Judge: George F. Bird, Jr., Case: 22CMCV00591, Date: 2023-02-24 Tentative Ruling

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Case Number: 22CMCV00591    Hearing Date: February 24, 2023    Dept: B

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES – SOUTH CENTRAL DISTRICT

I.       BACKGROUND

             Plaintiff Vernon Morris (“Plaintiff”) filed the Complaint on November 28, 2022, alleging two causes of action under the Song-Beverly Warranty Act and two causes of action under the Magnuson-Moss Warranty Act. Plaintiff alleges that he purchased a 2019 Hyundai Kona (the “Vehicle”) from Win Chevrolet, doing business as Win Chevrolet Hyundai, which was manufactured by Hyundai Motor America (“Defendant”). (Complaint (“Compl.”), ¶¶ 6, 7.) Plaintiff alleges he received written warranties from Defendant which insured the Vehicle would be free from defects. (Compl., ¶ 9.) Plaintiff alleges that the Vehicle has several defects including excessive shaking, transmission malfunctions, fuel replacement, all injectors replacement, fuel feed tube replacement, and jerking concerns. (Compl., ¶ 12.) Plaintiff states that the Vehicle has been provided to an authorized service location on several occasions and that the defects have not been repaired. (Compl., ¶¶ 11, 14.) Plaintiff dismissed Win Chevrolet from this action on December 15, 2022.

II.       MOTION TO COMPEL ARBITRATION AND STAY THE ACTION

A.    Defendant’s Motion.

            Defendant brought this Motion to Compel Arbitration and Stay the Action (“Motion”) on January 3, 2023. Defendant alleges that Plaintiff entered into a written arbitration agreement when Plaintiff signed the Retail Installment Sale Contract executed when Plaintiff purchased the Vehicle. Defendant argues that Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, is binding precedent upon this Court which allegedly establishes a right to enforce an arbitration agreement under the doctrine of equitable estoppel. Defendant argues that the warranties at issue here arise under the Retail Installment Sale Contract and thus the arbitration agreement contained in the Retail Installment Sale Contract applies to these claims.

B.     Plaintiff’s Opposition.

            Plaintiff filed their opposition on January 31, 2023. Plaintiff argues that the warranties at issue do not arise out of and are not intertwined with the Retail Installment Sale Contract which contains the arbitration agreement. Plaintiff argues that Defendant fails to meet the standard for enforcement of the arbitration agreement through equitable estoppel because there is no ‘close relationship’ between the parties and the claims do not arise from the Retail Installment Sale Contract.

C.     Defendant’s Reply.

            Defendant filed their Reply on February 16, 2023. Defendant argues that Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 is binding precedent in this matter as the arbitration agreement at issue here uses the same language as the arbitration agreement in Felisilda and allegedly expressly contemplated the ability of a nonsignatory third party to enforce an arbitration agreement over a claim which arises out of or relates to the condition of a vehicle. Defendant again alleges that the warranties at issue arise out of the Retail Installment Sale Contract and Defendant may enforce the arbitration agreement through equitable estoppel.

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.)

IV.       DISCUSSION

            There is no dispute between the parties that an arbitration agreement exists in the Retail Installment Sale Contract – Simple Finance Charge (With Arbitration Agreement) (the “Sale Contract”). (See Declaration of Eric Tsai, counsel for Defendant, Exhibit A.) There is also no dispute that Defendant is a third party nonsignatory to the Sale Contract. The parties disagree about the availability of equitable estoppel to enforce the arbitration agreement.

            “Under the doctrine of equitable estoppel, ‘as applied in ‘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.’” ( Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 [266 Cal.Rptr.3d 640, 647, 53 Cal.App.5th 486, 495].) “In determining whether the plaintiffs’ claim is founded on or intimately connected with the sales contract, we examine the facts of the operative complaint.” (Id. at 496.)

            Defendant heavily relies on Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 and argues that this Court should use the opinion as a guide for analyzing this arbitration provision. In Felisilda, plaintiffs brought a Song-Beverly Warranty Act claim against the seller and manufacturer of a 2011 Dodge Grand Caravan after the vehicle experienced mechanical problems and adequate repairs allegedly could not be made. (Felisilda v. FCA US LLC, supra., 53 Cal.App.5^th at p. 490.) The seller moved to compel arbitration of the entire action and plaintiffs opposed arguing that the agreement was unconscionable and that the claim for breach of warranty was not intertwined with the sale contract, so the arbitration provision did not apply. (Felisilda v. FCA US LLC, surpa., 53 Cal.App.5th at p. 491.) The trial court compelled arbitration of the entire action and the Court of Appeal summarizes the trial court’s reasoning as:

“The trial court reasoned the arbitration provision in the sales contract included the Felisildas’ claim against FCA as a “resulting transaction or relationship” relating to the “purchase or condition” of the vehicle. Thus, the trial court determined the Felisildas’ claim against Elk Grove Dodge was so intertwined with the claim against FCA that the entirety of the matter was arbitrable under the sales contract. After the trial court ordered the matter to arbitration, the Felisildas dismissed Elk Grove Dodge from the action.” (Ibid.)

            The Court of Appeal confirmed this reasoning on appeal. The Court of Appeal found that the language of the arbitration agreement included disputes that arise out of or related to the condition of the vehicle and that the Song-Beverly Warranty Act claims related directly to the condition of the vehicle. (Id. at 496.) Here, the language of the arbitration agreement is identical to the language of the arbitration agreement in Felisilda. The relevant portion of the arbitration agreement at issue here is as follows:

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 for emphasis.)

