Judge: Donald F. Gaffney, Case: "Barriere Castillero v. Nissan North American, Inc.", Date: 2023-06-14 Tentative Ruling

TENTATIVE RULING:

For the reasons set forth below, Defendant Nissan North America, Inc.’s Motion to Compel Arbitration is DENIED.

Standard for Compelling Arbitration

The right to arbitration depends upon contract, and thus, a motion to compel arbitration is akin to a suit in equity seeking specific performance of that contract. (See Little v. Pullman (2013) 219 Cal.App.4th 558, 565.) The parties may, among other things, agree that the arbitration agreement will be controlled by the Federal Arbitration Act (FAA), which includes both procedural and substantive provisions.

The FAA states that written arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) The United States Supreme Court has described this provision as reflecting both a “liberal federal policy favoring arbitration,” and the “fundamental principle that arbitration is a matter of contract.” (AT & T Mobility LLC v. Concepcion (2011) 563 U.S. 333.)

The FAA permits agreements to arbitrate to be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability.” (Id.) When deciding whether a valid arbitration agreement exists, courts generally apply “ordinary state-law principles that govern the formation of contracts.” (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944.) “[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration.” (Green Tree Fin. Corp. v. Randolph (2000) 531 U.S. 79, 91.)

On a motion to compel arbitration under the FAA, the court’s role is limited to deciding: “(1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute.” (Brennan v. Opus Bank (9th Cir. 2015) 796 F.3d 1125, 1130.) If these conditions are satisfied, the court is without discretion to deny the motion and must compel arbitration. (9 U.S.C. § 4; Dean Witter Reynolds, Inc. v. Byrd (1985) 470 U.S. 213, 218 [“By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration.”].)

Applicability of the Federal Arbitration Act

Nissan seeks to compel arbitration pursuant to the Arbitration Provision of the Retail Installment Sale Contract (“RISC”) entered into by Plaintiffs on September 12, 2020. (Mvg. Salinas Decl., Ex. B) The Arbitration Provision states that “Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. s 1 et seq.) and not by any state law concerning arbitration.” Thus, the Federal Arbitration Act (FAA) applies here.

Existence of An Arbitration Agreement

Parties moving to compel arbitration “may meet their initial burden to show an agreement to arbitrate by attaching a copy of the arbitration agreement purportedly bearing the opposing party's signature.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060; see also Cal. Rules of Ct., rule 3.1330 [in motion to compel arbitration, arbitration provision must be stated verbatim or copy must be attached to motion and incorporated by reference].)

Here, Defendant attached the RISC, which contains the Arbitration Provision, to their Motion to Compel Arbitration. (Mvg. Salinas Decl., Ex. B) The Vehicle Identification Number as alleged in the Complaint matches the Vehicle Identification Number identified in the RISC. Plaintiff’s name is also listed in the RISC.

The RISC provides in relevant part that:

1.    EITHER YOU [PLAINTIFF] OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

. . .

Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, purchase or condition of this vehicle, this contract 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 a court action.

Thus, there is no dispute that the Arbitration Provision of the RISC is an agreement to arbitrate. However, Plaintiff argues that the Arbitration Provision is not an agreement to arbitrate between the parties because the Defendant is not a party to the RISC.

Compelling Arbitration Against Non-Signatory

Nissan concedes that it is not a signatory to the RSIC, but argues that non-signatories may compel arbitration under certain circumstances.

Courts recognize “six theories by which a nonsignatory may [compel or] be bound to arbitrate: ‘(1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing or alter ego; (5) estoppel; and (6) third-party beneficiary.’” (Suh v. Superior Ct. (2010) 181 Cal.App.4th 1504, 1513, quoting 2 Oehmke, Commercial Arbitration (3d ed. 2006 update) § 41.57 at pp. 41–195.)

These exceptions to the general rule that one must be a party to invoke or be bound by an arbitration agreement “generally are based on the existence of a relationship between the nonsignatory and the signatory, such as principal and agent or employer and employee, where a sufficient ‘identity of interest’ exists between them.” (Jones v. Jacobson (2011) 195 Cal.App.4th 1, 18 & fn. 9.)

Nissan contends that it may enforce the Arbitration Provision under the doctrine of equitable estoppel and/or as a third-party beneficiary.

Equitable Estoppel

“Under 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. 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.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495–496, citations omitted.)

“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.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 219, italics original; see Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at pp. 495-496.) In determining whether the plaintiff’s claim is founded on or intimately connected with the sales contract, the court examines the facts of the operative complaint. (Goldman v. KPMG, LLP, supra, 173 Cal.App.4th at pp. 229-230.)

