Judge Lee W. Tsao, Case Number: 22NWCV00772, Date: 2023-07-20 Tentative Ruling

Judge: Lee W. Tsao, Case: 22NWCV00772, Date: 2023-07-20 Tentative Ruling

Case Number: 22NWCV00772 Hearing Date: July 20, 2023 Dept: C

MARTINEZ v. AMERICAN HONDA MOTOR CO., INC.

CASE NO.: 22NWCV00772

HEARING: 07/20/23

Defendant Honda Motor Co., Inc.’s Motion to Compel Arbitration and Stay Proceedings is DENIED.

Opposing Party to give notice.

Defendant moves for an order compelling arbitration and staying proceedings pursuant to CCP § 1281 et seq.

Background

On March 19, 2019, Plaintiff entered into a Retail Installment Sales Contract (RISC) to finance their purchase of a 2019 Honda Pilot vehicle from Autonation Honda Costa Mesa (Dealership). Plaintiff contends that the vehicle was defective and attempts to repair the vehicle failed to cure the defects. On August 29, 2022, Plaintiff filed a Complaint against Defendant alleging violations of Song-Beverly Act and fraud.

Defendant now seeks to compel arbitration under the RISC and its accompanying arbitration agreement.

Arbitration Agreement

Parties may be compelled to arbitrate a dispute upon the court finding that: (1) there was a valid agreement to arbitrate between the parties; and (2) said agreement covers the controversy or controversies in the parties’ dispute.¿(Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.) A party moving to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court¿(1998) 62 Cal.App.4th 348, 356-357.)

Here, Defendant met its burden of proving a valid arbitration agreement. Defendant attached a copy of the RISC for Plaintiff’s purchase of the vehicle from the dealership. (Lavigne Decl., Ex. A.) The RISC contains an arbitration provision (the Arbitration Agreement), which states:

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 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.

(Lavigne Decl., Ex. A.) Further, Plaintiff does not dispute that there is a valid arbitration agreement. Thus, Defendant has met its burden of proving that there is a valid arbitration agreement by attaching the claimed Arbitration Agreement in the RISC to its motion.

Equitable Estoppel

A nonsignatory manufacturer can compel arbitration under equitable estoppel “when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (Felisilda v. FCA US LLC (Felisilda) (2020) 53 Cal.App.5th 486, 495.) The causes of actions are intimately founded in and intertwined even if they do not exclusively rely on the contract terms. “ ‘The fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute . . . should be resolved.’ “ (Id. at 496.)

The court in Felisilda, supra, 53 Cal.App.5th 486, 496-497, held that the manufacturer could compel arbitration because the condition of the vehicle was within the subject matter of the claims made arbitrable under the sale contract, the sale contract was the source of the manufacturer’s warranties under which plaintiffs were suing, and plaintiffs had expressly agreed to arbitrate claims arising out of the condition of the vehicle, even against third party nonsignatories. The court in Ford Motor Warranty Cases (Ford) (2023) 89 Cal.App.5th 1324, disagreed with Felisilda that arbitration could be compelled under an identical arbitration provision. This Court can now choose to either continue to follow Felisilda or instead adopt Ford’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 Ford court disagreed with Felisilda on the grounds that the fact “[t]hat the Felisilda plaintiffs and the Dealers agreed in their sale contract to arbitrate disputes between them about the condition of the vehicle does not equitably estop the plaintiffs from asserting [the manufacturer] has no right to demand arbitration. Equitable estoppel would apply if the plaintiffs had sued [the manufacturer] based on the terms of the sale contract yet denied [the manufacturer] could enforce the arbitration clause in that contract.” (Ford, supra, 89 Cal.App.5th 1324, 1334.) The Ford court held that the plaintiffs’ claims did not arise in the sale contracts and instead on the statutory obligations under the Song-Beverly Consumer Warranty Act, breach of implied warranty of merchantability, and fraudulent inducement. “Not one of the plaintiffs sued on any express contractual language in the sale contract.” (Ford, supra, 89 Cal.App.5th 1324, 1335.) Specifically, the contract contained provisions that disclaimed any warranty by the Dealers, “while acknowledging no effect on ‘any warranties covering the vehicle that the vehicle manufacturer may provide.’ ” (Ibid.) Further, the California Supreme Court distinguished between warranties from the seller arising out of contract and warranties from the manufacturer arising “independently of a contract of sale between the parties.” (Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 60.) Thus, plaintiffs’ claims were not “intimately founded in and intertwined” with the sale contracts because the sale contracts do not intend to cover the manufacturer’s warranties. (Ford, supra, 89 Cal.App.5th 1324.) Therefore, equitable estoppel does not apply to compel plaintiffs to arbitrate their claims because plaintiffs were not making use of the terms of the sale contracts. (Ibid.)

