Judge Mark H. Epstein, Case 22SMCV01497 2023-02-24 Tentative Ruling

Judge: Mark H. Epstein, Case: 22SMCV01497, Date: 2023-02-24 Tentative Ruling

Case Number: 22SMCV01497 Hearing Date: February 24, 2023 Dept: R

Plaintiff Carlos Torres filed this Song-Beverly Warranty Act action against defendant American Honda Motor Company, Inc. Currently before the court is defendant’s motion to compel arbitration and stay proceedings. Plaintiff opposes. For the reasons set forth below, the motion is GRANTED.

Defendant requests judicial notice of court records from this and one other case. The request is GRANTED. (See Evid. Code, § 452, subd. (d).)

The party seeking to enforce the arbitration agreement bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.) The court first decides whether an enforceable arbitration agreement exists between the parties and then determines whether the plaintiff’s claims are covered by the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)

It is undisputed that there is a signed arbitration agreement here as contained in the lease agreement for the vehicle at issue. The agreement is also covered by the FAA, which is something else that plaintiff does not dispute. The issue is joined as to whether that agreement extends to a claim by plaintiff against the defendant, who did not sign the contract.

Defendant asserts that it can enforce the arbitration agreement even as a nonsignatory. The sale agreement that contains the arbitration clause is between plaintiff and the third-party dealership, which is not a party to this action. But the arbitration clause incorporates third parties. It states: “Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors, or assigns, which arise 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.” (Lototsky Decl., Exh. 1, p. 2, emphasis added.) Thus, nothing in the contract’s express language precludes enforcement by defendant. The specific question, then, is whether defendant can obtain the benefits of an arbitration clause in a contract it did not sign and to which it is not a direct party. Defendant argues that it can enforce the contract’s arbitration provision as an intended third-party beneficiary. However, the court need not reach that issue because the court finds defendant’s other argument—that the arbitration provision can be invoked under the equitable estoppel doctrine—convincing.

Defendant contends that plaintiff is equitably estopped from arguing he is not bound by the arbitration agreement. “ ‘Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it.’ (Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759, 763; Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1284.) ‘There are exceptions to the general rule that a nonsignatory to an agreement cannot be compelled to arbitrate and cannot invoke an agreement to arbitrate, without being a party to the arbitration agreement.’ (Westra, supra, 129 Cal.App.4th at p. 765; Rowe, supra, 153 Cal.App.4th at p. 1284.)” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236–1237, parallel citations omitted.) One of the most well-known examples is equitable estoppel. “Under that doctrine, 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.’ (Boucher, supra, 127 Cal.App.4th at p. 271; Goldman, supra, 173 Cal.App.4th at pp. 217–218.)” (Id. at p. 1237, parallel citations omitted.)

“ ‘Courts applying equitable estoppel against a signatory have “looked to the relationships of persons, wrongs and issues, in particular whether the claims that the nonsignatory sought to arbitrate were ‘ “ ‘intimately founded in and intertwined with the underlying contract obligations.’ ” ' ”’ (Metalclad, 109 Cal.App.4th at p. 1713.) Application of ‘the estoppel doctrine in this context does not require a conscious or subjective intent to avoid arbitration, but turns upon the nexus between the contract and the causes of action asserted.’ (Rowe, supra, 153 Cal.App.4th at p. 1289.) ‘The focus is on the nature of the claims asserted by the plaintiff against the nonsignatory defendant.’ (Boucher, supra, 127 Cal.App.4th at p. 272.) ‘Claims that rely upon, make reference to, or are intertwined with claims under the subject contract are arbitrable.’ (Rowe, at p. 1287.)” (JSM Tuscany, supra, 193 Cal.App.4th 1222, 1238–1239, parallel citations omitted.)

“ ‘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 p. 219.) 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, at pp. 229-230.)” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 496, parallel citations omitted, emphasis in original.)

Defendant argues that plaintiff’s claims predicated on the statutory breach of the vehicle warranties are fundamentally based on the sale agreement and relationship created by that contract. The court agrees given binding appellate court precedent. The relationship between plaintiff and defendant under which plaintiff can claim a breach of the warranty exists due to the lease agreement. The court believes that the effect of that relationship is governed by Felisilda, a case similar to the one here. There, the dealership moved to compel arbitration against the plaintiff and the manufacturer, FCA, did not oppose. The trial court compelled (over the plaintiff’s objection) arbitration as to the dealership and FCA. In response, the plaintiff dismissed the dealership. After the matter was arbitrated and the resulting decision in FCA’s favor was confirmed, the plaintiff appealed, arguing in relevant part that “trial court lacked discretion to order the Felisildas to arbitrate their claim against FCA because FCA was a nonsignatory to the sales contract.” (Felisilda, supra, 53 Cal.App.5th at p. 489.)

