Judge: Mark A. Young, Case: 22SMCV02413, Date: 2023-05-23 Tentative Ruling
Case Number: 22SMCV02413 Hearing Date: May 23, 2023 Dept: M
CASE NAME: Beer, et al.,
v. FCA US LLC, et al.
CASE NO.: 22SMCV02413
MOTION: Petition/Motion
to Compel Arbitration
HEARING DATE: 5/23/2023
SUMMARY OF RULING
Defendant FCA US LLC’s motion to compel arbitration is
DENIED.
Legal
Standard
Under California and federal law,
public policy favors arbitration as an efficient and less expensive means of
resolving private disputes. (Moncharsh
v. Heily & Blase (1992)
3 Cal.4th 1, 8-9; AT&T Mobility
LLC v. Concepcion (2011) 563 U.S. 333, 339.) Accordingly, whether an
agreement is governed by the California Arbitration Act (“CAA”) or the Federal
Arbitration Act (“FAA”), courts resolve doubts about an arbitration agreement’s
scope in favor of arbitration. (Moncharsh, supra, 3 Cal.4th at 9;
Comedy Club, Inc. v. Improv West
Assocs. (9th Cir. 2009) 553 F.3d 1277, 1284; see also Engalla v. Permanente Med. Grp., Inc.
(1997) 15 Cal.4th 951, 971-972 [“California law incorporates many of the basic
policy objectives contained in the Federal Arbitration Act, including a
presumption in favor of arbitrability [citation] and a requirement that an
arbitration agreement must be enforced on the basis of state law standards that
apply to contracts in general”].) “[U]nder both the FAA and California law,
‘arbitration agreements are valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.’ ” (Higgins v. Superior Crout (2006) 140 Cal.App.4th 1238, 1247.)
“Code of
Civil Procedure section 1281.2 requires a trial court to grant a petition to
compel arbitration if the court determines that an agreement to arbitrate the
controversy exists.” (Avery v.
Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59,
quotations omitted.) Accordingly, “when presented with a petition to compel
arbitration, the court’s first task is to determine whether the parties have in
fact agreed to arbitrate the dispute.” (Ibid.) A petition to compel arbitration is in essence a suit in equity
to compel specific performance of a contract. (Id. at 71.) As with any other specific performance claim, “a
party seeking to enforce an arbitration agreement must show the agreement’s
terms are sufficiently definite to enable the court to know what it is to
enforce.” (Ibid. [internal citations omitted].) “Only
the valid and binding agreement of the parties, including all material terms
well-defined and clearly expressed, may be ordered specifically performed.” (Ibid.) An arbitration agreement “must be so interpreted as to give
effect to the mutual intention of the parties as it existed at the time of
contracting, so far as the same is ascertainable and lawful.” (Civ. Code, §
1636.) The language of the contract governs its interpretation if it is clear
and explicit. (Civ. Code, § 1368.) If uncertainty exists, “the language of a
contract should be interpreted most strongly against the party who caused the
uncertainty to exist.” (Civ. Code, § 1654.)
The party
seeking to compel arbitration bears the burden of proving the existence of a
valid arbitration agreement by the preponderance of the evidence. (Engalla v. Permanente Medical Group, Inc.
(1997) 15 Cal.4th 951, 972.) It would then be plaintiff’s burden, in opposing
the motion, to prove by a preponderance of the evidence any fact necessary to her
opposition. (See Ibid.) “In these
summary proceedings, the trial court sits as a trier of fact, weighing all the
affidavits, declarations, and other documentary evidence, as well as oral
testimony received at the court’s discretion, to reach a final determination.” (Ibid.)
Analysis
Defendant
FCA asserts that the instant claims are required to go to arbitration because
Plaintiff signed an arbitration agreement covering their claims.
As with any contract, mutual assent
or consent is necessary for the formation of a valid arbitration agreement.
