Judge: Kristin S. Escalante , Case: 22STCV21997, Date: 2023-05-18 Tentative Ruling

Case Number: 22STCV21997    Hearing Date: May 18, 2023    Dept: 24

The Motion for Reconsideration of the Court's Order Granting Defendant Nissan North America, Inc.'s Motion to Compel Arbitration ID: 519777749584 filed by Plaintiff Mercedes Montejo Hernandez on 04/14/2023 is DENIED as untimely.

The court reconsiders the motion to compel arbitration under its own authority in light of Ochoa v Ford Motor Company (Ford Motor Warranty Cases) (2023) 306 Cal.Rprt.3d 611. (See Code Civ. Proc., § 1008, subd. (c).) Upon reconsideration of the court prior ruling, the court DENIES Defendant’s motion to compel arbitration. Ochoa is directly on point and compels this conclusion. The matter is remanded to superior court for all further proceedings.

Plaintiffs Mercedes Montejo Hernandez (“Plaintiff”) move for an order granting reconsideration of the court’s prior ruling granting Defendant Nissan North America Inc.’s (“Defendant”) motion to compel arbitration. (Notice of Mtn., at p. 2.) Specifically, Plaintiffs request the court consider the newly issued opinion in Ochoa v Ford Motor Company (Ford Motor Warranty Cases) (2023) 306 Cal.Rptr.3d 611 (Ochoa).

By way of procedural background, on July 7, 2022, Plaintiff filed suit against Defendant alleging violations of the Song Beverly Consumer Warranty Act (“Song Beverly”) in connection with her purchase of a 2020 Nissan Sentra (“subject vehicle”). Plaintiff alleged breach of warrants and failure to remedy the nonconformities. Shortly thereafter, Defendant moved to compel arbitration, which the court granted on March 1, 2023. (Minute Order, Mar. 1, 2023.) The court relied on Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (Felisilda) as it was directly on point.

Legal standard

“When an application for an order has been made to a judge, or to a court, and refused in whole . . .  any party affected by the order may, within 10 days after service upon the party of written notice of entry of the order and based upon new or different facts, circumstances, or law, make application to the same judge or court that made the order, to reconsider the matter and modify, amend, or revoke the prior order.” (Code Civ. Proc., § 1008, subd., (a) (“Section 1008”).) “When a motion is granted or denied, unless the court otherwise orders, notice of the court’s decision or order shall be given by the prevailing party to all other parties or their attorneys, in the manner provided in this chapter, unless notice is waived by all parties in open court and is entered in the minutes.” (Code Civ. Proc., § 1019.5, subd. (a).)

Plaintiff argues the new law found in Ochoa—which specifically addresses the reasoning in Felisilda—justifies reconsideration of the motion. The motion is untimely under Code of Civil Procedure section 1008 subdivision (a) (“Section 1008”). Neither subdivision (a) nor subdivision (c) of Section 1008 give Plaintiff the authority to move for reconsideration more than ten days after the order where there is a change of law. (See Advanced Building Maintenance v. State Comp Ins. Fund (1996) 49 Cal.App.4th 1388, 1392 [finding the trial court’s denial of the motion for reconsideration correct where the motion was served more than 10 days after service of written notice of entry of the order].) Subdivision (a) limited the time in which a party may file a motion for reconsideration. Subdivision (c), on the other hand, gives the court authority to sua sponte reconsider a ruling where there is a change in law. Here, while the motion is untimely, the court finds the change in law that warrants reconsideration of a prior order. Accordingly, the court reconsiders its prior ruling on the motion to compel arbitration pursuant to its own authority. [Alternatively, you could deny the motion on timeliness grounds and decline to reconsider the motion sua sponte, if you do not want to get into the issue of Felisilda v. Ochoa]

Discussion

The fundamental question before the court today is whether to apply Ochoa or Felisilda to the present facts. The court finds an overview of the two cases helpful.

In Ochoa plaintiffs—each of them—purchased a Ford vehicle manufactured by Ford but sold separately by a motor vehicle dealer in Southern California. (Ochoa, supra, 306 Cal.Rptr.3d at p. 616.) The plaintiffs entered into retail sales agreements with the selling dealership which stated in relevant part “ ‘[a]ny claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claims 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 did not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.’ ” (Id. at pp. 616-17.)

