Judge: H. Jay Ford, III, Case: 22SMCV00982, Date: 2023-02-21 Tentative Ruling

Case Number: 22SMCV00982    Hearing Date: February 21, 2023    Dept: O

Case Name:  Nyamekye v. Nissan North America, Inc., et al.

SUBJECT:                 MOTION TO COMPEL ARBITRATION

MOVING PARTY:   Defendant Nissan North America, Inc.  

RESP. PARTY:         Plaintiff Nneka Nyamekye

TENTATIVE RULING

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

            Defendant Nissan North America, Inc. moves to compel arbitration pursuant to the Retail Installment Contract entered into between Plaintiff and non-party Nissani Bros Nissan.  See Dec. of K. Ihara, Ex. B, Retail Installment Sales Contract (“RISC”), p. 5.  Defendant Nissan is a nonsignatory to the arbitration agreement and argues it is entitled to compel arbitration (1) based on equitable estoppel as applied in Felisilda v. FCA US LLC (2020) 53 Cal.App.5^th 486 and (2) as a third-party beneficiary of the arbitration clause.

            The text of the arbitration clause contained in the RISC 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, a your or our election, be resolved by neutral, binding arbitration and not by court action…[¶]  Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. §1 et seq.) and not by any state law concerning arbitration.”  See Dec. of K. Ihara, Ex. B, RISC, p. 5, “Arbitration Provision.”

I.  Equitable estoppel does not apply and Felsilda is distinguishable

            Under the FAA, state law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631–32; Ngo v. BMW of North America, LLC (2022) 23 F.4^th 942, 946.  “As a general rule, only a party to an arbitration agreement may enforce the agreement.  However, there are several exceptions that allow a nonsignatory to invoke an agreement to arbitrate.  The doctrine of equitable estoppel is one of the exceptions.”  Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.

            “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.  By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.”  Id. at 495–496. 

            “In any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.  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.  “This requirement comports with, and indeed derives from, the very purposes of the doctrine: to prevent a party from using the terms or obligations of an agreement as the basis for his claims against a nonsignatory, while at the same time refusing to arbitrate with the nonsignatory under another clause of that same agreement.”  Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 221

            Based on an examination of the RISC and the allegations of the complaint, Plaintiff’s claims are not inextricably intertwined with, founded on or intimately connected with the sales contract.  Plaintiff is seeking to enforce Nissan’s express and implied warranties.  See Plaintiff’s Complaint, ¶¶16-17, 23.  Plaintiff did not sue on the RISC, none of the RISC’s terms are alleged nor is the dealer named in this action. 

The RISC itself states that it does not affect the manufacturer’s warranties, which are the express basis for Plaintiff’s sole claim under the Song Beverly Act:  “This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.”  See Dec. of K. Ihara, Ex. B, RISC, ¶4, p. 4, “Warranties Seller Disclaims.”   Under California law, warranties from a manufacturer that is not a party to a sales contract are not part of the contract of sale.  See Corporation of Presiding Bishop of Church of Jesus Christ of Latter-Day Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514; Ngo v. BMW of North America, LLC (2022) 23 F.4^th 942, 949-950.   

Defendant Nissan also states repeatedly that the arbitration provision in the RISC obligates Plaintiff to arbitrate claims against third parties.  Interpretation of contract is a question of law for the court, and the goal should be to give effect to the mutual intent of the parties.  See Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37; MacKinnon v. Truck Ins. Exch. (2003) 31 Cal.4th 635, 647-648. (citing Cal. Civ.Code § 1636). Such intent is to be inferred, if possible, from the written provisions of the contract based on their “ordinary and popular sense,” unless a “technical sense or special meaning is given to them by their usage.”  Id. at 648 (citing Cal. Civ.Code §§ 1639, 1644, 1638).  If the contractual language is clear and explicit, it governs. Id.     

“If no extrinsic evidence was presented or if the extrinsic evidence was not in conflict, the resolution of the ambiguity is a question of law, which is subject to independent review on appeal.  Even where uncontroverted evidence allows for conflicting inferences to be drawn, our Supreme Court treats the interpretation of the written contract as solely a judicial function.”  Scheenstra v. California Dairies, Inc. (2013) 213 Cal.App.4th 370, 390.   

Plaintiff offers a reasonable interpretation of the arbitration provision based on its express language.  Plaintiff argues the language of the arbitration provision only required that Plaintiff arbitrate claims between the dealership and Plaintiff, even if those claims between them arose from disputes with third-parties to the RISC.  The reference to “third parties” describes the source of the dispute between the dealer and Plaintiff, not the parties subject to or entitled to mandatory arbitration:  “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 …this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract).”

There is nothing in the language of the provision indicating that Plaintiff agreed to arbitrate claims between Plaintiff and third parties.  The only disputes subject to the arbitration provision are those between “you,” which is Plaintiff” and “us or our employees, agents, successors and assigns,” which is Nissani Bros Nissan. 

