Judge: Lynette Gridiron Winston, Case: 22PSCV00991, Date: 2024-02-06 Tentative Ruling
Case Number: 22PSCV00991 Hearing Date: February 6, 2024 Dept: 6
CASE NAME: Steve Sayegh, et al. v. Ford Motor Company
Motion of Defendant Ford Motor Company to Compel Arbitration and Stay Action
TENTATIVE RULING
The Court DENIES Defendant Ford Motor Company’s motion to compel arbitration and stay action. The Court further lifts its stay issued on December 22, 2022.
Plaintiffs are ordered to give notice of the Court’s ruling within five calendar days of this order.
BACKGROUND
This is a lemon law case. On September 2, 2022, plaintiffs Steve Sayegh and Marissa Martinez (collectively, Plaintiffs) filed this action against defendant Ford Motor Company (Defendant) and Does 1 through 20, alleging causes of action for breach of implied warranty of merchantability, breach of express warranty, and fraudulent concealment.
On November 16, 2022, Defendant filed a motion to compel arbitration and stay proceedings. On March 14, 2023, Plaintiff opposed the motion. On March 22, 2023, Defendant replied. On April 12, 2023, the Court ordered the parties to provide further briefing on this motion. On April 28, 2023, Defendant filed a supplemental brief. On May 9, 2023, Plaintiff filed an opposition to the supplemental brief. On May 17, 2023, Defendant filed a supplemental reply brief.
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].)
OBJECTIONS
The Court OVERRULES Plaintiff’s evidentiary objection, as the normal rules of document authentication and foundation do not apply on a motion to compel arbitration. (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165.)
REQUESTS FOR JUDICIAL NOTICE
The Court GRANTS Plaintiff’s request for judicial notice. (Evid. Code § 452, subd. (d).) However, the Court takes judicial notice 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.)
DISCUSSION
FAA v. CAA
“[T]he FAA’s procedural provisions (9 U.S.C. §§ 3, 4, 10, 11) do not apply unless the contract contains a choice-of-law clause expressly incorporating them. [Citation.] … [T]he question is not whether the parties adopted the CAA’s procedural provisions: The state's procedural statutes (§§ 1281.2, 1290.2) apply by default because Congress intended the comparable FAA sections (9 U.S.C. §§ 3, 4, 10, 11) to apply in federal court. The question, therefore, is whether the parties expressly incorporated the FAA’s procedural provisions into their agreements.” (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 345, italics in original.)
“[P]revious cases have held that when an arbitration agreement provides that its ‘enforcement’ shall be governed by California law, the California Arbitration Act (CAA) governs a party's motion to compel arbitration. It follows that when an agreement provides that its ‘enforcement’ shall be governed by the FAA, the FAA governs a party's motion to compel arbitration.” (Victrola 89, LLC, supra, 46 Cal.App.5th at p. 346.)
The Lease Agreement (as defined below) states that the law of the state where the Lessor’s place of business is as set forth in the lease applies to the Lease Agreement. (Ihara Decl., Ex. 1, ¶ 37.) The Lease Agreement states that the Lessor’s place of business is in California. (Ihara Decl., Ex. 1, p. 1 of 7.) Thus, California law applies. The Arbitration Agreement (as defined below) states only that the contract is subject to the FAA. (Ihara Decl., Ex. 1.) It does not state that its enforcement is governed by the FAA. (Victrola 89, LLC, supra, 46 Cal.App.5th at p. 346.) Therefore, the CAA governs this motion to compel arbitration. (Id. at p. 345.)
Existence of 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.) The moving party meets their initial burden of proving the existence of a valid arbitration agreement by attaching a copy to the motion. (Espejo, supra, 246 Cal.App.4th at p. 1060.)
Defendant attached a copy of a California Motor Vehicle Lease Agreement (the Lease Agreement) for the subject vehicle to its moving papers. (Ihara Decl., Ex. 1.) That agreement also contains an arbitration clause (the Arbitration Agreement). (Id.) Accordingly, Ford has met its initial burden. The burden now shifts to Plaintiffs to challenge the validity of the Arbitration Agreement.
Plaintiffs do not directly dispute the validity or existence of the Arbitration Agreement. The extent of Plaintiffs’ opposition to the existence or validity of the Arbitration Agreement was based on evidentiary objections, which the Court overruled as noted above. These evidentiary objections are insufficient on a motion to compel arbitration because the normal procedures for foundation and document authentication do not apply on a motion to compel arbitration. (See Gamboa, supra, 72 Cal.App.5th at p. 165.) Plaintiffs provided no declarations in their opposition or supplemental opposition disputing the existence or validity of the Arbitration Agreement. (See Id.) The Court also notes that the Arbitration Agreement looks similar, if not identical, to that contained in the contract attached to Plaintiffs’ complaint. (Compl., Ex. 1.)
