Judge Jill Feeney, Case Number: 22STCV18475, Date: 2023-05-19 Tentative Ruling

On June 6, 2022, Plaintiff Justin R. Marsh filed the instant action alleging lemon law causes of action against defendant FCA US, LLC (FCA) and a cause of action for negligent repair against defendant Elk Grove Auto Group, Inc. dba Elk Grove Dodge Chrysler Jeep Ram (Elk Grove), in connection with a vehicle purchased from Elk Grove on March 18, 2018.

On February 15, 2023, defendants each filed a motion to compel arbitration. On May 8, 2023, plaintiff dismissed Elk Grove from this action, thus mooting Elk Grove’s motion to compel arbitration. On May 8, 2023, plaintiff opposed FCA’s motion to compel arbitration. On May 12, 2023, FCA replied.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.) The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.)

“[T]he moving party bears the burden of producing prima facie evidence of a written agreement to arbitrate the controversy. [Citation.] The moving party can meet its initial burden by attaching to the motion or petition a copy of the arbitration agreement purporting to bear the opposing party's signature.” [Citation.] Alternatively, the moving party can meet its burden by setting forth the agreement's provisions in the motion. [Citation]; see also Cal. Rules of Court, rule 3.1330 [‘The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.’].)

FCA has attached a copy of a “Retail Installment Sale Contract – Simple Finance Charge (with Arbitration Provision)” (the Arbitration Agreement) to its moving papers and has also quoted provisions from it. (Sandhu Decl., Ex. A.) The Arbitration Agreement provides that:

“Any claim or dispute, whether in contract, tort, statute or otherwise…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.”

Plaintiff contends that no arbitration agreement exists between plaintiff and FCA because FCA is not a party to the Arbitration Agreement and the terms of the Arbitration Agreement indicate that it is enforceable only between plaintiff and FCA for disputes arising under the sales contract between plaintiff and Elk Grove.

The court agrees that FCA is not a signatory or party to the Arbitration Agreement. FCA itself does not dispute this point either. However, this does not necessarily mean the Arbitration Agreement does not exist or that FCA is categorically unable to enforce it. The court also notes that plaintiff does not dispute the authenticity of the signatures on the Arbitration Agreement. Thus, the court finds that an arbitration agreement exists. The question now becomes whether FCA can enforce the Arbitration Agreement on grounds of equitable estoppel.

FCA’s sole basis for moving to compel arbitration of the Arbitration Agreement is based on the doctrine of equitable estoppel. (Motion, 9:23-10:11.) Plaintiff contends that only he or the dealership may compel arbitration, and that equitable estoppel does not apply. (Opp., 2:14-6:6, 9:5-11.)

Generally, only a party to an arbitration agreement may enforce the agreement, but the doctrine of equitable estoppel is an exception that allows a non-signatory to enforce an agreement. (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (Felisilda).) 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.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.)

The court in Felisilda examined a similar arbitration clause contained in a dealer’s sales contract: “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 . . . 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. . . .” (Felisilda, supra, 53 Cal.App.5th at p. 490.) The court concluded that the equitable estoppel doctrine applied: “Because the [buyers] 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 [the manufacturer]. Consequently, the trial court properly ordered the [buyers] to arbitrate their claim against FCA.” (Id. at p. 497.)

Plaintiff alleges having received various warranties in connection with the purchase of the subject vehicle. (E.g., Compl., ¶¶ 10-11.) The court in Felisilda held that a similar allegation established that “the sales contract was the source of the warranties at the heart of this case.” (Felisilda, supra, 53 Cal.App.5th at p. 496.) As in Felisilda, plaintiff’s claims against the manufacturer “directly relate[] to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract.” (Id. at p. 497.) Plaintiff argues that Felisilda is distinguishable because the plaintiffs there brought claims against both the dealership and the manufacturer, the dealership moved to compel arbitration, and the manufacturer filed a notice of non-opposition. (Opp. at 6:7-8:15, 15:8-11.) But in Felisilda, the claims against the dealership were eventually dismissed, leaving only the claims against the manufacturer before the plaintiffs’ appeal. (See Felisilda, supra, 53 Cal.App.5th at p. 489.) The Court of Appeal also expressly framed the issue as “whether a nonsignatory to the agreement has a right to compel arbitration under that agreement.” (Felisilda, supra, 53 Cal.App.5th at p. 495.)

After FCA filed this motion, the Court of Appeal issued a published decision in Ford Motor Warranty Cases (2d Dist. 2023) 89 Cal.App.5th 1324 (Ochoa), which declined to follow Felisilda. This Court can now choose to either continue to follow Felisilda or instead adopt Ochoa’s reasoning. (Sarti v. Salt Creek Ltd. (2008) 167 Cal.App.4th 1187, 1193 [“All trial courts are bound by all published decisions of the Court of Appeal . . . Unlike at least some federal intermediate appellate courts, though, there is no horizontal stare decisis in the California Court of Appeal.”].)

The Ochoa court determined that equitable estoppel did not apply because the plaintiffs failed to show that their claims were founded in or intertwined with the sales contracts. (Ochoa, supra, 89 Cal.App.5th at pp. 618-619.) The court “disagree[d] with Felisilda that ‘the sales contract was the source of [FCA’s] warranties at the heart of this case.’” (Id. at pp. 619-620.) Like in Ochoa, Plaintiff’s claims here “are based on FMC’s statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty,” not based “on any express contractual language in the sale contracts.” (Id. at p. 620.) Plaintiff’s claims do not arise directly out of the sales contract, even if FCA’s warranties accompanied the sale of the vehicle. “The sale contracts include no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arise. To the contrary, the sale contracts disclaim any warranty on the part of the dealers, while acknowledging no effect on ‘any warranties covering the vehicle that the vehicle manufacturer may provide.’ In short, the substantive terms of the sale contracts relate to sale and financing and nothing more.” (Ibid.)

The Ochoa court also “disagree[d] with the Felisilda court’s interpretation of the sale contract as broadly calling for arbitration of claims ‘against third party nonsignatories.’” (Ibid.) The court instead read the language “including any such relationship with third parties who do not sign this contract” as “a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate.” (Ibid.) The parties “agreed to arbitrate disputes ‘between’ themselves—‘you and us’—arising out of or relating to ‘relationship[s],’ including ‘relationship[s] with third parties who [did] not sign th[e] [sale] contract[s],’ resulting from the ‘purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.’” (Ibid.) Here too the parties agreed to arbitrate any claim or dispute “between you and us or our employees, agents, successors or assigns, which arises out of or relates to . . . [the] 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).”

This Court agrees with Ochoa’s interpretation of this language and rejects Felisilda’s assumption that the parties agreed to arbitrate claims “even against third party nonsignatories to the sales contract” and “disputes that include third parties so long as the dispute pertains to the condition of the vehicle.” (Felisilda, supra, 53 Cal.App.5th at p. 497.) Ochoa clearly distinguishes between (1) the parties to the claims or disputes (here, “you and us or our employees, agents, successors or assigns”), and (2) the subject matters of the claims or disputes (e.g., arising out of or relating to “any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract”). If there was a dispute between Plaintiff and the dealership that arose out of or related to a resulting transaction or relationship with a third party, then Plaintiff and the dealership would arbitrate that dispute. But based on the arbitration provision’s language and Ochoa’s clear interpretation thereof, there is no agreement requiring Plaintiff to arbitrate a claim or dispute between himself and a non-signatory third-party.