Judge: David B. Gelfound, Case: 23CHCV03746, Date: 2024-10-16 Tentative Ruling

Case Number: 23CHCV03746    Hearing Date: October 16, 2024    Dept: F49

LOS ANGELES SUPERIOR COURT

NORTH VALLEY DISTRICT

DEPARTMENT F49

MOTION TO COMPEL ARBITRATION

Motion filed: 6/4/24

MOVING PARTY: Defendant Hyundai Motor America

RESPONDING PARTY: Plaintiff Jorge Molina

NOTICE: OK.

RELIEF REQUESTED: An order compelling Plaintiff to submit to arbitration and staying the proceeding pending the completion of such arbitration.

TENTATIVE RULING: The motion is DENIED.

BACKGROUND

Plaintiff Jorge Molina (“Plaintiff” or “Molina”) filed this Song-Beverly Consumer Warranty Act lawsuit over alleged defects in his 2021 Hyundai Santa Fe (the “Subject Vehicle”), which was manufactured by Defendant Hyundai Motor America (“HMA”). Plaintiff purchased the Subject Vehicle on March 19, 2021, entering into a written warranty issued by HMA. (Compl. ¶ 9.)

On December 8, 2023, Plaintiff filed his Complaint against Defendants HMA, Mission Hills-H, Inc. d/b/a  Keyes Hyundai of Mission Hills (“Keyes Hyundai”) and Does 1–10, alleging the following causes of action: (1) Violation of Song-Beverly Act – Breach of Express Warranty (against HMA), (2) Violation of Song-Beverly Act – Breach of Implied Warranty (against HMA), (3) Violation of the Song-Beverly Act Section 1793.2 (against HMA), and (4) Negligent Repair (against Keyes Hyundai). Subsequently, HMA and Keyes Hyundai filed their respective Answer to the Complaint on January 10, 2024.

On June 4, 2024, HMA filed the instant Motion to Compel Arbitration (the “Motion”). Following this, on October 2, Plaintiff filed his Opposition, and HMA replied on October 9, 2024.

ANALYSIS

Parties may be compelled to arbitrate a dispute upon the court finding that: (1) there was a valid agreement to arbitrate between the parties; and (2) said agreement covers the controversy or controversies in the parties’ dispute.¿(Code Civ. Proc., § 1281.2; Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961 (Omar).) 

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 the following matters:

1.      Request for Judicial Notice (“RJN”) No. 1: 40 Fed. Reg. 60618-60211 (Dec. 31, 1975),

2.      RJN No. 2: 64 Fed. Reg. 19700 – 19709 (Apr. 22, 1999),

3.      RJN No. 3: H.R. Rep. No. 93-1107 (1974),

4.      RJN No. 4: Subcommittee Staff Report, 120 Cong. Rec. 31, 318 (1974), and

5.      RJN No. 5: Final Action Concerning Review of Interpretations of Magnuson-Moss Warranty Act; Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions; Rule Governing Pre-Sale Availability of Written Warranty Terms; Rule Governing Informal Dispute Settlement Procedures; and Guides for the Advertising of Warranties and Guarantees, 80 Fed. Reg. 42710-01 (July 20, 2015)

Pursuant to Evidence Code section 452, “[j]udicial notice may be taken of the following matters ... (b) Regulations and legislative enactments issued by or under the authority of the United States or any public entity in the United States.” (Evid. Code, § 452, subd. (b).)

Accordingly, the Court GRANTS the request for judicial notice.

B.     Evidentiary Objections

Plaintiff’s evidentiary objections to Paragraph 3 and Exhibit 3 of Jordan A. Willette’s Declaration are OVERRULED.

C.    Arbitration Clause in the Owner’s Handbook & Warranty Information

HMA asserts that on pages 12-14 of the Owner’s Handbook & Warranty Information manual (the “Warranty Booklet”), the purported binding arbitration provision provides, in pertinent part:

“If you purchased or leased your Hyundai vehicle in the State of California, you and we 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, use of your vehicle, the vehicle warranty, representations in the warranty, or duties contemplated under the warranty, including without limitation claims related to the failure to conform a vehicle to warranty, failure to repurchase or replace your vehicle, or claims for a refund or partial refund of your vehicle’s

purchase price (excluding personal injury claims), but excluding claims brought under the Magnuson-Moss Warranty Act, shall be resolved by binding arbitration at either your or our election, even if the claim is initially filed in a court of law....”

