Judge: Douglas W. Stern, Case: 22STCV07578, Date: 2022-08-17 Tentative Ruling

Case Number: 22STCV07578    Hearing Date: August 17, 2022    Dept: 52

Tentative Ruling:

            Defendant Nissan North America, Inc.’s Motion to Compel Arbitration and Stay Proceedings

            Defendant Nissan North America, Inc. (Nissan) moves to compel arbitration of plaintiffs Cristina Torres and Josefina Diaz Cruz’s complaint and to stay the action.

Evidentiary Objections

            Plaintiffs make seven objections to Nissan’s evidence.  The first six objections are to the declaration of counsel Paul S. Lecky.  Objection Nos. 1, 2, 3, 4, and 6 are overruled.  Objection No. 5 is sustained for lack of relevance.

Plaintiffs’ seventh objection is to Nissan’s request for judicial notice of an order by the Sacramento County Superior Court from 2016.  Though the order is a court record subject to judicial notice under Evidence Code § 452(d), it is not relevant or necessary to the court’s analysis.  (See Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 748, fn. 6; Appel v. Superior Court (2013) 214 Cal.App.4th 329, 342, fn. 6.)  Objection No. 7 is sustained. 

Nissan makes various evidentiary objections to the declarations of Cristina Torres and Josefina Diaz Cruz.  Nissan’s objections are not numbered.  Regarding motions for summary judgment, California Rules of Court, rule 3.1354(b) requires that “[e]ach written objection must be numbered consecutively.”  Though this rule does not apply to motions to compel arbitration, consecutively numbering objections is necessary for the court to make clear rulings on them.  All of Nissan’s objections are overruled.

Equitable Estoppel

Though Nissan did not sign the sales agreement with plaintiffs, it can enforce the arbitration provision under the doctrine of equitable estoppel.  Under that doctrine, “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 (Felisilda).)  

Felisilda considered this issue based on a similar arbitration provision.  The Court of Appeal held the vehicle’s manufacturer, who did not sign the agreement, had the right to compel arbitration under the doctrine of equitable estoppel.  (Id. at p. 496.)  There, the sales contract provided:

“ARBITRATION PROVISION [¶] ... [¶]

“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.

“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 ... 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. If federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute. Any claim or dispute is to be arbitrated by a single arbitrator on an individual basis and not as a class action.”

(Id. at p. 490.) 

The Court of Appeal held the nonsignatory manufacturer could enforce this agreement:

In signing the sales contract, the Felisildas agreed that ‘[a]ny claim or dispute, whether in contract, tort, statute or otherwise ... between you and us ... which arises out of or relates to ... [the] condition of this vehicle ... shall ... be resolved by neutral, binding arbitration and not by a court action.’ …  Here, the Felisildas’ claim against FCA relates directly to the condition of the vehicle.

In their complaint, the Felisildas 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.”  Thus, the sales contract was the source of the warranties at the heart of this case.  The Felisildas noted they “delivered the vehicle to an authorized FCA ... repair facility for repair of the nonconformities.”  However, “FCA ... has failed to either promptly replace the new motor vehicle or promptly make restitution in accordance with the Song-Beverly Consumer Warranty Act.”

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. Because the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party nonsignatories to the sales contract – they are estopped from refusing to arbitrate their claim against FCA. Consequently, the trial court properly ordered the Felisildas to arbitrate their claim against FCA.

(Felisilda, supra, 53 Cal.App.5th at pp. 496-497.)

Felisilda’s reasoning applies equally here.  Plaintiffs entered a sales contract with Universal City Nissan.  (Lecky Decl., Ex. 3; Torres Decl., ¶¶ 2-7; Diaz Cruz Decl., ¶¶ 2-7.)  The contract includes the same arbitration provision—verbatim—as in Felisilda.  (Lecky Decl., Ex. 3, p. 2; Felisilda, supra, 53 Cal.App.5th at p. 490.) 

The complaint in this action makes similar allegations arising out of the vehicle’s condition and the warranties received as a consequence of the sales agreement.  The complaint alleges:

·        Plaintiffs purchased a Nissan Rogue in 2018.  (¶ 4.)

