Judge: Margaret L. Oldendorf, Case: 22AHCV01138, Date: 2023-03-28 Tentative Ruling

Case Number: 22AHCV01138    Hearing Date: March 28, 2023    Dept: P

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

NORTHEAST DISTRICT

I.         INTRODUCTION

            In this action Plaintiff Amy Kafkaloff sues Defendant Nissan of North America (Nissan) for violations of the Song-Beverly Act. She sues Defendant Nissan of Alhambra (Alhambra) for negligent repair. Defendants move to compel arbitration.

            Kafkaloff obtained the vehicle pursuant to a lease agreement with Nissan of Duarte, an entity that is not named in this action. The lease agreement contains an arbitration provision. Neither Nissan nor Alhambra are signatories to the lease agreement. They nevertheless urge that they may enforce the agreement for four reasons:

            1. Because Kafkaloff assented to the agreement;

            2. Because pursuant to Felisilda v. FAC US LLC (2020) 53 Cal.App.5th 486, Kafkaloff is equitably estopped from avoiding arbitration;

            3. Because Defendants are third party beneficiaries to the agreement;

            4. Because compelling Kafkaloff to arbitrate is judicially efficient.

            None of these arguments is persuasive in this case. The first and fourth arguments are easily disposed of. The fact that Kafkaloff agreed to arbitrate with Nissan of Duarte is not evidence she agreed to arbitrate with Defendants. And, judicial efficiency is not a basis for compelling that claims be arbitrated. What is needed is a written agreement.

            While equitable estoppel and third-party beneficiary status are closer calls, for the reasons discussed below they ultimately fail as well. The motion is therefore denied.

II.        LEGAL STANDARD

Code Civ. Proc. §1281.2 provides that upon petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate and a party’s refusal to submit to arbitration, the court shall order the parties to arbitrate the controversy if it determines that an agreement exists, unless it determines that the right to arbitrate has been waived, that grounds exist for revocation, or that a party to the agreement is also party to a pending litigation arising out of the same facts and there exists a possibility of conflicting rulings on a common issue of fact or law.  In such a situation, the court may (1) refuse to enforce the arbitration agreement and order intervention or joinder of all parties in a single action, (2) order intervention or joinder as to all or only certain issues, (3) order arbitration among the parties who have agreed to arbitration and stay the action pending outcome of arbitration, or (4) stay arbitration pending outcome of the litigation.

Written arbitration clauses in contracts evidencing a transaction involving commerce are valid, irrevocable, and enforceable, except where grounds exist at law or in equity for revocation of any contract. 9 U.S.C. §2.

III.      ANALYSIS

            A. Summary of the Complaint

            The first two causes of action are asserted against Nissan, for breach of express warranty and beach of implied warranty. Kafkaloff alleges that on April 21, 2021, she entered into a warranty contract with Nissan regarding a 2020 Nissan Sentra; the VIN is provided. She alleges the terms of the warranty are as set forth in Exhibit 1 to the Complaint. Exhibit 1 appears to be a booklet or other written document published by Nissan containing warranty information. Kafkaloff alleges that the vehicle manifested defects (transmission, brakes, HVAC, electrical) within the warranty period, and that she presented the vehicle to an authorized Nissan repair facility for repairs. Kafkaloff alleges Defendant was unable to conform the vehicle to the applicable express warranty after a reasonable number of attempts and that Nissan thereafter failed to promptly replace the vehicle or make restitution. Similar allegations are made as to implied warranties.

            The third cause of action (negligent repair) is alleged against Alhambra. Kafkaloff alleges that she delivered the vehicle to Alhambra for repair on numerous occasions, and that Alhambra breached its duty of ordinary care by failing to properly store, prepare, and repair the vehicle according to industry standards.

            B. The Existence of a Written Agreement to Arbitrate 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. “[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.

            Here, it is undisputed that when Kafkaloff leased the vehicle from Nissan of Duarte she did so by way of a written agreement containing an arbitration provision.

Defendants proffer a copy of the agreement through their attorney, Aslan Petrosyan, who states on information and belief that Exhibit B to his declaration is a true and correct copy of the “Motor Vehicle Lease Agreement With Arbitration Clause” (Lease Agreement) pursuant to which Kafkaloff leased the vehicle. Kafkaloff raises no objections to this evidence.

