Judge Gail Killefer, Case 22STCV15386 2023-01-25 Tentative Ruling

Judge: Gail Killefer, Case: 22STCV15386, Date: 2023-01-25 Tentative Ruling

Case Number: 22STCV15386 Hearing Date: January 25, 2023 Dept: 37

HEARING DATE: January 25, 2023

CASE NUMBER: 22STCV15386

CASE NAME: Marisa M. Orellana, et al. v. FCA US, LLC., et al.

MOVING PARTY: Defendant, FCA US, LLC. (“FCA”)

OPPOSING PARTIES: Plaintiffs, Marisa M. Orellana and Mauricio J. Orellana

TRIAL DATE: Not set.

PROOF OF SERVICE: OK

MOTION: Defendant’s Motion to Compel Arbitration

OPPOSITION: January 11, 2023

REPLY: January 18, 2023

RECOMMENDATION: Defendant’s motion is granted. Plaintiffs are ordered to arbitrate their claims against FCA. This action is stayed pending completion of arbitration or further order of the court. The court sets an order to show cause re status of the arbitration for January 24, 2024, at 8:30 a.m. in Department 37. FCA is to give notice.

Background

This is a lemon law action arising in connection with the purchase by Marisa M. Orellana and Mauricio J. Orellana (“Plaintiffs”) of a 2015 Jeep Grand Cherokee (the “Vehicle”) on October 11, 2015, from Defendant SURF CITY AUTO GROUP, INC. DBA HUNTINGTON BEACH CHRYSLER DODGE JEEP RAM (“Dealer Defendant”). Plaintiffs allege that Defendant FCA, which manufactured the Vehicle, provided Plaintiffs various warranties in connection with the Vehicle in which Defendants undertook to preserve or maintain the performance of the Vehicle and to repair the Vehicle in the event of any defects during the warranty period. Plaintiffs further allege that the Vehicle developed numerous defects during the warranty period, including but not limited to defects related to the electrical system, transmission, and engine. Further, Plaintiffs also allege that the Defendants failed to repair defects to the Vehicle when it was presented to Defendants and their authorized representatives for repair.

Plaintiffs’ Complaint alleges the following causes of action: (1) violation of the Song-Beverly Act (Civ. Code § 1793.2(d)), (2) violation of the Song-Beverly Act (Civ. Code § 1793.2(b)), (3) violation of the Song-Beverly Act (Civ. Code § 1793.2(a)(3)), (4) breach of implied warranty of merchantability (Civ. Code §§ 1791.1; 1794; 1795.5), and (5) negligent repair.

On October 3, 2022, Dealer Defendant and FCA both moved to compel arbitration. On January 11, 2023, Plaintiffs requested a dismissal of Dealer Defendant from this matter. On January 12, 2023, Dealer Defendant was dismissed.

FCA now moves to compel arbitration and for a stay of this action pending completion or arbitration. Plaintiffs oppose the motion.

Request for Judicial Notice

Plaintiffs request judicial notice of the following in support of their opposition:

1. Ngo v. BMW of N. Am., LLC (9th Cir., 2022) 23 F.4th 942 (Exhibit A);

2. Davis v. Shiekh Shoes, LLC (Cal.Ct.App., 2022) 84 Cal.App.5th 956, No. A161961 (Exhibit B).

The parties’ requests are granted. FCA objects to the judicial notice of these documents to note the court cannot take judicial notice of the findings or the analysis of these documents; this is not an evidentiary objection, but rather an instruction to the court of its authority for which it is already aware. The existence and legal significance of these documents are proper matters for judicial notice. (Evid. Code § 452(d), (h).) However, the court may not take judicial notice of the truth of the contents of the documents. (Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.) Documents are only judicially noticeable to show their existence and what orders were made. The truth of the facts and findings within the documents are not judicially noticeable. (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 885.)