“This agreement to arbitrate is intended to be broadly interpreted and to make all disputes and claims between us (including our affiliated companies) relating to or arising out of your vehicle purchase, use of your vehicle, or the vehicle warranty subject to arbitration to the maximum extent permitted by law....”

“Notwithstanding the above, either you may file a lawsuit in small claims court for

any claims that otherwise require binding arbitration. This agreement evidences a

transaction involving interstate commerce and shall be governed by the Federal

Arbitration Act, 9 U.S.C. §§ 1-16. Judgment upon any award in arbitration may

be entered in any court having jurisdiction.”

“IF YOU PURCHASED OR LEASED YOUR VEHICLE IN CALIFORNIA,

YOUR WARRANTY IS MADE SUBJECT TO THE TERMS OF THIS

BINDING ARBITRATION PROVISION. BY ACCEPTING BENEFITS

UNDER THIS WARRANTY, INCLUDING HAVING ANY REPAIRS

PERFORMED UNDER WARRANTY, YOU AGREE TO BE BOUND BY

THESE TERMS. IF YOU DO NOT AGREE WITH THESE TERMS,

PLEASE CONTACT US AT OPT-OUT@HMAUSA.COM WITHIN

THIRTY (30) DAYS OF YOUR PURCHASE OR LEASE TO OPT-OUT OF

THIS ARBITRATION PROVISION.”

(Willette Decl., Ex. B at pp. 12-14.)

HMA argues that it has standing to enforce the above purported arbitration clause in the Warranty Booklet. Alternatively, HMA maintains that it may also compel arbitration under the doctrine of equitable estoppel – despite the lack of Plaintiff’s signature on the Warranty Booklet, Plaintiff is not precluded from the enforcement of the arbitration clause as he asserts claims to receive a “direct benefit” from the warranty contained in the same Warranty Booklet. (Mot. at p. 9.)

In the Opposition, Plaintiff contends that the arbitration clauses within the Warranty Booklet are unconscionable as he was never informed by Parkway Hyundai, an authorized dealer that sold the Subject Vehicle to him, that any warranty claims against HMA would be subject to binding arbitration. (Opp’n. at p. 12, Molina Decl. ¶ 5.) As to the equitable estoppel argument, Plaintiff cites Norcia v. Samsung Telecommunications America, LLC (9th Cir. 2017) 845 F.3d 1279 (Norcia), asserting that the Ninth Circuit found “[l]anguage in a written warranty agreement is ‘contractual’ in the sense that it creates binding, legal obligations on the seller, but a warranty does not impose binding obligations on the buyer.” (Opp’n. at p. 10.)

The Court finds Plaintiff’s argument persuasive.

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 seeks to establish the existence of an arbitration agreement by presenting the three-page arbitration clause verbatim within the Warranty Booklet. In a situation analogous to Romo, the three-page arbitration clause is contained in a 48-page Warranty Booklet. Moreover, HMA does not contest that Plaintiff was never informed, nor given notice during the sale, that a subsequent enforceable arbitration clause existed inside the Warranty Booklet. Instead, Plaintiff was assured by the authorized dealer that the Subject Vehicle was already warranted during the pre-sale communications. (Molina Decl. ¶ 4.)

            Therefore, the Court finds that HMA has failed to provide evidence showing that Plaintiff agreed to arbitrate under the purported arbitration clause within the Warranty Booklet, violating the general principles of contract law, which requires that parties have mutual consent to enter into a binding agreement to arbitrate. (Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 420, see also AT&T Techs., Inc. v. Commc’ns Workers of Am. (1986) 475 U.S. 643, 648 [“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”])

            This finding also applies to HMA’s equitable estoppel argument which is premised on the validity of the arbitration clause as determined as a question of law. (See Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1716.)