            The language above is identical to the language of the arbitration agreement quoted in Felisilda. (Felisilda v. FCA US LLC, supra., 53 Cal.App.5th at p. 490.) Such language allows any party, expressly including a third party who does not sign the agreement, to compel arbitration for claims that arise out of the condition of the vehicle.

            Plaintiff brings claims based on defects described as “excessive shaking, transmission malfunctions, fuel replacement, all injectors replacement, fuel feed tube replacement, and jerking concerns.” (Compl., ¶ 12.) The plaintiffs in Felisilda alleged “engine, interior, and electrical defects” which the Court of Appeal affirmed were defects related to the condition of the vehicle. (Felisilda v. FCA US LLC, supra., 53 Cal.App.5th at p. 491.) The transmission, fuel system, and shaking and jerking of the Vehicle are claims related to the condition of the Vehicle.

            Plaintiff spends almost three pages of their Opposition arguing that Mance v. Mercedes-Benz USA (2012) 901 F. Supp. 2d 1147 is inapplicable here. Defendant does not rely on Mance anywhere in their Motion and Felisilda states that they do not attempt to address any conflicts between “the Soto I and Mance federal district courts.” (Felisilda v. FCA US LLC, supra., 53 Cal.App.5th at p. 497.) Plaintiff’s arguments related to Mance have no bearing on this Motion.

            Plaintiff argues that the claims here do not arise out of the Sale Contract, but instead arise out of the manufacturer’s warranty which Plaintiff has not agreed to arbitrate. Here, Plaintiff alleges that the warranties were given “Along with the purchase of the Vehicle,” and Plaintiff received “warranties … that the Vehicle would pass without objection in the trade under the contract description; … that the Vehicle would conform to the promises and affirmations of fact made; … that Defendants, and each of them, would maintain the utility of the Vehicle … and would conform the Vehicle to the applicable express warranties. (A copy of the written warranty is in the possession of the Defendants).” (Compl., ¶ 9.)

            In Felisilda, the warranties at issue “accompanied the sale of the vehicle” in which the manufacturer undertook to preserve the utility of the vehicle or provide compensation if there was a failure. (Felisilda v. FCA US LLC, supra., 53 Cal.App.5th at p. 496.) Based on these facts, the Court of Appeal determined “Thus, the sales contract was the source of the warranties at the heart of this case.” (Ibid.) The Court of Appeal recognized that the warranties received were “a consequence of the sale contract.” (Id. at 497.) Here, Plaintiff states that warranties from Defendant were received “along with the purchase of the Vehicle” and Defendant agreed to maintain the utility of the Vehicle. (Compl., ¶ 12.) As in Felisilda, the Sale Contract is the source of the warranty provided by Defendant. The claims for violation of the warranty do arise out of the Sale Contract because the warranties are a consequence of the Sale Contract.

            Plaintiff also argues that the claims made are not intertwined with the obligations under the Sale Contract because the Sale Contract is simply for financing the Vehicle. Plaintiff points to In re Toyota Motor Corp. Hybrid Brake Marketing, Sales, Practices and Products Liability Litigation (C.D. Cal. 2011) 828 F.Supp.2d 1150 (hereinafter “In re Toyota”), in which the district court found that a plaintiff’s claim for a defective breaking system was not sufficiently intertwined with the obligations of a purchase agreement. The present case is readily distinguishable. In In re Toyota, the district court founded their decision on a finding that “The operative document at issue is not the Purchase Agreements, but Toyota's marketing materials containing the purported false representations regarding the safety of its braking system.” (In re Toyota Motor Corp. Hybrid Brake Marketing, Sales, Practices and Products Liability Litigation, supra., 828 F.Supp.2d at p. 1161.)

            Here, Plaintiff’s claims center around the breach of warranties that are a direct consequence of the Sale Contract Plaintiff entered. Plaintiff’s claims are based on the obligations provided in the warranties arising out of the Sale Contract, and this connection makes the claims and obligations sufficiently intertwined.

            Finally, Plaintiff argues that the parties are not in a ‘close relationship’ to allow Defendant to use equitable estoppel to enforce the arbitration provision. Plaintiff points to In Re Toyota which states to enforce an arbitration agreement based on equitable estoppel, there must be a “close relationship between the entities involved.” (In re Toyota Motor Corp. Hybrid Brake Marketing, Sales, Practices and Products Liability Litigation, supra., 828 F.Supp.2d at p. 1158.) First, Plaintiff and the seller are in a sufficiently close relationship as Plaintiff signed the Sale Contract with the seller. Second, the arbitration provision in the Sale Contract expressly contemplates third parties and extends to third parties who have not signed the contract. Finally, Plaintiff is asserting that Defendant is in breach of a warranty provided to Plaintiff as a direct consequence of signing the Sale Contract. The Court finds that the parties are in a sufficiently close relationship.

            Based on the foregoing, the Court finds that Defendant may enforce the arbitration agreement found in the Sale Contract. This Motion to Compel Arbitration and Stay the Action is GRANTED.

V.       CONCLUSION

             This Motion to Compel Arbitration and Stay the Action is GRANTED.

Dated: February 24, 2023                                           __________________________________

                                                                                                Judge of the Superior Court