Discussion

I. Legal Standard

“California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, Code of Civil Procedure, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (CCP § 1281.2; Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967.) Similarly, public policy under federal law favors arbitration and the fundamental principle that arbitration is a matter of contract and that courts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms. (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.)

In deciding a motion or petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties and then determine whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The opposing party has the burden to establish any defense to enforcement. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 [“The petitioner ... bears the burden of proving the existence of a valid arbitration agreement and the opposing party, plaintiff here, bears the burden of proving any fact necessary to its defense.”].)

II. Existence of an Arbitration Agreement

A motion to compel arbitration or stay proceedings must state verbatim the provisions providing for arbitration or must have a copy of them attached. (Cal. Rules of Court, rule 3.1330.)

A party may demonstrate express acceptance of the arbitration agreement in order to be bound (e.g., Mago v. Shearson Lehman Hutton Inc. (9th Cir. 1992) 956 F.2d 932 [agreement to arbitrate included in job application]; Nghiem v. NEC Electronic, Inc. (9th Cir. 1994) 25 F.3d 1437 [agreement to arbitrate included in handbook executed by employee]; Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal. App. 4th 1105 [employer may terminate employee who refuses to sign agreement to arbitrate]) or implied-in-fact in fact acceptance (Asmus v. Pacific Bell (2000) 23 Cal. 4th 1, 11 [implied acceptance of changed rules regarding job security]; DiGiacinto v. Ameriko-Omserv Corp. (1997) 59 Cal. App. 4th 629, 635 [implied acceptance of changed compensation rules]). (Craig v. Brown & Root (2000) 84 Cal.App.4th 416, 420 (Craig).)

“A signed agreement is not necessary, however, and a party’s acceptance [of an agreement to arbitrate] may be implied in fact….” (Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 23 (Pinnacle), 6.) “An arbitration clause within a contract may be binding on a party even if the party never actually read the clause.” (Ibid.)

FCA contends that Plaintiffs must be ordered to arbitrate their claims because the Arbitration Agreement found in the Retail Installment Sales Contract (the “Agreement”) Plaintiffs executed at the time they purchased the Vehicle requires it. (Motion, 6-10; Declaration of Sarah Carlson Lambert (“Lambert Decl.”), Exh. A.) The Agreement provides in pertinent part as follows:

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 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 arise out of or relate 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. If federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to any 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. You expressly waive any right you may have to arbitrate a class action. You may choose the American Arbitration Association…or any other organization to conduct arbitration subject to our approval. You may get a copy of the rules of an arbitration organization by contacting the organization or visiting its website.

Arbitrators shall be attorneys or retired judges and shall be selected pursuant to the applicable rules. The arbitrator shall apply substantive law and the applicable statute of limitations. The arbitration hearing shall be conducted in the federal district in which you reside unless the Seller-Creditor is a party to the claim or dispute, in which case the hearing will be held in the federal district where this contract was executed. We will pay your filing, administration, service or case management fee and your arbitrator or hearing fee all up to a maximum of $5000, unless the law or the rules of the chosen arbitration organization require us to pay more. The amount we pay may be reimbursed in whole or in part by decision of the arbitrator if the arbitrator finds that any of your claims is frivolous under applicable law. Each party shall be responsible or its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law. ... Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. § 1, et seq.) and not by any state law concerning arbitration. ...

You and we retain the right to seek remedies in small claims court for disputes or claims within the court’s jurisdiction, unless such action is transferred, removed or appealed to a different court. Neither you nor we waive the right to arbitrate by using self-help remedies, such as repossession, or by filing an action to recover to vehicle, to recover a deficiency balance, or for individual injunctive relief. Any court having jurisdiction may enter judgment on the arbitrator’s award. This Arbitration Provision shall survive any termination, payoff, or transfer of this contract. ...

