Judge: George F. Bird, Jr., Case: 22CMCV00209, Date: 2023-04-13 Tentative Ruling

Case Number: 22CMCV00209    Hearing Date: April 13, 2023    Dept: B

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES – SOUTH CENTRAL DISTRICT

I.       BACKGROUND

             Plaintiff Jessica Gutierrez (“Plaintiff”) alleges that she entered a warranty contract with Defendant FCA US, LLC (“FCA”) for a 2018 Chrysler Pacifica (the “Vehicle”) that FCA manufactured and/or distributed. (Complaint, (“Compl.”), ¶ 10.) Plaintiff alleges that the Vehicle developed defects to the electrical system, transmission, engine, and defects causing stalling during the warranty period. (Compl., ¶ 15.) Plaintiff alleges that at the time she acquired the Vehicle, FCA knew about the defective transmission and Powertrain Control Module which resulted in stalling, shutting off, and/or loss of power to the Vehicle (“Stalling Defect”). (Compl., ¶¶ 18, 20.) Despite several recalls, Plaintiff alleges that FCA has not modified any of the components that cause the Stalling Defect. (Compl., ¶ 38.) Plaintiff brings three causes of action against FCA under the Song-Beverly Consumer Warranty Act, a cause of action for breach of the implied warranty of merchantability, and a cause of action for fraudulent inducement through concealment.

            Plaintiff also brings one cause of action against Defendant Glenn E. Thomas Dodge Chrysler Jeep (“GLENN”) for negligent repair. Plaintiff alleges that she delivered the Vehicle to GLENN for repair on at least one occasion and “GLENN breached its duty to Plaintiff to use ordinary care and skill by failing to properly store, prepare and repair the Subject Vehicle in accordance with industry standards.” (Compl., ¶¶ 76, 78.)

II.       MOTION TO COMPEL ARBITRATION AND STAY ACTION

A.    FCA’s Motion to Compel Arbitration and Stay Action.

            FCA seeks to compel Plaintiff to arbitrate the claims against FCA only based on a Motor Vehicle Lease Agreement (“Lease Agreement”) Plaintiff executed at the time Plaintiff leased the Vehicle. Though FCA was not a signatory to the Lease Agreement, FCA relies on the reasoning in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (hereinafter “Felisilda”), which allowed a third-party manufacturer to compel a purchaser of a vehicle to arbitrate claims against the manufacturer through the doctrine of equitable estoppel.

B.     Plaintiff’s Opposition.

             Plaintiff argues that FCA cannot compel arbitration using the Lease Agreement. Plaintiff  distinguishes Felisilda and argues that the Lease Agreement does not compel the claims of third-parties nor does the warranty at issue arise out of the Lease Agreement. On April 5, 2023, Plaintiff submitted a notice of supplemental authority pointing to Ford Motor Warranty Cases (Cal. Ct. App., Apr. 4, 2023, No. B312261) 2023 WL 2768484, at *4 (hereinafter “Ochoa”), in which the Court of Appeal explicitly declined to follow the reasoning in Felisilda.

C.     Replies.

FCA and GLENN state that each Defendant has filed their own motions to compel arbitration. At present, FCA is the only Defendant who has filed a motion to compel arbitration as to the claims against FCA only. Because GLENN has not presented a motion to compel arbitration, the court will not consider any arguments as to the claims against GLENN.

FCA’s Reply argues that Ochoa is not currently binding authority and that Felisilda is still binding on this Court.

III.       LEGAL STANDARDS

            A written arbitration agreement is “valid, enforceable and irrevocable” unless grounds for revocation of any contract exist. (Code Civ. Proc., § 1281.) The court shall order the parties to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists unless grounds exist for rescission of the agreement. (Code Civ. Proc., § 1281.2, subd. (b).) If the court orders arbitration, the court shall stay the action or proceeding. (Code Civ. Proc., § 1281.4.) 