Defendant argues that the holding of Felisilda v. FCA US LLC applies to this case. The plaintiffs in Felisilda v. FCA US LLC were buyers of a vehicle who brought claims against the manufacturer under the Song-Beverly Act. (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 489.) The complaint in that case alleged that there were “express warranties [that] accompanied the sale of the vehicle to [the plaintiffs] by which [the manufacturer] . . . undertook to preserve or maintain the utility or performance of [the plaintiffs’] vehicle or provide compensation if there was a failure in such utility or performance.” (Id. at p. 496.)

Based on the above allegation, the 3rd District Court of Appeal ruled that the trial court had properly compelled arbitration because “the sales contract was the source of the warranties at the heart of this case”. (Ibid.) In other words, “the [plaintiffs’] claim against [the manufacturer] 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 p. 497.)

However, Plaintiffs point to the recently decided case of Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324. There, the 2nd District Court of Appeal held that a non-signatory vehicle manufacturer may not enforce an arbitration provision in a retail installment sales contract under the doctrine of equitable estoppel or as a third party beneficiary. (See Ford Motor Warranty Cases, supra, 89 Cal.App.5th at pp. 618-624.)

The 2nd District Court of Appeal explicitly stated:

We disagree with Felisilda that “the sales contract was the source of [FCA's] warranties at the heart of this case.” . . . [M]anufacturer 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.

(Ford Motor Warranty Cases, supra, 89 Cal.App.5th at pp. 619-620, quoting Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 496.)

The 2nd District Court of Appeal stated that “We also disagree 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, supra, 89 Cal.App.5th at p. 620, quoting Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 497.) The Court of Appeal in Ford Motor Warranty Cases interpreted the language in the arbitration provision in that case to not expand arbitration to include third parties, but only to expand arbitration between the buyer and seller to include claims that related to third-parties. (See id. at p. 620.)

Defendants respond that if Felisilda v. FCA US LLC and Ford Motor Warranty Cases are in conflict with each other, this court may follow either precedent. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal. 2d 450, 455-456 [“Decisions of every division of the District Courts of Appeal are binding upon all the justice and municipal courts and upon all the superior courts of this state, and this is so whether or not the superior court is acting as a trial or appellate court. . . . Of course, the rule under discussion has no application where there is more than one appellate court decision, and such appellate decisions are in conflict. In such a situation, the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.”].)

In this case, the court chooses to follow Ford Motor Warranty Cases. First, this case presents a different situation than that described in Felisilda v. FCA US LLC. Unlike in that case, the warranty that forms the basis of Plaintiffs’ lawsuit did not accompany the sale of the vehicle.

The Complaint alleges Plaintiffs entered into a warranty contract with Nissan. (See Compl., ¶ 9.) Plaintiffs’ causes of action arise out of the warranty obligations of Nissan contained in the warranty contract. Plaintiff’s claims are, essentially, that Nissan failed to repair the vehicle consistent with its obligations under the warranty contract, and thereafter did not promptly repurchase or replace the vehicle.

The Complaint does not allege that the signatory to the RISC provided any warranty to Plaintiff. In fact, the RISC explicitly provided that the dealership was not providing any warranty and that any warranty from the vehicle manufacturer was separate and independent from the RISC:

If you do not get a written warranty, and the Seller does not enter into a service contract within 90 days from the date of this contract, the Seller makes no warranties, express or implied, on the vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose.

This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide. If the Seller has sold you a certified used vehicle, the warranty of merchantability is not disclaimed.

(Mvg. Salinas Decl., Ex. B).

Thus, Plaintiffs’ warranty and repair claims against Nissan are distinct from any claim Plaintiffs could have against the seller. The crux of Plaintiffs’ action is the alleged breach of Nissan’s express warranty and alleged negligent repair, not any terms in the RISC.

However, even if this case was factually the same as Felisilda v. FCA US LLC, the court would still choose to follow the holding of Ford Motor Warranty Cases. As explained in the latter case, claims involving breach of a written warranty provided by a manufacturer are not so inextricably intertwined with the obligations contained in the sales and purchase contract that the manufacturer, who did not sign the contract, should be able to enforce an arbitration provision contained in the contract. (See Goldman v. KPMG, LLP, supra, 173 Cal.App.4th at pp. 217-218 [equitable estoppel applies only if “the claims the plaintiff asserts against the nonsignatory [are] dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause.”].)

