Judge: John C. Gastelum, Case: 22-01261945, Date: 2023-06-13 Tentative Ruling

(1) Motion to Compel Arbitration (2) Joinder (3) CMC

Tentative Ruling: Defendant Hyundai Motor America (“HMA”) moves to compel Plaintiffs Tae Im and Joanne P. Im (“Plaintiffs”) to arbitrate the claims raised in this action and for an order staying this action pending the resolution of arbitration.  HMA contends it is entitled to enforce an arbitration provision between Plaintiffs and the signatory selling dealership, Defendant Tustin Hyundai, as a third-party beneficiary and under the doctrine of equitable estoppel.

Tustin Hyundai has filed a motion for joinder.  Joinder is appropriate where the joinder seeks affirmative relief on behalf of the joining party and joins in the arguments made by the motion being joined.  (Barak v. Quisenberry Law Firm (2006) 135 Cal.App.4th 654, 661.)  The motion for joinder is in proper form and presents argument in support of the relief sought.  Thus, the motion for joinder is GRANTED.

A party to an arbitration agreement may seek a court order compelling the parties to arbitrate a dispute covered by the agreement.  (Code Civ. Proc., § 1281.2.)  “The trial court may resolve motions to compel arbitration in summary proceedings, in which ‘[t]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.  [Citation.]  In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.’”  (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 683.)

The arbitration provision in the Retail Installment Sale Contract (“RISC”) states, in pertinent part: 

“ARBITRATION PROVISION PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL. …

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 and 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. If federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute. … The arbitrator shall apply governing substantive law and the applicable statute of limitations. … 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.”  (Declaration of Ali Ameripour, Ex. 2.)

Tustin Hyundai is a signatory to the RISC and entitled to compel arbitration.  Plaintiffs have failed to meet their burden to show that the arbitration provision is unconscionable and unenforceable.  Thus, arbitration of Plaintiffs’ claims against Tustin Hyundai must be compelled.

As to HMA, the issue is whether HMA, as a non-signatory to the RISC, may compel arbitration.

Felisilda held that a non-signatory manufacturer has standing to compel arbitration under the doctrine of equitable estoppel.  In Felisilda, the plaintiffs encountered problems with a used vehicle they had purchased and sued the dealership and manufacturer for violations of the Song-Beverly Act.  (Id., at p. 489.)  The dealer moved to compel arbitration based on the sales contract and the manufacturer, FCA, filed a notice of non-opposition.  (Ibid.)  The trial court granted the motion and ordered arbitration of the entire action.  (Ibid.)  The plaintiffs then dismissed the dealer, the matter went to arbitration, and the arbitrator found in favor of FCA.  (Ibid.)  On appeal, the plaintiffs argued that the trial court erred in including their claims against FCA in the arbitration because FCA was a non-signatory to the sales contract.  (Ibid.) 

In affirming the trial court, the Felisilda court found that the claims fell within the scope of the arbitration provision: “In signing the sales contract, the Felisildas agreed that “‘[a]ny claim or dispute, whether in contract, tort, statute or otherwise … between you and us … which arises out of or relates to … [the] condition of this vehicle … shall … be resolved by neutral, binding arbitration and not by a court action.’  Here, the Felisildas’ claim against FCA relates directly to the condition of the vehicle.”  (Id., at p. 496, original italics.)  The Felisilda court further found that the language in the sales contract expressly extended arbitration “to claims involving third parties that relate to the vehicle’s condition.”  (Id., at p. 498.)  “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.)

On April 4, 2023, in Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, the Second District of the Court of Appeal addressed the same issues of equitable estoppel and third party beneficiary and declined to follow Felisilda.  Instead, the court held that Ford Motor Company “failed to establish any right to compel arbitration under the sale contracts—not under the doctrine of equitable estoppel, not as a third party beneficiary, and not as an undisclosed principal.”  (Id. at p. 1332.) 

