Judge Lee W. Tsao, Case Number: 24NWCV00498, Date: 2024-11-20 Tentative Ruling

Judge: Lee W. Tsao, Case: 24NWCV00498, Date: 2024-11-20 Tentative Ruling

Case Number: 24NWCV00498 Hearing Date: November 20, 2024 Dept: C

LE ET AL. V. HYUNDAI MOTOR AMERICA

CASE NO.: 24NWCV00498

HEARING: 11/20/2024

TENTATIVE ORDER

Defendant Genesis Motor America’s motion to compel arbitration is GRANTED. The action is STAYED pending arbitration.

Moving party to give notice.

Genesis Motor America, erroneously sued as Hyundai Motor America, (Defendant) moves the Court for an order compelling Benjamin Le and Tryna Nguyen (Plaintiffs) to arbitrate all claims and stay this action pending arbitration.

Background

This is a lemon law action. On February 20, 2024, Plaintiffs filed a complaint against Defendant alleging (1) violation of Song-Beverly Act – breach of express warranty, (2) violation of Song-Beverly Act – breach of implied warranty, and (3) violation of Song-Beverly Act section 1793.2.

On August 13, 2022, Plaintiffs purchased a 2023 Genesis GV70 (Subject Vehicle) with a 5-year/60,000 mile bumper to bumper warranty and 10-year/100,000 mile powertrain warranty. (Complaint, ¶ 9.) Plaintiffs allege the Subject Vehicle possessed defects and nonconformities at the time of purchase. (Complaint, ¶ 10.) Plaintiffs further allege authorized service representatives were unable to repair the Subject Vehicle to conform with the warranties after three service visits. (Complaint, ¶¶ 11-13, 53.)

Request for Judicial Notice

Plaintiffs request the Court take judicial notice of the following legislative history:

1. 40 Fed.Reg. 60168 - 60211 (Dec. 31, 1975);

2. 64 Fed.Reg. 19700 - 19709 (Apr. 22, 1999);

3. H.R.Rep. No. 93–1107 (1974);

4. Subcommittee Staff Report, 120 Cong. Rec. 31,318 (1974); and

5. 5. Final Action Concerning Review of Interpretations of Magnuson-Moss Warranty Act; Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions; Rule Governing Pre-Sale Availability of Written Warranty Terms; Rule Governing Informal Dispute Settlement Procedures; and Guides for the Advertising of Warranties and Guarantees, 80 Fed.Reg. 42710-01 (July 20, 2015).

The Court GRANTS Plaintiffs’ requests. (Evid. Code §§ 452 (a), (c).)

Plaintiffs additionally request the Court take judicial notice of the following Code of Federal Regulations sections:

1. 16 C.F.R., Subchapter G, Parts 700, 701, 702, and 703

The Court GRANTS Plaintiffs’ request. (Evid. Code § 452 (b).)

Evidentiary Objections

Plaintiff’s raise the following evidentiary objections:

Objection No. 1: To Declaration of Ali Ameripour, ¶ 3: Overruled.

Objection No. 2: To Declaration of Ali Ameripour, ¶ 3, Ex. 3: Overruled.

Objection No. 3: To Declaration of Vijay Rao, ¶ 5: Overruled.

Objection No. 4: To Declaration of Vijay Rao, ¶ 6, Ex. 2: Overruled.

Legal Standard

Under both the Federal Arbitration Act (FAA) and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) The party moving to compel arbitration must establish the existence of a written arbitration agreement between the parties. (Code Civ. Proc. § 1281.2.) This is usually done by presenting a copy of the signed, written agreement to the court. “A petition to compel arbitration or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.” (Cal. Rules of Court, rule 3.1330.) The moving party must also establish the other party’s refusal to arbitrate the controversy. (Code Civ. Proc. § 1281.2.)

Under the FAA, general contract defenses, such as fraud, duress, or unconscionability, may provide grounds for invalidating an arbitration agreement if they are enforced evenhandedly and do not interfere with fundamental attributes of arbitration. (9 U.S.C.A. § 1 et seq.) To invalidate an arbitration provision, a plaintiff must show that it is both procedurally and substantively unconscionable. (Marin Storage & Trucking, Inc. v. Benco Contracting & Eng'g, Inc. (2001) 89 Cal. App. 4th 1042, 1053; Chemours Co. v. DowDuPont Inc. (2020) No. CV 2019-0351- SG, 2020 WL 1527783, at *12.) “A court should consider substantive unconscionability only after procedural unconscionability has been established.” (Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 494.) Procedural unconscionability focuses on whether there is ‘oppression’ arising from an inequality of bargaining power or ‘surprise’ arising from buried terms in a complex printed form. (Crippen v. Central Valley RV Outlet. Inc. (2004) 124 Cal.App.4th 1159, 1280-81.)

