Judge: Mark C. Kim, Case: 22LBCV00731, Date: 2023-02-28 Tentative Ruling
Case Number: 22LBCV00731 Hearing Date: February 28, 2023 Dept: S27
1. Background
Facts
Plaintiffs James Setka and Cynthia
Setka filed this action against Defendants Ford Motor Company (“FMC”) and South
Bay Ford, Inc. (“South Bay”) in connection with the purchase of a 2018 Ford
F150. The Complaint alleges the following causes of action: (1) violation of
subdivision (d) of Civil Code § 1793.2 against FMC only; (2) violation of
subdivision (b) of Civil Code § 1793.2 against FMC only; (3) violation of
subdivision (a)(3) of Civil Code § 1793.2 against FMC only; (4) breach of the
implied warranty of merchantability (Civ. Code §§ 1791.1, 1794, 1795.5) against
FMC only; (5) fraudulent inducement – concealment against FMC only; and (6) negligent
repair against South Bay only.
On December 19, 2022, FMC and South
Bay filed the instant motions: (1) motion to compel arbitration and stay action;
and (2) motion to stay the entire action.
On December 22, 2022, Plaintiffs
voluntarily dismissed South Bay from the action.
On February 14, 2023, Plaintiffs
filed their opposition to the instant motions.
As of February 22, 2023, no reply
papers have been filed.
2. Motion
to Compel Arbitration and Stay Action
a.
Legal Standard
In a motion to compel arbitration,
the moving party must prove by a preponderance of evidence the existence of the
arbitration agreement and that the dispute is covered by the agreement. The burden then shifts to the resisting party
to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.). (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 758.)
Generally, on a petition to compel
arbitration, the court must grant the petition unless it finds either (1) no
written agreement to arbitrate exists; (2) the right to compel arbitration has
been waived; (3) grounds exist for revocation of the agreement; or (4)
litigation is pending that may render the arbitration unnecessary or create
conflicting rulings on common issues. (Code Civ.
Proc., § 1281.2; Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215,
218-219.)
“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].)
This is in accord with the liberal federal policy favoring arbitration
agreements under the Federal Arbitration Act (“FAA”), which governs all
agreements to arbitrate in contracts “involving interstate commerce.” (9 U.S.C. § 2, et
seq.; Higgins
v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)
b.
Request for Judicial Notice
Plaintiffs request the Court to
take judicial notice of the following cases: (1) Ngo v. BMW of N. Am., LLC
(9th Cir. Jan. 12, 2022) 23 F.4th 942; and (2) Davis v. Shiekh Shoes, LLC
(2022) 84 Cal.App.5th 956. The Court grants the request pursuant to Evidence Code
§ 452(d) and (h).
c.
Existence of Arbitration Agreement and
Applicable Law
Here, Plaintiff James Setka executed
an arbitration agreement in connection with his purchase of a 2018 Ford F150
through the Retail Installment Sale Contract (“RISC”). (Keithly Decl., Exh. A.)
The parties to this agreement included Plaintiff and the seller-creditor South
Bay. (Id., at pg. 1.) The RISC includes an agreement to arbitrate,
stating: “By signing below, you agree that, pursuant to the Arbitration
Provision on page 7 of this contract, you or we may elect to resolve any
dispute by neutral, binding arbitration and not by a court action. See the
Arbitration Provision for additional information concerning the agreement to
arbitrate.” (Ibid.) The arbitration provision specifically states:
ARBITRATION
PROVISION
PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS
1. EITHER YOU OR
WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN
US DECIDED BY
ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.
2. IF A DISPUTE
IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO
PARTICIPATE AS A
CLASS REPRESENTATIVE OR CLASS MEMBER ON
ANY CLASS CLAIM
YOU MAY HAVE AGAINST US INCLUDING ANY
RIGHT TO CLASS
ARBITRATION OR ANY CONSOLIDATION OF
INDIVIDUAL
ARBITRATIONS.
3. DISCOVERY AND
RIGHTS TO APPEAR IN ARBITRATION ARE
GENERALLY MORE
LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS
THAT YOU AND WE
WOULD HAVE IN COURT MAY NOT BE AVAILABLE
IN ARBITRATION.
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.
.
. .
Any arbitration
under this Arbitration Provision shall be governed by the Federal Arbitration
Act (9 U.S.C. § 1 et seq.) and not any state law concerning arbitration….
(Ibid., at pg. 7.)
This action arises from the
condition of the subject vehicle. (See generally Complaint.) Furthermore, the
agreement provides that it is governed by the FAA. (Keithly Decl., Exh. A at pg.
7.)
Accordingly, the Court finds that FMC
has met its burden in showing the existence of an applicable arbitration
agreement. Additionally, the Court finds that the FAA applies. (Rodriguez v. Am. Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122.)
d.