            The arbitration provision is at Section 30, paragraph 3:

            “Except as otherwise stated below, any claim or dispute, whether in contract, tort, statute, or otherwise (including the interpretation and scope of this clause and the arbitrability of the claim or dispute), between you and us [] which arises out of or relates to your credit application, lease or condition of this vehicle, this Lease agreement or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”

            The central question here is whether Defendants, who are not parties to the Lease Agreement, may enforce it against Kafkaloff. As an aside, it is noted that the Notice of Motion indicates both Nissan and Alhambra are moving to compel arbitration but the memorandum of points and authorities limits the discussion to Nissan. Thus, it is not clear whether Alhambra contends it is entitled to an order compelling Kafkaloff to arbitrate.

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

            Defendants offer four reasons why they ought to be able to compel arbitration:

            1. Because Kafkaloff assented to the Lease Agreement and its arbitration provision;

            2. Because pursuant to Felisilda v. FAC US LLC (2020) 53 Cal.App.5th 486            (Felisilda), Kafkaloff is equitably estopped from avoiding arbitration;

            3. Because Defendants are third party beneficiaries of the agreement;

            4. Because compelling Kafkaloff to arbitrate is judicially efficient.

                        1. Kafkaloff’s Assent Is Not Enough

            While Defendants have established the existence of a written agreement to arbitrate, Kafkaloff’s assent to the contract does nothing to advance the argument that these Defendants are entitled to enforce the agreement.

                        2. Equitable Estoppel Is Not Established

            “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.    

            Defendants urge that Kafkaloff is equitably estopped from avoiding her obligation to arbitrate. They rely in large part on Felisilda, which concerns an automobile sales contract that contained the same arbitration language as in the Nissan of Duarte contract at issue here. In Felisilda, the plaintiffs sued both the dealer who sold them the vehicle and the manufacturer (FCA). The dealer filed a motion to compel arbitration, FCA filed a notice of non-opposition, and the trial court ordered plaintiffs to arbitrate with both of them. The plaintiffs then dismissed the dealer, arbitrated with FCA, and appealed confirmation of the arbitration award in FCA’s favor. In affirming, the court of appeal found that plaintiffs’ claim against FCA was encompassed by the arbitration provision in the sales contract. This is so, it explained, because the plaintiffs’ claims were intertwined with the sales contract. The pleading there alleged that express warranties accompanied the sale of the vehicle to them.

            Felisilda identified the operative legal principle this way:

            “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. 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.” Id. at 496, internal quotation marks and citations omitted, bolding added.

            Felisilda then cites the arbitration provision’s language about disputes that arise out of the condition of this vehicle and concludes that the factual allegations are based on the sales contract:

            “The Felisildas’ claim against FCA directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract. Because the Felisildas 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 FCA.” Felisilda, supra, 53 Cal.App.5th at 496-497.

            The facts here are distinguishable, because the Complaint in this case does not allege that the warranties are connected to the Lease Agreement. Instead, Kafkaloff alleges that the warranties are contained in Exhibit 1, Nissan’s warranty brochure. Complaint, ¶15. Stated differently, Kafkaloff has not based her claims on the Lease Agreement at all, but rather on a separate document provided by Nissan. Thus, it cannot be said that Kafkaloff is attempting to take advantage of the Lease Agreement by suing on it while trying to avoid certain of its provisions.

            The present case is also procedurally distinguishable from Felisilda, because Kafkaloff has not sued Nissan of Duarte. Rather, here, neither of the defendants is a party to the original contract.

            In the recent case of Hernandez v. Meridian Management Services, Inc. (2023) 87 Cal.App.5th 1214, the Court of Appeal for the Second District affirmed the denial of a motion to compel arbitration based on similar facts.  In Hernandez, the plaintiff was employed by six different companies as a customer service representative from 2015 to 2020.  She was fired after returning from maternity leave. The companies were all jointly owned and operated and even shared the same facilities. The plaintiff had a contract with only one of them, however, and her contract with that company contained an arbitration provision. In her lawsuit, the plaintiff omitted suing that company. The other companies (“Other Firms” in the opinion) sought to compel its joinder as a necessary party, but that motion was denied. They then sought to compel arbitration based on the written agreement with the omitted party. The trial court acknowledged the “tactical maneuvering” that had taken place but nevertheless denied the motion.  The trial court concluded that the doctrine of equitable estoppel did not apply:

