Judge Gregory Keosian, Case 22STCV07317 2022-10-11 Tentative Ruling

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 September 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 Exh. C.) Defendant is not a signatory to the contract, which was propounded by the selling dealership.

Plaintiff argues that Defendant cannot enforce the arbitration agreement because it is not a signatory to an agreement between Plaintiff and the dealership. (Opposition at pp. 7–13.) However, 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 application of the doctrine of equitable estoppel to 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 violations of the Song Beverly Act. (Id. at p. 491.) The trial court granted the co-defendant dealership’s motion to compel arbitration (which included the claims against the manufacturer), 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 passively supported the dealership’s motion. (Opposition at pp. 1–4.) Some federal decisions have embraced this distinction. (See Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, 950.) But the decisions of federal district and appellate courts cited by Plaintiff 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; Felisilda, supra, 53 Cal.App.5^th at p. 486.) Their reasoning is not persuasively applicable here, as Plaintiff’s argument relies on a distinction that was not material to Felisilda’s holding. The claims against the dealership in Felisilda, which Plaintiff claims were critical to the decision, were dismissed prior to the commencement of arbitration, leaving only the claims against the manufacturer. (Felisilda, supra, 53 Cal.App.5^th at p. 489.) The Felisilda court expressly framed the issue as “the question of whether a nonsignatory to the agreement has a right to compel arbitration under that agreement.” (Id. at p. 495.) The court did not cite the fact of the dealership’s joinder in the case or its bringing the initiating motion as material. Indeed, the court expressly 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 district court had denied a motion to compel arbitration brought by the manufacturer 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,” much like the arbitration clause in the agreement here. (Ibid.)[1] The distinction hat Plaintiff offers is therefore unpersuasive.

Plaintiff finally argues that Defendant has waived arbitration by delaying the present motion, which was preceded by Defendant’s filing of two motions to compel further. (Motion at pp. 14–15.)

“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

Prejudice is a critical element of waiver analysis. (See Bower v. Inter-Con Security Systems, Inc. (2014) 232 Cal.App.4th 1035, 1042.) “Prejudice typically is found only where the petitioning party's conduct has substantially undermined this important public policy or substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration.” (See Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 452.) Prejudice may result when a petitioning party has “stretch[ed] out litigation” to the extent that the other party is deprived of the advantages of arbitration as an ‘expedient, efficient and cost-effective method to resolve disputes.’” (Ibid.)

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.)

Here, no waiver has occurred. Although Defendant has engaged in conduct inconsistent with the intent to arbitrate — most notably the filing of two motions to compel further, which the court granted in part on August 29, 2021 — Plaintiff has not been deprived of the speedy and efficient forum that arbitration is intended to provide. The discovery at issue was basic and of the kind that would likely have been available in arbitration in any event. Defendant has filed no other motions, and has not unreasonably delayed seeking arbitration. It sought to obtain the arbitration agreement at issue from Plaintiff in April 2022, shortly after filing its answer, and only obtained the actual agreement from the selling dealership on July 29, 2022. (Sniderman Decl. ¶ 5.) This motion was filed soon after. Trial is not set to begin until July 2024.

[1] The decisions of federal district and appellate courts cited by Plaintiff 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; Felisilda, supra, 53 Cal.App.5^th at p. 486.)