Judge: Mark H. Epstein, Case: 23SMCV01177, Date: 2024-04-15 Tentative Ruling

Case Number: 23SMCV01177    Hearing Date: April 15, 2024    Dept: I

The court will inquire of counsel concerning the waiver issue.  But for the waiver issue, the motion to compel arbitration would be granted. 

Defendant Honda seeks to compel arbitration of this Song-Beverly Act case.  In deciding such a motion, the court must first decide whether a valid arbitration agreement exists.  If it does, then the burden shifts to the party opposing arbitration to establish a reason why it ought not be enforced.  There are some issues, like arbitrability, that will be decided by the court unless the agreement itself delegates that decision to the arbitrator.

Defendant here is not seeking the traditional equitable estoppel basis for arbitration.  The theory behind equitable estoppel is that a non-signatory to a contract may nonetheless enforce an arbitration agreement if the plaintiff’s case is essentially based on the contract.  The rationale is that it is not equitable to allow the plaintiff to demand the benefits of the contract (which are demanded by suing under the contract) but disclaim the burdens of the contract (like the duty to arbitrate).    There is a whole body of law on this that is currently in some flux.  For a while, the key case was Felisilda v. FAC US LLC (2020) 53 Cal.App.5th 486.  Felisilda applied the concept to a car manufacturer where the sale agreement was between the buyer and the dealer.  But other, more recent, cases have challenged Felisilda’s logic.  A recent example is Davis v. Nissan north America, Inc. (2024) 100 Cal.App.5th 825.  The theory there is that the manufacturer’s warranty is separate and apart from the purchase or lease agreement; it is a warranty imposed elsewhere and required by law.  Accordingly, suits based on that warranty—which would include a Song-Beverly type of action—would not be based on the contract, and thus not subject to equitable estoppel.  This court is actually somewhat more persuaded by the more recent authority and would not be inclined to follow Felisilda, although our Supreme Court has granted review on the question, so if that were critical the court might await the decision in that case.  The problem, though, is that the clause at issue, unlike the clauses in the equitable estoppel cases, expressly names the manufacturer as subject to the arbitration provision.  In that way, this is less of an equitable estoppel case and more of a third party beneficiary case, which is what defendant actually argues.  A third party beneficiary may enforce a contract only where the party can establish that they are an intended third party beneficiary, not just an incidental one.  This requires showing that: the third party would benefit, providing that benefit was a motivating purpose of the contracting parties, and allowing the third party to enforce the contract is consistent with the contract’s objectives and the parties’ expectations.  Usually, the problem is that the third party is not expressly named, and indeed, that was the problem in the case now before the Supreme Court.  Here, in contrast, Honda is expressly named in the clause.  It would certainly appear, then, that the parties are deemed to have known that Honda was intended to benefit from the arbitration provision.  The court finds that this is a material distinction between the instant case and the usual cases.  It is enough so that the court can find that Honda was an intended third party beneficiary of the contract and the clause.  The court is well aware that “intended” is too strong a word, at least in a lay sense.  While the court has no doubt but that this is a benefit that Honda intended, and likely one that the dealer intended as well, it is unlikely that plaintiff here actually harbored a similar actual intent.  But that is not the test.  Under settled contract law, the parties’ intent is discerned objectively by the words on the page, not the thoughts in their minds.  Based on the words on the page, Honda meets the definition and can enforce the contract.

There remains a question whether the dispute at issue is within the clause’s scope.  However, that question was expressly delegated to the arbitrator.  The contract is pretty plain on that point, stating that the “arbitrator shall . . . decide all issues relating to the . . . applicability of this provision.”

As to unconscionability, the court agrees that this was enough of an adhesion contract so as to meet the first prong of the test.  It is a standardized contract between two parties of unequal bargaining power and presented on a take-it-or-leave-it basis.  But that does not end the analysis.  For the contract to be unconscionable, it must be substantively unconscionable as well.  Plaintiff contends that the clause is not mutual—that plaintiff can be compelled to arbitrate, but not Honda or the dealer.  That is just not a fair reading of the contract.  The court is convinced that the clause, read using plain English but in its entirety, is mutual.

Which brings the court back to waiver.  Plaintiff asserts that Honda simply waited too long and did too much before bringing the motion.  Waiver is a known defense to an arbitration provision, and it is for the court to decide.  A waiver can of course be express, but it can also be implied.  An implied waiver occurs where the party asserting the right has unduly delayed or taken some action inconsistent with arbitration.  As to how much delay is undue, cases vary.  There are cases not finding waiver even though over a year passed between the filing of the suit and the assertion of the right.  Others have found waiver after only a few months.  The court must look at the totality of the case and the totality of the conduct.  But either way, the critical question is prejudice.  (Honig v. CJ CGV America Holdings, Inc. (2013) 222 Cal.App.4th 240.)  Here, aside from the many months delay in bringing the motion, plaintiff asserts that defendant’s conduct in discovery constituted prejudice to plaintiff and a waiver.  In reply, defendant contended that its actual discovery responses always stated that it would not provide information or substantive responses until its motion to compel arbitration was decided.  And defendant propounded very little affirmative discovery, and it seems to have been aimed at assuring the bona fides of the arbitration provision and contract.

Plaintiff essentially argues that it propounded discovery aimed at the merits.  During the meet and confer process, the defendant constantly stated that it was going to provide supplemental responses—strongly implying that the responses would be substantive.  (After all, if the only thing that is going to be in the response is an objection, it is hard to see why that was not done quickly; little extra time would be needed.)  When the supplemental responses were not forthcoming, plaintiff had to file 3 motions to compel.  Even in the teeth of that motion, plaintiff notes, defendant did not file the motion to compel arbitration.   In short, by asking for extensions of time to respond to discovery—indicating that the responses would be substantive—and by forcing plaintiff to file motions to compel in the discovery context, defendant acted prejudicially and in a manner inconsistent with a desire to arbitrate.

There is something to plaintiff’s argument.  Forcing the other side to expend needless time and effort (and potentially fees) in the litigation process when intending not to litigate seems inconsistent.  If defendant wanted to arbitrate, the court is hard pressed to understand why defendant did not just say that forthrightly to plaintiff early on in the process or provide timely responses to discovery so stating.  The court will inquire.  If there is a good reason for it, the court would be inclined to grant the motion.  But if there is no good reason, forcing plaintiff to expend that time and effort (and resource) would be enough to establish waiver and the motion may be denied.