized the equitable estoppel doctrine by asserting that “the lack of a signature ... does not preclude enforcement of arbitration[.]” (Reply, at p. 8.) When applying the equitable estoppel, HMA’s status as a “nonsignatory” is relevant only within the context of a valid arbitration agreement to which Plaintiff is a signatory. HMA has failed to provide legal authority to support the application of equitable estoppel in the absence of a valid arbitration agreement.

Here, HMA fails to demonstrate the existence of any arbitration agreement to which Plaintiff agreed.

First, as previously discussed, HMA has offered no evidence that Plaintiff accepted the Arbitration Agreement contained within the Warranty Handbook.

Second, HMA has not established the presence of any arbitration clauses within the RISC. Without a demonstration of any valid underlying arbitration agreement, the doctrine of Equitable Estoppel is inapplicable.

Third, HMA’s argument is refuted in Romo, where an agreement to abide by the employer’s policy was found not to constitute consent to the arbitration clause contained in the same employee handbook. (Romo, supra, 87 Cal.App.4th at pp. 1159-1160.) To conclude otherwise would also directly conflict with the established legal principle that “[an] arbitration clause is viewed as separate from the underlying contract.” (Nielsen Contracting, Inc. V. Applied Underwriters, Inc. (2018) 22 Cal.App.5th 1096, 1107-1108, [holding that allegations of the validity of the main contract do not affect the enforceability of the arbitration clause.])

Lastly, even if HMA has established the existence of an underlying arbitration agreement, such as in the RISC, it would still bear the burden of demonstrating the scope of that agreement and establishing that Plaintiff’s claims against it are “intimately founded in and intertwined” with the contract obligations subject to arbitration. (Boucher, supra, 127 Cal.App.4th at p. 271.) HMA has not met this burden.

            Accordingly, the Court finds HMA’s assertion of equitable estoppel lacks merit.

Based on the foregoing, the Court concludes that HMA has failed to fulfill its threshold burden to show the existence of an arbitration agreement to which Plaintiff agreed. Consequently, the Court does not need to examine the remainder of the argument, including Plaintiff’s contention of unconscionability.

Therefore, the Court DENIES the Motion to Compel Arbitration.

CONCLUSION

HMA’s Motion to Compel Arbitration is DENIED.

Moving party to provide notice.