Judge Gregory Keosian, Case 21STCV19790 2022-08-01 Tentative Ruling

Defendant Nissan North America, Inc.’s Motion to Compel Arbitration is GRANTED.

On petition of a party to an arbitration agreement to arbitrate a controversy, a court must order the petitioner and respondent to arbitrate the controversy if it determines the arbitration agreement exists, unless (1) the petitioner has waived its right to arbitrate; (2) grounds exist for the revocation of the agreement; or (3) “[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.” (Code Civ. Proc., § 1281.2.)

“[T]he party moving to compel arbitration bears the burden of establishing the existence of a valid agreement to arbitrate, and the party opposing arbitration bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. The role of the trial court is to sit as a trier of fact, weighing any affidavits, declarations, and other documentary evidence, together with oral testimony received at the court's discretion, to reach a determination on the issue of arbitrability.” (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 758.)

Defendant presents an arbitration agreement executed by Plaintiff upon the purchase of the subject vehicle in in November 2017, which includes an arbitration agreement applicable to claims or disputes “between you and us or our employees, agents, successors or assigns, which arises out of relates to your . . . 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)[.]” (Motion Exhs. 3, 4.) Defendant is not a signatory to the contract, which was propounded by the dealership.

Defendant argues that arbitration should be compelled under the holding of Felisilda v. FCA US LLC (2020) 53 Cal.App.5^th 486, in which the court held that a nonsignatory vehicle manufacturer could compel arbitration of a lemon law plaintiff’s claims, based on an arbitration agreement signed with the dealership. The arbitration clause in Felisilda, as with the clause here, required arbitration of disputes relating to “the condition of the vehicle” or “any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract).” (Felisilda, supra, 53 Cal.App.5^th at p. 490.) The case was a lemon law action for violation of the Song Beverly Act. (Id. at p. 491.) The trial court granted the manufacturer’s motion to compel arbitration, and after the arbitration concluded, the court of appeal affirmed, reasoning that the lemon law plaintiff was barred from objecting to the manufacturer’s enforcement of the arbitration agreement by the doctrine of equitable estoppel. (Id. at p. 496.) “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.” (Id. at p. 495, internal quotation marks omitted.)

The court reasoned that the case at issue was covered by the contract, since it was a lemon law action related to the condition of the vehicle, and because the agreement squarely applied to disputes with third-party nonsignatories. (Id. at p. 496.) The court further held that the plaintiff’s warranty claims were intimately bound up with the purchase agreement: “The Felisildas’ 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 Felisildas 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. 497.)

This logic applies here. The warranty claims that Plaintiffs allege relate to the condition of the vehicle. They allege that they entered into the warranty agreement at the same time as the purchase agreement, and their claims under Felisilda arise out of the latter agreement, which contains the arbitration clause.

Plaintiff in opposition attempts to distinguish Felisilda by arguing the motion in that case was brought by the dealership — the signatory party — not by the manufacturer, who merely passively supported the dealership’s motion. (Opposition at pp. 2–4.) But this is not a material distinction; the claims against the dealer in Felisilda were dismissed, leaving the claims against the manufacturer, and the appellate court expressly framed the issue as “the question of whether a nonsignatory to the agreement has a right to compel arbitration under that agreement.” (Felisilda, supra, 53 Cal.App.5th at p. 495.) The court indeed disapproved the holding of the case Jurosky v. BMW of North America, LLC (C.D. Cal. 2020) 441 F.Supp.3d 963, in which the federal court had denied a motion to compel arbitration brought by the manufacturer (after the dealership was dismissed) in similar circumstances. (Felisilda, supra, 53 Cal.App.5th at p. 498.) The Felisilda court held that the Jurosky decision had “gloss[ed] over language in an arbitration clause that expressly include[d] third party nonsignatories.” (Ibid.)[1]

Plaintiff further argues that Defendant has waived the right to compel arbitration, as this case was filed on May 26, 2021, and Defendant waited until June 30, 2022, to bring this motion. (Opposition at pp. 5–7.)

“In the past, California courts have found a waiver of the right to demand arbitration in a variety of contexts, ranging from situations in which the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration, to instances in which the petitioning party has unreasonably delayed in undertaking the procedure.” (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1196, internal citations omitted.) In evaluating whether the right to compel arbitration has been waived, courts consider:

(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

In Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, the court upheld a trial court’s determination that a defendant had waived arbitration under these circumstances:

Here, approximately four months elapsed from the time Lewis commenced this action until Fletcher Jones first expressed a desire to arbitrate Lewis's claims. After making its first arbitration demand, Fletcher Jones waited almost another month before filing its motion to compel arbitration. During this nearly five-month period, Fletcher Jones litigated the merits of Lewis's claims through multiple demurrers and motions to strike and participated in discovery without raising its right to arbitration.

In Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, the court found waiver when the demand for arbitration had been deferred for “three months,” when the party moving for arbitration “did not plead its purported right to arbitrate as an affirmative defense,” and when the party participated in discovery, objected to interrogatories and document demands, and attended depositions. (Id. at p. 558.) The court also found that the moving party’s conduct had prejudiced the party being compelled to arbitrate. (Ibid.)