            Furthermore, as Plaintiff points out, the Norcia court, discussing Civil Code sections 1790-1795.8 governing the formation of express and implied warranties and applicable in this case, held that “[l]anguage in a written warranty agreement is “contractual” in the sense that it creates binding, legal obligations on the seller [Citation omitted], but a warranty does not impose binding obligations on the buyer.... A buyer may have to fulfill certain statutory conditions to obtain the benefit of a warranty. See, e.g., Cal. Civ. Code § 1793.02(c) (stating that “[i]f the buyer returns the [assistive device for an individual with a disability] within the period specified in the written warranty,” the seller must adjust or replace the device (emphasis added)). But a warranty generally does not impose any independent obligation on the buyer outside of the context of enforcing the seller's promises [Citation Omitted].” (Norcia, supra, 845 F.3d at p. 1288.)

Applying the reasoning from Norcia, it follows that when the arbitration clause does not impose a binding obligation on the consumer, the doctrine of equitable estoppel cannot be invoked in a breach of warranty claim. In such cases, the consumer is not seeking to enforce the warranty contract’s benefits while evading corresponding obligations.

            Accordingly, the Court DENIES the Motion with respect to the arbitration clauses within the Warranty Booklet.

D.    Arbitration Clause in the Sales Contract Where HMA Is a Nonsignatory

HMA further argues that in the alternative, arbitration must be enforced by HMA through the arbitration provisions in the sales contract. (Mot. at p. 10.)

Plaintiff’s purchase of the Subject Vehicle was memorialized in a “Retail Installment Sales Contract – Simple Finance Charge (With Arbitration Provision)” (“Sales Contract”). (Willette Decl. Ex. “A.”) The Sales Contract contains the following arbitration provisions:

“Agreement to Arbitrate: By signing below, you agree that, pursuant to the Arbitration Provision on page 7 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 THE

REVERSE SIDE, BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY FILLED-IN COPY WHEN YOU SIGNED IT.”

“PLEASE REVIEW – IMPORTANT- AFFECTS YOUR LEGAL RIGHTS

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US

DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

2. IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO

PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY

CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO

CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL

ARBITRATIONS.

3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY

MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND

WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.

....”

(Ibid.)

1)      Applicability of Federal Arbitration Act (FAA)

Plaintiff and HMA disagrees about whether FAA is the governing law, with HMA arguing that FAA applies and Plaintiff arguing that California law, namely the Song-Beverly Act, by referencing the federal Magnuson-Moss Warranty Act (“MMWA”), adopts Congressional intent to prohibit references within a written warranty to any binding, non-judicial remedy. (Opp’n. at p. 8.) Plaintiff hinges his argument on Chevron doctrine and precedent in which courts applying Chevron’s framework to defer to the agency’s interpretation of federal statutes, such as MMWA, as Congressional intent. (Chevron U.S.A Inc. v. NRDC (1984) 467 U.S. 837 (Chevron).)

The Court notes that Chevron has recently been overturned, where the Supreme Court of the United States held that courts need not, and may not, defer to an agency’s interpretation of the law simply because a statue is ambiguous. (Loper Bright Enterprises v. Raimondo (2024) 144 S. Ct. 2244)

Nevertheless, the Court does not need to resolve the conflict between FAA and MMWA as cited by the parties, because “even if the FAA applies, ‘state law determines whether a nonsignatory to an agreement containing an arbitration clause may compel arbitration [against a signatory].’” (Yeh v. Superior Court of Contra Costa County (2023) 95 Cal.App.5th 264, 270.)

The Court proceeds to address this issue under the doctrine of equitable estoppel, as asserted by HMA.

2)      Equitable Estoppel as Applied to Arbitration Provisions in the Sales Contract

            Here, HMA argues that while it is a nonsignatory to the Sales Contract, it may compel Plaintiff, a signatory, under equitable estoppel when Plaintiff’s claims are intimately founded in and intertwined with the underlying contract obligations in the Sales Contract, citing Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (Felisilda)).

“Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237, fn. 18.) Under the doctrine of equitable estoppel, 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.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271.) “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 p. 272.) “[I]f a plaintiff relies on the terms of an agreement to assert his or her claims against a nonsignatory defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause of that very agreement. In other words, a signatory to an agreement with an arbitration clause cannot ‘“‘have it both ways’”’; the signatory ‘cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory.’” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 220.)¿¿¿ 

There are two scenarios in which the causes of action are “intimately founded in and intertwined” with the underlying contract obligations: “‘The first occurs when “adjudication of the disputes between the signatory and nonsignatory parties would require interpretation, and probably enforcement, of the specific terms and conditions of the underlying contract” [citation]—in other words, when the plaintiff “‘must rely on the terms of the written agreement in asserting their claims.’” [Citation].  The second factual scenario warranting equitable estoppel occurs when the signatory raises allegations of “not merely parallel or similar, but substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract.’ [Citation.]”  (Goldman v. KPMG, LLP, supra, 173 Cal.App.4th at p. 220.)

