Judge Elaine Lu, Case 22STCV08742 2023-03-14 Tentative Ruling

On March 10, 2022, Plaintiff George Begue (“Plaintiff”) filed the instant action against defendants Nissan North America, Inc. (“Nissan”) and Trophy Universal City Group LLC (“Dealer”) (jointly “Defendants”) arising from the purchase of a 2020 Nissan Sentra (“Subject Vehicle”). The complaint asserts four causes of action for (1) Violation of the Song-Beverly Act – Breach of Express Warranty, (2) Fraudulent Inducement – Intentional Misrepresentation, (3) Fraudulent Inducement – Concealment, and (4) Negligent Repair. The first, second, and third causes of action are against Defendant Ford. The fourth cause of action is against Defendant Dealer.

On December 29, 2022, Defendants filed the instant motion to compel arbitration. On March 1, 2022, Plaintiff filed an opposition. On March 7, 2023, Defendants filed a reply.

On May 16, 2020, Plaintiff purchased a 2020 Nissan Sentra (“Subject Vehicle”) which was distributed and advertised by Defendant Nissan. (Complaint ¶ 8.) The Subject Vehicle was accompanied an express written warranty and had nonconformities that arose during the warranty period. (Id. ¶ 9, Exh. 1.) “The Subject Vehicle was equipped with a defective emergency braking system that exposed Plaintiff(s), Plaintiff(s)’ passengers, and other consumers on the road to the risk of sudden and unexpected collision.” (Id. ¶ 11.) Defendant Nissan was aware of this defect but failed to disclose the defect in marketing or to Plaintiff. (Id. ¶ 34-62.)

Had this defect been disclosed, Plaintiff would not have purchased the Subject Vehicle. (Id. ¶ 21.) Plaintiff brought the subject vehicle in for repairs on at least one occasion. (Id. ¶ 144.) Defendant Dealer negligently repaired the vehicle. (Id. ¶¶ 145-147.)

“Except in a summary judgment or summary adjudication motion, no opening or responding memorandum may exceed 15 pages.” (Cal. Rules of Court, Rule 3.1113(d).) Further, “[n]o reply or closing memorandum may exceed 10 pages.” (Ibid.) An oversized paper is considered the same as a late-filed paper. (Id. at (g).) However, a party may apply for leave to file a longer memorandum. (Id. at (e).) “A memorandum that exceeds 10 pages must include a table of contents and a table of authorities. A memorandum that exceeds 15 pages must also include an opening summary of argument.” (Id. at (f).) The Court may refuse to consider a late-filed paper. (Cal. Rules of Court, Rule 3.1300(d).)

Here, all of the briefing is oversized. The moving memorandum is 18 pages, the opposing memorandum is 16 pages, and the reply is 12 pages – all of which exceed the memorandum page limit. No party has requested permission to file oversized briefs. Accordingly, the Court will only consider the pages within the page limits – i.e., the first 15 pages of the moving memorandum and opposing memorandum, and the first 10 pages of the reply memorandum.

In opposition, Plaintiff objects to portions of the declaration of Melissa Wilner. In reply, Defendants object to portions of the declaration of Jeffery Mukai. However, these objections are unnecessary because the Court, when reviewing the evidence is presumed to ignore material it knows is incompetent, irrelevant, or inadmissible. (In re Marriage of Davenport (2011) 194 Cal. App. 4th 1507, 1526.) Courts are presumed to know and apply the correct statutory and case law and to be able to distinguish admissible from inadmissible evidence, relevant from irrelevant facts, and to recognize those facts which properly may be considered in the judicial decision-making process. (People v. Coddington (2000) 23 Cal.4th 529, 644.)

In conjunction with the moving papers, Defendants request that the Court take judicial notice of the following:

4. Notice of Entry of Dismissal and Proof of Service, filed in Sacramento Superior Court by Plaintiffs Dina C. Felisilda and Pastor O. Felisilda on February 11, 2016 in the matter of Dina C. Felisilda, et al, v. FCA US LLC, et al.

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

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) Under CCP § 1281, a “written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”

“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 or special proceeding 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. . . .” (CCP §1281.2.)

The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. (Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co. (1998) 68 Cal.App.4th 83, 88.) When presented with a petition to compel arbitration, the trial court's first task is to determine whether the parties have in fact agreed to arbitrate the dispute. (Id.)

“Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394] explained: ‘[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation (see §1281.2(a), (b))—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.’ (Rosenthal, supra, at 413.) According to Rosenthal, facts relevant to enforcement of the arbitration agreement must be determined ‘in the manner . . . provided by law for the . . . hearing of motions.’ (Rosenthal, supra, at 413, quoting §1290.2.) This ‘ordinarily mean[s] the facts are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court’s discretion.’ (Rosenthal, supra, at 413–414; . . .).” (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761-62.)

Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.) “With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Defendants assert that Plaintiff executed a valid pre-dispute arbitration agreement on May 11, 2020 when Plaintiff purchased the vehicle. Specifically, Defendants assert that when Plaintiff purchased the Subject Vehicle, Plaintiff entered into a written contract, the Retail Installment Sale Contract – Simple Finance Charge (“RISC”), that contained an arbitration agreement. (Wilner Decl. ¶ 4, Exh. 5.) The arbitration provision of the RISC provides, in relevant part, that:

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 ANY 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 USE 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 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.

The Sales Contract appears to bear Plaintiff’s signature. (Wilner Decl., Exh. 5.) In opposition, Plaintiff does not dispute the existence of this arbitration agreement or that Plaintiff signed this agreement. Rather, Plaintiff contends that (1) Defendants lack standing to compel arbitration, (2) Plaintiff’s Song-Beverly Act Claims are independent of the RISC, and (3) the RISC distinguishes the manufacturer’s warranties and disclaims all warranty obligations.

It is undisputed that the agreement containing the arbitration provision, the RISC, was between Plaintiff and Nissan of Van Nuys – not either of Defendants. (Wilner Decl., Exh. 5.) Plaintiff contends that as nonsignatories, Defendants both lack standing to enforce the arbitration provision.

“[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 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.)

Here, as in Felisilda, the complaint repeatedly alleges that Plaintiff’s claims arise at least in part from the RISC. As to Defendant Nissan, Plaintiff’s claims arise from the sale of the Subject Vehicle, and thus, the sales contract – i.e., the RISC – lies at the heart of Plaintiff’s claims against Nissan. The first cause of action is for breach of the express warranties against Nissan. (Complaint ¶¶ 91-106.) The second and third causes of action against Nissan are for fraudulently inducing Plaintiff to purchase the vehicle by failing to disclose known defects and intentionally misrepresenting defects. (Id. ¶¶ 107-142.)

The fraud claims are inherently and inexorably tied to the sale of the Subject Vehicle and arise out of the (misrepresented) condition of the Subject Vehicle and thus the RISC. The core claim of the fraud is that Plaintiffs would not have entered into the sale but for Defendant Nissan’s concealing/material misrepresentations regarding an emergency braking defect. (Id. ¶¶ 121, 135.) The other claim against Nissan arises from the express warranty for the Subject Vehicle. (Id. ¶¶ 91-106.) As alleged in the complaint, these express and implied warranties arise from the sale of the Subject Vehicle. The express warranty was issued with connection with the Subject Vehicle. (Complaint ¶ 8-9.) The express warranty attached to the complaint states the warranty is only applicable to original or subsequent owners of the Subject Vehicle. (Id., Exh. 1 at p.5.) Plaintiffs allege that they are the buyers of the Subject Vehicle. (Id. ¶ 8.)

Here, the sales contract which sets forth the terms of the sale is the same RISC containing the arbitration clause. (Wilner Decl., Exh. 5.) Thus, the sales agreement constituting the purchase, in this case the RISC, was clearly integral as the source of the express warranties as pled by Plaintiff. Therefore, the claims against Nissan arise from the RISC.

The crux of Plaintiff’s arguments in opposition as to why Ford does not have standing to enforce the arbitration agreement is that federal cases, including Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122 and more recently Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, have found that a nonsignatory manufacturer in a lemon law action cannot enforce an arbitration clause in a sales agreement. However, the cases upon which Plaintiff relies are distinguishable and nonbinding on this Court.