            “The trial court continued by noting ‘ “ ‘the linchpin of the estoppel doctrine is fairness.’ ... [The Other Firms] complain[ ] that it is unfair for [Hernandez] to tailor her complaint in such a way as to avoid arbitration. But it isn’t, really. There is nothing wrong with either party wanting to appear in court, or in arbitration. And it isn’t as though [Hernandez] is trying to have it both ways – to appear in court, she has completely given up her claims against Intelex. Parties make tactical ‘bargains’ like this all the time.” ’

            “The force of this analysis has overpowered the Other Firms’ ability to respond to it. In their opening brief to us, they claim equitable estoppel allows them to escape the usual requirement that you must be a party to a contract to enforce it. Yet the Other Firms’ opening brief never explains why it would be fair to do so, or what unfairness they suffer from the trial court ruling.” Id. at 406.

            There is no evidence here that Kafkaloff failed to name Nissan of Duarte for tactical reasons; it appears she simply has no claims against that entity. But even if she had done so for tactical reasons, Hernandez explains why this is not improper and how it can defeat an equitable estoppel argument.

            The argument that the warranties are intertwined with the Lease Agreement lacks support. The most that can be shown here is that the warranties were provided coincident with Kafkaloff’s lease of the agreement, not that they were provided by way of or are in any way dependent upon the Lease Agreement. While Defendants rely on cases explaining that express and implied warranties are part of a sales contract, in the cases they cite the seller was being sued and the contract therefore provided pertinent terms. Reply at 5:11-18.

 Defendants have not demonstrated that Kafkaloff is suing on terms contained in the Lease Agreement, such that it would be unfair to permit her to avoid its arbitration provision.

            As Felisilda put it, “ ‘The fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute ... should be resolved.” Felisilda, supra, 53 Cal.App.5th at 496, citing cases. Here, Kafkaloff is not trying to take advantage of the Lease Agreement and therefore she is not estopped from arguing against the enforceability of its arbitration provision. While Felisilda is binding authority, it is factually distinguishable from the facts of the present case.

                        3. Third-Party Beneficiary Status Is Not Established

             “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.

            Returning to the arbitration provision, Nissan urges that the bolded language evidences an intent to benefit it:

            “Except as otherwise stated below, any claim or dispute, whether in contract, tort, statute, or otherwise (including the interpretation and scope of this clause and the arbitrability of the claim or dispute), between you and us [] which arises out of or relates to your credit application, lease or condition of this vehicle, this Lease agreement or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”

            Construed broadly, the “resulting transaction or relationship” language could extend to unforeseen third parties. For example, the Lease Agreement contains at Section 16 a requirement that Kafkaloff maintain a certain level of insurance on the vehicle. As the obtaining of insurance is a resulting transaction or relationship, this language could be interpreted to give an insurer the right to compel arbitration of claims Kafkaloff has against it. But there is no indication that the contracting parties (Nissan of Duarte and Kafkaloff) intended such a result.

            Nissan’s argument is that Kafkaloff’s lease of the vehicle resulted in a warranty relationship with Nissan, such that it is entitled to enforce the arbitration provision. But as with a resulting insurance relationship or transaction, there is no indication that the contracting parties intended such a result. The fact that Nissan would benefit from such an interpretation is not enough. Hess, supra, 27 Cal.4th at 524.

            Nissan reads the arbitration provision to provide that third parties may compel arbitration in connection with claims related to the condition of the vehicle. Reply at 7:2-4. That is not what the language provides, however. The arbitration language says that any claim or dispute between Nissan of Duarte and Kafkaloff arising out of or relating to three things shall, at the election of either Nissan of Duarte or Kafkaloff, be arbitrated: (1) Kafkaloff’s credit application; (2) the lease or condition of the vehicle; (3) the Lease Agreement or any resulting transaction or relationship, even with a third party.

            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. In this case, Defendants have not established that the contracting parties intended to benefit them.

            4. Efficiency Is Not Shown

            This argument is not very extensive. Defendants simply state that it is in the interest of judicial economy to compel all of Kafkaloff’s claims into arbitration so that they may be heard together. But absent a written agreement compelling her to arbitrate any of her claims, the efficiency argument is not persuasive.

IV.      ORDER

            Defendants’ motion to compel arbitration is denied. Plaintiff is ordered to give notice of this ruling.

Dated: ____________                                 ___________________________________

                                                                                  MARGARET L. OLDENDORF

                                                                            JUDGE OF THE SUPERIOR COURT