The Felisilda court disagreed. It held that the claims against FCA were predicated on violation of the warranties. “In their complaint, the Felisildas alleged that ‘express warranties accompanied the sale of the vehicle to [them] by which FCA . . . undertook to preserve or maintain the utility or performance of [their] vehicle or provide compensation if there was a failure in such utility or performance.’ Thus, the sales contract was the source of the warranties at the heart of this case. . . [¶] 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.” (Felisilda, supra, 53 Cal.App.5th at pp. 496-497.) The claims in Felisilda were predicated on breach of warranty and the appellate court resolved whether, under those circumstances, plaintiffs were equitably estopped from arguing that the nonsignatory manufacturer was not bound by the sales agreement. That ruling applies here. In opposition, plaintiff attempts to differentiate the instant case from Felisilda. First, plaintiff cites a host of federal authority, including from the Ninth Circuit, that has disproved Felisilda. However, as defendant correctly states in reply, that argument is misplaced. Felisilda is the sole California appellate authority on this issue and it is binding upon this court. The court cannot choose the federal authority over binding California authority even assuming it agreed with the federal reasoning. “Under the doctrine of stare decisis, all tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction. Otherwise, the doctrine of stare decisis makes no sense. The decisions of this court are binding upon and must be followed by all the state courts of California. Decisions of every division of the District Courts of Appeal are binding upon all the justice and municipal courts and upon all the superior courts of this state, and this is so whether or not the superior court is acting as a trial or appellate court. Courts exercising inferior jurisdiction must accept the law declared by courts of superior jurisdiction. It is not their function to attempt to overrule decisions of a higher court. (People v. McGuire, 45 Cal. 56, 57-58; Latham v. Santa Clara County Hospital, 104 Cal.App.2d 336, 340; Globe Indemnity Co. v. Larkin, 62 Cal.App.2d 891, 894.)” (Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 455, parallel citations omitted.) The issue goes to the trial court’s fundamental power; it is not just error to refuse to follow binding authority, it is an action outside the court’s power.

Plaintiff also tries to distinguish Felisilda on the facts. He states that the third-party dealership filed the motion to compel arbitration in Felisilda, which is not the case here. But that is really an artificial distinction. Plaintiff points to no section of Felisilda in which the court limits its holding based on the fact that the dealership filed the motion to compel arbitration. Nor can the court think of any compelling reason why that is a distinction with a difference. After all, the plaintiff in Felisilda dismissed the dealer, leaving only FCA as the defendant in the arbitration. If FCA’s ability to arbitrate was wholly derivative of the dealer’s, then the plaintiff in Felisilda would be right that when the dealer was out of the case, the arbitration order should have been of no further force. The Felisilda court simply did not go in that direction. Further, there is no such procedural or substantive requirement in compelling arbitration as to a nonsignatory under equitable estoppel law. (See JSM, supra, 193 Cal.App.4th at pp. 1236–1237 [discussing the law on a nonsignatory compelling arbitration].)

Plaintiff also argues that Felisilda only contained a single cause of action against the dealership and manufacturer and that is why the Felisilda court held that the claims were “inextricably intertwined.” But that is not an entirely accurate statement of the Felisilda Court’s analysis. The Felisilda court explicitly analyzed the contractual language against the plaintiffs’ complaint. “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 p. 497.) The same is true here. Under the Felisilda Court’s reasoning, plaintiff’s claims here are intertwined with and reliant on the relationship created by the sale agreement. Without the sale agreement that transferred the vehicle to plaintiff, there would be no warranty against defendant to enforce. The court also notes that the sale agreement states that the vehicle is new. (Lototsky Decl., Exh. 2, p. 1.) Paragraph 4 of the sale agreement includes a description of warranties that the dealership might disclaim, but adds that “[t]his provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.” (Id. at ¶4.) The express language of the agreement incorporates the statutory warranties about which plaintiff now sues.

Plaintiff further argues that he did not need to enter into this sale installment agreement, and would have been entitled to the warranties even if he paid cash for the car. This may be true, but that is not the fact pattern here. The fact is that plaintiff did enter into a written agreement that compelled arbitration of all claims related to the condition of the vehicle, without exception as to statutory claims. Thus, under Felisilda, plaintiff is equitably estopped from arguing that defendant cannot take advantage of the arbitration clause in the agreement. (The court is also not sure whether the dealer had an alternative sales contract where the car was being bought for cash that contained a similar arbitration agreement.)

Accordingly, the motion is GRANTED. If Felisilda is wrongly decided and the federal authority is a better statement of California law, then an appellate court will need to so rule and, should plaintiff be unsatisfied with the arbitration result, that issue will be preserved for appeal. In the face of competing state appellate authority, this court could choose the appellate case it found the more persuasive consistent with Auto Equity.