Based on the foregoing, the Court finds that Defendant satisfied its burden of establishing the existence of an arbitration agreement. However, there still remains the question of whether Defendant has the right to enforce the Arbitration Agreement, as Defendant is not a party to the Lease Agreement. (See Ihara Decl., Ex. 1.) Defendant contends it is entitled to enforce the Arbitration Agreement based on equitable estoppel and as a third-party beneficiary.
Equitable Estoppel
Defendant concedes that it is not a party to the Arbitration Agreement, but contends instead that it is entitled to enforce the Arbitration Agreement under the doctrine of equitable estoppel. Defendant relies on Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, arguing that Plaintiff’s claims arise out of and are intertwined with the underlying contract obligations of the Lease Agreement. (Id. at p. 495; 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.”]; Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 217-218.)
In Felisilda, the First District of 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, 53 Cal.App.5th at pp. 496-499.) The relevant portions of the subject arbitration agreement in Felisilda are similar to those in the Lease Agreement:
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, 53 Cal.App.5th at p. 490, emphasis 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, 53 Cal.App.5th at p. 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 of Appeal 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, on April 4, 2023, 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 is aware that Ochoa is currently pending review before the California Supreme Court, but this Court is permitted to rely on Ochoa while its review is pending. (Cal. Rules of Court, rule 8.1115, subd. (e)(3); Ford Motor Warranty Cases (2023) 532 P.3d 270; Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 456.)
Moreover, on June 26, 2023, the Second District of the Court of Appeal decided the case of Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958, in which the Court of Appeal also rejected the holding in Felisilda that equitable estoppel applies to enable a non-signatory manufacturer to enforce an arbitration provision in a sales contract similar to the Lease Agreement at issue in this case. The Court of Appeal further rejected Felisilda and followed Ochoa in other recently issued opinions, such as Kielar v. Superior Court (2023) 94 Cal.App.5th 614 and Jaclyn Yeh v. Superior Court of Contra Costa County (2023) 94 Cal.App.5th 264. The Court finds these additional opinions from the Court of Appeal to be persuasive evidence that Ochoa is the better reasoned decision here.
The Second District in Ochoa found that the arbitration language at issue in that case was insufficient to support the manufacturer’s equitable estoppel argument, stating that the breach of warranty claims were not based on the sales contracts with the dealers, but were completely independent from the terms of the sales contract. (Ochoa, supra, 89 Cal.App.5th at p. 1334.) The Court of Appeal held that this language in the arbitration clause referring to arbitration of claims “against third party nonsignatories” cannot mandate arbitration of the warranty claims. Rather, such language agreed to arbitrate claims against third parties whose service, etc., are financed under the sales contract. (Id.)
The Second District also found that the warranty claims were not founded in the sales contracts. The warranty claims arose out of statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with the warranty or related claims. They did 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.” (Ochoa, supra, 89 Cal.App.5th at p. 1335.) In short, “the substantive terms of the sale contracts relate to sale and financing and nothing more.” (Ibid.)
The Court finds the same rationale and reasoning applies here. The purpose of the Lease Agreement was the financing of Plaintiffs’ lease of the subject vehicle. The Lease Agreement specifically notes that the warranties at issue are from Defendant, not the third-party dealer, the finance company, or the holder, (see Ihara Decl., Ex. 1), and arise under operation of law, not contract, (see Ochoa, supra, 89 Cal.App.5th at p. 1334). Thus, the warranties were not inextricably intertwined with or founded in the Lease Agreement for purposes of equitable estoppel.
Based on the foregoing, the Court 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, Defendant 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.)
The Court of Appeal in Ochoa also rejected the auto manufacturer’s third-party beneficiary argument. Analyzing the Ninth Circuit Court of Appeal's recent decision in Ngo v. BMW of North America, LLC (2022) 23 F.4th 942, 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, 89 Cal.App.5th at pp. 1337-1338.)
Applying the same reasoning here, there is insufficient evidence to show whether a motivating purpose of the contracting parties was to provide a benefit to Defendant. Civil Code section 1559 requires that a contract benefiting a third party must be made expressly for the benefit of a third person before that third party can enforce it. (Civ. Code § 1559.) The Court finds no language in the Lease Agreement or Arbitration Agreement indicating an express intent to benefit Defendant, nor does the Court find that allowing Defendant to compel arbitration would be consistent with the reasonable expectations of the contracting parties.
Based on the foregoing, the Court rejects this argument as well, and DENIES the motion to compel arbitration and stay action. The Court declines to address the parties’ other arguments raised in their respective briefs. The Court also lifts its stay issued on December 22, 2022.
CONCLUSION
The Court DENIES Defendant Ford Motor Company’s motion to compel arbitration and stay action. The Court further lifts its stay issued on December 22, 2022.
Plaintiffs are ordered to give notice of the Court’s ruling within five calendar days of this order.