(Civ. Code, §§ 1550, 1565.) “Consent is not mutual, unless the parties all
agree upon the same thing in the same sense.” (Civ. Code, § 1580.) The moving
party bears the initial burden of showing the existence of an agreement to
arbitrate by a preponderance of the evidence. (Mitri v. Arnel Mgmt. Co. (2007) 157 Cal.App.4th 1164, 1169
[“Because the existence of the agreement is a statutory prerequisite to
granting the petition, the petitioner bears the burden of proving its existence
by a preponderance of the evidence.”].)
It is undisputed that Plaintiffs
signed an agreement for the sale of the vehicle, which contained an arbitration
provision. On March 20, 2019, Plaintiffs purchased the Vehicle. (Gruzman Decl.,
¶2 and Exh. A.) This purchase was memorialized in the Sales Contract. (Id., Exh
A.) The Sales Contract explicitly included an arbitration clause and an
agreement to arbitrate, which was signed by Plaintiffs at the time they purchased
the Vehicle. (Id.) Specifically, Plaintiffs signed in a separate box entitled:
“Agreement to Arbitrate.” (Id.) The text in this box states: “By signing below,
you agree that, pursuant to the Arbitration Provision on the reverse side of
this contract, you or we may elect to resolve any dispute by neutral, binding
arbitration and not by a court action.” (Id.) Among other terms, the
arbitration provision states:
YOU AGREE TO THE TERMS OF THIS
CONTRACT. YOU CONFIRM THAT BEFORE YOU SIGNED THIS CONTRACT, WE GAVE IT TO YOU,
AND YOU WERE FREE TO TAKE IT AND REVIEW IT. YOU ACKNOWLEDGE THAT YOU HAVE READ
BOTH SIDES OF THIS CONTRACT, INCLUDING THE ARBITRATION PROVISION ON THE REVERSE
SIDE, BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY FILLED-IN
COPY WHEN YOU SIGNED IT.
(Id.)
FCA argues that the instant claims
arise from the above cited agreement. Plaintiffs bring the instant Song-Beverly
action against the manufacturer of the Vehicle, FCA, and the dealership, Santa
Monica Chrysler Dodge Jeep Ram. As to FCA, Plaintiffs allege
four causes of action under the Song-Beverly Act, including breach of the
express warranty and fraudulent inducement. Plaintiffs allege that their causes
of action arise from FCA’s warranty obligations. The allegations include that
“[d]efects and nonconformities to warranty manifested themselves within the
applicable express warranty period,” “[FCA] had an affirmative duty to …
repurchase or replace the … Vehicle at the time it failed to conform the …
Vehicle to the terms of the express warrant[ies]”, and “[FCA] … [has] been
unable to service or repair the Vehicle to the applicable express warranties.”
(Compl., ¶¶13, 38.)
FCA admits it is not a direct party
to the agreement. Instead, FCA relies on a theory of equitable estoppel to
enforce the arbitration agreement against Plaintiffs. “As a general rule, only
a party to an arbitration agreement may enforce the agreement. [Citation.]
However, there are several exceptions that allow a nonsignatory to invoke an
agreement to arbitrate. [Citation.] The doctrine of equitable estoppel is one
of the exceptions. (Ibid.)” (Felisilda v. FCA US LLC, (2020) 53 Cal.
App. 5th 486, 495.) Under 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.’ [Citation.] (Id.)
In Felisilda, the plaintiffs
sued a car manufacturer and car dealer for violations of the Song-Beverly Act.
The dealer moved to compel arbitration of the claims based on an arbitration
provision. (Id. at 489.) The trial court ordered arbitration of the
claims against both the dealer and manufacturer. After the trial court
confirmed the arbitrator’s decision, the plaintiffs appealed, arguing that the
trial court could not order plaintiffs to arbitrate the claim with the
manufacturer because it was a nonsignatory to the sales contract. (Id.) The
Court of Appeal rejected this argument, finding that the express warranties
allegedly breached by the manufacturer arose from the sales contract. (Id.
at 496-97.) “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].” (Id. at 497.) Under Felisida’s analysis, this Court would
be required to compel Plaintiff’s claims against the manufacturer to
arbitration.