In addition, Nissan presents no extrinsic evidence of the contracting parties’ intent that would support its interpretation of the arbitration provision.  Nissan was not a party to the agreement and the RISC is a form agreement.  On the other hand, Plaintiff presents extrinsic evidence indicating that Nissan does not mandate arbitration of warranty claims.  See Dec. of M. Treybig, ¶3.  Instead, Nissan requires that the owner first engage in nonbinding arbitration through Nissan’s arbitration program before filing a lawsuit.  Id.  This would indicate an intent by Nissan not to require mandatory arbitration.

Nissan argues Plaintiff’s Song-Beverly claim against it is intertwined with the RISC, because the purchase triggering Nissan’s warranties would never have happened but for the RISC.  Nissan’s interpretation of “inextricably intertwined” based on this “but for” analysis was never adopted or rejected in Felisilades.  The Court of Appeals declined to resolve whether the “but for” analysis satisfied the requirements of equitable estoppel, because it found that based on the arbitration provision’s language, plaintiff agreed to arbitrate claims against third parties, including the manufacturer.  See Fesilida, supra, 53 Cal.App.5^th at 498. 

The mere fact that the purchase would never have happened but for the RISC is too attenuated to satisfy equitable estoppel.  See e.g. Kramer v. Toyota Motor Corp. (2013) 705 F.3d 1122, 1133-1134.  “This argument confuses the concept of claims founded in and intertwined with the agreement containing the arbitration clause with but-for causation.”  DMS Services, LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1356–1357 (nonsignatory defendant could not compel arbitration of plaintiff’s claims based on deductible agreements; administration agreement sued upon was not inextricably intertwined with deductible agreements containing arbitration provisions merely because defendant’s breach of administration agreement resulted in plaintiff owing more money under the deductible agreements). 

Nissan argues Fesilida is controlling and dispositive.  Nissan asks that the Court reject the plethora of persuasive, federal district court authority cited by Plaintiff in support of the opposition.  The Court finds Fesilida distinguishable.  As noted by Plaintiff and the Ninth Circuit in Ngo, in Fesilida, the plaintiff named the dealer and it was the dealer who moved to compel arbitration, i.e. a signatory moved to compel arbitration.  See Fesilida, supra, 53 Cal.App.4^th at 489.  “It makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer. In Felisilda, it was the dealership—a signatory to the purchase agreement—that moved to compel arbitration rather than the non-signatory manufacturer.  Furthermore, the Felisildas dismissed the dealership only after the court granted the motion to compel arbitration. Accordingly, Felisilda does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own.”  Ngo, supra, 23 F.4^th at 950. 

“[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability…Nevertheless, arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit….Generally, the contractual right to compel arbitration may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration.  Accordingly, the strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement.”  Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1126.

Defendant Nissan fails to establish that it is entitled to compel arbitration of Plaintiff’s claims against it based on equitable estoppel.  Felisilda is distinguishable, in particular because Plaintiff did not name the dealer and is not in any way enforcing any rights or obligations created under the RISC.  Defendant Nissan fails to establish that Plaintiff’s claim under the Song Beverly Act is intimately founded in and intertwined with the underlying contract obligations set forth in the RISC between Plaintiff and Nissani Bros Nissan.  The “linchpin of equitable estoppel is fairness” and Nissan fails to establish any fairness principle upon which it can rely.  See City of Hope v. Cave (2002) 102 Cal.App.4^th 1356, 1370.  The motion compel arbitration based on equitable estoppel is DENIED. 

II. Nissan fails to establish it is a third-party beneficiary of the RISC or the arbitration provision contained therein

            “A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.”  Civil Code §1559.  “In some cases, a nonsignatory was required to arbitrate a claim because a benefit was conferred on the nonsignatory as a result of the contract, making the nonsignatory a third party beneficiary of the arbitration agreement.”  County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4^th 237, 242. 

            Third parties do not become “third party beneficiaries” just because a contract benefits them. A contract must be “made expressly” for the third party's benefit. The test is “whether an intent to benefit a third person appears from the terms of the contract.”  Jensen, supra, 18 Cal.App.5th at 301-302,; see also Pillar Project AG v. Payward Ventures, Inc. (2021) 64 Cal.App.5th 671, 279 Cal.Rptr.3d 117, 120, 123 (plaintiff was not third party beneficiary to arbitration agreement between “cryptocurrency exchange” platform and intermediary plaintiff hired to convert his cryptocurrency into conventional currency).

            As the party claiming third party beneficiary status, Nissan has the burden of proving each element of third party beneficiary status.  See Jones v. Jacobson (2011) 195 Cal.App.4^th 1, 15 (“the nonsignatory bears the burden to establish he or she is a party to the arbitration agreement/provision covering the dispute”).  Nissan relies entirely on the following language of the arbitration clause:  “including any such relationship with third parties who do not sign this contract.”  Nissan also relies on Felisilda’s interpretation of the arbitration clause as expressly agreeing to arbitration of claims against third parties.  As discussed above, the Court finds Plaintiff’s interpretation of the clause to be more reasonable and supported by the express language of the agreement.  Nissan therefore fails to establish that the RISC or the arbitration agreement contained therein convey any direct benefit on Nissan.  Nissan’s motion to compel arbitration as a third party beneficiary is DENIED.