The Court first rejects HMA’s argument as to the second basis. The Complaint does not allege any “interdependent and concerted misconduct” between both the signatory dealership – which is not a party to this action or even mentioned in the Complaint – and nonsignatory HMA.  Accordingly, the second basis for finding equitable estoppel does not apply.

As to the first basis, the question then is whether Plaintiff’s claims against HMA rely on the specific terms of the Sales Contract.  Defendant primarily relies on Felisilda.  There, the plaintiff named both the signatory dealer and non-signatory manufacturer, and the dealership moved to compel arbitration.  After the trial court ordered arbitration, the plaintiff dismissed the dealership.  (Felisilda, supra, 53 Cal.App.5th at p. 489.) (Underlines added.)  The appellate court affirmed the trial court’s order to compel arbitration between the manufacturer and plaintiff alone.  (Id. at p. 499.) 

The Court distinguishes the Felisilda case.  Here, only nonsignatory HMA is named as a defendant and moved to compel arbitration.  (Ngo, supra, 23 F.4th at p. 950 [“It makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer ... Accordingly, Felisilda does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own.”]; Ruderman v. Rolls Royce Motor Cars LLC (C.D. Cal. 2021) 511 F.Supp.3d 1055, 1060  [“But Felisilda is not directly on point, because the plaintiff in Felisildas sued both the manufacturer and the dealer. Ruderman, on the other hand, sued only Rolls-Royce. Felisilda, therefore, does not change state law that directly controls this case. Kramer remains the controlling precedent for this case. Under the Kramer line of cases, Rolls-Royce cannot compel Ruderman to arbitrate his claims against it under the doctrine of equitable estoppel.”].) 

In addition, the complaint in Felisilda alleged that “‘express warranties accompanied the sale of the vehicle to [them] by which FCA … undertook to preserve or maintain the utility or performance of [their] vehicle or provide compensation if there was a failure in such utility or performance.’”  (Felisilda, supra, 53 Cal.App.5th at p. 496.)  Thus, the claims directly related to the condition of the vehicle, which were alleged to have “violated warranties they received as a consequence of the sales contract.”  (Id. at p. 497, underlines added.) 

Here, Plaintiff’s Complaint makes no similar reference to the Sales Contract as the source of its warranties. (Kramer v. Toyota Motor Corp. (2013) 705 F.3d 1122, 1132.)  Indeed, Plaintiff’s First and Third Causes of Action, for breach of warranty and failure to repair, reference the warranty as provided by HMA’s warranty booklet, distinct from any performance directed in the Sales Contract.    

            As to the Second Cause of Action for Breach of Implied Warranty, Plaintiff pleads that the “[a]mong other warranties, the Subject Vehicle was accompanied by an implied warranty that the Subject Vehicle was merchantable pursuant to Civil Code section 1792.” (Compl. ¶ 39.) (Underlines added.)  However, this reference does not suggest the need to interpret “specific terms and conditions of the underlying contract.” (See Mundi v. Union Sec. Life Ins. Co., (2009) 555 F.3d 1042, 1047 [the Ninth Circuit found that the claims were not intertwined with the loan agreement because “[t]he resolution of [the plaintiff’s] claim does not require the examination of any provisions of the [contract]” and the plaintiff was not making any allegations against the other signatory of the contract.]) Consequently, HMA has failed to meet its burden as a nonsignatory to establish that it may invoke the arbitration provision against signatory Plaintiff.

            Therefore, the Court DENIES the Motion with respect to the arbitration provisions in the Sales Contract.

            Based on the foregoing, the Court DENIES the Motion to Compel Arbitration.

CONCLUSION

Defendant Hyundai Motor America’s Motion to Compel Arbitration is DENIED.

Motion party to give notice.