However,
recently, the Second District of the Court of Appeal addressed this issue in the
published decision of Ford Motor Warranty Cases, (Cal. Ct. App. Apr. 4,
2023) 89 Cal.App.5th 1324 (“Ochoa”). In relevant part, Ochoa expressly
diverged from Felisilda’s analysis that “the sales contract was the
source” of the warranties at issue. (Felisilda, supra, 53 Cal.App.5th at
496.) Instead, Ochoa concluded that “manufacturer vehicle warranties
that accompany the sale of motor vehicles without regard to the terms of the
sale contract between the purchaser and the dealer are independent of the
sale contract.” (Ochoa, supra, at 619, emphasis added.) Thus, the
court found equitable estoppel to be inapplicable because the plaintiffs’ claims
“in no way rel[ied] on the sale contracts.” (Id. at 621) Therefore, the
Plaintiffs were not attempting “to prevent a party from taking advantage of a
contract's substantive terms while avoiding those terms requiring arbitration,”
which is the “’fundamental point’ of using equitable estoppel to compel
arbitration.” (Id.) Ochoa also disagreed with Felisilda’s
holding that a manufacturer could compel arbitration as a third-party
beneficiary of the sales contract, agreeing with federal authority that “the
sale contracts reflect no intention to benefit a vehicle manufacturer.” (Id.
at 622, citing Ngo v. BMW of North America (9th Cir. 2022) 23 F.4th 942
(Ngo).)
While not binding on this court, Ngo
is instructive and persuasive. (Haynes v. EMC Mortgage Corp. (2012) 205 Cal. App.
4th 329, 334 (“federal decisions on state law can be persuasive authority”).) In Ngo, the plaintiff sued BMW, who
manufactured the car, but did not include the dealer. The arbitration provision
was nearly identical to the one in Felisilda. The manufacturer attempted
to compel arbitration based on the provision. The 9th Circuit rejected this
attempt, finding equitable estoppel theory inapplicable to the manufacturer. The
court explained:
It makes a critical difference that
the Felisildas, unlike Ngo, sued the dealership in addition to the
manufacturer. In Felisilda, it was the dealership—a signatory to the purchase
agreement—that moved to compel arbitration rather than the non-signatory
manufacturer. [Citation]…Furthermore, the Felisildas dismissed the dealership
only after the court granted the motion to compel arbitration. Accordingly, Felisilda
does not address the situation we are confronted with here, where the
non-signatory manufacturer attempted to compel arbitration on its own.
(Ngo 23 F.4th at 950.) Notably, Ochoa did not find this
distinction to be critical. Ngo also held that the manufacturer was not
a third-party beneficiary of the agreement. (Id. at 946.)
Thus, there is a split of authority
on this point of law. “[W]here there is more than one appellate court decision,
and such appellate decisions are in conflict . . . the court exercising
inferior jurisdiction can and must make a choice between the conflicting
decisions.” (Auto Equity Sales, Inc. v. Superior Ct. of Santa Clara Cnty.
(1962) 57 Cal. 2d 450, 456.) FCA contends that the Court should choose Felisilda
as controlling the outcome, but recognizes that the Court has the discretion to
choose Ochoa. The Court will follow Ochoa for three critical
reasons. First, this Court resides in the Second District, and therefore, would
favor Ochoa’s guidance on this matter. Second, federal authority supports
this conclusion. FCA repeatedly argues that the FAA, and thus federal law,
would apply and compel arbitration. Yet, the relevant federal authority would
not allow FCA to enforce the arbitration provision on either a third party
beneficiary theory or equitable estoppel theory. Third, and most critically,
the Court finds Ngo and Ochoa to be the better reasoned cases
which more precisely examine the contract terms and long-standing warranty law
distinguishing between manufacture warranties and retailer sale contracts. (See
Ochoa, supra, at 621-622.)
Accordingly, the motion is DENIED.