Judge: Lynette Gridiron Winston, Case: 22PSCV00613, Date: 2023-10-02 Tentative Ruling

Case Number: 22PSCV00613    Hearing Date: October 2, 2023    Dept: 6

CASE NAME: Mary Lu Romero v. Nissan North America, Inc.

Defendant’s Motion to Compel Arbitration

TENTATIVE RULING
The Court DENIES the motion to compel arbitration.

Defendant is ordered to give notice of the Court’s ruling within five calendar days of this order.

BACKGROUND
This is a lemon law case. On June 21, 2022, Plaintiff Mary Lu Romero (Plaintiff) filed this action against Defendant Nissan North America, Inc. (Defendant) and Does 1 through 10, alleging causes of action for violation of Song-Beverly Act – breach of express warranty, fraudulent inducement – intentional misrepresentation, and fraudulent inducement - concealment.

On March 2, 2023, Defendant filed the instant motion to compel arbitration. On August 23, 2023, Plaintiff opposed the motion. On September 25, 2023, Defendant filed a reply.

LEGAL STANDARD
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.) A party seeking to compel arbitration meets their initial burden of establishing the existence of a valid arbitration agreement by attaching a copy to the motion or petition to compel arbitration. (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060.)

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” (Ibid. [internal quotations omitted].) This is in accord with the liberal federal policy favoring arbitration agreements under the Federal Arbitration Act (“FAA”), which governs all agreements to arbitrate in contracts involving interstate commerce. (9 U.S.C. § 2, et seq.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)

PRELIMINARY ISSUES
Plaintiff’s opposition is 16 pages long, which exceeds the 15-page limit for opposition memorandums. (Cal. Rules of Court, rule 3.1113, subd. (f).) This in turn renders Plaintiff’s opposition to be considered as having been filed late. (Id., rule 3.1113, subd. (g).) Nevertheless, the Court exercises its discretion to still consider Plaintiff’s opposition. The Court admonishes Plaintiff to comply with the California Rules of Court going forward.

OBJECTIONS
The Court SUSTAINS Plaintiff’s evidentiary objections to Exhibit 4 attached to the Declaration of Alexi R. Silverman on the grounds that it lacks foundation and personal knowledge, and calls for hearsay. (Evid. Code §§ 403, subd. (a)(2); 702; 1200.)

REQUESTS FOR JUDICIAL NOTICE
The Court GRANTS Defendant’s requests for judicial notice as to Exhibits 1 and 2. (Evid. Code § 452, subd. (d).) However, the Court takes judicial notice of the foregoing documents only as to “the existence, content and authenticity of public records and other specified documents”; it does not take judicial notice of the truth of the factual matters asserted in those documents. (Dominguez v. Bonta (2022) 87 Cal. App. 5th 389, 400.) The Court DENIES the request as to Exhibit 3.

DISCUSSION
Valid Arbitration Agreement
“[T]he petitioner bears the burden of proving its existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) “If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation [citation]—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.” (Ibid.)

Defendant has alleged the terms of a purported arbitration agreement (the Arbitration Agreement) between Plaintiff and the third-party dealer in connection with Plaintiff’s purchase of the subject vehicle, i.e., the Retail Installment Sales Contract (the Sales Contract). (Motion, 8:12-9:9; see also Gamboa v. Northwest Community Clinic (2021) 72 Cal.App.5th 158, 165 [“the moving party can meet its burden by setting forth the agreement's provisions in the motion. [Citation.]”]) Defendant has thus met its initial burden. The burden now shifts to Plaintiff to challenge the validity of the Arbitration Agreement.

In opposition, Plaintiff contends that Defendant has failed to meet its burden to establish the existence of an arbitration agreement, due to Defendant not having had anyone on its behalf or on behalf of the third-party dealer attest to any arbitration agreement between Plaintiff and Defendant. Plaintiff contends Defendant has not otherwise presented any admissible evidence to support Defendant’s claim, and that Defendant has not presented evidence that this dispute is covered by an arbitration agreement. In light of Plaintiff’s objections to Exhibit 4, which the Court has sustained as set forth above, the Court finds Plaintiff has sufficiently challenged the existence of a valid arbitration agreement, and the burden now shifts back to Defendant to prove it does exist. (Gamboa, supra, 72 Cal.App.5th at pp. 165-166.)

In reply, Defendant contends that Plaintiff does not dispute that she signed the Sales Contract containing the Arbitration Agreement, and otherwise points to the copy of the Sales Contract attached to the Declaration of Alexi R. Silverman as proof of the existence of a valid arbitration agreement. (Silverman Decl., Ex. 4.) However, this is insufficient, as the Court sustained Plaintiff’s objections to the Sales Contract. Silverman’s declaration lacks personal knowledge and fails to provide a proper foundation for the Sales Contract. (See Evid. Code §§ 403, subd. (a)(2); 702; 1200; see also Gamboa, supra, 72 Cal.App.5th at p. 169.)

Therefore, the Court finds that Defendant has failed to establish the existence of a valid arbitration agreement that covers the dispute between Plaintiff and Defendant.