A recent Ninth Circuit decision, Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, although not binding, adds to the weight supporting adoption of the holding of Ford Motor Warranty Cases. (See Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 299 [federal court decisions interpreting California law are “persuasive but not binding”].) There, the Ninth Circuit rejected the contention that equitable estoppel applied in a case similar to the one at bar. (See Ngo v. BMW of North America, LLC, supra, 23 F.4th at p. 950 [“. . . Felisilda does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own. We therefore decline to affirm on the ground of equitable estoppel.”].)

Third-Party Beneficiary

The Civil Code provides that: “A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescinded.” (Civil Code, § 1559.) However, third parties do not become “third party beneficiaries” simply because the contract benefits them; the contract must be “made expressly” for the third party’s benefit. (Pillar Project AG v. Payward Ventures, Inc. (2021) 64 Cal.App.5th 671, 677.)

The test is “whether an intent to benefit a third person appears from the terms of the contract.” (Jensen v. U-Haul Co. of Calif. (2017) 18 Cal.App.5th 295, 301-302; see also Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 [fact that literal interpretation of contractual language will result in benefit to third party is not sufficient to entitle that party to demand performance where intent to benefit third party is not shown].)

Nissan argues that they are third-party beneficiaries because the arbitration clause covers disputes arising out of or relating to “any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract).” (Salinas Decl., Ex. B at p. 4.) However, the sentence in question must be read in its entirety to understand the meaning:

Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, purchase, or condition of this vehicle, this contract 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.

(Ibid., italics added.)

When read in context, it is apparent that the provision to which Nissan points expands the scope of the disputes that are covered under the Arbitration Provision. However, it does not expand the scope of the parties that are covered under the Arbitration Provision.

The express terms of the Arbitration Provision limit the scope of the agreement to disputes between Plaintiff on the one hand and the seller or its “employees, agents, successors, and assigns,” on the other hand. Nissan’s proposed interpretation would render those words surplusage, a result which should be avoided. (See Rice v. Downs (2016) 248 Cal.App.4th 175, 186 [“An interpretation that leaves part of a contract as surplusage is to be avoided”].)

As the Ninth Circuit found in Ngo, a sales agreement between a dealer and a buyer does not benefit the manufacturer sufficiently to make the manufacturer a third-party beneficiary. (See Ngo v. BMW of North America, LLC, supra, 23 F.4th at p. 946-947.) Further, a vehicle purchase agreement is “drafted with the primary purpose of securing benefits for the contracting parties themselves. In such an agreement, the purchaser seeks to buy a car, and the dealership and assignees seek to profit by selling and financing the car. Third parties are not purposeful beneficiaries of such an undertaking.” (Id. at p. 947.)

The Court in Ochoa agreed with the reasoning in Ngo.  Specifically, the Ochoa court stated: “We agree with Ngo that the sale contracts reflect no intention to benefit a vehicle manufacturer under Goonewardene.  First, nothing in the sale contracts or their arbitration provision offers any direct ‘benefit’ to [the manufacturer]…[i]ts 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.” (Ochoa, supra, 89 Cal.App.5th 1324, 1338–1339.)  “Second, there is no indication that a benefit to FMC was the signatories ‘motivating purpose’…[t]he manifest intent of the parties was to buy, sell and finance a car, and to allow either the purchaser or the dealer to compel arbitration of the specified categories of disputes between them, or between the purchaser and any of the dealer’s ‘employees, agents, successors or assigns.’” (Id.)  Further, the Ochoa court explained: “FMC contorts the meaning of the arbitration clause when it claims the reference to ‘third parties who do not sign this contract’ gives it a right to arbitrate.” (Id.) “As already discussed, this reference concerns what may be arbitrated, not who may arbitrate.” (Id.) “The parties choice of the subject of the disputes they agree to arbitrate does not evince an intention to benefit nonparties so as to affect who is entitled to compel arbitration.” (Id.)  “Finally, allowing FMC to enforce the arbitration provision as a third party beneficiary would be inconsistent with the ‘reasonable expectations of the contracting parties’ [citation] where they twice specifically vested the right of enforcement in the purchase and the dealer only.” (Id. at 1340.)

The arbitration provision here explicitly identifies the third parties who benefit from the Arbitration Provision: the dealership and its “employees, agents, successors or assigns.” Any benefit of the RISC extends to only these entities. Nissan does not present evidence that it is the dealership or its employees, agents, successors or assigns.  The court is persuaded by the reasoning in Ngo and Ochoa that the language of the RISC does not express an intent that Nissan is a third-party beneficiary.

The motion is DENIED.

Plaintiff to give notice.