            If the parties specifically contract to designate that the FAA controls the arbitration agreement, then the FAA governs rather than state procedural law. (Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1115.) Under Section 2 of the FAA and state law, written arbitration agreements are valid, irrevocable, and enforceable “save upon such grounds as exist at law or in equity for the revocation of a contract.” (Arthur Andersen LLP v. Carlisle (2009) 556 U.S. 624, 629–630; Bickel v. Sunrise Assisted Living (2012) 206 Cal.App.4th 1, 8.) However, state law is applicable to determine which contracts are binding under Section 2 and enforceable under Section 3. (Arthur Andersen LLP v. Carlisle, supra, 556 U.S. at pp. 630-631.)

            If the court compels arbitration, Section 3 of the FAA "requires the court, ‘on application of one of the parties,’ to stay the action if it involves an ‘issue referable to arbitration under an agreement in writing.’ 9 U.S.C. § 3.” (Arthur Andersen LLP v. Carlisle, supra, 556 U.S. at p.  630.)

IV.       DISCUSSION

A.    California state law governs the enforceability of the terms of the Lease Agreement.

            The parties dispute which law the court must apply. Plaintiff argues that federal law applies because the arbitration provision of the Lease Agreement states that any arbitration will be governed by the Federal Arbitration Act (“FAA”). (See Decl. of Greg Gruzman, Exhibit A, p. 5.) 

            When the Supreme Court of the United States analyzed how the FAA provisions impacted the applicability of state law, the Supreme Court of the United States determined “Neither provision purports to alter background principles of state contract law regarding the scope of agreements (including the question of who is bound by them). Indeed¿§ 2¿explicitly retains an external body of law governing revocation (such grounds ‘as exist at law or in equity’).¿And we think¿§ 3¿adds no substantive restriction to¿§ 2's enforceability mandate.” (Arthur Andersen LLP v. Carlisle, supra, 556 U.S. at p.  631.) “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 [159 Cal.Rptr.3d 444, 452].)

            Further, the Lease Agreement is generally governed by “the laws of the state where the Dealer is located.” (Decl. of Greg Gruzman, Exhibit A, p. 7.) The Dealer is located in California; thus, California state law generally governs the Lease Agreement. (Id. at p. 1.)

            This Court will apply California state law to determine the enforceability of the Lease Agreement by FCA.

B.     Under Ochoa, FCA cannot compel Plaintiff to arbitrate her claims.

            FCA seeks to enforce the arbitration provision of the Lease Agreement on a theory of equitable estoppel. Equitable estoppel allows a nonsignatory to invoke an arbitration clause “when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (Ford Motor Warranty Cases, supra, 2023 WL 2768484, at *3 citing Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 486.) FCA argues that Plaintiff’s claims are intimately founded in and intertwined with the underlying obligations in the Lease Agreement because the lease gave rise to the warranty obligations of FCA. We disagree.

            In Ochoa, each plaintiff purchased a Ford Vehicle and signed a sale contract, which contained an arbitration provision, with the dealership where they purchased the vehicle. (Ford Motor Warranty Cases, supra, 2023 WL 2768484, at *1.) When defects developed, the plaintiffs each brought causes of action against the vehicle manufacturers based on “statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty. Certain plaintiffs also sued on theories of breach of implied warranty of merchantability and fraudulent inducement. Not one of the plaintiffs sued on any express contractual language in the sale contracts.” (Id. at *5.)

            When analyzing the sale contracts, the Court of Appeal determined that they contained no warranty, no assurance of quality, and explicitly disclaimed any dealer warranties without effecting manufacturer warranties. (Ibid.) The Court of Appeal concluded 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.” (Id. at *4.) Because the claims did not arise out of the obligations of the sale contracts, the defendant could not rely on equitable estoppel to enforce the arbitration provision.

