Judge: Elaine Lu, Case: 21STCV16703, Date: 2023-12-13 Tentative Ruling

Case Number: 21STCV16703    Hearing Date: February 26, 2024    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

            On May 4, 2021, Plaintiff Martha Casillas (“Plaintiff”) filed the instant action against defendant FCA US, LLC (“Defendant”) arising from the purchase of a 2017 Jeep Renegade.  The complaint asserts two causes of action for (1) Violation of the Song-Beverly Act – Breach of Express Written Warranty and (2) Violation of the Song-Beverly Act – Breach of the Implied Warranty of Merchantability.

On December 7, 2021, the Court granted Defendant’s motion to compel arbitration.  The Court stayed the action pending arbitration, relying on what was then the only California appellate opinion on the issue, Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486.  (Order 8/6/21.)

            On June 12, 2023, Plaintiff filed the instant motion for reconsideration of the December 7, 2021 Order compelling arbitration.  On November 30, 2023, Defendant filed an opposition.  On December 6, 2023, Plaintiff filed a reply.

            Though Plaintiff’s motion for reconsideration was untimely, the Court gave notice that it intended to bring its own motion for reconsideration based on new case law that has reached a conclusion contrary to Felisilda, and the Court solicited additional briefing.  (Order 12/13/23.)  On February 16, 2024, the parties each submitted additional briefing. 

Request for Judicial Notice

            In conjunction with the reply papers, Plaintiff requests that the Court take judicial notice of:

1.     Third District Court of Appeal’s response to a Petition for Writ of Mandate in Ortiz, et al. v Superior Court of Sacramento County (C099135)

2.     Third District Court of Appeal’s response to a Petition for Writ of Mandate in Campos v. Superior Court of Butte County (C098848)

3.     The Alternative Writ issued by the Second District Court of Appeal in Contreras v. Superior Court of Los Angeles (B331737)

As the Court may take judicial notice of court records and actions of the State, (See Evid. Code, § 452(c)(d)), Plaintiff’s unopposed request for judicial notice is GRANTED.  However, the Court does not take judicial notice of the truth of assertions within the Court records. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.) 

Legal Standard

            The court may reconsider an interim order previously issued on its own motion, but any written submission that the court do so by a party must comport with either section 437c(f)(2) or 1008(c).  (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1107-1108.)  If the court wishes to reconsider on its own motion, “it should inform the parties of this concern, solicit briefing, and hold a hearing.”  (Id. at p.1108.)  The responding party does not bear the burden of opposition unless the court indicates an interest in reconsideration. (Ibid.)

Discussion

            Plaintiff has moved for reconsideration of the Court’s December 7, 2021 Order based on Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (“Ochoa”) and subsequent cases that have followed the rationale of Ochoa.  The Court gave notice that it was bringing its own motion for reconsideration on the same grounds and invited briefing from the parties on the Court’s motion for reconsideration.  (Le Francois, supra, 35 Cal.4th at p.1108, [“To be fair to the parties, if the court is seriously concerned that one of its prior interim rulings might have been erroneous, and thus that it might want to reconsider that ruling on its own motion … it should inform the parties of this concern, solicit briefing, and hold a hearing.”]; accord Reliant Life Shares, LLC v. Cooper (2023) 90 Cal.App.5th 14, 61 [“the trial court had the authority to correct its error on its own motion. It did so by acknowledging its error, soliciting further briefing, and holding a further hearing.”].)

Reconsideration of the December 7, 2021 Order Based on a Change in Law

            In relevant part, the Court noted in its December 7, 2021 order that “[i]t is undisputed that the agreement containing the arbitration provision, the Retail Installment Sale Contract – Simple Finance Charge, was between Plaintiff and Cerritos Dodge – not Defendant.”  (Order 12/7/21 at p.6:6-8.)

“[W]ith limited exceptions only parties to an arbitration agreement can enforce it or be required to arbitrate.”  (Jones v. Jacobson (2011) 195 Cal.App.4th 1, 17.)  A nonsignatory seeking to enforce an arbitration agreement has the burden to establish at least one of these exceptions applies. (Id. at p.16.)