As to equitable estoppel, the court “disagreed with Felisilda that ‘the sales contract was the source of [FCA’s] warranties at the heart of this case’ ” because “manufacturer vehicle warranties that accompany the sale of motor vehicles without regard to the terms of the sale contract between the purchaser and the dealer are independent of the sale contract.”  (Id. at p. 1334.)  Thus, the court held that “Plaintiffs’ claims in no way rely on the sales contracts.”  (Id. at p. 1336.)

As to the third party beneficiary issue, the court found Ngo v. BMW of N. Am., LLC (9th Cir. 2022) 23 F.4th 942 persuasive and “agree[d] with Ngo that the sale contracts reflect no intention to benefit a vehicle manufacturer under Goonewardene.  First, nothing in the sale contracts or their arbitration provision offers any direct ‘benefit’ to FMC [citation].”  (Id. at p. 1338.)  “Second, there is no indication that a benefit to FMC was the signatories’ ‘motivating purpose’ [citation] in contracting for the sale and purchase of a Ford vehicle.”  (Id. at pp. 1338-1339)  “Finally, allowing FMC to enforce the arbitration provision as a third party beneficiary would be inconsistent with the ‘reasonable expectations of the contracting parties’ [citation] where they twice specifically vested the right of enforcement in the purchaser and the dealer only.”  (Id. at p. 1340.)

The Felisilda and Ford Motor Warranty Cases cases involved the same arbitration provision language and represent a split in authority.  The Court finds the Ford Motor Warranty Cases ruling to be more persuasive and well-reasoned and will therefore follow the Second District.  As in that case, the Court finds that Plaintiffs’ claims against HMA do not arise out of the RISC.  Rather, the manufacturer warranties are independent of the RISC.  Moreover, Plaintiffs’ claims against HMA do not allege any violations of the RISC.  Instead, the claims are based on obligations allegedly owed by HMA that are entirely independent of the RISC.  Thus, HMA may not move to compel arbitration under the doctrine of equitable estoppel.

The Court also finds that HMA is not a third party beneficiary of the RISC.  There is nothing in the RISC that provides a direct benefit to HMA, there is no indication that the signatory parties had as a motivating purpose an intent to benefit HMA in entering into the RISC, and allowing HMA to enforce the arbitration provision between Plaintiffs and Tustin Hyundai would be inconsistent with the reasonable expectations of the contracting parties.

HMA argues that Plaintiffs should still be compelled to arbitrate their claims against HMA because when lawsuits against a non-signatory are inherently bound up with claims against a signatory, arbitration as to all claims should be compelled to avoid denying the signatory the benefit of the arbitration clause and duplicative litigation which undermines the efficiency of arbitration.

“When commonality of issues exists among actions, some arbitrable and some not, Code of Civil Procedure section 1281.2, subdivision (c), vests the trial court with a variety of options: The court may (1) refuse to enforce the arbitration agreement and order intervention or joinder of all parties in a single court action; (2) order intervention or joinder in the court action as to all or only certain issues; (3) order arbitration among the parties who have agreed to arbitration and stay the pending court action pending the outcome of the arbitration proceeding; or (4) stay arbitration pending the outcome of the court action.”  (DMS Services, LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1357-1358; see also Cronus Investments, Inc. v. Concierg Services (2005) 35 Cal.4th 376, 393 [“Section 1281.2(c) addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement.”].)

The first two causes of action are pled against HMA only.  The third cause of action for violation of the CLRA is pled against HMA, PB&J, and Tustin Hyundai and the fourth cause of action for negligence is pled against PB&J and Tustin Hyundai.  Only two of the four causes of action are subject to the arbitration provision with Tustin Hyundai, and only to the extent those causes of action are against Tustin Hyundai.  Those two causes of action are also alleged against PB&J and HMA.  Thus, the Court finds that the gravamen of Plaintiffs’ action is the non-arbitrable claims.  Therefore, the arbitration against Tustin Hyundai shall be STAYED pending the outcome of this court action.

Counsel for HMA to give notice.