(Lambert Decl., Exh. A.)(emphasis added)

Additionally, FCA contends that notwithstanding its status as a non-signatory to the Agreement, FCA may still compel arbitration because claims against it are related to the condition of the Vehicle, that the Agreement is valid under the FAA, and was valid as agreed to between the parties. (Motion, 10-15.) FCA alternatively contends that it has standing to compel arbitration because it is an intended third-party beneficiary of the Agreement, as FCA is the manufacturer of the Vehicle. (Motion, 10-12.) Defendants cite to Felisilda v. FCA US LLC (2020) 53 Cal.App. 5th 486 (Felisilda) for this argument.

Felisilda arose in connection with the sale of a used Dodge Grand Caravan that Plaintiffs purchased from a dealership and manufactured by defendant, FCA US, LLC. (“FCA”) (Id. at 489.) Plaintiffs brought an action against the dealership and FCA after the vehicle began exhibiting problems. (Id.) The dealership moved to compel arbitration relying on the retail installment sales contract signed by Plaintiffs, and the trial court ordered Plaintiffs to arbitrate against both the dealership and FCA. (Id.) FCA did not move to compel arbitration but instead filed a notice of non-opposition. (Id.) The Court of Appeal concluded that the trial court correctly determined that Plaintiff’s claims against FCA were encompassed by the arbitration agreement. (Id.)

In reaching this conclusion, the Court of Appeal examined an identical arbitration clause which stated in pertinent part: “[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, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall … be resolved by neutral, binding arbitration and not by a court action.” The appellate court found that the equitable estoppel doctrine applied: “The [buyers’] claim against [the manufacturer] directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract. 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 [the manufacturer]. Consequently, the trial court properly ordered the [buyers] to arbitrate their claim against [the manufacturer]. (Id. at pp. 496-497.)

Moreover, before Felisilda was decided, the Court reached this same conclusion about the equitable estoppel theory in prior motions to compel arbitration brought in lemon law cases.

Under the doctrine of equitable estoppel, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.) At bottom, “[t]he linchpin for equitable estoppel is equity—fairness.”” (Id. at p. 220.)

A review of longstanding precedent in California law reveals a strong interrelationship between warranties and underlying purchase agreements. “A warranty is a contractual term concerning some aspect of the sale, such as title to the goods, or their quality or quantity.” (Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1200 (emphasis added).) “A warranty is as much one of the elements of sale and as much a part of the contract of sale as any other portion of the contract and is not a mere collateral undertaking.” (A. A. Baxter Corp. v. Colt Industries, Inc. (1970) 10 Cal.App.3d 144, 153.) To this point, in reviewing the Song-Beverly Act’s legislative history, the California Supreme Court has noted that “the Legislature apparently conceived of an express warranty as being part of the purchase of a consumer product.” (Gavaldon v. DaimlerChrysler Corp. (2004) 32 Cal.4th 1246, 1258; see also Felisilda, supra, 53 Cal.App.5th at 496 (“[T]he sales contract was the source of the warranties at the heart of this case.”).)

In view of this legal backdrop, the equitable estoppel doctrine applies in lemon law cases like this because the buyer relies upon the underlying purchase agreement to (1) establish standing, (2) invoke implied warranties, and (3) obtain remedies.

Standing: Standing to bring Song-Beverly Act claims is limited to a “buyer of consumer goods” (Civ. Code § 1794(a)), which the Song-Beverly Act defines as “any individual who buys consumer goods from a person engaged in the business of manufacturing, distributing, or selling consumer goods at retail.” (Civ. Code § 1791(b).) Without this purchase agreement, Plaintiffs cannot meet this standing requirement or, indeed, the standing requirement for any warranty claim. (Jones, supra, 198 Cal.App.4th at 1201 (“As a general rule, a cause of action for breach of implied [or express] warranty requires privity of contract; ‘there is no privity between the original seller and a subsequent purchaser who is in no way a party to the original sale.’ ”).)

Implied Warranties: The implied warranty of merchantability attaches to “every sale of consumer goods that are sold at retail in this state,” unless properly disclaimed. (Civ. Code § 1792.) Without the Sales Contract, Plaintiffs would have no implied warranties to invoke.

