Judge: Gary I. Micon, Case: 24CHCV00361, Date: 2024-11-01 Tentative Ruling

Case Number: 24CHCV00361    Hearing Date: November 1, 2024    Dept: F43

Dept. F43

Date: 11-1-24

Case #24CHCV00361 , Nicole Michelle Arrington vs. American Honda Motor Company, Inc.

Trial Date: N/A

PETITION TO COMPEL ARBITRATION

MOVING PARTY: Defendant American Honda Motor Company, Inc.

RESPONDING PARTY: Plaintiff Nicole Michelle Arrington

RELIEF REQUESTED

Defendant is requesting that the Court compel the case to arbitration and stay the action.

RULING: Petition to compel arbitration is denied.

SUMMARY OF ACTION

On February 5, 2024, Plaintiff Nicole Michelle Arrington (Plaintiff) filed this action against Defendant American Honda Motor Company, Inc. (Defendant) for causes of action related to violations of the Song-Beverly Warranty Act. Plaintiff has alleged five causes of action for violations of the Song-Beverly Act against Defendant. The dealership from which Plaintiff leased the vehicle, and which is the party to the relevant Lease Agreement, is not named in Plaintiff’s complaint.

On May 10, 2024, Defendant filed this petition to compel arbitration and stay the action. Plaintiff opposes.

ANALYSIS

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-972.) The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, the party opposing the petition then bears the burden of proving by a preponderance of the evidence any fact necessary to demonstrate that there should be no enforcement of the agreement, and the trial court sits as a trier of fact to reach a final determination on the issue. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.) The Court is empowered by CCP § 1281.2 to compel parties to arbitrate disputes pursuant to an agreement to do so.   

CCP § 1281.2 states that: 

“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. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.” (CCP § 1281.2.)

The main dispute in this case rests on the fact that Defendant was not a signatory to the arbitration agreement in question, but Defendant argues that it should be able to compel arbitration by virtue of the doctrine of equitable estoppel and Defendant’s claim that it is a third-party beneficiary of the arbitration agreement.

As a preliminary matter, Defendant argues that the FAA should be applied to this case. However, even if the FAA applies, “State law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration.” (Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, 946.) “Although the FAA preempts any state law that stands as an obstacle to its objective of enforcing arbitration agreements according to their terms, …we apply general California contract law to determine whether the parties formed a valid agreement to arbitrate their dispute.” (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59-60.) Because state law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration, the Court will apply state law to this case.

“Under that 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 Ct. (2011) 193 Cal.App.4th 1222, 1237, quoting Boucher v. All Title Co. (2005) 127 Cal.App.4th 262, 271 and Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217–18 (internal quotation marks omitted).) The sine qua non for application of equitable estoppel as the basis for allowing a nonsignatory to enforce an arbitration clause is, “that the claims plaintiff asserts against the nonsignatory must be dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause.” (Goldman, supra, 173 Cal.App.4th at 217–18; accord, JSM Tuscany, LLC, supra, 193 Cal.App.4th at 1237.) “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 her advantage, then attempt to avoid its application in defining the forum in which her dispute . . . should be resolved.” (Jensen v. U-Haul Co. of Cal. (2017) 18 Cal.App.5th 295, 306, quoting NORCAL Mut. Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 84 (internal quotation marks omitted).) Courts examine the facts alleged in the operative complaint to determine whether equitable estoppel applies. (Goldman, supra, 173 Cal.App.4th at 229–30.) 

In one case, an arbitration agreement that was in the retail sales agreement was found to extend to a nonsignatory car manufacturer because “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.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 640, 648.) 

The language of the arbitration provision in the Lease Agreement between Plaintiff and the dealership, Galpin Honda, mentions third parties and reads as follows:

“Any claim or dispute…between you and us or our parents, subsidiaries, affiliates, employees, officers, agents, representatives, predecessors, successors or assigns, (individually and collectively “us” or “our) which arises out of or relates to your credit application origination or servicing of this lease, the manufacture, delivery, condition, or performance of this Vehicle, any representations, omissions, or warranties, or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”

(Smith Decl., Ex. B.)

This language is similar to the language in Felisilda, which allowed the defendant car manufacturer to compel arbitration as to the condition of the vehicle. However, it is also worth noting that nothing in the language of the arbitration agreement explicitly gives third parties the right to compel arbitration on a signatory to the agreement, as the agreement states, “Either you or we may choose to have any dispute between decided by arbitration” and “at your or our election,” meaning Plaintiff and the dealership and its affiliates. (Smith Decl., Ex. B.) Additionally, the plaintiff in Felisilda had sued both the dealership and the manufacturer for Song-Beverly causes of action, which is not the case here. Plaintiff has only sued Defendant American Honda Motor Company, as the manufacturer, for the Song-Beverly causes of action. The dealership that sold Plaintiff the vehicle is not a party to this action. 

As the Court of Appeal has observed, “[w]e agree with Ngo that the sales contracts reflect no intention to benefit a vehicle manufacturer…nothing in the sale contracts or their arbitration provision offers any direct “benefit” to the [manufacturer].” (Ochoa v. Ford Motor Company – Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1338, review granted July 19, 2023 (S279969), pursuant to Rule of Court 8.115(e)(3), the Supreme Court ordered that while pending review the decision could be cited as persuasive authority and to establish a conflict in authority that would allow trial courts to choose between conflicting appellate decisions.) The manufacturer’s “claim that it ‘would benefit from utilizing arbitration as an efficient means of dispute resolution’ (italics added) if treated as a third party beneficiary begs the question: does the arbitration provision directly benefit [the manufacturer]? The answer is patently ‘no.’ Its direct benefits are expressly limited to those persons who might rely on it to avoid proceeding in court – the purchaser, the dealer, the dealer’s employees, agents, successors or assigns. [The manufacturer] is none of these.” (Id.)

Ochoa is distinguishable from Felisilda because both the dealership and manufacturer were sued in Felisilda, while only the manufacturer was sued in Ochoa. In this case, the manufacturer alone is being sued. The dealership is not being sued. Therefore, Ochoa would be more applicable to this case than Felisilda. As discussed in further detail below, as in Ochoa, the complaint is not based on the Lease Agreement, which indicated that the vehicle was covered by the manufacturer’s standard warranty but no other express warranties on the vehicle were given beyond one that the vehicle would conform to the description in the Lease. The complaint is based on the warranties given by Defendant as the manufacturer, not on any warranties in the Lease Agreement.

The Lease Agreement is not otherwise concerned with warranties given by Defendant, which is the basis upon which Plaintiff has sued. The Lease Agreement is chiefly concerned with the financing of the vehicle and how Plaintiff intends to pay for his lease. In fact, Section 16 of the Lease Agreement, “Warranties”, expressly indicates that the dealerships “gives you a warranty that the Vehicle conforms to the description in the Lease. THERE ARE NO OTHER EXPRESS WARRANTIES ON THE VEHICLE.” (Smith Decl., Ex. B.)

By disclaiming any other warranties and indicating that the vehicle is subject to the manufacturer’s standard warranty, that suggests that the Lease Agreement is separate and distinct from express warranties covered by the Song-Beverly Act. Because the manufacturer warranty obligations arise independently from the Lease Agreement, they are not so intertwined that this action should be governed by the arbitration provision in the Lease Agreement. (See JSM Tuscany, LLC, 193 Cal.App.4th 1222.)

The petition to compel arbitration is denied on the basis that the warranty obligations under the Song-Beverly Act are not inextricably intertwined with the arbitration agreement in the Lease Agreement.

Moving party to give notice.