Conversely, in Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, the court held that the trial court had erroneously found waiver when, while “there was a 14-month period from the filing of the original complaint to the filing of the motion to compel,” the moving party had gained no advantage from the limited discovery conducted in that time that it would not have gained from arbitration. (Id. at p. 663.) This was so even though the moving party had previously filed a demurrer and motion to strike. (Id. at p. 662.) However, Khalatian has been distinguished on the grounds that “no depositions were taken and no discovery motions were filed; the defendants’ demurrer and motion to strike were taken off calendar, not overruled or denied, and therefore the motion to compel arbitration was not filed as a last resort; and the trial was scheduled to commence more than a year later.” (Garcia v. Haralambos Beverage Co. (2021) 59 Cal.App.5th 534, 544.)

No waiver has occurred here under the above authority. Although more than a year elapsed between the filing of this case and Defendant’s motion, the delay alone is dispositive. Defendant’s answer, filed on June 29, 2021, offers arbitration as one of the affirmative defenses. Plaintiff argues that discovery has been conducted, but points only to discovery that it itself has served upon Defendant, to which Defendant has responded. There have been no depositions taken, no discovery motions heard, and no demurrers or motions to strike. Trial, meanwhile, is set to begin on July 25, 2023, a year from now. Although Plaintiff argues that she will suffer prejudice if arbitration is compelled, the prejudice identified consists of the arbitration’s limitations on discovery and purported unconscionable provisions. (Opposition at pp. 6–7.) But this argument concerns prejudice resulting from arbitration generally, even if promptly sought in a noticed motion. Plaintiff makes no argument as to prejudice resulting from Defendant’s delay, which is the primary concern in the waiver analysis. No such prejudice will result here, and no waiver has therefore occurred.

Plaintiff argues that there exists an optional alternative dispute resolution procedure in Defendant’s warranty manual that otherwise permits Plaintiff to file a court action, in contradiction with the arbitration provision in the sales contract. (Opposition at pp. 7–8.) But the warranty provision does not purport to allow litigation in court in contradiction with other binding arbitration agreements, but rather states that any decision reached in the optional arbitration process may be used as evidence in subsequent court proceedings if the plaintiff rejects the arbitrator’s decision. (Opposition Exh. 1.) Nothing in the warranty expressly allows for court action, as Plaintiff contends.

Plaintiff finally argues that the agreement is unconscionable. “Unconscionability requires a showing of both procedural unconscionability and substantive unconscionability.” (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.) Arbitration contracts presented to employees on a take-it-or-leave-it basis and imposed upon employees as a condition of “necessary employment” are at least minimally procedurally unconscionable. (See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113.) Here, the agreement is procedurally unconscionable to some degree, as it is a contract of adhesion drafted by the dealer and propounded upon a consumer as part of a take-it-or-leave-it sales contract.

But Plaintiff identifies no substantively unconscionable provisions of the agreement. Plaintiff argues that the arbitration agreement, by its nature, permits no third party discovery, but this is not true: Arbitrators may issue “[a] subpoena requiring the attendance of witnesses, and a subpoena duces tecum for the production of books, records, documents and other evidence, at an arbitration proceeding or a deposition . . . for the purposes of discovery” under California law (Code Civ. Proc. § 1282.6, subd. (a)), and “may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case” under the Federal Arbitration Act. (9 U.S.C. §7.) The authority that Plaintiff cites holds that this power of third-party production applies at the arbitration hearing, and may not take place before, not that it may not take place at all. (Opposition at p. 9, citing Aixtron, Inc. v. Veeco Instruments Inc. (2020) 52 Cal.App.5th 360, 395.) Plaintiff has identified no impediment to the effective vindication of their claims.

Plaintiff finally argues that issue preclusion ought to prevent Defendant from seeking arbitration here, as arbitration has been denied in other cases on similar or identical contracts. (Opposition at p. 22.) The elements of issue preclusion are: “(1) the issue sought to be precluded from relitigation is identical to that decided in a prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the issue was necessarily decided in the former proceeding; (4) the decision in the former proceeding is final and on the merits; and (5) the party against whom preclusion is sought is the same as, or in privity with, the party to the former proceeding. “(Bullock v. City of Antioch (2022) 78 Cal.App.5th 407, 415–416.) Issue preclusion does not apply here, however, because the issue in the prior case is not identical to the issue here, but addressed the enforceability of a different contract with a different consumer for the purchase of a different vehicle. (Opposition Exh. 2.)

Accordingly, the motion to compel arbitration is GRANTED. As this matter is properly ordered to arbitration, Plaintiff’s motion to compel deposition of Defendant’s person most knowledgeable is DENIED.

[1] The federal decisions cited by Plaintiff, which address issues of state law, are not binding upon this court except to the extent that their reasoning is persuasive. (Brakke v. Economic Concepts, Inc. (2013) 213 Cal.App.4th 761, 770.)