Judge Lisa K. Sepe-Wiesenfeld, Case Number: 22SMCV02019, Date: 2023-10-19 Tentative Ruling

Judge: Lisa K. Sepe-Wiesenfeld, Case: 22SMCV02019, Date: 2023-10-19 Tentative Ruling

Defendants Toyota Motor Sales, U.S.A., Inc. and Sullivan Motor Cars, LLC dba Toyota Santa Monica (“Defendants”) move to compel Plaintiff Claire Chung (“Plaintiff”) to submit to arbitration on the ground that Plaintiff entered into a Retail Installment Sales Contract, wherein she agreed to arbitrate all claims relating to the condition of the 2021 Toyota Mirai at issue in this action. Defendant argues that the contract includes a valid arbitration provision, equitable estoppel prevents Plaintiff from avoiding this provision where her claims are intimately founded in and intertwined with the sales contract, and Defendants are entitled to enforce the arbitration provision as third-party beneficiaries. Plaintiff opposes the motion on the ground that her claims do not fall within the arbitration clause.

“[I]n considering a . . . petition to compel arbitration, a trial court must make the preliminary determinations whether there is an agreement to arbitrate and whether the petitioner is a party to that agreement (or can otherwise enforce the agreement).” (M & M Foods, Inc. v. Pac. Am. Fish Co. (2011) 196 Cal.App.4th 554, 559; see also Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284 [“petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence”].) In deciding a petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine whether plaintiff’s claims are covered by the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The burden then shifts to the opposing party to prove, by a preponderance of evidence, a defense to enforcement of the agreement. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.)

“The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract.” (Engineers & Architects Association v. Community Development Department (1994) 30 Cal.App.4th 644, 653.) General principles of contract law determine whether the parties have entered a binding agreement to arbitrate. (Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 640-641 [“The existence of a valid agreement to arbitrate involves general contract principles”].)

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 arise out of or relate 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.

(Mot., Myers Decl. ¶ 3, Ex. A, at p. 7.) The contract states that it is between the buyer, identified in the contract as Plaintiff Claire Chung, and the seller, identified in the contract as Toyota Santa Monica. (Mot., Myers Decl. ¶ 3, Ex. A, at p. 1.) Plaintiff does not dispute that she signed this agreement. Instead, Plaintiff argues that Defendant is not a signatory to the agreement, while Defendants argue they may enforce the provision notwithstanding their status as nonsignatories under the doctrine of equitable estoppel.

“As a general rule, only a party to an arbitration agreement may enforce the agreement,” but “there are several exceptions that allow a nonsignatory to invoke an agreement to arbitrate,” including “[t]he doctrine of equitable estoppel.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.) Under the equitable estoppel theory, “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. 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.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271-272.)

This motion requires the Court to confront a split in binding authority and to exercise its discretion as to which decision it will follow. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456.) One the one hand, in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (Felisilda), cited by Defendant, the Third District Court of Appeal ruled that a claim under the Song-Beverly Act against a vehicle manufacturer related directly to the condition of the vehicle, and they had expressly agreed to arbitrate claims arising out of the condition of the vehicle, even against third party nonsignatories, such that the plaintiffs were estopped from refusing to arbitrate their claims against the manufacturer. (Id. at pp. 496-497.) One the other hand, in Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (Ford Warranty), Division Eight of the Second District Court of Appeal expressly declined to follow Felisilda, holding that “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,” such that the plaintiff’s claims were not intimately intertwined with the underlying contract, precluding application of the equitable estoppel doctrine. (Ford Warranty, supra, 89 Cal.App.5th at p. 1334.) Recently, in Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958 (Montemayor), Division Seven of the Second District Court of Appeal adopted the reasoning set forth in Ford Warranty, declined to follow Felisilda, and ruled that the vehicle manufacturer could not invoke the same arbitration provision at issue in the three cases, the same arbitration provision at issue here. (Id. at p. 968.)

The Court opts to follow the two Second District Court of Appeal Cases, Ford Warranty, supra, 89 Cal.App.5th at page 1334 and Montemayor, supra, 92 Cal.App.5th at page 968. As in those cases, Plaintiff seeks to enforce the manufacturer’s warranty, not the sales warranty, such that Plaintiff’s claims are intimately intertwined with the Retail Installment Sale Contract, and there is no equitable basis for Defendants to enforce the arbitration provision as non-signatories. Plaintiff’s claims are based on Defendants’ statutory obligations under the Song-Beverly Act to reimburse her or replace her vehicle if it cannot be repaired, and the complaint includes no invocation of a specific provision of the Retail Installment Sale Contract as a basis for Plaintiff’s claims. Reference to the Retail Installment Sale Contract shows that it related to payment for the vehicle, not warranties for the vehicle’s condition. (Mot., Myers Decl. ¶ 3, Ex. A.) It follows that Defendants’ obligation to provide a non-defective vehicle is not founded in the contract or intertwined with contractual obligations, and Defendants cannot invoke the arbitration provision under an equitable estoppel theory. Insofar as Defendants argue that Plaintiff would have no Song-Beverly claims without the Retail Installment Sale Contract, this argument was expressly rejected in Montemayor, wherein the appellate court stated that the plaintiffs would not have sued the manufacturer but for the sale of the vehicle pursuant to the sales contract, and the manufacturer provided a warranty as a result of the sale, but that did not mean that the manufacturer’s obligation to provide a non-defective vehicle under its separate express warranty was founded on an obligation imposed by the sales contract or was intertwined with those obligations. (Montemayor, supra, 92 Cal.App.5th at p. 970.)

Defendants also argue they may invoke the arbitration provision as third-party beneficiaries of the Retail Installment Sale Contract. Civil Code section 1559 provides that “[a] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” “A third party beneficiary is someone who may enforce a contract because the contract is made expressly for his benefit. The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract.” (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 301, quotation marks and citation omitted.) Defendants rely on the language of the Retail Installment Sale Contract stating that the buyer agrees to arbitrate ““[a]ny claim or dispute . . . which arises out of or relates to . . . any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract.” (Mot., Myers Decl. ¶ 3, Ex. A, at p. 7.) The Court again follows the reasoning of Ford Warranty, supra, 89 Cal.App.5th at page 1340 and Montemayor, supra, 92 Cal.App.5th at page 972, which found that the manufacturer was not a third-party beneficiary of the dealership’s sales contract because the contract does not indicate the manufacturer had an interest in the contract, there is no basis to conclude the manufacturer specifically benefited from an arbitration provision where certain parties had been specifically identified, and there was no indication that a benefit to the manufacturer was a motivating purpose in contracting for the sale and purchase of the vehicle. (See Montemayor, supra, 92 Cal.App.5th at pp. 972-974.) Put simply, there is no basis to conclude that the Retail Installment Sale Contract was “made expressly for the benefit of a third person” (Civ. Code, § 1559), and Defendants cannot enforce the arbitration provision under a third-party beneficiary theory.