In Kramer, purchasers of Toyota vehicles agreed to arbitrate between themselves and dealerships. (Id. at p. 1128.) Notably, the retail sales contracts in Kramer did not contain any language that could be construed as extending the scope of arbitration to third parties; the language of the arbitration agreement was limited to claims between “you and us”. (Ibid.) By contrast, the arbitration provision in the instant action case -- like the arbitration provision in Felisilda -- provides for arbitration of disputes that include third parties so long as the dispute pertains to the condition of the vehicle, and Plaintiff’s claims here do pertain to the condition of the Subject Vehicle. (See Wilner Decl., Exh. 5 [“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.”] [italics added].) Felisilda expressly distinguished Kramer on this basis. (Felisilda, supra, 53 Cal.App.5th at p. 497 [“[t]he retail sales contracts in Kramer did not contain any language that could be construed as extending the scope of arbitration to third parties. . . . By contrast, the 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.”].)

Plaintiff relies heavily on the Ninth Circuit’s recent opinion in Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942. In Ngo, the plaintiff brought claims for breach of warranty solely against the manufacturer of a vehicle. (Id. at p.945.) When purchasing the vehicle, the plaintiff had signed a purchase agreement that included an arbitration clause with the dealership. (Id. at p.944.) Though not a signatory to the purchase agreement, the defendant moved to compel arbitration as a third-party beneficiary and on equitable estoppel grounds. (Id. at p.945.) The district court granted the motion to compel arbitration on the grounds that the manufacturer was a third-party beneficiary. (Id. at pp.945-946.) The Ninth Circuit reversed, finding that the manufacturer was not a third-party beneficiary under the standards set forth in Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817. (Ngo, supra, 23 F.4th at pp.946-948.) The Ninth Circuit also concluded that pursuant to the reasoning in Kramer, equitable estoppel did not apply. (Ngo, supra, 23 F.4th at pp.948-950.) Finally, the Ninth Circuit distinguished Felisilda as follows:

The plaintiffs in Felisilda purchased a used 2011 Dodge Grand Caravan from the Elk Grove Dodge dealership and signed a purchase agreement containing an arbitration provision that was virtually identical to the one Ngo signed. See id. After discovering “serious defects” with the car, the Felisildas sued both the dealership and the manufacturer. Id. at 491. The dealership moved to compel arbitration. Id. at 489. After the manufacturer filed a notice of non-opposition, the trial court compelled arbitration. Id. at 491. The Felisildas then dismissed the dealership and the district court ordered it to arbitrate with the manufacturer alone. Id. at 499. The California Court of Appeal affirmed. Id.

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. See id. at 489, (“Relying on the retail installment sales contract ... signed by the Felisildas, Elk Grove Dodge moved to compel arbitration.”). Furthermore, the Felisildas dismissed the dealership only after the court granted the motion to compel arbitration. Accordingly, 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.

Contrary to the federal authority cited above, the fact that the dealership was the party moving to compel arbitration in Felisilda is not a material distinction. After the trial court ordered the matter to arbitration and before the appeal, the plaintiffs in Felisilda dismissed their claims against the signatory dealership, leaving ultimately only the claims against the nonsignatory manufacturer. (Felisilda, supra, 53 Cal.App.5th at p. 491.) On appeal, the Court of Appeal expressly framed the issue as “the question of whether a nonsignatory to the agreement has a right to compel arbitration under that agreement.” (Felisilda, supra, 53 Cal.App.5th at p.495.) It was inapposite that the party that initially moved to compel arbitration in Felisilda was a signatory that had been dismissed from the case by the time of the appeal. Directly contrary to Ngo and Kramer, and notwithstanding the dismissal of the Felisildas’ claims against the signatory dealership, the Court of Appeal applied equitable estoppel and concluded that under that doctrine, the manufacturer defendant was entitled to enforce the arbitration agreement against the Felisildas. (Felisilda, supra, 53 Cal.App.5th at pp.495-497.) In doing so, the Court of Appeal’s analysis centered on “determining whether the plaintiffs’ claim is founded on or intimately connected with the sales contract[.]” (Id. at p.496.) Specifically, the Court of Appeal focused on the allegations of the complaint against the nonsignatory manufacturer and the specific wording of the arbitration clause. (Id. at pp. 496-497.) Notably, there was no discussion of the allegations against the (dismissed) dealership. Instead, the Court of Appeal’s analysis focused solely on Plaintiff’s allegations and claims against the remaining third-party defendant, the manufacturer. Moreover, the Court of Appeal in Felisilda expressly explained the distinguishing factor from Kramer (upon which Ngo heavily relies) as being the specific language used in the arbitration agreement -- not whether the signatory dealer and nonsignatory manufacturer were both being sued. (Felisilda, supra, 53 Cal.App.5th at p.497, [“The retail sales contracts in Kramer did not contain any language that could be construed as extending the scope of arbitration to third parties. [Citation.] By contrast, the 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. As the operative complaint makes clear, the Felisildas’ claim arises out of the condition of the vehicle.”].)