Equitable Estoppel
Even if Defendant had established the existence of a valid arbitration agreement that covers this dispute, the Court would still deny the motion. Defendant concedes it is not a party to the Sales Contract or Arbitration Agreement but contends that it can enforce the Arbitration Agreement under the doctrine of equitable estoppel. (Motion, 14:11-18:8.) Defendant relies on Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, stating that Plaintiff’s claims arise out of and are intertwined with the underlying contract obligations of the Lease Agreement. (See also Boucher v. Alliance Title Co., Inc. (2005) 127 Cal. App. 4th 262, 271, [“[U]nder both federal and California decisional authority, 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.”] and Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 217-18.)

In Felisilda, the Court of Appeal found that purchasers of a vehicle were estopped from refusing to arbitrate Song-Beverly Act claims against the vehicle manufacturer, based on an agreement between the purchaser and the vehicle dealer. (See Felisilda, supra, at 496-499.) The relevant portions of the subject arbitration agreement in Felisilda are like those in the Sales Contract:

ARBITRATION PROVISION [¶] ... [¶]
1. 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 ... 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. . . .

(Felisilda, supra, at 490, italics in original.)

The Court of Appeal in Felisilda found that, because the plaintiffs “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 [the manufacturer].” (Felisilda, supra, at 497.) As such, the Court of Appeal found the plaintiffs’ claims in that action arose out of the condition of the vehicle and were covered by the arbitration provision in that contract. The Court found that the plaintiffs’ claims were “founded on or intimately connected” with the contract in that action because they arose out of the condition of the vehicle.

However, in a recently issued opinion, the Second District of the Court of Appeal rejected application of Felisilda in a similar motion to compel arbitration by a car manufacturer in a lemon law case. (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal. App.4th 1324, 306 Cal.Rptr.3d 611 (Ochoa). The Court of Appeal has also issued other opinions recently reaching the same conclusion as Ochoa. (See, e.g., Montemayor v. Ford Motor Co., (2023) 92 Cal.App.5th 958; Kielar v. Superior Court, (Cal. Ct. App. Aug. 11, 2023, No. C096773) --- Cal.Rptr.3d --- 2023 WL 5270559; Jaquelyn Yeh v. Superior Court of Contra Costa County (Cal. Ct. App. Sept. 6, 2023, No. A166537) --- Cal.Rptr.3d --- 2023 WL 5741703.)

The Second District in Ochoa rejected application of Felisilda in the following respects:

First, the Second District found that the breach of warranty claims were not based on the sales contracts with the dealers but were completely independent from the terms of sale of the contract. (Ochoa, supra, at 306 Cal.Rptr.3d at pp. 619-620). Next, the Second District held that language in the arbitration clause referring arbitration of claims “against third party non signatories” cannot mandate arbitration of the warranty claims. Rather, such language agreed to arbitrate claims against third parties whose services, etc., were financed under the sales contract. (Id., at p. 620.)

Finally, the Second District found that the warranty claims were not founded in the sales contracts. The warranty claims arise out of statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with the warranty, or related claims. They do not arise out of any express contractual language in the sales contracts, which themselves do not include any warranties, or assurance regarding the vehicle’s performance, or any promise of repairs or remedies if contracts 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.” (Id.) In short, “the substantive terms of the sale contracts relate to sale and financing and nothing more.” (Ibid.)

In short, Ochoa rejects Defendant’s equitable estoppel theory.

Third Party Beneficiary
For Defendant’s contention of enforcing the arbitration agreement as a third-party beneficiary to be true, “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 do so, Defendants must show that “(1)…the third party would in fact benefit from the contract, but also (2)…a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3)…permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. All three elements must be satisfied to permit the third party action to go forward.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

On this theory, Ochoa is also instructive. Analyzing the Ninth Circuit Court of Appeal's recent decision in Ngo v. BMW of North America (9th Cir. 2022) 23 F.4th 942 (Ngo), the Second District agreed that the sales contracts reflect no intention to benefit a vehicle manufacturer under Goonewardene – nothing in the sales contracts or their arbitration provision offers any direct “benefit” to the manufacturer, there was no indication that a benefit to the manufacturer was a motivating purpose of the contract, and allowing the manufacturer to enforce the arbitration would be inconsistent with the reasonable expectations of the contracting parties. (Ochoa, supra, 306 Cal.Rptr.3d at pp. 623-624.)

Applying this reasoning, Defendant’s moving papers and reply briefs are silent on whether a motivating purpose of the contracting parties was to provide a benefit to Defendant. Defendant argues that “Plaintiff’s purchase of the Vehicle, memorialized by the Sales Contract, resulted in a warranty relationship with Nissan.” (Motion, 19:3.) Under Ochoa, this argument does not explain the motivating purpose of the contracting parties and falls short of Civil Code section 1559, which requires that a contract be made expressly for the benefit of a third person before that third party can enforce it. (Civ. Code § 1559.) Permitting Defendant to bring its own breach of contract action against a contracting party is not consistent with the objectives of the contract. “The objective of the contract was to finance Plaintiff’s car purchase…” (Opp. 13:9-10.) Under Ochoa, permitting Defendant to enforce an arbitration clause does not effectuate this objective.

Thus, Ochoa also rejects Defendant’s third party beneficiary theory.

CONCLUSION
The Court DENIES the motion to compel arbitration.

Defendant is ordered to give notice of the Court’s ruling within five calendar days of this order.