One such exception is the doctrine of equitable estoppel.  Under the doctrine of equitable estoppel, “under 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.’ [Citations.]”  (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.)  “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.”  (Ibid., Fn. 18.)  “ ‘The fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute ... should be resolved.’ ” (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 306 [quoting NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 84].)  “‘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.’ [Citation.].”  (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 496.)  In determining whether a plaintiff’s claim is founded on or intimately connected with the sales contract, the Court examines the facts of the operative complaint.  (Felisilda, 53 Cal.App.5th at 496.) 

In Felisilda, the Court of Appeal addressed an arbitration clause identical to the one in the instant action and found that the plaintiff’s claims against nonsignatory FCA – nearly identical to those asserted in the complaint here – were inextricably intertwined with the obligations imposed by the sales contract containing the arbitration clause.   (Felisilda, supra, 53 Cal.App.5th at p. 496-497.)  The dealership filed a motion to compel arbitration on behalf of itself and the nonsignatory manufacturer, FCA.  The trial court granted the motion to compel arbitration as to the entirety of the action.  (Id. at p.491.)  After the trial court ordered the matter to arbitration, the buyers dismissed the dealership from the action.  (Ibid.) 

The Third District Court of Appeal affirmed.  First, the Court noted the broad language of the arbitration clause within the sales contract, which encompassed “[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.”  (Id. at p.496.)  Turning to the allegations of the complaint regarding express warranties accompanying the sale of the vehicle and FCA’s failure to repair the nonconformities or to replace the vehicle or make restitution, the Court found that “the sales contract was the source of the warranties at the heart of this case.”  (Ibid.)  “The [buyers’] 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 [buyers] 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.”  (Id. at p.496.)  Thus, the Court concluded that “[b]ased on language in the sales contract and the nature of the [buyers] claim against FCA, the trial court correctly ordered that the entire matter be submitted to arbitration.”  (Id. at p.495.) 

In a recent case – the Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (“Ochoa”) – the Second District Court of Appeal disagreed with the Third District Court of Appeal’s conclusion in Felisilda.  In Ochoa, the defendant manufacturer Ford Motor Company (“Ford”) moved to compel arbitration of the plaintiffs’ claims relating to alleged defects in vehicles manufactured by Ford under a preprinted sales contract form that contained an arbitration provision with identical language to the arbitration agreement in Felisilda.  (Ochoa, supra, 89 Cal.App.5th at p. 1329.)  The trial court denied the motion, and the Court of Appeal affirmed.  (Ibid.)  In declining to follow Felisilda, the Court of Appeal reasoned that the plaintiffs’ warranty claims did not arise from the sales contract.  Instead, the Court of Appeal found that “manufacturer 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” and noted that “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.”  (Id. at pp.1334, 1335.)  Hence, the Court of Appeal concluded that “plaintiffs’ claims are based on Ford’s statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty.”  (Id. at p.1335.)

The Ochoa Court deemed Ford not to be a third-party beneficiary because “the sale contracts reflect no intention to benefit a vehicle manufacturer under [the Goonewardene standard].”  (Id. at p.1338.)  Finally, the Court of Appeal concluded that the plaintiffs’ agency allegations were insufficient to confer standing to Ford to compel arbitration;  “even if plaintiffs did adequately allege that the dealers acted as Ford's agents in misrepresenting the qualities of the vehicles prior to sale, any nexus with the sale contracts, and thus the right to compel arbitration, is lacking [as] [t]here [we]re no allegations to support the conclusion that the dealers acted as Ford's agent in executing the sale contracts.”  (Id. at p.1342.) 

In an even more recent case – Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958 (“Montemayor”) – the Second District Court of Appeal again affirmed the denial of an auto manufacturer’s motion to compel arbitration.  In Montemayor, defendant Ford (which was not a signatory to the sales agreement) jointly filed a motion to compel arbitration with the dealership defendant, asserting that it had standing to enforce the arbitration provision of the sale agreement under equitable estoppel and as a third-party beneficiary.  In relevant part, the trial court concluded that the claims did not arise from the sales contract and that Ford was not a third-party beneficiary.  (Id. at p.966.)   The Court of Appeal affirmed, adopting the reasoning of Ochoa and concluding that Ford could not enforce the arbitration agreement through equitable estoppel or as a third-party beneficiary.  (Id. at pp.968-974.)