Plaintiffs, upon experiencing problems with vehicles, filed suit against Ford under Song Beverly. Plaintiffs did not sue the dealer parties to the sale contracts. (Id. at p. 617.) Ford moved to compel arbitration, and the court of appeal affirmed the trial court’s ruling denying the motion. (Id. at p. 618.) The court reasoned Ford could not invoke the arbitration provision under equitable estoppel, as third-party beneficiary, or as an undisclosed principal. (Ibid.)

Rejecting Felisilda, the court reasoned the arbitration provision language did not “bind[] the purchaser to arbitrate with the universe of unnamed third parties.” (Id. at p. 620.) Rather, the court read that language “(including any such relationship with third parties who did not sign this contract)” as “a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate.” (Ibid.) The court also found that Plaintiff’s claims were not founded in the sales contract because 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.) Finding that California law does not treat manufacturer warranties imposed outside the four corners of retail sale contract as part of the sale contract, the court rejected Ford’s argument that the manufacturer warranties were founded in the sales contract. (Id. at pp. 620-621.)

Next the court rejected that Ford was a third-party beneficiary of the sales contract on the grounds that the sales contracts did not reflect the parties’ intention to benefit the manufacturer based on the factors laid out in Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830. The court found the reasoning in Ngo v. BMW of North America (9th Cir. 2022) 23 F.4th 942 particularly persuasive in supporting that Ford was not a third-party beneficiary. In Ngo, the sales contract offered no clear benefit to the manufacturer, benefiting the manufacturer was not a motivating purpose of the contract, and permitting the manufacturer to enforce the arbitration provision as a third-party beneficiary was inconsistent with the reasonable expectations of the parties given, they specifically vested the right of enforcement in the purchaser and dealer only. The Ochoa court founds the same reasoning applied to plaintiffs.

Finally, the court found that any purported agency allegations were insufficient to permit Ford to compel arbitration as an undisclosed principal. (Id. at p. 624.) There were no connections between plaintiffs’ claims against Ford, plaintiffs agency allegations, and the contract between plaintiffs and the dealers. The only agency allegations as between the dealer and Ford specifically were those related to plaintiffs bringing their vehicle to an authorized repair facility. The allegations that Ford’s unspecified agents committed wrongs were insufficient to demonstrate plaintiffs plead an agency relationship between Ford and the dealers sufficient to compel arbitration under the sales contract. (Id. at p. 625.)

In Felisilda, on the other hand, the court ruled the manufacturer could compel arbitration. There, plaintiffs purchased a vehicle from a dealership. After encountering problems, Plaintiffs sued the dealership and the manufacturer FCA US LLC for violations of Song Beverly. The sales contract contained an arbitration clause. The Felisilda arbitration provision was broad and contained almost the identical language as the provision at issue in Ochoa. It provided, in relevant part: “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.”

Plaintiffs argued that they should not have been required to arbitrate their dispute against FCA because FCA was not a signatory to the arbitration agreement. The Court of Appeal rejected this argument after reasoning that “are several exceptions that allow a nonsignatory to invoke an agreement to arbitrate. (Citation.) The doctrine of equitable estoppel is one of the exceptions.” (Felisilda, supra, 53 Cal.App.5th at p. 495.) Whether the equitable estoppel doctrine requires a non-signatory to arbitrate is determined by state contract law, even when the FAA applies. (See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631–32 (2009) [recognizing that nonsignatory theories are “background principles of state contract law regarding the scope of agreements (including the question of who is bound by them)” and are therefore not altered by the FAA.])

“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.” (Felisilda, supra, 53 Cal.App.5th at p. 495) “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 p. 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.” (Ibid.) In determining whether the plaintiffs’ claim is founded on or intimately connected with the sales contract, the court must examine the facts of the operative complaint. (Ibid.)

The Felisilda court found that Plaintiffs were equitably estopped from contending that the arbitration clause did not apply to their claims against FCA. First, the court found that the sales contract was the source of the warranties that are at the heart of the case. More important, the contract language broadly applied to “any claim or dispute . . . between you and us . . . 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.” The court found that the language stating that “any” claim or dispute which “relates to . . . the condition of the vehicle” was broad enough to cover this dispute. Further, the provision expressly referenced claims against third parties who did not sign the arbitration agreement. “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.)

