Judge: Margaret L. Oldendorf, Case: 22AHCV00526, Date: 2023-04-11 Tentative Ruling

Case Number: 22AHCV00526    Hearing Date: April 11, 2023    Dept: P

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

NORTHEAST DISTRICT

I.         INTRODUCTION

            This is a lemon law case. Plaintiff Manuel Plata purchased a 2019 Nissan Sentra in February 2019. He alleges that he experienced problems with the vehicle that include the electrical system, brakes, and transmission. Plata took the vehicle to an authorized repair facility, who was allegedly unable to conform the vehicle to warranty standards.

            In this action Plata sues the manufacturer, Defendant Nissan of North America (Nissan), for breach of express and implied warranties. He sues Defendant Nissan of Downtown LA (Nissan LA) for negligent repair. Both defendants move for an order compelling arbitration of the claims against them and for a stay of this action.

            It is undisputed that neither defendant is a party to the Retail Installment Sales Contract that evidences Plata’s purchase of the vehicle. Defendants’ arguments that they are nevertheless entitled to enforce the Retail Installment Sales Contract fail. The motion is therefore denied.

II.        LEGAL STANDARD

Defendants’ motion is made pursuant to the Federal Arbitration Act. Defendants seek an order compelling Plaintiffs to arbitrate and to stay this litigation. The FAA provides for both arbitration and stay.

Written arbitration clauses in contracts involving commercial transactions are generally valid, irrevocable, and enforceable; except where grounds exist at law or in equity for revocation of the contract. 9 U.S.C. §2. This provision reflects a liberal policy favoring arbitration, and the principle that arbitration is a matter of contract. AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 339.

Where a party refuses to arbitrate pursuant to the terms of a written agreement, the aggrieved party may petition the court for an order “directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. §4.

9 U.S.C. §3 provides for a stay of litigation when a matter is referred to arbitration.

III.      ANALYSIS

            According to the allegations in the complaint in this case, on February 6, 2019, Plata entered into a written warranty agreement with Nissan, the terms of which are contained in Exhibit 1 to the complaint. Plata alleges that defects manifested themselves in the vehicle within the warranty period, including problems with the brakes, electrical system, and transmission. Plata alleges he delivered the vehicle to an authorized service center for repairs, but that Defendant was unable to conform the vehicle to the warranty after a reasonable number of attempts. Plata alleges Nissan failed to either replace or repurchase the vehicle as required by the Song-Beverly Act. Regarding implied warranties, Plata alleges that Nissan and the authorized dealer from whom Plata purchased the vehicle had reason to know the sale was accompanied by an implied warranty of fitness and merchantability. In the third cause of action Plata alleges that he delivered the vehicle to Nissan LA for repairs numerous times, and that it failed to exercise reasonable care.

            The complaint contains the following causes of action: (1) Breach of Express Warranty (against Nissan); (2) Breach of Implied Warranty (against Nissan); (3) Negligent Repair (against Nissan LA).

            A. The Existence of a Written Arbitration Agreement Is Not Established

            When a petition to compel arbitration is “filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself determines whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable.” Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413 (Rosenthal). “[T]he facts are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court’s discretion.” Id. at 413-414.

            Defendants’ motion is accompanied by the Declaration of Jason M. Richardson. Mr. Richardson is one of the attorneys representing Defendants. He states on information and belief that the document attached as Exhibit 1 is a copy of the Retail Installment Sales Contract evidencing Plata’s purchase of the subject vehicle. Plata raises no objections to this evidence.

            The Retail Installment Sales Contract reflects an agreement between Plata and Duarte Nissan Motor Group, LLC -- an entity that is not being sued in this action.

            The arbitration provision provides in pertinent part as follows:

            “Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation 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.”  

            While the arbitration provision includes claims or disputes concerning “the condition of this vehicle,” the question exists as to whether Nissan and Nissan LA may enforce it, as they are not signatories to the contract. Nissan and Nissan LA argue they may do so pursuant to principles of equitable estoppel, and as third-party beneficiaries.

The arbitration provision contains a delegation clause that allows the arbitrator to determine issues of arbitrability. Normally that would require the Court to defer determination of arbitrability; but because Defendants are third parties the law is different. Plata agreed to arbitrate with Duarte Nissan, not these Defendants. Consequently, the arbitrability issue is not delegated to the arbitrator. Kramer v. Toyota Motor Corp. (2013) 705 F.3d 1122, 1127.

                        1. Equitable Estoppel Does Not Apply Here

            “In the arbitration context, a party who has not signed a contract containing an arbitration clause may nonetheless be compelled to arbitrate when he seeks enforcement of other provisions of the same contract that benefit him.” Metalclad Corp. v. Ventana Environmental Organization Partnership (2003) 109 Cal.App.4th 1705, 1713.

            “[I]f a plaintiff relies on the terms of an agreement to assert his or her claims against a nonsignatory defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause of that very agreement. In other words, a signatory to an agreement with an arbitration clause cannot ‘ “ ‘have it both ways’ ” ’; the signatory ‘ “cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration’s applicability because the defendant is a non-signatory.” ’ (Grigson v. Creative Artists Agency, L.L.C. (5th Cir.2000) 210 F.3d 524, 528 (Grigson.) As Grigson sums it up, ‘ “[t]he linchpin for equitable estoppel is equity—fairness.” ’ (Ibid.)” Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 220.