Remedies: According to the Complaint, Plaintiffs seek “reimbursement” for the costs of financing, and owning the Vehicle and “rescission” of the purchase agreement of the Vehicle. (Complaint. ¶¶ 24-26, 39, Prayer for Damages (d).) These remedies require examination and presentation of the Agreement and Sales Contract.

Because the Sales Agreement underlies Plaintiffs’ causes of action, the equitable estoppel doctrine must apply.

In opposition, Plaintiffs contend the motion must be denied because FCA is a non-signatory to the Agreement, and further contends FCA is not an intended third-party beneficiary. (Opp., 3-5, 12-14.) Plaintiffs also point to the specific “you” or “we” language of the Arbitration provision as limiting definitions, which reflect what parties intended on being included in the Agreement. (Id.) However, the underlined portions of the Agreement specifically consider and highlight an inclusion of any “relationship” “with third parties who do not sign this contract,” which this court reads to specifically consider and include third parties which may have a beneficiary relationship as a result of the Agreement. Further, as this court has discussed above, binding California authority, and a reading of California law, shows the nonsignatory defendant, FCA, can compel arbitration as Plaintiffs’ claims are sufficiently “intertwined” with its contractual obligations.

Additionally, Plaintiffs contend that since the FAA applies, then federal precedent supports a contrary holding to Felisilda, which Plaintiffs also contend does not apply. (Opp., 5-11.) This court finds Plaintiffs’ reliance on federal authorities that reach a contrary conclusion unpersuasive. (See, e.g., Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942.) Plaintiffs here argue that Felisilda is distinguishable because the buyers in that case brought claims against both the dealership and manufacturer whereas here the remaining claims are brought solely against the manufacturer, and the Dealer Defendant has been dismissed. This is a distinction without a meaningful difference. The reasoning in Felisilda for upholding the equitable estoppel finding was that the buyers’ claims related to the condition of the subject vehicle and the buyers expressly agreed to arbitrate their claims arising out of the condition of the subject vehicle, including those against third party nonsignatories to the sales contract. The same rationale is found here with this Agreement. Further, the FAA does not “alter background principles of state contract law regarding the scope of agreements (including the question of who is bound by them).” (Arthur Andersen LLP v. Carlisle (2009) 556 U.S. 624, 630.)¿

As opposed to the California Court of Appeal ruling in Felisilda, Ngo is not binding on this court and provides persuasive authority only. (See¿Felisilda, supra, at 497.)¿ The Court does not find Ngo more persuasive than the binding authority in Felisilda. Because state law determines whether a nonsignatory party may compel arbitration, the court rejects Plaintiff’s argument that the choice-of-law provision in the arbitration agreement here precludes the applicability of Felisilda.

Additionally, Plaintiffs contend equitable estoppel does not apply here, since:

“Plaintiff brings his claims [sic] against FCA based on the warranties received directly from FCA (Civ. Code, § 1790 et seq.,), none of the claims depend on the existence of the Sales Contract. ... Plaintiff is not seeking [sic] to enforce any term or condition of the Sales Contract in bringing his [sic] claims against FCA. Thus, ‘the inequities that the doctrine of equitable estoppel is designed to address are not present.’” (Opp., 11-15; citing Jarboe v. Janless Auto Group (2020) 53 Cal.App.5th 539 (Jarboe).)