Standing to Invoke the Arbitration
Provision
FMC next argues that it has
standing to compel arbitration under the doctrine of equitable estoppel. It is
noted that FMC does not argue that it has standing to compel arbitration under
the third-party beneficiary exception. Nevertheless, the Court shall address
both theories out of caution.
i.
Equitable Estoppel
FMC argues that it is permitted to
compel arbitration under the doctrine of equitable estoppel. (Motion at pp. 8-11.)
“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.” (Felisilda v. FCA US LLC
(2020) 53 Cal.App.5th 486, 495–496 (citations omitted).) Where the equitable estoppel doctrine applies,
the nonsignatory has a right to enforce the arbitration agreement.” (JSM Tuscany, LLC v. Superior Court
(2011) 193 Cal.App.4th at 1222, 1237, fn. 18.)
“ ‘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.’ ” (Jensen v. U-Haul Co.
of California (2017) 18 Cal.App.5th 295, 306, quoting NORCAL Mutual Ins.
Co. v. Newton (2000) 84 Cal.App.4th 64, 84.) “In any case applying equitable estoppel to
compel arbitration despite the lack of an agreement to arbitrate, a
nonsignatory may compel arbitration only when the claims against the nonsignatory
are founded in and inextricably bound up with the obligations imposed by the
agreement containing the arbitration clause.”
(Goldman v. KPMG, LLP (2009) 173 Cal.App.4th at 209, 219; see
also Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122,
1128-1129.) In determining whether the
plaintiffs’ claim is founded on or intimately connected with the sales
contract, we examine the facts of the operative complaint. (Goldman, supra, 173 Cal.App.4th at
pp. 229-230.)
The Court of Appeal in Felisilda
held that a nonsignatory may compel arbitration “when claims against the
nonsignatory are found in and inextricably bound with the obligations imposed
by the agreement containing the arbitration clause.” (Felisilda v. FCA US LLC (2020) 53
Cal.App.5th 486, 495-496.) In Felisilda,
the plaintiffs brought claims against the dealership and manufacturer FCA under
the Song-Beverly Act. (Id. at
489.) The arbitration award in favor of Defendant FCA was ultimately confirmed,
and the plaintiffs appealed—arguing in part that the trial court lacked
discretion to order the Plaintiffs to arbitrate their claim against
non-signatory FCA in the first place. (Id.)
The Felisilda court held
that the plaintiffs were estopped from refusing to arbitrate their claims
against the manufacturer. The court reasoned that the Complaint alleged the
sales contract was the source of the warranties at the heart of the case. (Id. at 496.) Further, the plaintiffs’ claim against the
manufacturer directly relates to the condition of the vehicle. (Id. at 497.) Thus, “[b]ecause the
Felisildas expressly agreed to arbitrate claims arising out of the condition of
the vehicle—even against third party non-signatories to the sales contract—they
are estopped from refusing to arbitrate their claim against FCA.” (Id. at 497.)
Here, FMC argues that the
circumstances here are similar to Felisilda because Plaintiffs allege
that their causes of action arise from the express warranty and the condition
of the vehicle. (Motion at pg. 11.)
However, the Court is not persuaded by this argument. Similarly, the Ngo
Court rejected the manufacturer’s argument that the warranties and the sales
agreement were intertwined. (Ngo v.
BMW N. A. LLC (9th Cir. 2022.) 23 F.4th 942, 949-950.) Instead, the Ngo court stated that,
“under California law, warranties from a manufacturer that is not a party to
the sales contract are ‘not part of [the] contract of sale.’” (Id. at 949, citing Corp. of
Presiding Bishop of Church of Jesus Christ of Latter-Day Saints v. Cavanaugh
(1963) 217 Cal.App.2d 492, 514.) While Ngo is not binding authority on
the Court, the Court finds its analysis greatly instructive and persuasive. Consequently,
because the arbitration provisions between these two cases are substantially
similar, the Court finds Ngo persuasive authority and analytically
sound. (See Vaquero v. Stoneledge
Furniture LLC (2017) 9 Cal.App.5th 98, 110, fn. 9.)
Upon review of the Complaint, none of Plaintiffs’ claims
arise from the RISC. Rather, it asserts claims arising from warranties provided
under the Song-Beverly Act, which is codified under Civil Code §§ 1790, et seq.
While Plaintiffs alleged a claim for negligent repair against South Bay, Plaintiffs
voluntarily dismissed South Bay from this action on December 22, 2022. Thus,
Plaintiffs’ remaining claims about the condition of subject vehicle do not
depend on the terms of the RISC in order to assert them. For instance, if
Plaintiffs decided not to finance the subject vehicle and were to buy it
outright, the RISC would not exist but Plaintiffs’ claims would remain the
same. (See, e.g. Fuentes v. TMCSF,
Inc. (2018) 26 Cal.App.5th 541, 553.) As a result, while Plaintiffs’ claims
are tied to the condition of the vehicle, they are not intimately found in the
RISC.
