Judge: Deirdre Hill, Case: 22TRCV00724, Date: 2023-03-28 Tentative Ruling

Case Number: 22TRCV00724    Hearing Date: March 28, 2023    Dept: M

Hearing Date:                         March 28, 2023

Moving Parties:                      Defendant Nissan North America, Inc.

Responding Party:                  Plaintiff Michael Guerrero

Motion to Compel Arbitration and Stay the Action

            The court considered the moving, opposition, and reply papers.

RULING

            The motion is DENIED.

BACKGROUND

On August 22, 2022, plaintiff Michael Guerrero filed a complaint against Nissan North America, Inc. for (1) Song-Beverly Act, (2) Magnuson-Moss Act, and (3) breach of express warranty with respect to a 2020 Nissan Frontier.

LEGAL AUTHORITY

Under CCP § 1281, a “written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and revocable, save upon such grounds as exist for the revocation of any contract.”

Under CCP § 1281.2, “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such 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 it determines that: . . . (c) A party to the arbitration agreement is also a party to a pending court action . . . with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . . (d) . . . . If the court determines that a party to the arbitration is also a party to litigation in a pending court action . . . with a third party as set forth under subdivision (c) herein, the court (1) may refuse to enforce the arbitration agreement . . . ; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action . . . pending the outcome of arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.” 

DISCUSSION

            Defendant Nissan North America, Inc. requests an order compelling binding arbitration and to stay the proceedings.

            Evidentiary objections

            Plaintiff’s objections to attorney Andrew Liss’s declaration are SUSTAINED as to Paras. 4 and 6 and OVERRULED as to Para. 1

            Existence of an Enforceable Agreement

“As stated in Cione v. Foresters Equity Services, Inc. (1997) 58 Cal. App. 4th 625, 634 ‘The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract.  There is no public policy favoring arbitration of disputes that the parties have not agreed to arbitrate.’”  Lopez v. Charles Schwab & Co., Inc. (2004) 118 Cal. App. 4th 1224, 1229.

Defendant relies on a copy of a Retail Installment Sales Contract (“RISC”) attached to defense counsel Liss’s declaration that an arbitration agreement exists.  As noted above, the court sustains plaintiff’s objections to the exhibit.  Thus, the court finds that there is no competent or admissible evidence of the existence of an agreement to arbitrate executed by plaintiff.

In any event, as to whether Nissan can enforce the arbitration agreement in the RISC, both parties agree that Nissan was not a signatory.  Rather, Nissan argues that it can enforce the arbitration agreement under the theory of equitable estoppel because his claims are intimately founded in and intertwined with the sales contract, citing to Felisilda v. FCA US LLC (2020) 53 Cal. App. 5^th 486, 497-99.  Nissan asserts that the sales contract contains a broad provision to arbitrate “[a]ny claim or dispute, whether in contract, tort, statute or otherwise . . . between you and us or our employees, agents, successor, or assigns, which arise out of or relates to .  . . condition of this vehicle . . . 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 court action.”  Thus, Nissan contends, plaintiff’s claims relate directly to the condition of the vehicle, just as the Felisilda’s claim against FCA related to the condition of their vehicle.  

Nissan also argues that it may enforce the arbitration agreement as a third-party beneficiary because the sales contract and the arbitration provision are intended to benefit it based on the arbitration provision’s broad language (“including any such relationship with third parties who do not sign this contract”).  Nissan also argues that its business is dependent upon vehicle sales, as facilitated through RISCs and that it provided a $1800 manufacturer’s rebate, which is expressly incorporated in the RISC.

In opposition, besides arguing that there is no admissible evidence of an arbitration agreement, plaintiff argues that defendant misstates the terms of the arbitration agreement by taking words out of context and omitting inconvenient terms.  Plaintiff contends that the arbitration clause does not give third parties the right to compel arbitration because the plain language of the clause states, “at your or our election” and only “you or we may choose” arbitration, and that “we” refers only to the seller-creditor, Temecula Nissan.  Further, plaintiff argues, third-party claims are subject to arbitration only if the dealer chooses arbitration.

Plaintiff also argues that Felisilda is distinguishable.  Plaintiff asserts that unlike here, in Felisilda, the dealer was a defendant and was the moving party, and that the appellate court affirmed the ruling on the dealer’s motion to compel arbitration.  Plaintiff cites to recent federal court decisions where the court found the same distinction in denying third-party motions to compel arbitration—Safley v. BMW of N. Am., LLC (S.D. Cal. 2021) 2021 U.S. Dist. LEXIS 22577 (“Neither the dealership nor one of its ‘employees, agents, successors, or assigns’ is named in this lawsuit or seeking to enforce the arbitration provision” in denying the motion to compel arbitration); Nation v. BMW of N. Am., LLC (C.D. Cal. 2020) 2020 U.S. Dist. LEXIS 246435 (“Felisilda is not directly on point, because the Felisildas sued both the manufacturer and the dealer.”); Ruderman v. Rolls Royce Motor Cars NA, LLC (C.D. Cal. 2021) 511 F. Supp. 3d 1055 (“Felisilda is not directly on point, because the Felisildas sued both the manufacturer and the dealer.”).  Plaintiff also notes that the Felisilda court did not address the contractual language specifying who can choose arbitration because the dealer was the moving party in that case, unlike here.  See Ngo v. BMW v. N. Am., LLC (9^th Cir. 2022) 23 F.4^th 942, 948 (“Although the arbitration clause may have extended to claims regarding the purchase of the vehicle, it does not follow that additional parties can enforce the arbitration clause.  In so concluding, the district court ‘confuse[d] the nature of the claims covered by the arbitration clause with the questions of who can compel arbitration.’”) (citation omitted).

