Judge: Kristin S. Escalante , Case: 23STCV07130, Date: 2023-06-29 Tentative Ruling
Case Number: 23STCV07130 Hearing Date: June 29, 2023 Dept: 24
NATURE OF PROCEEDINGS: Hearing on Motion to Compel
Arbitration and Stay Proceedings
The
above-captioned matters are called for hearing.
The Court has
read the moving, opposing and reply papers in the above-captioned motion and
announces its tentative rulings in open Court.
The Motion to Compel Arbitration and Stay Proceedings ID:
370753538679 filed by Defendants Nissan North America, Inc., and Infiniti of
Van Nuys on 05/30/2023 is GRANTED in part and DENIED in part.
Defendant Nissan North America, Inc.’s motion to compel
arbitration is DENIED. Defendant Infiniti of Van Nuys motion to compel
arbitration is GRANTED. The case against Defendant Nissan is stayed pending the
outcome of arbitration of the claims against Defendant Infiniti of Van Nuys.
Defendants Nissan North America, Inc., (“Nissan”) and
Infiniti of Van Nuys (“Infiniti”) (collectively “Nissan”) move for an order
compelling arbitration of the complaint filed by Plaintiff Danielle Lotosky
(“Plaintiff”). (Notice of Mtn., at p. 1.)
By way of background, Plaintiff filed suit against
Defendants for violations of the Song Beverly Consumer Warranty Act (“Song
Beverly”) and the Magnuson Moss Warranty Federal Trade Commission Improvement
Act (“Magnuson Moss”) in connection with her lease of a 2019 Infiniti QX80
(“subject vehicle”). The subject vehicle presented with various nonconformities
within the warranty period and Defendants failed to repair or replace the
subject vehicle. Plaintiff brings the first (violation of lemon law), and fifth
(violation of Magnuson Moss) causes of action against Nissan and the second
(breach of implied warranty), third (negligent repair), and fourth
(misrepresentation) against Defendants.
Plaintiff’s 6/7/2023 request for judicial notice in support of her opposition is granted.
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.)
1. Infiniti’s Ability to Compel Arbitration
Defendants attach the full lease agreement containing the arbitration provision to the declaration of Counsel Petra M Fakhouri (“Fakhouri). The arbitration provision provides, in relevant part: “Except as otherwise stated below, any claim or dispute whether in contract, tort, statute or otherwise (including the interpretation and scope of this clause 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, lease or condition of this vehicle, this lease agreement 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.” (Fakhouri Decl., ¶2, Ex. 1 at p. 4.)
The parties do not dispute the existence of an arbitration agreement between Plaintiff and Infinite, the dealership from whom Plaintiff leased the subject vehicle. Instead, both Plaintiff and Defendants argue that to severe the claims as between Infiniti and Nissan would be unduly burdensome and lead to duplicative work. Plaintiff argues rather than sever the cases, the court should not compel Plaintiff to arbitrate any of the action. Defendants argue, on the other hand, that the court should compel the entire action to arbitration. Notwithstanding both parties’ arguments, the court finds the parties concerns regarding the undue burden can be mitigated by staying the present suit while arbitration proceeds. Accordingly, having found a valid arbitration agreement, the court compels arbitration of the claims against Infiniti.
The next question is whether Nissan may compel arbitration.
2. Nissan’s Ability to Compel Arbitration
Plaintiff
argues that Nissan, which did not sign the sales contract, cannot compel
arbitration based on the contract because equitable estoppel does not apply.
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.)
Regardless
whether there is a delegation clause, the court (and not the arbitrator)
decides whether
a non-signatory is bound by the arbitration agreement. (Benaroya v. Willis (2018) 23 Cal.App.5th 462, 469, 232 Cal.Rptr.3d 808; see also American Builder's Assn. v. Au-Yang (1990) 226 Cal.App.3d 170, 179, 276 Cal.Rptr. 262 [“If an arbitrator, rather than a trial court, were to determine whether an arbitration provision were operative against a nonsignatory, a stranger to the agreement might be subjected to and be bound by an arbitration to which such stranger had not consented and would be without effective review.”].)
The fundamental decision before the court in determining if Nissan may invoke the arbitration provision is whether to apply the more recently decided Ochoa v Ford Motor Company (Ford Motor Warranty Cases) (2023) 89 Cal.App.5th 1324 (Ochoa) or Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (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, 89 Cal.App.5th at p. 1329.) 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 p. 1330.)
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. 1330.) Ford moved to compel arbitration, and
the court of appeal affirmed the trial court’s ruling denying the motion. (Id.
at p. 1331.) 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. 1334.) 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.” (Id., at p. 1334-35.) 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.” (Id., a p. 1335) 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. 1335-36.)
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 the claim 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 found the same reasoning applied to plaintiffs in that case.
Finally, the court found that any purported agency allegations were insufficient to permit Ford to compel arbitration as an undisclosed principal. (Id., at p. 1340.) There were no connections between plaintiffs’ claims against Ford, plaintiffs’ agency allegations, and the contract between plaintiffs and the dealers. The only agency allegations 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 pp. 1340-42.)
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 clauses there were more 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, Ochoa is the more appropriate authority to the present suit than Felisilda. First, Ochoa issues from the Second District Court of Appeal whose jurisdiction 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. Defendants attach the lease agreement, which includes identical language to that considered in both Ochoa and Felisilda. (See Fakhouri Decl., ¶2, Ex. 1 at p. 4; see also 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.
Defendants argue that under the theories of agency as laid out in Izzi v. Mequite Country Club (1986) 186 Cal.App.3d 1309, 1319, Plaintiff’s claims are tied to Nissan through the agency allegations. Defendants do not cite to any specific allegations, and instead, argue generally the agency allegations are sufficient. The court’s review reveals Plaintiff alleged agency allegations with regard to Infiniti’s repair and maintenance of the subject vehicle. However, Ochoa dealt with similar allegations and found them unconvincing. (Ochoa, supra, 89 Cal.App.5th at p. 1340-42.) Defendants’ citation to Izzi, a case about condominium owners, is inapt given the directly applicable authority of Ochoa, a lemon law case.
Accordingly,
the court denies Nissan’s motion to compel arbitration. The case against Nissan
is stayed pending arbitration of Plaintiff’s claims against Infiniti.
The Court
expects Plaintiff and Infiniti to act expeditiously to schedule and complete
the arbitration. The Court sets a Status Conference on December 20, 2023, at
8:30 a.m. at which time the parties are to report on their progress.
Moving party is directed to give notice.