Thus, whether the signatory (the dealership Nissan of Van Nuys) is moving to compel arbitration or is even a party to the action is inapposite to the issue of equitable estoppel. Plaintiff’s and Ngo’s attempt to distinguish Felisilda on this basis is unavailing.

Plaintiff’s reliance on Jarboe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539 and Metalclad Corporation v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, is equally misplaced. These two cases support the conclusion that a nonsignatory can enforce the arbitration of claims based on allegations that arise from the obligations in the contract containing the arbitration clause. Specifically, the Court of Appeal in Jarboe noted that “[i]n Metalclad, … it was equitable to compel the signatories into arbitration against nonsignatories because each of the signatories raised claims that were founded on the underlying contracts; the signatories sought to enforce a benefit under the nonsignatories while seeking to avoid arbitration.” (Id. at p.555.) Here, as discussed above, Plaintiff’s claims arise from the same sales contract that contains the arbitration agreement.

Felisilda is binding authority. In Felisilda, the Court of Appeal determined that the sales contract formed the core of the plaintiff’s claims of breach of the express warranty that accompanied the sale of the vehicle to the buyer. (Felisilda, supra, 53 Cal.App.5th at pp.496-497.) Applying Felisilda here, “[Plaintiff’s] claim against [Defendant Nissan] directly relates to the condition of the vehicle that [she] alleges to have violated warranties they received as a consequence of the sales contract. Because [Plaintiff] expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party nonsignatories to the sales contract – [Plaintiff] [is] estopped from refusing to arbitrate [his] claim against [Defendant Nissan].” (Felisilda, supra, 53 Cal.App.5th at p.497.)

Therefore, Defendant Nissan has standing and is entitled to enforce the arbitration agreement.

However, equitable estoppel does not apply to Plaintiff’s claim for negligent repair against Defendant Dealer. Plaintiff’s claim for negligent repair does not arise from the RISC. Instead, Plaintiff’s claim against Dealer is that Plaintiff brought the Subject Vehicle to Dealer for repairs, and Dealer performed the repairs in a negligent manner. (Complaint ¶¶ 143-147.) The duty to competently repair the Subject Vehicle does not arise from Plaintiff’s purchase of the vehicle but rather from Dealer’s acceptance of work repairing the Subject Vehicle followed by negligence in performing the work. (Id. ¶¶ 143-147.) The sale of the Subject Vehicle is completely unrelated to this basis for Dealer’s liability. Thus, estoppel is inapplicable to Dealer.

Moreover, as Plaintiff correctly notes, the signatory Nissan of Van Nuys’ interests are not aligned with Defendant Dealer’s interests because they are competing dealerships. Thus, Dealer is not a third-party beneficiary and unable to enforce the 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.”].)

Plaintiff further contends that Plaintiff’s claims against Nissan are not intertwined with the RISC because RISC the “expressly states that Nissan of Van Nuys ‘makes no warranties, express or implied, on the vehicle, and there will be no implied warranties of merchantability or fitness for a particular purpose. This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.’” (Opp. at pp.12:26-13:2.) Plaintiff also argues that the Sales Agreement containing the Arbitration Agreement disclaims and excludes the express warranties.

In support of this contention, Plaintiff quotes the portion of the Sales Contract that states:

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.

The Court is not persuaded. At most, the language cited above from the RISC demonstrates that the dealership Nissan of Van Nuys (defined in the RISC as the Seller) is disavowing that it – Nissan of Van Nuys – has made any express or implied warranties. Consistent with this, Defendant Nissan’s warranty booklet reinforces that none of the statements made by the dealership Nissan of Van Nuys’s personnel modifies Defendant Nissan’s express warranties. However, Nissan of Van Nuys’s disclaimer clearly does not affect any manufacturer’s warranties, i.e., Defendant Nissan’s warranties that are at issue here. Plaintiff overlooks the sentence immediately following the sentence in bold: “This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.” (Wilner Decl., Exh. 5, p. 4, § 4 [boldface in original].) As the plain language makes clear, Nissan of Van Nuys’s disclaimer of its own warranties does not preclude the manufacturer Defendant Nissan’s warranties from applying to the RISC, and indeed, does not affect the applicability of Defendant Nissan’s warranties in any way. (Wilner Decl., Exh. 5, p. 4, § 4.)