            As noted above, the arbitration provision in the purchase contract with Duarte Nissan covers claims and disputes that arise out of the condition of the vehicle; and any resulting transaction or relationship, including with third parties who do not sign the agreement. Language very similar to this has been found to mean that, pursuant to the doctrine of equitable estoppel, dealerships who attempt repairs may enforce the arbitration clause. Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486.

            “Under the doctrine of equitable estoppel, ‘“as applied in “‘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.’” [Citations.] “‘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.’” [Citations.]” Id. at 495-496.

            Defendants rely in large part on Felisilda to urge that equitable estoppel applies here. But Felisilda is distinguishable for two reasons. First, the plaintiffs in that action sued both the dealer and the manufacturer of the vehicle. The arbitration provision was included in the sale contract, and at least one of the defendants was a party to that contract. But here, Plata has not included Duarte Nissan in his lawsuit. Second, in Felisilda the plaintiffs had based their warranty claims on the sales contract. The same is not true here. Plata does not mention the sale contract; instead, he alleges that Plata entered into a warranty contract with Nissan, the terms of which are attached to the pleading as Exhibit 1. Complaint at ¶15.

            Here, it cannot be said that Plata’s claims against Defendants are “intimately intertwined” with his sales contract. Plata is not attempting to take advantage of certain contract terms while avoiding the arbitration provision. His claims do not appear to depend upon the Retail Installment Sales Contract at all.

            As the Second District Court of Appeal recently observed, “The side claiming estoppel must establish it. (General Motors Acceptance Corp. v. Gandy (1927) 200 Cal. 284, 295, 253 P. 137.) Its first order of business is to show the wrong: to identify the supposed mistake or misconduct by the other side and why it would be unfair to allow it to exploit that mistake or misconduct. (Cf. Rest.1st Torts, § 894 [‘Equitable Estoppel as a Defense’].)” Hernandez v. Meridian Management Services, LLC (2023) 87 Cal.App.5th 1214, 1219. Nissan has not met its burden of showing any wrongful conduct on Plata’s  part, much less why it would be unfair to allow him to exploit such misconduct.

                        2. Third-Party Beneficiary Status Is Not Shown

            “A third party beneficiary may enforce a contract made for its benefit. (Civ.Code, § 1559.) However, ‘ “[a] putative third party’s rights under a contract are predicated upon the contracting parties’ intent to benefit” ’ it. (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 436, 204 Cal.Rptr. 435, 682 P.2d 1100 (Garcia).) Ascertaining this intent is a question of ordinary contract interpretation. (Ibid.) Thus, ‘ “[t]he circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement.” ’ (Neverkovec, supra, 74 Cal.App.4th at p. 348, 87 Cal.Rptr.2d 856.)” Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.

            Defendants cite Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830 in support of their motion.  In that case, the California Supreme Court identified the three circumstances necessary for a third-party beneficiary finding:

(1) whether the third party would in fact benefit from the contract;

(2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party; and

(3) whether 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.

            Defendants urge that the intent to benefit them is reflected in the arbitration provision. They rely on the following (bolded) language:

            “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 [] 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.”    

            A straightforward reading of this provision does not lead one to conclude that any third party is benefitted by this language. Rather, this language provides that any claim or dispute between Duarte Nissan and Plata arising out of or relating to three things shall, at either’s election, be arbitrated: (1) Plata’s credit application; (2) the purchase or condition of the vehicle; (3) the contract or any resulting transaction or relationship, even with a third party.

            In order to establish that they are third-party beneficiaries to this arbitration provision, Defendants have the burden to establish each of the three elements identified in Goonewardene. What is missing in this case is any evidence that a motiving purpose of the parties to the purchase contract (e.g., Duarte Nissan and Plata) was to benefit the vehicle’s manufacturer and other authorized repair facilities. Defendants’ argument that the parties intended to benefit third parties such as themselves is not supported by any evidence that the contracting parties possessed such an intent. The fact that Defendants may benefit from such an interpretation is not enough. See Hess, supra, 27 Cal.4th at 524.

            While a third party may sometimes enforce an arbitration agreement, it is that third party’s obligation to prove it was the intent of the contracting parties to benefit it. City of Hope v. Bryan Cave, LLP (2002) 102 Cal.App.4th 1356, 1369. Defendants have not met that burden in this case.

            B. Revocation

            Plata raises a number of arguments as to procedural and substantive unconscionability. However, because Defendants have not established the existence of a basis to arbitrate, there is no need to reach these arguments.

IV.      CONCLUSION AND ORDER

            Defendants have failed to establish the existence of a written contract between the parties containing an arbitration provision. Their arguments as to why they may enforce the written agreement between Plata and Duarte Nissan fail. The motion to compel arbitration is therefore denied.

            Plaintiff is ordered to give notice.

Dated: ____________                                 ___________________________________

                                                                                  MARGARET L. OLDENDORF

                                                                            JUDGE OF THE SUPERIOR COURT