Plaintiff also argues that equitable estoppel does not apply because plaintiff is not trying to enforce the contract against defendant and the claims are not based on the contract, citing to Kramer v. Toyota Motor Corp. (9^th Cir. 2013) 705 F.3d 1122, 1133 (“California courts have explicitly noted that parties should only be estopped if their ‘own conduct renders assertion of those rights contrary to equity.’”) (citation omitted).  Plaintiff asserts that the terms of the warranty are not terms of the sales contract and that he could have avoided signing the contract altogether if he had paid cash for the vehicles or arranged his own financing, so the contract is not essential to his claims.  Plaintiff also contends that defendant’s reliance on Felisilda is mistaken because the “obiter dicta in Felisilda is not controlling” because “the dealer was the moving party in that case, no further inquiry was necessary.”

Moreover, plaintiff argues, defendant is not a third-party beneficiary of the arbitration clause and has failed to show how the contract benefits Nissan, such as proving that the money paid under the contract went directly to it, not the dealer or to the assignee.

Lastly, plaintiff argues that defendant waived any purported right to arbitrate this case because defendant “knew of the purported right but sat on its hands for six months.”  Plaintiff notes that on December 28, 2022, defendant served its responses to plaintiff’s written discovery and that defendant stated in its CMC statement that it wants to inspect plaintiff’s vehicle, propound written discovery requests, and take plaintiff’s deposition.

In reply, defendant reiterates its argument that Felisilda establishes the key language used in the arbitration provision makes that provision enforceable as Nissan is the intended third-party beneficiary, and equitable estoppel permits a nonsignatory to enforce an arbitration agreement.  Defendant again argues that the Song-Beverly claims are founded in and inextricably intertwined with the sales contract containing the arbitration provision.  Defendant further reiterates that it’s a third-party beneficiary.  Nissan also argues that it has not waived its right to arbitrate as Nissan has not shown its acts to be inconsistent with the right to arbitrate.  It asserted arbitration as an affirmative defense and there has been no substantive motion practice, no depositions, no vehicle inspection, and no determination by the court on the merits of any issue in this matter. 

The court rules as follows:

The court finds that there is no competent or admissible evidence of the existence of an agreement to arbitration.  On this ground, the motion is DENIED.

As to the doctrine of equitable estoppel, “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.”  JSM Tuscany, LLC v. Superior Court (2011) 193 Cal. App. 4th 1222, 1237.  The doctrine applies:  (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.”  Goldman v. KPMG, LLP (2009) 173 Cal. App. 4th 209, 218-219.  The first situation exists “‘when the signatory to a written agreement containing an arbitration clause “must rely on the terms of the written agreement in asserting [its] claims” against the nonsignatory.’”  Id. at 218 (citation omitted).

As to the ruling in Felisilda, in the absence of any other state court binding precedent, the court is bound unless it determines that precedent to be distinguishable.  See Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal. 2d 450, 455 (“[A]ll tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction.”).  The Felisilda court stated, “[i]n 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. 5^th at 498.  In that case, the Felisildas brought a Song-Beverly cause of action against a local automobile dealership and the manufacturer, where the manufacturer was not a signatory to the agreement.  The dealership moved to compel arbitration and the trial court granted the motion and ordered all the parties, including the manufacturer to arbitration.  The plaintiffs dismissed the dealership and the arbitration proceeded between the plaintiffs and the manufacturer.  The plaintiffs appealed and the appellate court affirmed the trial court order, finding 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 [the manufacturer].”  Id. at 497.  The Felisilda court specifically noted that the Felisildas agreed to arbitrate “[a]ny claim or dispute, whether in contract, tort, statue 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 490.  The court determined 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.”  Id. at 497. 

Here, if the court were to consider the existence of the RISC, the court recognizes that the language is identical regarding any claim or dispute which arises out of the condition of the vehicle.  The Song-Beverly Act causes of action are statutory claims arising out of or relating to the condition of the vehicle, i.e., the vehicle was delivered to plaintiff with serious defects and nonconformities to warranty and developed other serious defects and nonconformities to warranty, including, but not limited to, various brake defects.  Complaint, ¶8.  In this regard, plaintiff would be equitably estopped from denying that the arbitration provision applies to her claims against non-signatory Nissan because such claims are “intimately founded in and intertwined” with the RISC.

The court notes though that the federal cases cited by plaintiff and plaintiff’s arguments as to why Felisilda is distinguishable are highly persuasive, but, as stated above, the court is bound to follow Felisilda, regardless of the reasoned criticism of Felisilda by federal courts.  And, as the arbitration language is identical, and plaintiff’s claims are “intertwined,” the court cannot find that Felisilda is distinguishable.

As to whether Nissan is a third-party beneficiary, the court finds that it is not.  “A third-party beneficiary may enforce a contract made for its benefit.” CCP §1559.  “[A] review of this court’s third party beneficiary decisions reveals that our court has carefully examined 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.  All three elements must be satisfied to permit the third party action to go forward.”  Goonewardene v. ADP, LLC (2019) 6 Cal. 5^th 817, 830.  Nissan has not shown that the sales contract or the arbitration provision meets any of the elements.

The court also finds that there has been no waiver.

The motion is DENIED.

Plaintiff is ordered to give notice of the ruling.