In Jarboe, Plaintiff, who was terminated from an automobile dealership, brought a wage and hour action individually and on behalf of a putative class against his former employer and affiliated dealerships. (Jarboe, supra, 53 Cal.App.5th at 543-544.) The trial court granted Defendants’ motion to compel arbitration as to 11 out of 12 causes of action against the employer and denied the motion as to the request for a stay and as to the other defendants. (Id.) The Court of Appeal found that the trial court correctly rejected Defendants’ arguments about standing to compel arbitration as third-party beneficiaries and under the theory of equitable estoppel. (Id. at 547.) According to the Court of Appeal, even if the other owners had standing to compel arbitration under the operative agreement, it is limited to the “context of their ownership” of the company named in the employment agreement also at issue. (Id. at 550.) Additionally, the Jarboe court concluded that it was correct to refuse to compel arbitration against the other defendants because there was no showing that plaintiff’s claims against these other defendants are “rooted” in his employment with his former employer or his agreement to arbitrate with his former employer. (Id. at 552-556.)

In reply, FCA first contends Plaintiffs’ reliance on Davis v. Shiekh Shoes, LLC, (2022) 84 Cal.App.5th 956 (Shiekh Shoes) is misplaced as the Sheikh Shoes court found a question of waiver to not be a “question of substantive contract law.” (Reply, 2-3; Sheikh Shoes, supra, at 963.)

The court here, sua sponte, also notes the Sheikh Shoes defendant waited one and a half years before moving to compel arbitration, and in that time participated in discovery, confirmed a trial schedule, and requested a trial. (Id.)

Next, FCA correctly contends it has standing to move to compel arbitration as a third-party beneficiary of the Agreement because the FAA does not alter principles of California contract law. (Reply, 4-6; citing Boucher v. Alliance Title Co, Inc. (2005), 127 Cal.App.4th 262, 271; Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218; see also Arthur Andersen LLP v. Carlisle, (2009) 556 U.S. 624, 630.) According to FCA, any breach of express warranty claim is tethered to the Agreement because without the Agreement, Plaintiffs would not have received the warranty. (Reply, 6-8.) FCA also contends that Plaintiffs’ claims are intertwined with the Agreement because the Song-Beverly Act expressly provides that it only applies to consumers who purchase a vehicle from a retail seller within the meaning of the Song-Beverly Act. (Id.)

The court agrees with FCA that Felisilda applies and gives FCA standing to move to compel arbitration in this action. Pursuant to Felisilda, FCA has standing to compel arbitration if Plaintiffs’ claims relate to the condition of the vehicle and Plaintiff has agreed to arbitrate claims arising out of the condition of the vehicle. Further, the court concludes that Jarboe does not conflict with Felisilda. Instead, Jarboe held that arbitration could not be compelled against non-signatory companies because there was no showing that plaintiff’s claims arise out of his employment with his former employer or his agreement to arbitrate with his former employer. Thus, Felisilda and Jarboe stand for the same principles.

As discussed above, the Agreement provides in pertinent part that Plaintiffs agree to arbitrate claims “which arise out of or relate 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).” Thus, Plaintiffs have agreed to arbitrate claims arising out of or relating to the “condition” of the Vehicle, or any resulting “relationship,” including any relationship with “third parties who do not sign the contract,” such as FCA.

For these reasons, the court finds that a valid agreement to arbitrate exists which applies to all of Plaintiffs’ claims against FCA in this action. The court will now analyze the parties’ arguments regarding defenses to enforcement.

III. Defenses to Enforcement

A. Waiver

Generally, ‘waiver’ denotes the voluntary relinquishment of a known right. But it can also mean the loss of an opportunity or a right as a result of a party’s failure to perform an act it is required to perform, regardless of the party’s intent to . . . relinquish the right.” (Engalla v. Permanent Medical Group, Inc. (1997), 15 Cal.4^th, 951, 983.) “Whether there has been a waiver of a right to arbitrate is ordinarily a question of fact, and a finding of waiver, if supported by sufficient evidence, is binding on an appellate court.” (Ibid.) “In determining waiver, a court can consider (1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.” (St. Agnes Med. Ctr. v. PacifiCare of Cal. (2003) 31 Cal.4th 1187, 1196 (St. Agnes).)