Similarly, on August 16, 2023, the Third District Court of Appeal issued its opinion in Kielar v. Superior Court (2023) 94 Cal.App.5th 614, (Kielar), joining the recent decisions that have disagreed with Felisilda.  The Kielar Court issued a peremptory writ of mandate compelling the Superior Court to vacate its order granting the manufacturer’s motion to compel arbitration and enter a new order denying the motion to compel arbitration.  In doing so, the Kielar Court expressly adopted the reasoning of Ochoa, Ngo,  and Montemayor and agreed with these cases that the reasoning of Felisilda was flawed.  (Keilar at p.617.)  The Kielar Court further agreed “with Montemayor and Ford Motor that the parenthetical language in the arbitration provision referring to nonsignatory third parties “was a ‘delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate’ ” and does not bind the purchaser “ ‘to arbitrate with the universe of unnamed third parties.’ ”  (Keilar at p.621.)

Finally, on September 6, 2023, the First District Court of Appeal issued its opinion in Yeh v. Superior Court of Contra Costa County (2023) 95 Cal.App.5th 264 (Yeh), joining the chorus of recent decisions that have disagreed with Felisilda.  The Yeh Court issued a peremptory writ of mandate directing the Superior Court to vacate its order compelling arbitration and enter a new order denying the manufacturer Mercedes-Benz’s motion to compel arbitration.  Adopting the reasoning of Ochoa and Montemayor, the Yeh Court rejected the manufacturer’s contention that the warranty claims against it were intimately founded in or intertwined with the underlying contact obligations set forth in the purchase agreement between the plaintiffs and the dealership.  The Yeh Court noted that the complaint did not reference the purchase agreements and did not allege that the manufacturer breached obligations based on the purchase agreements.  (Yeh at p.278.)  Further, the Yeh Court agreed with Ochoa that the language of the arbitration provision stating that it applied to any claim “between you and us ... which arises out of or relates to ... [the] 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)” delineated the subject matter of claims that the plaintiff (purchasers) and dealer agreed to arbitrate and did not reflect the plaintiffs’ consent to arbitrate claims with third party nonsignatories.

In light of these recent rulings in Ochoa, Montemayor, Kielar, and Yeh expressly disagreeing with Felisilda, there is a clear split of authority as to whether a non-signatory automobile manufacturer can compel arbitration of warranty claims based on a sales contract with a third-party dealership containing an arbitration clause.  When presented with conflicting Court of Appeal authority, “the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.”  (Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 456.)  Here, the Court finds the reasoning in Ochoa, Montemayor, Kielar, and Yeh to be more compelling. 

As noted above, “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.’ [Citation.].”  (Felisilda, supra, 53 Cal.App.5th at p.496.)  In Felisilda, the Third District interpreted the parenthetical language “(including any such relationship with third parties who do not sign this contract)” in the arbitration clause of the Sales Agreement to mean that the arbitration clause included arbitration of claims against third parties.  (Felisilda, supra, 53 Cal.App.5th at p. 497 [“[T]he arbitration provision in this case provides for arbitration of disputes that include third parties so long as the dispute pertains to the condition of the vehicle.”].)  However, the Court finds this reading of the arbitration clause within the Sales Agreement to be less persuasive than the interpretation set forth in Keilar and Yeh.

“When interpreting contracts, the language used controls if it is clear and explicit. We must view the language of a contract as a whole, avoiding a piecemeal, strict construction approach. If possible, we should give effect to every provision and avoid rendering any part of an agreement surplusage.”  (Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.)  To find that the parenthetical phrase “(including any such relationship with third parties who do not sign this contract)” provides a basis for any nonsignatory to compel arbitration of claims brought by vehicle purchasers completely ignores and disregards the preceding qualifying language “between you and us or our employees, agents, successors or assigns.”