“A party seeking to enforce an arbitration agreement has the burden of showing FAA preemption.” (Lane v. Francis Capital Mgmt. LLC (2014) 224 Cal.App.4th 676, 684.) California law provides that parties may expressly designate that any arbitration proceeding should move forward under the FAA's procedural provisions rather than under state procedural law.^{^[1]} (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal. 4th 376, 394). Otherwise, the FAA provides for enforcement of arbitration provisions in any “‘contract evidencing a transaction involving commerce.’ (9 USC § 2.)” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 277.) Accordingly, “[t]he party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce[.]” (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 234, [italics added].) Moreover, as noted above, the California contract law applies to the validity of the arbitration agreement. (Winter, supra, 166 Cal.App.4th at p. 947.)

Here, the arbitration agreement expressly provides that the FAA controls. (Wilner Decl., Exh. 5, [“Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9.U.S.C. § 1 et. seq.). Accordingly, the Federal Arbitration Act applies and controls if there is a conflict with the California Arbitration Act.

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.

Plaintiff’s claims against Nissan all arise out of the condition of the Subject Vehicle. Accordingly, the claims are covered by this agreement.

“Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

“California courts analyze unconscionability as having a procedural and a substantive element.” (Kinney v. United Healthcare Services, Inc. (1999) 70 Cal.App.4th 1329.) “[B]oth elements must be present before a contract or contract provision is rendered unenforceable on grounds of unconscionability.” (Id.) The doctrine of unconscionability refers to “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133.) It consists of procedural and substantive components, “the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.” (Ibid.) Although both components of unconscionability must be present to invalidate an arbitration agreement, they need not be present in the same degree. (Armendariz v. Found Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 114.) “Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. [Citations.] In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.) “The party resisting arbitration bears the burden of proving unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 247.)

“Procedural unconscionability concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. It focuses on factors of oppression and surprise.” (Id.) “Surprise differs from oppression. Surprise is when a prolix printed form conceals the arbitration provision. [Citation.] Oppression, on the other hand, occurs when there is a lack of negotiation and meaningful choice. [Citation.] The presence of surprise or oppression requires higher scrutiny of the contract.” (Torrecillas v. Fitness International, LLC (2020) 52 Cal.App.5th 485, 493.)

Plaintiff contends that the arbitration agreements are procedurally unconscionable because the Arbitration Agreement in the RISC was an adhesion agreement.

“Adhesion contracts are form contracts a party with superior bargaining power offers on a take-it-or-leave-it basis.” (Torrecillas, supra, 52 Cal.App.5th at p.493.) “Whether the agreement was or was not a contract of adhesion is not the core question. Rather, from the standpoint of determining whether there was procedural unconscionability, the core issues are surprise and oppression.” (Ibid.) In the absence of “surprise or other sharp practices”, Courts do not recognize that “adhesive” arbitration agreements establish a high degree of procedural unconscionability. (Baltazar v. Forever 21 Inc. (2016) 62 Cal.4th 1237, 1246.)

Here, in opposition Plaintiff claims that “[i]n the auto sales world, purchase agreements are routinely presented to auto consumers as a ‘take it or leave it’ agreement in a high-pressure sales environment at a car dealership, leaving no real opportunity to negotiate, let alone discuss, with the dealership regarding any of the terms. Consumers thus have no choice but to accept all of the selling dealership’s terms ‘as is.’” (Opp. at p.18:3-6.) However, Plaintiff fails to present any evidence to support this claim or to support the contention that here Plaintiff was given the RISC agreement on a take it or leave it basis.

Regardless, even assuming Plaintiff had provided such evidence the fact that the arbitration agreement may have been presented on a take it or leave it basis or that there is unequal bargaining power only establishes at most a modest degree of procedural unconscionability. (Torrecillas, supra, 52 Cal.App.5th at p.493; Baltazar v. Forever 21 Inc., supra, 62 Cal.4th at p.1246.)

In sum, the Court finds that the arbitration agreements have at most a minimal degree of procedural unconscionability. However, “a finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915.)