As mentioned above, Plaintiffs argue federal precedent must guide this court to deny such motions compel arbitration.¿¿This court notes further under the recent decision in Morgan v. Sundance (2022) 142 S.Ct. 1708 (Morgan), prejudice is no longer a factor in determining whether a party waived the right to arbitrate.

FCA contends federal authority (“Morgan”) is not controlling. Further, the court here also notes FCA has not participated in the litigation process in a manner giving rise to waiver, nor is there evidence FCA has unreasonably delayed in bringing this motion.¿

Contrary to FCA’s assertion, Morgan is controlling. (See Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 967 (Shiekh Shoes) [recognizing that a finding of waiver on a showing of prejudice is unauthorized under the FAA, as articulated in Morgan].)

Notwithstanding FCA’s incorrect contention, the court finds that FCA has not waived its right to arbitrate. “To decide whether a waiver has occurred, the court focuses on the actions of the person who held the right; the court seldom considers the effects of those actions on the opposing party.” (Morgan, supra, at p. 1713.) “Courts have recognized that where the FAA applies, whether a party has waived a right to arbitrate is a matter of federal, not state, law. [Citation.]” (Shiekh Shoes, supra, 84 Cal.App.5th at p. 963.)

In St. Agnes v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 (St. Agnes), the California Supreme Court adopted a multi-factor test from the Tenth Circuit opinion in Peterson v. Shearson/American Express, Inc. (10th Cir. 1988) 849 F.2d 464 (Peterson) wherein a court may consider: (1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the “litigation machinery has been substantially invoked” and the parties “were well into preparation of a lawsuit” before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings: (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in¿arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.¿ (Peterson, supra, 849 F.2d at pp. 467-68; St. Agnes, at p. 1196.)¿¿ However, following the U.S. Supreme Court’s decision in Morgan, courts may no longer condition a determination of waiver on prejudice. (See Morgan, supra, at p. 1713.) The remaining Peterson factors are proper considerations in the waiver inquiry. (Shiekh Shoes, supra, at p. 963.)

Here, the arbitration agreement states: “Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et. Seq.) and not by any state law concerning arbitration.” (Lambert Decl., Ex. A.) Accordingly, federal law supplies the law on waiver in this case. (See Shiekh Shoes, supra, at p. 963.)

The court therefore notes FCA has not filed any demurrers, motions to strike, or otherwise engaged in the merits of Plaintiffs’ claims. Based upon the above, unquestionably FCA has participated in the litigation. However, mere participation in the litigation is insufficient, standing alone, to establish waiver. (St. Agnes, supra, 31 Cal.4th at p. 1203.)¿There must also be some judicial litigation of the merits of arbitrable issues. (Ibid.) The waiver argument is not persuasive. Plaintiffs make no showing that there has been judicial litigation of the merits of arbitrable issues.

For these reasons, the court finds that FCA has not waived its right to compel arbitration.

B. Procedural & Substantive Unconscionability

Pursuant to Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz) both procedural and substantive unconscionability must be present in order for a court to exercise its discretion to refuse to enforce a valid arbitration agreement. Additionally, in Armendariz, the California Supreme Court recognized that it is more appropriate to sever and restrict illegal terms that are collateral to the main purpose of a contract than to find the entire contract invalid. (Armendariz, supra, 24 Cal.4th at 124 [“Courts are to look to the various purposes of the contract. If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate.”].)

As Plaintiffs do not point to any alleged unconscionability in the Agreement, the court finds that the Agreement is not procedurally or substantively unconscionable.

Because both substantive and procedural unconscionability are required before the court may refuse to enforce a valid arbitration agreement, and Plaintiffs have failed to make a showing of either and both, FCA’s motion is granted.

Conclusion

FCA’s motion is granted. Plaintiffs are ordered to arbitrate their claims against FCA. This action is stayed pending completion of arbitration or further order of the court. The court sets an order to show cause re status of the arbitration for January 24, 2024, at 8:30 a.m. in Department 37. FCA is to give notice.