Discussion

Defendant seeks a Court order to compel Plaintiffs to arbitration based on an arbitration provision, “BINDING ARBITRATION FOR CALIFORNIA VEHICLES ONLY” contained in an Owner’s Handbook & Warranty Information (Handbook) and an arbitration provision contained in the Genesis Connected Services Agreement (CSA).

Enforceability of the Arbitration Agreement in the Owner’s Handbook

Defendant includes a copy of the Handbook’s arbitration provision in Ali Ameripour’s declaration. (Ameripour Decl., Exh. 3.) The Handbook’s arbitration agreement states the following in relevant part:

IF YOU PURCHASED OR LEASED YOUR VEHICLE IN CALIFORNIA, YOUR WARRANTY IS MADE SUBJECT TO THE TERMS OF THIS BINDING ARBITRATION PROVISION. BY USING THE VEHICLE, OR REQUESTING OR ACCEPTING BENEFITS UNDER THIS WARRANTY, INCLUDING HAVING ANY REPAIRS PERFORMED UNDER WARRANTY, YOU AGREE TO BE BOUND BY THESE TERMS. IF YOU DO NOT AGREE WITH THESE TERMS. IF YOU DO NOT AGREE WITH THESE TERMS, PLEASE CONTACT US AT OPT-OUT@GMA.COM WITHIN THIRTY (30) DAYS OF YOUR PURCHASE OR LEASE TO OPT-OUT OF THIS ARBITRATION PROVISION.

Plaintiff argues the Handbook’s arbitration agreement is improper because Defendant failed to properly submit admissible evidence of the agreement. However, in a petition to compel arbitration, a party is not required to follow normal authentication procedures. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219 [“as a preliminary matter the court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity”].)

In Plaintiff Benjamin Le’s declaration, he argues he never signed the Handbook agreement because it did not require a signature. (Le Decl., ¶ 6.) He also argues he did not rely on the Handbook regarding the warranty because he exclusively relied on representations made by Defendant’s authorized dealerships. (Le Decl., ¶ 7.) However, this contradicts Plaintiffs’ express allegations in the complaint which rely on the existence of a warranty. Plaintiffs allege “[t]hese causes of action arise out of warranty and repair obligations of HYUNDAI MOTOR AMERICA in connection with a vehicle Plaintiffs purchased and for which HYUNDAI MOTOR AMERICA issued a written warranty. The warranty was not issued by the selling dealership.” (Complaint, ¶ 4.)

Next, Plaintiffs argue the Handbook’s arbitration agreement is unenforceable under the Magnuson-Moss Warranty Act. The Magnuson-Moss Warranty Act grants the FTC power to regulate alternative dispute resolution in claims involving warranties. (15 U.S.C. § 2310(a)(2).) In reply, Defendant contends the case law Plaintiffs cite to predates relevant rulings including the Fifth Circuit Court’s ruling in Walton v. Rose Mobile Homes LLC (5th Cir. 2002) 298 F.3d 470, 478-479 (“Walton”). The court in Walton held “the MMWA does not preclude binding arbitration of claims pursuant to a valid binding arbitration agreement, which the courts must enforce pursuant to the FAA.” (Walton, supra, 298 F.3d 470, 478-479. Further, Walton’s reasoning has been upheld by the 9th Circuit Court. (See In re Apple Iphone 3G Prods. Liab. Litig. (N.D.Cal. 2012) 859 F.Supp.2d 1084, 1091.) In In re Apple Iphone 3G, the 9th Circuit Court explains, “There are two types of written warranties under the [MMWA]: full warranties and limited warranties. The MMWA ‘imposes minimum federal warranty standards’ for ‘full’ warranties and provides remedies for their breach.” (In re Apple Iphone 3G Prods. Liab. Litig. 859 F.Supp.2d at 1090 [citations omitted].) In ruling that the claims were subject to arbitration, the Court explained that because the MMWA claims hinged on the state law warranty claims, “it follows that the Court's disposition of the MMWA claim must be determined by the Court's disposition of the state law warranty claims.” (Id. at 1091.) Here, Plaintiff only brings state law warranty claims under the Song-Beverly Act, not the Magnuson-Moss Warranty Act. Accordingly, the Court finds the existence of a valid and enforceable arbitration agreement in the Handbook.

Enforceability of the CSA Arbitration Provision

In the alternative, Defendant also puts forth an arbitration agreement in the CSA. Plaintiffs enrolled the Subject Vehicle in Genesis Connected Services through a dealer-assisted enrollment process. (Rao Decl., ¶ 5.) As part of the enrollment process, customers must agree to the CSA. (Rao Decl., ¶ 4.) Vijay Rao includes a copy of the CSA in his declaration. (Rao Decl., Exh. 2.) In relevant part, the agreement states:

Hyundai and you agree to arbitrate any and all disputes and claims between us arising out of or relating to this Agreement, Connected Services, Connected Services Systems, Service Plans, the Vehicle, use of the sites, or products, services, or programs you purchase, enroll in or seek product/service support for, whether you are a Visitor or Customer, via the sites or through mobile application, except any disputes or claims which under governing law are not subject to arbitration, to the maximum extent permitted by applicable law. This agreement to arbitrate is intended to be broadly interpreted and to make all disputes and claims between us subject to arbitration to the fullest extent permitted by law. […] The agreement to arbitrate otherwise includes, but is not limited to: claims based in contract, tort, warranty, statute, fraud, misrepresentation or any other legal theory; claims that arose before this or any prior Agreement.

