Judge: Margaret L. Oldendorf, Case: 23AHCV00433, Date: 2023-08-28 Tentative Ruling

Case Number: 23AHCV00433    Hearing Date: August 28, 2023    Dept: P

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

NORTHEAST DISTRICT

I.         INTRODUCTION

            Plaintiffs William and Joy Wong (the Wongs) allege that they entered into a warranty agreement with Defendant America Honda Motor Co., Inc. (Honda) in 2017 regarding a 2018 Honda Odessey, which was manufactured and distributed by Honda. The Wongs allege that “defects and nonconformities to warranty manifested themselves within the applicable express warranty period,” including infotainment defects, transmission defects, and other issues.

            The Wongs sue for violation of the Song-Beverly Act, Civ. Code §§1790 et seq. They also sue for fraudulent concealment with regard to the infotainment system defect.

            Honda moves for an order compelling the Wongs to arbitrate their claims against it. The motion fails on at least two grounds. The first is evidentiary: Honda has failed to provide evidence of the agreement it seeks to rely on. The second is legal: the Wongs are not equitably estopped from asserting that Honda has no right to arbitrate; and Honda is not a third-party beneficiary of the sales contract that contains the arbitration provision. For both reasons, the motion is denied.

II.        LEGAL STANDARD

Code Civ. Proc. §1281 provides: “A written agreement to submit to arbitration an existing controversy or a controversy thereafter existing is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract.”

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. 

III.      ANALYSIS

            A. The Existence of a Written Agreement to Arbitrate

            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 determine 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.

            A party seeking to compel arbitration has the burden of establishing the existence of a written agreement to arbitrate. Honda attempts to meet that burden in this case by offering the declaration of attorney Vanessa Dao. Ms. Dao states that she has attached a copy of the Retail Installment Sales Contract between Honda of Thousand Oaks and the Wongs as Exhibit A to her declaration. But she includes no details that would demonstrate her personal knowledge or ability to authenticate the document. A second problem is that only the front side of the document is provided -- but apparently the language Honda seeks to rely on is on the back side of the page.

            Assuming for the sake of argument that the written agreement was properly in evidence, Honda has the burden to demonstrate that the language in the agreement is controlling here. According to Honda, the pertinent language in the written agreement is the following:

“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 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.”

            Honda’s argument is that because the arbitration agreement includes claims regarding the “purchase or condition” of the vehicle, it may enforce the arbitration provision.

            B. Honda Is Not Entitled To Enforce The Agreement         

            While Honda is not a party to the Retail Installment Sales Contract, it seeks to enforce the arbitration provision contained therein as a third-party beneficiary and under principles of equitable estoppel. These arguments fail.

            Honda correctly notes that language very similar to the language in this case has been found enforceable by manufacturers. Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 holds that, under the doctrine of equitable estoppel, a nonsignatory defendant may invoke an arbitration clause to compel a plaintiff to arbitrate its claims when the causes of action against the nonsignatory are “intimately founded and intertwined” with the underlying contract. Id. at 495-496. But two recent Second District appellate decisions have declined to follow Felisilda. Both Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (review granted July 19, 2023, S279969)[1] and Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958 hold that a manufacturer’s express warranties are not intimately intertwined with retail sales installment contracts; and that manufacturers who are not parties to such contracts are not third-party beneficiaries of the contracts. The same rationale applies here.

             Honda urges that equitable estoppel prevents the Wongs from refusing to arbitrate. As explained by the Court of Appeal in Felisilda, “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 (quotation marks and citations omitted). Here, the Wongs cannot be accused of attempting to enforce part of the retail installment sales agreement against Honda while avoiding the arbitration provision. Rather, as in Ford Motor Cases, the claims the Wongs seek to pursue against Honda do not stem from the sales agreement: “[P]laintiffs’ claims are based on [Ford]’s statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty.” Ford Motor Cases, supra, 89 Cal.App.5th at 1335. The Wongs have likewise grounded their claims in written warranties.

            The retail installment sales agreement in this case does contain a provision requiring the Wongs to arbitrate with Honda of Thousand Oaks all claims they may have regarding the “purchase and condition” of the vehicle they purchased from that entity. The agreement  does not, however, require the Wongs to arbitrate such claims with Honda (or any other claims, including claims regarding Honda’s statutory obligations with regard to warranties). In sum, Honda has not established that the Wongs are estopped from arguing that Honda has no right to compel arbitration.

            Honda’s third-party beneficiary argument fares no better. In the Ford Motor Cases, in determining whether the manufacturer there was a third-party beneficiary of the sales contract between car buyer and dealer, the Court of Appeal for the Second District applied the standard set forth by the California Supreme Court in Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817: “[A] review of this court’s third party beneficiary decisions reveals that our court has carefully examined the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (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. All three elements must be satisfied to permit the third party action to go forward.” Id. at 829-830.

            Ford Motor Cases concludes that none of the Goonewardene factors supported Ford’s assertion that it could enforce the arbitration agreements in retail installment sales contracts between car buyers and dealers. The same is true in this case. First of all, the terms of the agreement explicitly state that “either you or we” may compel arbitration. The arbitration provision provides parties to the agreement with the right to compel arbitration with regard to three kinds of disputes: (1) credit applications; (2) the purchase or condition of the vehicle; and (3) this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract). As to any of these matters, either the buyer or seller may compel arbitration. It does not provide that third parties may do so.

            Second, there is no evidence that a motivating purpose of the dealer was to benefit the manufacturer. And third, allowing Honda to bring its own claims against the Wongs or Honda of Thousand Oaks would not be consistent with the reasonable expectations of the contracting parties. Consequently, Honda has not established that it is a third-party beneficiary of the contract.

IV.      CONCLUSION AND ORDER

            Honda’s motion to compel arbitration is denied. Honda has failed to meet its burden of establishing the existence of a written arbitration agreement between the parties covering the disputes at issue here. Even if the Retail Installment Sales Contract between the Wongs and Honda of Thousand Oaks were in evidence, no right to compel arbitration is established because the Wongs are not estopped from asserting that Honda cannot enforce such agreement, and because Honda has not established that it is a third-party beneficiary of the agreement. Pursuant to Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, the Court declines to follow Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 and instead applies the reasoning set forth in Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (review granted July 19, 2023, S279969) and Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958.

            The Wongs are ordered to provide notice of this ruling.

Dated: ____________                                 ___________________________________

                                                                                  MARGARET L. OLDENDORF

                                                                            JUDGE OF THE SUPERIOR COURT