Nevertheless, Defendant continues
to argue that Felisilda is controlling in this instance and permits a
non-signatory to compel arbitration under the doctrine of equitable estoppel.
(Motion at pg. 8-12.) However, an important distinction between the facts here
and those found in Felisilda, and that is the dealership here is not the
party seeking to compel arbitration. In
fact, the dealership is no longer a party to this lawsuit. As stated in the RISC, the arbitration clause
expressly states that arbitration can be compelled by the dealership; it does
not grant the third-party non-signatory authority to compel arbitration. (See Keithly Decl., Exh. A at pg. 7.) Because
of the particular factual and procedural history in Felisilda, the Court
here declines to impermissibly extend the scope of its holding.
Accordingly, the Court finds that FMC
lacks standing to compel arbitration under the doctrine of equitable estoppel.
ii.
Third-Party Beneficiary
Next, while it is not raised in FMC’s
motion, the Court shall analysis whether FMC is permitted to invoke the
arbitration clause as third-party beneficiary.
To invoke the third-party
beneficiary exception, the non-signatory must show that the arbitration clause
of the agreement was “made expressly for [their] benefit.” (See Civ. Code, § 1559.) It is “not necessary that the beneficiary be
named and identified as an individual. A third party may enforce a contract
where he shows that he is a member of a class of persons for whose benefit it
was made.” (Garratt v. Baker
(1936) 5 Cal.2d 745, 748; accord, Cargill, Inc. v. Souza (2011) 201
Cal.App.4th 962, 967.)
A third party is entitled to
enforce a contract where: (1) it benefits from the contract, (2) a motivating
purpose of the contracting parties was to provide a benefit to the third party,
and (3) permitting the third party to enforce the contract is consistent with
the objectives of the contract and reasonable expectations of the parties. (Goonewardene v. ADP, LLC (2019) 6
Cal.5th 817, 830.)
Upon review of the arbitration
provision, the Court finds that FMC is not a third-party beneficiary of the
RISC. Even though the RISC references third-parties, there is no showing that
the RISC was made expressly for FMC benefit. Moreover, there is nothing in the
RISC that shows that FMC can independently compel arbitration. Similarly, in Ngo, the Ninth Circuit
analyzed an arbitration clause closely resembling the one before this Court and
determined that the manufacturer of the vehicle was not third-party beneficiary
to the arbitration clause. (Ngo, supra, 23 F.4th at 946-948.) The Ninth
Circuit reasoned that “the vehicle purchase agreement in question was drafted
with the primary purpose of securing benefits for the contracting parties
themselves. In such an agreement, the purchaser seeks to buy a car, and the
dealership and assignees seek to profit by selling and financing the car. Third
parties are not purposeful beneficiaries of such an undertaking.” (Id.
at 947.) It is further pointed out that the arbitration agreement there only
gave three parties the ability to compel arbitration: the buyer, the
dealership, and the assignee. (Id.
at 948.) It was concluded that the sales
contract did not extend the number of parties that could enforce the
arbitration clause. (Id.)
Consequently, because the arbitration provisions between these two cases are
substantially similar, the Court finds Ngo persuasive authority and
analytically sound. (Vaquero v.
Stoneledge Furniture LLC (2017) 9 Cal.App.5th 98, 110, fn. 9.) Accordingly,
the Court finds that Defendant lacks standing to compel arbitration because
they are not intended third-party beneficiaries of the arbitration provision.
Based on the foregoing, the Court denies FMC’s motion to compel
arbitration because it lacks standing to do so under either the third-party
beneficiary exception or the doctrine of equitable estoppel. Consequently, the Court declines to address
the remaining arguments raised in the motion.
3. Motion
to Stay Entire Action
FMC also moves to stay the entire action
during the pendency of its motion to compel arbitration. (See Notice of Motion re: Stay Action at pg. 1.)
Because the Court has adjudicated FMC’s motion to compel arbitration, its motion
to stay the entire action is moot.
Accordingly, the Court denies FMC’s
motion to stay the entire action as moot.
4. Conclusion
The Court denies Ford Motor Company’s
motion to compel arbitration and to stay action because it lacks standing to
compel arbitration. Also, the Court denies as moot Ford Motor Company’s motion
to stay the entire action.
Moving Defendant Ford Motor Company
is ordered to give notice.
Parties who intend to submit
on this tentative must send an email to the court at gdcdepts27@lacourt.org indicating intention to submit on the tentative
as directed by the instructions provided on the court website at www.lacourt.org. If the department
does not receive an email indicating the parties are submitting on the
tentative and there are no appearances at the hearing, the motion may be placed
off calendar. If a party submits on
the tentative, the party’s email must include the case number and must identify
the party submitting on the tentative.