The Court finds that Defendant properly included a copy of the CSA agreement in its declaration. The CSA agreement applies broadly and includes all claims alleged in the complaint. Accordingly, in the alternative, the CSA agreement is also a valid and enforceable arbitration agreement.

Procedural Unconscionability

Plaintiffs argue the arbitration clause is procedurally unconscionable because they were not informed by the authorized dealership that the warranty claims would be subject to arbitration and because this is a contract of adhesion. Defendant cites to the Supreme Court’s ruling in Sanchez v. Valencia Holding Co. (2015) 61 Cal.4th 899, 914 to argue notice was not required. A defendant had “no obligation to highlight the arbitration clause of its contract, nor was it required to specifically call that clause to [plaintiff’s] attention.” (Sanchez, supra 61 Cal.4th 899 at 914.) Here, Plaintiffs’ argument fails because there is no requirement that the authorized dealership or Defendant draw attention to the arbitration agreement.

Plaintiffs additionally argue this was a contract of adhesion because the arbitration agreement was buried within the Handbook and did not require signature. The Court agrees. However, a contract of adhesion is not per se unconscionable. In reply, Defendant contends the agreement contained an opt-out provision. (Ameripour Decl., Exh. 3, p. 16.) Additionally, Defendant contends that Plaintiffs may purchase other vehicles. An opt-out provision and availability of choice reduce the degree of procedural unconscionability. Accordingly, the Court will assess substantive unconscionability.

Substantive Unconscionability

Plaintiffs argues that the arbitration agreement is one-sided and therefore substantively unconscionable. Here, the terms of the Handbook’s arbitration agreement are not one-sided because they do not prevent Plaintiffs from seeking arbitration again Defendant.

Plaintiffs also argue that the Handbook’s arbitration agreement includes an unconscionable delegation clause. The Handbook’s arbitration provision states, “[t]he arbitrator (and not a court) shall decide all issues of interpretation, scope, and application of this agreement.” (Ameripour Decl., Exh. 3.) This is a delegation clause. Case law has developed three qualities of substantively unconscionable delegation clauses: “(1) a delegation clause is outside the reasonable expectation of the parties; (2) delegation clauses are not bilateral; and (3) the arbitrator has a self-interest in finding the agreement arbitrable.” (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1563-64 [citations omitted].)

The Court determines that the delegation clause present in the Handbook’s arbitration agreement is not unconscionable. While the delegation clause may be outside of the reasonable expectation of the parties, it is bilateral and does not require a self-interested arbitrator. The agreement states the American Arbitration Association will administer the binding arbitration. (Ameripour Decl., Exh. 3.) Accordingly, the delegation clause is valid.

Lastly, Plaintiff’s argue the CSA is unconscionable because it illegally permits Defendant to recover statutory attorneys’ fees. The relevant provision states: “HOWEVER, IN ARBITRATION, BOTH YOU AND HYUNDAI WILL BE ENTITLED TO RECOVER ATTORNEYS’ FEES FROM THE OTHER PARTY TO THE SAME EXTENT AS YOU WOULD BE IN COURT.” (Rao Decl., Exh. 2.) The Court does not agree that this provision alters the statutorily permitted fees. To the extent Plaintiff argues the reduced time to bring a claim is substantively unconscionable, the Court disagrees. Plaintiff cites Fisher v. Moneygram Intern., Inc. (2021) 66 Cal.App.5th 1084 to support the argument that the reduced time is unconscionable. However, the court in Fisher found that a reduced statute of limitations, combined with governing rules which make arbitration more expensive and a clause requiring each party to bear its own attorney’s fees led to substantive unconscionability. The court reasoned “[s]tanding alone, the degree of substantive unconscionability flowing from each of these three issues is modest. But collectively, their impact is substantial.” (Id. at 1107.) Here, standing alone, a reduced time period does not render the agreement substantively unconscionable.

Accordingly, the arbitration agreement is valid and enforceable. The Court GRANTS Defendant’s motion to compel arbitration.

Motion to Stay Proceedings

California Code of Civil Procedure section 1281.4 states that the court shall stay the action or proceeding if the court has ordered arbitration. (Code Civ. Proc. § 1281.4.) Accordingly, the Court will STAY proceedings pending arbitration.