Judge: Elaine Lu, Case: 22STCV33757, Date: 2023-09-07 Tentative Ruling
Case Number: 22STCV33757 Hearing Date: September 7, 2023 Dept: 26
Superior Court of
California
|
luis
diaz, Plaintiff, v. nissan
north america, inc., et
al. Defendants. |
Case No.:
22STCV33757 Hearing Date: September 7, 2023 [TENTATIVE] order RE: defendant’s motion to compel arbitration |
Procedural
Background
On October
8, 2022, Plaintiff Luis Diaz (“Plaintiff”) filed the instant lemon law action
against Defendant Nissan North America, Inc. (“Defendant”) arising from the
purchase of a 2017 Nissan Pathfinder.
The complaint asserts six causes of action for (1) Violation of Civil
Code § 1793.2(d), (2) Violation of Civil Code § 1793.2(b), (3) Violation of
Civil Code § 1793.2(a)(3), (4) Breach of Express Written Warranty, (5) Breach
of the Implied Warranty of Merchantability, and (6) Violation of the
Magnuson-Moss Warranty Act.
On March
24, 2023, Defendant filed the instant motion to compel arbitration. On August 25, 2023, Plaintiff filed an opposition. On August 28, 2023, Defendant filed a reply.
Allegations
of the Operative Complaint
The Complaint
alleges that:
In
October 2017, Plaintiffs purchased a 2017 Nissan Pathfinder (“Subject Vehicle”)
which was manufactured or distributed by Defendant. (Complaint ¶ 5.) The Subject Vehicle has an express written
warranty and had nonconformities that arose during the warranty period. (Id. ¶¶ 6-7.) Specifically, the
Subject Vehicle had defects including but not limited to issues with the seat
belts, the CVT transmission, defects causing the Subject Vehicle to “slip”
during the normal course of driving, losing power while driving, and defects
relating to the anti-lock braking system. (Id. ¶ 7.) “Said defects substantially impair the
safety, use and/or value of the [Subject] Vehicle.” (Id. ¶ 7.) Defendant has been unable to repair the
Subject Vehicle to conform to the applicable warranties after a reasonable
number of attempts and has failed to promptly replace the Subject Vehicle or
make restitution. (Id. ¶ 8.)
Legal
Standard
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:
(a) The right to compel arbitration has
been waived by the petitioner; or
(b) Grounds exist for the revocation of
the agreement.
(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.)
Discussion
Existence
of an Agreement to Arbitrate
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.)
Defendant asserts that Plaintiff executed
a valid pre-dispute arbitration agreement on October 26, 2017 when Plaintiff
purchased the Subject Vehicle. Defendant
asserts that when Plaintiff purchased the Subject Vehicle, Plaintiff entered
into a written contract, the Retail Installment Sale Contract – Simple Finance
Charge (“the Sales Agreement”), that contained an arbitration agreement. (Allahverdian Decl. ¶ 3, Exh. B.) The arbitration provision of the Sales
Agreement provides, in relevant part, that:
ARBITRATION
PROVISION
PLEASE REVIEW –
IMPORTANT – AFFECTS YOUR LEGAL RIGHTS
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.
…
(Allahverdian
Decl., Exh. B [italics added].)
The Sales Agreement appears to be signed
by Plaintiff. (Allahverdian Decl., Exh. B.) In opposition, Plaintiff does not dispute the
existence of this arbitration agreement or that Plaintiff signed this
agreement. Rather, Plaintiffs assert that
(1) Defendant lacks standing to compel arbitration, (2) Plaintiff’s
Song-Beverly Act Claims are independent of the Sales Contract, (3) the sales
contract distinguishes manufacturer warranties and disclaims all warranty
obligations, and (4) the agreement is unconscionable.
Third
Party Standing
It is undisputed that the agreement
containing the arbitration provision, the Sales Agreement, was between
Plaintiff and the third-party dealership Cerritos Nissan – not Defendant. (Allahverdian Decl., Exh. B.) Plaintiff asserts that as a nonsignatory,
Defendant lacks 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 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 (“FMC”) moved to compel
arbitration of the plaintiffs’ claims relating to alleged defects in vehicles
manufactured by FMC 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 FMC'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 FMC 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 FMC to compel
arbitration; “even if plaintiffs did
adequately allege that the dealers acted as FMC'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 FMC'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
FMC (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 FMC was not a third-party
beneficiary. (Id. at p.966.) The
Court of Appeal affirmed, adopting the reasoning of Ochoa and concluding
that FMC could not enforce the arbitration agreement through equitable estoppel
or as a third-party beneficiary. (Id.
at pp.968-974.)
Finally, on August 16, 2023, the Third
District Court of Appeal issued its opinion in Kielar v. Superior Court
(Cal. Ct. App., August 16, 2023, No. C096773) 2023 WL 5270559 (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 *3.) 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 * 4.)
In light of these recent rulings in Ochoa,
Montemayor, and Kielar 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, and Kielar
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, this reading of the Sales Agreement
is not reasonable.
“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.) Finding 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 makes the prior language “between you and us or our
employees, agents, successors or assigns” clear surplusage – which is to be
ignored.
Rather, the more reasonable interpretation
– as set forth in Ochoa and Montemayor – 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].)
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 Cerritos Nissan. Similarly, the allegations in the complaint
are not inextricably intertwined with the
obligations imposed by the Sales Agreement.
The first cause of action and fourth
causes of action are for breach of the express warranties. (Complaint ¶¶ 5-11, 21-23.) The second cause of action is for not timely
completing repairs to comply with applicable warranties. (Id. ¶¶ 13-16.) The third cause of action is for not having
sufficient literature and repair parts at authorized repair facilities to
effect repairs during the express warranty period. (Id. ¶¶ 18-19.) The fifth cause of action is for breach of
the implied warranty of merchantability.
(Id. ¶¶ 25-28.) The sixth
cause of action is for breach of the Magnuson-Moss Warranty Act. (Id. ¶¶ 30-40.) These are all statutory claims. As the Ochoa court explained with
respect to near 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 [Cerritos
Nissan] 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, their 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. Moreover, Defendant is not 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, as
Defendant lacks standing to enforce the arbitration provision, Defendant’s
motion to compel arbitration is DENIED.
//
//
//
CONCLUSION AND ORDER
Based on the
foregoing, Defendant Nissan North
America, Inc.’s motion to compel arbitration is DENIED.
Any party who
has not filed a case management statement within the last 60 days must file an
updated case management statement no later than 9:00 am on September 12,
2023. All parties are ordered to appear
for a case management conference on September 13, 2023 at 8:30 am.
Moving Parties are
to give notice and file proof of service of such.
DATED: September
___, 2023 ___________________________
Elaine
Lu
Judge
of the Superior Court