·        Nissan “offered an ‘express warranty’ to Plaintiffs pursuant to” the Song-Beverly Consumer Warranty Act.  (¶ 8.)

·        “The sale of [their vehicle] to Plaintiffs was accompanied by an implied warranty that the vehicle was merchantable.  The sale… was also accompanied by [Nissan’s] implied warranty of fitness.”  (¶ 9.)

·        “The subject vehicle has suffered from nonconformity(s) to warranty to [sic], including, but not limited to, the transmission, vehicle shakes, drive belt tensioner, engine, and other defects.  The foregoing defect(s) and nonconformity(s) to warranty manifested itself within the applicable express warranty period.”  (¶ 10.)

·        “Defendant has been unable and/or has refused to conform the subject vehicle to the applicable express and implied warranties.”  (¶ 12.)

Plaintiffs agreed to arbitrate claims between themselves and Universal City Nissan “or [its] employees, agents, successors or assigns, which arises out of relates to … 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).”  (Lecky Decl., Ex. 3, p. 2.) 

This action arises out of the condition of plaintiffs’ Nissan Rogue.  The sale resulted in the manufacturer’s warranty and created a relationship between plaintiffs and Nissan—a third party who did not sign the sales contract.  Plaintiffs are equitably estopped from refusing to arbitrate their dispute against defendant Nissan North America, Inc.

Plaintiffs rely on Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942 (Ngo) for the proposition that the manufacturer cannot compel arbitration unless the signatory dealership is a party to the case.  Ngo is not binding authority and the court does not find it persuasive.  The opinion merely makes a conclusory statement: “It makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer.  In Felisilda, it was the dealership—a signatory to the purchase agreement—that moved to compel arbitration rather than the non-signatory manufacturer.”  (Id. at p. 950.) 

Ngo offers no reasoning or explanation for why the dealer’s involvement makes a critical difference.  In Felisilda, the dealer’s involvement made no difference.  There, the dealer was not a party to the appeal because plaintiffs had dismissed the dealer as a defendant.  The Court of Appeal discussed only whether the nonsignatory manufacturer had the right to compel arbitration.  Its reasoning did not rely on the fact that the dealer moved to compel arbitration.  The opinion only mentions it to address a procedural quirk: “Granted, FCA did not move for arbitration, but filed only a notice of nonopposition to the dealership's motion to compel.”  (Felisilda, supra, 53 Cal.App.5th at pp. 498.)

Plaintiffs’ reliance on Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708 (Morgan) is misplaced.  There, the United States Supreme Court stated, “[A] court must hold a party to its arbitration contract just as the court would to any other kind.  But a court may not devise novel rules to favor arbitration over litigation.”  (Id. at p. 1713.)  “If an ordinary procedural rule—whether of waiver or forfeiture or what-have-you—would counsel against enforcement of an arbitration contract, then so be it.”  (Ibid.)  The Supreme Court held that the Eight Circuit applied the wrong standard to waiver of an arbitration agreement because “the usual federal rule of waiver does not include a prejudice requirement.”  (Id. at p. 1714.)

Morgan does not apply here because Felisilda did not use a novel or arbitration-specific rule.  Though Felisilda quoted cases about equitable estoppel in arbitration agreements, equitable estoppel is a general rule of contract law.  It applies to all contracts.    “General contract and agency principles apply in determining the enforcement of an arbitration agreement by or against nonsignatories.”  (Mundi v. Union Sec. Life Ins. Co. (9th Cir. 2009) 555 F.3d 1042, 1045.)  Those general principles include “estoppel.”  (Ibid.)  “Equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes.”  (Ibid., internal quotes omitted.) 

Other federal courts have also held that equitable estoppel is an issue “under ordinary principles of contract law.”  (Washington Mut. Finance Group, LLC v. Bailey (5th Cir. 2004) 364 F.3d 260, 267.)  Though it is most frequently applied to arbitration agreements, it is a general principle of equity.  “Restated, the doctrine of estoppel prevents a party from ‘having it both ways.’ ”  (Id. at p. 268; accord Civ. Code, §§ 3512 [“One must not change his purpose to the injury of another”], 3521 [“He who takes the benefit must bear the burden”].)  The United States Supreme Court’s decision in Morgan does not prohibit applying the doctrine of equitable estoppel to arbitration agreements.