In reaching that decision, the court distinguished two non-binding federal cases on the ground that the arbitration clause was narrow than Felisilda’s. The court distinguished Kramer v. Toyota Motor Corp (9th Cir. 2013) 705 F.3d 1122 on the ground that the sales contract “did not contain any language that could be construed as extending the scope of the provision to third parties.”  Similarly, the court found that the arbitration provision in Soto v. American Honda Motor Co. (N.D. Cal. 2012) 946 F. Supp. 2d 949, 952 “lacked the key language present in [the Felisilda] case, namely an express extension of arbitration to claims involving third parties that relate to the vehicle’s condition. The express language of the arbitration agreement in [Felisilda] sets it apart from the arbitration provisions in the Soto and Kramer decisions.” (See Felisilda, supra 53 Cal.App.5th at p. 648.)

Here, Plaintiff argues Ochoa is more factually similar than Felisilda because in Felisilda plaintiff sued both the signatory dealership and the non-signatory manufacturer. However, the court does not find the reasoning of Felisilda turned on such a distinction. Nevertheless, Ochoa is more appropriate authority to the present suit than Felisilda. First, Ochoa issues from the Second District Court of Appeal which covers Los Angeles Superior Court. Second, Ochoa provides a more comprehensive analysis of whether the manufacturer’s warranties are founded in the sales contract. This analysis is integral to whether equitable estoppel applies to the present case.

Plaintiff attaches the sales agreement which is legible, albeit somewhat difficult to read. (Kevin Jacobson Declaration [Jacobson Decl.], ¶4, Ex. B [“Sales Contract”].) The arbitration provision in the sales contract states in relevant part:

“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.”

(Jacobson Decl., ¶4, Ex. B, Sales Contract at p. 6.) This is identical to the language considered in both Ochoa and Felisilda. (Ochoa, supra, 306 Cal.Rptr.3d at pp. 616-617; Felisilda, supra, 53 Cal.App.5th at p. 498.) Defendant is not a party to the sales contract. Given Ochoa’s applicability and the identical arbitration provision language, the court finds Defendant cannot invoke arbitration for the same reasons laid out in Ochoa.

Defendant, in turn, argues that Ochoa is not a change in law and the principal of stare decisis requires the court to follow Felisilda. However, the rule of stare decisive “has no application where there is more than one appellate court decision, and such appellate decisions are in conflict. In such a situation, the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.” (Auto Equity Sales, Inc. v. Superior Ct. of Santa Clara Cnty. (1962) 57 Cal. 2d 450, 456.)

Next Defendant argues that Felisilda is better reasoned that Ochoa and thus, the more appropriate authority to follow. Specifically, Defendant argues that Ochoa relies on less recent case law, making it the less well reasoned decision. (Mtn. at p. 3:03-6:02 [referencing Greenman v. Yuba Power Products (1963) 59 Cal.2d 57 and Corp. of Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514].) Plaintiff does not address this argument.

As a preliminary matter, the fact that the California Supreme Court opinion in Greenman is older—in and of itself—does not convince the court that it is inappropriate to rely on. Defendant further argues that Greenman is an inappropriate basis for the Ochoa opinion to find footing because Greenman precedes the passage of both the UCC and Song Beverly. However, Ochoa acknowledges this and points out that there is “no more recent authority establishing that manufacturer warranty obligations are implied terms in a retailer’s sales contract.”  (Ochoa, supra, 306 Cal.Rptr.3d at p. 621.) Defendant’s citation to Hauter v. Zogarts (1975) 14 Cal.3d 104 to establish warranties are part of the sales contract is inapt. Hauter deals with a case where Plaintiff purchased a golf training device in a container baring the at issue warranty. It does not address the situation at hand where the sales contract with a third-party dealership does not include the language of the manufacturer’s warranty. The court finds Ochoa well reasoned on this point. It states “it does not ‘naturally follow’ from any contractual character of manufacturer warranty claims that they inhere in a retail sales contract containing no warranty terms. . . [I]ndependent manufacturer warranties are not part of but are independent from, retail sales contracts.” (Ochoa, supra, 306 Cal.Rptr.3d at p. 621.)

Accordingly, the motion for reconsideration is denied as untimely. The court reconsiders the motion to compel arbitration under its own authority in light of Ochoa v Ford Motor Company (Ford Motor Warranty Cases) (2023) 306 Cal.Rprt.3d 611. (See Code Civ. Proc., § 1008, subd. (c).) Upon reconsidering the court ruling on Defendant’s motion to compel arbitration, the court denies the motion to compel arbitration. The matter is remanded to superior court for all further proceedings.