            Here, Plaintiff brings causes of action against FCA, the vehicle manufacturer, for violations of the Song-Beverly Consumer Warranty Act, breach of the implied warranty of merchantability, and fraudulent inducement. The Lease Agreement is between Plaintiff, as the Lessee, and the dealer, the Lessor. The terms of the Lease Agreement do not discuss warranties or quality guarantees for the Vehicle. Just as in Ochoa, the dealership expressly disclaims any warranties or representations about the Vehicle’s condition by stating,

“The Vehicle is covered by the manufacturer’s standard new car warranty. LESSSOR LEASES THE VEHICLE TO YOU “AS IS”, EXCEPT, AS PROVIDED IN THIS LEASE AND (UNLESS PROHIBITED BY LAW) LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS AS TO THE VEHICLE’S (OR ANY OF ITS PARTS OR ACCESSORIES) CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AND LESSOR MAKES NO OTHER REPRESENTATIONS OR WARRANTIES WHATSOEVER.” (Decl. Greg Gruzman, Exhibit A, p. 4.)

            Just as in Ochoa, Plaintiff’s claims do not rely on any obligation contained in the Lease Agreement and instead arise out of a separate warranty provided by the manufacturer. The statement that the car is covered by a manufacturer’s warranty does not give rise to any obligation. This Court finds the statement simply informs a buyer that a separate warranty exists, not provided by this Lease Agreement, and then proceeds to disclaim any warranties or representations provided by the dealer in the Lease Agreement. Because the warranty provided by FCA is not intertwined with the underlying obligations in the Lease Agreement, FCA may not compel Plaintiff to arbitrate her claims on a theory of equitable estoppel.

C.     FCA’s reliance on Felisilda fails.

            In reply, FCA challenges any reliance on Ochoa by arguing that it is not binding authority and that Felisilda is still determinative in this matter.

            First, FCA argues that the Court of Appeal decision is not final until 30 days after the decision is filed and thus is not binding authority on this Court. (Cal. Rules of Court rule 8.264, subd. (b)(1).) The court need not find Ochoa final or binding because “A published California opinion may be cited or relied on as soon as it is certified for publication or ordered published.” (Cal. Rules of Court rule 8.1115, subd. (d).) As Ochoa has been certified for publication, this Court may rely on its reasoning.

            Second, when turning to Felisilda, the language of the arbitration provision is distinguishable. The Court of Appeal in Felisilda found it critical that the arbitration provision stated that the parties would arbitrate any claim or dispute as to “… this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract)….” (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 490.) The Court of Appeal declined to follow Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, in which the United States Court of Appeals affirmed the denial of a motion to compel arbitration by a manufacturer against purchasers, because “The retail sales contracts in Kramer did not contain any language that could be construed as extending the scope of arbitration to third parties.” (Id. at 497.)

            The arbitration provision in the Lease Agreement here states,

“YOU AGREE THAT ANY AND ALL CLAIMS WILL BE RESOLVED BY INDIVIDUAL ARBITRATION AND NOT IN COURT IF YOU OR LESSOR REQUESTS ARBITRATION. YOU HEREBY ACKNOWLEDGE THAT YOU ARE WAIVING YOUR RIGHT TO PROCEED IN COURT, AND TO JURY TRIAL. ADDITIONALLY, YOU WAIVE ALL RIGHTS TO PROCEED IN A CLASS ACTION OR CLASS ARBITRATION. Any controversy or claim between or among you and Lessor, including, but not limited to, those arising out of or relating to the Vehicle, this Lease or any related agreement or any claim based on or arising from an alleged tort, shall at the request of either party be determined by individual arbitration except for proceedings in small claims court, self-help vehicle recovery, and other self-help such as the exercise of set-off rights.” (Decl. of Greg Gruzman, Exhibit A, p. 5.)

Similar to Kramer, the arbitration provision does not mention disputes with third parties and is therefore distinguishable from the language of Felisilda. Because the language of Felisilda is distinguishable, this Court will follow the reasoning in Ochoa. FCA may not compel Plaintiff to arbitrate her claims.

V.       CONCLUSION

            This Court rules as follows:

            This Motion to Compel Arbitration is DENIED.

            The request to stay this action is DENIED.

            Moving party to give notice.

Dated: April 13, 2023                                                 __________________________________

                                                                                                Judge of the Superior Court