“Substantive unconscionability” focuses on the terms of the agreement and whether those terms are “so one-sided as to ‘shock the conscience.’” (Kinney, 70 Cal.App.4th at p.1330.) “Where a party seeks to arbitrate nonwaivable statutory civil rights in the workplace, such as the FEHA claims and wrongful termination claim that are involved here, there are five minimum requirements for the lawful arbitration of such rights pursuant to a mandatory employment arbitration agreement. Such an arbitration agreement is lawful if it “(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum. Thus, an employee who is made to use arbitration as a condition of employment ‘effectively may vindicate [his or her] statutory cause of action in the arbitral forum.’ [Citation.]” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 102.) The Court finds the arbitration agreement here satisfies all of these Armendariz factors.

Plaintiff contends that the arbitration agreement is substantively unconscionable because (1) the arbitration agreement allows for a choice of arbitrator but only so long as Defendant approves the choice, (2) the arbitration agreement seeks to deprive Plaintiff of his right to a trial by jury, and (3) the arbitration contains a fee shifting provision onto Plaintiff, which is incompatible with the Song Beverly Act.

As to the first contention, the agreement provides that “[Plaintiff] may choose the American Arbitration Association, … , or any other organization to conduct arbitration subject to [Defendants] approval.” (Wilner Decl., Exh. 5.) This term is not so-one-sided to shock the conscience. It merely provides that the American Arbitration Association will conduct the arbitration unless the parties agree otherwise. In fact, it gives Plaintiff the ability to nominate other arbitration groups. This is plainly not unconscionable.

As to the second contention, Plaintiff contends that the right to jury trial is a right declared under the California Constitution and can be only waived pursuant to Code of Civil Procedure section 631. As explained by the Supreme Court, the contention is meritless:

Section 631, [], presupposes a pending action, and relates only to the manner in which a party to such action can waive his right to demand a jury trial instead of a court trial. It does not purport to prevent parties from avoiding jury trial by not submitting their controversy to a court of law in the first instance. Indeed it has always been understood without question that parties could eschew jury trial either by settling the underlying controversy, or by agreeing to a method of resolving that controversy, such as arbitration, which does not invoke a judicial forum. Consequently when the Legislature enacted the specific language of the California Arbitration Act (Code Civ.Proc., s 1280 et seq.) to govern the enforcement of arbitration agreements, it did not require that such agreements conform to section 631. Any requirement that the courts, contrary to legislative intent, engraft the terms of section 631 onto the Arbitration Act would be wholly impractical and onerous; we see no reason why the courts should become the repository of thousands of arbitration agreements, nor can we discern any policy to be served by striking down such agreements when not filed with a court or entered in its minutes.

Third, Plaintiff claims that “the arbitration clause contains a fee shifting provision onto Plaintiff which is incompatible with the Song Beverly Act … [and], it purports to require an appealing party to pay fees and costs which could be awarded by the arbitrator.” (Opp. at p.14:17-19.) However, Plaintiff cites no language from the Retail Installment Sale Contract – Simple Finance Charge arbitration provision to support this argument. Rather, the agreement specifies that “[Defendant Nissan] shall pay [Plaintiff’s] filing, administration, service or case management fee and [Plaintiff’s] arbitrator or hearing fee all up to a maximum of $5000, unless the law or rules of the chosen arbitration organization requires [Defendant Nissan] to pay more.” (Wilner Decl. Exh, 5, [italics added].) The plain language requires that Defendant Nissan pay the cost of arbitration as required under law. Thus, there is no unconscionable language.

In sum, Plaintiff fails to show that the RISC was procedurally or substantively unconscionable. Accordingly, Defendants’ motion to compel arbitration is GRANTED IN PART as to Defendant Nissan.

Based on the foregoing, Defendants Nissan North America, Inc. and Trophy Universal City Group LLC’s motion to compel arbitration is GRANTED IN PART as to Nissan North America, Inc. and DENIED as to Trophy Universal City Group LLC. All of Plaintiff’s claims against Nissan North America, Inc. (including the first through third causes of action) shall be arbitrated.

The remainder of the case is stayed pending arbitration pursuant to Code of Civil Procedure section 1281.4. A status conference regarding the progress of arbitration and the stay is set for July 19, 2023 at 8:30 am.

[1] “But the parties may ‘expressly designate that any arbitration proceeding [may] move forward under the FAA's procedural provisions rather than under state procedural law.’ [Citation.] Absent such an express designation, however, the FAA’s procedural provisions do not apply in state court.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 174; see also Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122.)

County of Los Angeles

Department 26