Therefore, the Court finds that the more reasonable interpretation – as set forth in Ochoa, Montemayor, and Yeh – is that “the parenthetical language referring to third-party nonsignatories was a ‘delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate,’ but the purchasers clearly agreed only to arbitrate disputes between ‘ “you and us,” ’ that is, with the dealership. [Citation.] In other words, ‘[t]he “third party” language in the arbitration clause means that if a purchaser asserts a claim against the dealer (or its employees, agents, successors or assigns) that relates to one of these third party transactions, the dealer can elect to arbitrate that claim. It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.’ [Citation.]”  (Montemayor, supra, 92 Cal.App.5th at p.971 [quoting Ochoa]; Yeh at pp.277-278.)

The Court adopts this interpretation of the arbitration clause as more reasonable.  Accordingly, the Court finds that the manufacturer – Defendant – was not an intended party nor intended to benefit from the arbitration agreement between Plaintiff and the dealership.

Further, the allegations in the complaint are not inextricably intertwined with the obligations imposed by the Sales Agreement.  The first cause of action is for breach of the express warranty under the Song-Beverly Consumer Warranty Act.  (Complaint ¶¶ 13-27.)  The second cause of action is for breach of the implied warranty under the Song-Beverly Consumer Warranty Act.  (Id. ¶¶ 28-40.)  These are all statutory claims unrelated to the contractual obligations under the Sales Agreement.  As the Ochoa court explained with respect to nearly identical allegations, “[P]laintiffs’ claims are based on [Defendant’s] statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty.... Not one of the plaintiffs sued on any express contractual language in the sale contracts.”  (Ochoa, supra, 89 Cal.App.5th at p.1335.)   “To be sure, [Plaintiff] would not have sued [Defendant] for the defective condition of the vehicle but for the sale of the vehicle by [the dealership] pursuant to the [Sales Agreement]. And [Defendant] provided an express warranty to the [Plaintiff] as a result of the sale. But that does not mean [Defendant]'s obligation to provide a non-defective vehicle under its separate express warranty is in any way founded on an obligation imposed by the sales contract or is intertwined with those obligations.”  (Montemayor, supra, 92 Cal.App.5th at 970.)  “‘This argument confuses the concept of “claims founded in and intertwined with the agreement containing the arbitration clause” with but-for causation.’ [Citations.]”  (Ibid.)  Rather, as Plaintiff did not allege a breach of the Sales Agreement, Plaintiff’s claims are not found in or intertwined with the Sales Agreement.  (Id. at p.971.)  Therefore, Defendant cannot enforce the arbitration clause in the Sales Agreement through equitable estoppel.

Nor is Defendant a third-party beneficiary under the Sales Agreement.  (See Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 821, [discussing third party beneficiaries and noting that “a third party — that is, an individual or entity that is not a party to a contract — may bring a breach of contract action against a party to a contract only if the third party establishes not only (1) that it is likely to benefit from the contract, but also (2) that a motivating purpose of the contracting parties is to provide a benefit to the third party, and further (3) that permitting the 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.”].)  Here, there is “‘no indication that a benefit to [Defendant] was the signatories’ “motivating purpose” ... in contracting for the sale and purchase of a [Defendant] vehicle.’ [Citation.]”  (Montemayor, supra, 92 Cal.App.5th at p.974.)  Rather, the clear and “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.’ [Citation.]”  (Ochoa, supra, 89 Cal.App.5th at p.1339.)  Thus, Defendant is not a third-party beneficiary entitled to enforce the arbitration clause in the Sales Agreement. 

Accordingly, reconsideration of the Court’s December 7, 2021 Order compelling arbitration is warranted due to this new legal authority.  The Court hereby GRANTS its own motion for reconsideration of its December 7, 2021 Order.

CONCLUSION AND ORDER

Based on the foregoing, the Court’s own motion for reconsideration of its December 7, 2021 Order is GRANTED.  The Order granting arbitration as to the claims against Defendant FCA US LLC is vacated.  In its place, the Court hereby enters the instant order denying Defendant FCA US LLC’s motion to compel arbitration.

The stay on the litigation of this action is lifted.  Each party is ordered to file a case management statement and to appear for a case management conference on March 19, 2024 at 8:30 am.

Plaintiff shall give notice to all parties and file proof of service of such.

DATED:  February ___, 2024                                                           ___________________________

Elaine Lu

                                                                                    Judge of the Superior Court