Unconscionability

Plaintiffs contend the agreement is unconscionable.  It is not.

Unconscionability requires both procedural and substantive unconscionability using a sliding scale.  (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 185 (Serafin).)  “No matter how heavily one side of the scale tips . . . both procedural and substantive unconscionability are required for a court to hold an arbitration agreement unenforceable.”  (Kilgore v. KeyBank, Nat. Ass'n (9th Cir. 2012) 673 F.3d 947, 963, citing Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.)

The opposition only discusses procedural unconscionability.  “Procedural unconscionability focuses on the elements of oppression and surprise.”  (Serafin, supra, 235 Cal.App.4th at p. 177.)  Plaintiffs argue they would not “understand from a reasonable reading of the sales contract that the manufacturer, distributor, or warrantor can compel arbitration against them.”  (Opp., p. 11.)  “[N]o reasonable consumer expects a non-signatory to the sales contract to be able to enforce its provisions.”  (Opp., p. 12.) 

This constitutes arguing surprise: plaintiffs’ expectations were upended.  Moreover, plaintiffs fail to show any surprise.  The agreement expressly provides plaintiffs may be required to arbitrate disputes arising from “relationship[s] with third parties who do not sign this contract.”  (Lecky Decl., Ex. 3, p. 2.) 

Substantive unconscionability “focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results.”  (Serafin, supra, 235 Cal.App.4th at p. 177, internal quotes omitted.)  Plaintiffs make no attempt to show a harsh or one-sided result.  Without substantive unconscionability, the agreement cannot be unconscionable.

Rescission

            Plaintiffs argue that “[f]or the same reasons that the agreement proffered by Nissan is unconscionable, it is also subject to rescission.”  They make only a conclusory argument with no supporting authority.  The agreement is not subject to rescission.

Right to Jury Trial

            Plaintiffs contend they have a right to jury trial on whether the arbitration agreement exists.  They do not.  Plaintiffs rely on the 9 U.S.C. § 4 of the FAA, which does not apply for two reasons. 

First, that provision only applies in federal court.  Even where the agreement is subject to the FAA, “the federal provision for a jury trial of questions regarding the existence of an arbitration agreement (9 U.S.C. § 4) does not operate in California state courts.”  (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 402.)  “[T]hese questions are to be resolved by the trial court in the manner provided for the hearing and decision of motions (Code Civ. Proc., § 1920.2).”  (Ibid.)

Second, the FAA only provides for a jury trial on two issues: “If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed.”  (9 U.S.C. § 4.)  Those issues are not in dispute.  There is no factual dispute in this motion to compel arbitration.  It is undisputed that plaintiffs signed the sales contract attached as Exhibit 3 to the declaration of Paul S. Lecky.  It is undisputed that plaintiffs have defaulted.  Their opposition itself constitutes refusal to abide by the agreement.

Plaintiffs try to frame the issue as whether they agreed in writing to arbitrate claims against Nissan.  The true issue in this motion is determining the undisputed agreement’s legal effect based on its language and on the allegations in plaintiffs’ complaint.

Federal Law on Arbitration of Warranty Claims

            Finally, plaintiffs argue that federal law prohibits binding arbitration of warranty disputes such as this action.  Plaintiffs cite no California authority for that proposition.  They rely on Civil Code § 1793.22(d), which requires that “[a] qualified third-party dispute resolution process shall be one that” complies with the requirements under the Federal Trade Commission’s regulations.  This motion does not involve a “qualified third-party dispute resolution process,” which is an optional mechanism.  (Civ. Code, § 1793.22(c).)   

Disposition

The motion is granted.

The parties are ordered to arbitrate the claims set forth in plaintiffs’ complaint.  The court hereby stays the entire action under CCP § 1281.4 until the conclusion of arbitration.  The court hereby sets a status conference re: arbitration on August 17, 2023, at 8:30 a.m. in Department 52 at Stanley Mosk Courthouse.