Thus, Defendant may only compel arbitration if Plaintiff’s claims arise from and are intimately founded in and intertwined with the sales contract instead of under Song-Beverly.

Defendant may not compel arbitration because Plaintiff’s claims arise from Defendant’s statutory obligation and are not based on any express contractual language. Equitable estoppel is applicable where one party relies on a contract, which includes an arbitration provision, in asserting its claims against a third party but attempts to avoid its application to determining the forum in pursuing its claims. (Felisilda, supra, 53 Cal.App.5th 486, 496.) Here, like in Ford, Plaintiff’s claims “are based on [Defendant’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 620.) Plaintiff’s claims do not arise directly out of the RISC, even if Defendant’s warranties accompanied the sale of the subject 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.) Similarly, here the RISC includes no warranty, any assurance regarding the quality of the vehicle, no promise to make repairs, and disclaims any manufacturer warranty. Thus, like Ford, Plaintiff’s claims arise from Defendant’s statutory obligation and not from the sales contract. Therefore, Defendant may not compel arbitration because Plaintiff’s claims are not intimately found in or intertwined with the RISC.

Nonsignatory to Sales Contract

Defendant argues that it may enforce the Arbitration Agreement because it contemplates enforcement by and against nonsignatory third parties.

“A third party beneficiary is someone who may enforce a contract because the contract is made expressly for his benefit.” (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 301; see also Civ. Code, § 1559 [“[a] contract, made expressly for the benefit of a third person, may be enforced by him ....”].) A person “only incidentally or remotely benefited” from a contract is not a third party beneficiary. (Lucas v. Hamm (1961) 56 Cal.2d 583, 590.) Thus, “the ‘mere fact that a contract results in benefits to a third party does not render that party a “third party beneficiary.” ’ ” (Jensen, supra, 18 Cal.App.5th 295, 302.) Nor does knowledge that the third party may benefit from the contract suffice. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.) Rather, the parties to the contract must have intended the third party to benefit. (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.)

To show the contracting parties intended to benefit it, a third party must show that, under the express terms of the contract at issue and any other relevant circumstances under which the contract was made, (1) “the third party would in fact benefit from the contract”; (2) “a motivating purpose of the contracting parties was to provide a benefit to the third party”; and (3) permitting the third party to enforce the contract “is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” (Goonewardene, supra, 6 Cal.5th 817, 830.)

Defendant is not a third-party beneficiary as contemplated by the RISC because there is no motivating purpose between Plaintiff and the Dealership to provide benefit for Defendant. The Ford court held that the same language, “[a]ny claim or dispute, . . . which arises out of or relates to your . . . 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)” did not intend to include the manufacturer. “Purchasers . . . can elect to buy insurance, theft protection, extended warranties and the like from third parties, and they can finance their transactions with those third parties under the sale contracts. The “third party” language in the arbitration clause means that if a purchaser asserts a claim against the dealer (or its employees, agents, successors or assigns) that relates to one of these third party transactions, the dealer can elect to arbitrate that claim. It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.” (Ford, supra, 89 Cal.App.5th 1324, 1335.) Similarly, here, the contract evidences no intent to include Defendant and statutory manufacturer warranties claims, rather, there is only evidence that it intends to include any purchases from third parties which were financed under the contract, such as optional service contract, vehicle insurance, and state fees. Thus, the RISC does not reveal a motivating purpose to include Defendant as a third-party beneficiary. Therefore, Defendant cannot enforce the Arbitration Agreement as a third-party beneficiary.

Accordingly, the motion to compel arbitration and stay proceedings is DENIED.