Judge: Martha K. Gooding, Case: 22-01263738, Date: 2023-05-15 Tentative Ruling
Motion to Compel Arbitration
The Motion to Compel Arbitration (“Motion”) brought by Defendant FCA US, LLC (“Defendant”) is DENIED. As explained below, the moving party is not a signatory to the relevant agreement and equitable estoppel does not apply, pursuant to Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324, 306 Cal.Rptr.3d 611 (“Ochoa”). Further, the Court finds that Defendant is not entitled to enforce the arbitration agreement as a third-party beneficiary or pursuant to agency principles.
Initially, it is undisputed the Federal Arbitration Act (“FAA”) applies to the instant motion. (Lambert Decl. ¶2 and Exh. A); see also Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 346-348 and Comley v. Giant Inland Empire RV Center, Inc. (C.D. Cal. 2013) 2013 WL 12131180 at 3.) The Federal Arbitration Act requires the existence of a valid arbitration agreement before arbitration can be compelled. (See 9 U.S.C. §2). “[I]t is a cardinal principle that arbitration under the FAA ‘is a matter of consent, not coercion.’” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.) “Thus, ‘a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’” (Id.) “If a party to a civil action asks the court to compel arbitration of the pending claim, the court must determine in a summary proceeding whether an ‘agreement to arbitrate the controversy exist.’” (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 754.) “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.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)
In support of this motion, Defendant provides a Retail Installment Sale Contract (“RISC”) executed by Lisa Ann Verdugo and Stevie A. Verdugo. (Lambert Decl. ¶2 and Exh. A.) Plaintiffs do not dispute the authenticity of this agreement or their signatures on it. The RISC states it was entered into between Lisa Ann Verdugo (“Buyer”), Stevie A. Verdugo (“Co-Buyer”), and Premier CDJR of Buena Park (“Seller-Creditor”). (Id.)
The dispute between the parties is whether this agreement is enforceable by non-signatory Defendant FCA US LLC.
“Although the FAA preempts any state law that stands as an obstacle to its objective of enforcing arbitration agreements according to their terms,…we apply general California contract law to determine whether the parties formed a valid agreement to arbitrate their dispute.” (Ochoa, 306 Cal.Rptr.3d at 618.) “General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting.” (Id.)
Additionally, “[u]nder certain circumstances, a nonsignatory to an arbitration agreement may seek to enforce it against a signatory.” (Id. at 618.) “Whether such enforcement is permissible is a question of state law.” (Id.)
“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.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495). “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.” (Id. at 496). “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.” (Id.).
Here, it is undisputed that Plaintiff’s claims arise from manufacturing warranties provided by Defendant FCA US, LLC. (Complaint ¶ 14 [“These causes of action arise out of the warranty obligations of FCA US LLC in connection with a motor vehicle for which FCA US LLC issued a written warranty”]; see also Motion at 2:8-15.) In dispute is whether these warranties are “founded in and inextricably bound up with” the sales contract.
In brief, the Felisilda court found that manufacturing warranties are inextricably bound with the sales agreement, while the Ochoa court found they are not. (See Felisilda, 53 Cal.App.5th at 496 and Ochoa, 306 Cal.Rptr.3d at 619-20.)
This Court follows the persuasive reasoning in Ochoa and, for the reasons stated therein, finds that equitable estoppel does not apply.
The Ochoa Court “disagree[d] with Felisilda that ‘the sales contract was the source of [FCA’s] warranties at the heart of this case.” (306 Cal.Rptr.3d at 620.) Instead, the court explained 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.” (Id.)
The court in Ochoa further explained: “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.” (Id. at 621.) “[O]ur Supreme Court [has] distinguished between, on the one hand, warranty obligations flowing from the seller to the buyer by contract, and, on the other hand, manufacturer warranties ‘that arise[] independently of a contract of sale between the parties.’” (Id.) Thus, the Ochoa court held that “Plaintiff’s claims in no way rely on the sale contracts” and, consequently, “[e]quitable estoppel does not apply.” (Id.)
As was the case in Ochoa and Felisilda, Defendant asserts Plaintiffs’ claims fall within the arbitration provision, given the language referencing third parties and the condition of the vehicle; however, the court in Ochoa “also disagree[d] with the Felisilda court’s interpretation of the sale contract as broadly calling for arbitration of claims ‘against third party nonsignatories.’” (Ochoa, 306 Cal.Rptr.3d at 620.) Citing the identical language discussed in Felisilda and included herein, which referred to “any such relationship with third parties who do not sign this lease,” the Ochoa court explained: “We do not read this italicized language as consent by the purchaser to arbitrate claims with third party nonsignatories. Rather, we read it as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate. They agreed to arbitrate disputes ‘between’ themselves – ‘you and us’ – arising out of or relating to ‘relationship[s],’ including ‘relationship[s] with third parties who [did] not sign th[e] [sale] contract[s],’ resulting from the ‘purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.’” (Id.) “It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.” (Id.)
Consistent with Ochoa, this Court finds that “manufacturer vehicle warranties that accompany the sale of motor vehicles…are independent of the sale contract.” (306 Cal.Rptr.3d at 619-620.) Consequently, because Plaintiff here is not asserting any claims against Defendant based on the terms of the RISC (see Complaint, generally), equitable estoppel does not apply.
Significantly, although Defendant argues that Felisilda is the better reasoned authority, the Felisilda opinion includes no analysis of the relevant issues. (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 496-497.) Instead, citing an allegation that “express warranties accompanied the sale,” the court merely concluded “the sales contract was the source of the warranties at the heart of this case,” without any further discussion or citation to authority. (Id.) Indeed, rather than address whether manufacturer warranties are included within or “intimately founded in and intertwined” with dealership sales contracts, the Felisilda court focused on the Felisildas’ purported agreement to arbitrate third-party claims regarding the condition of the vehicle. (Id.) Felisilda did not address the language limiting enforcement of the arbitration provision.
Next, Defendant asserts it is entitled to enforce the Agreement as a third-party beneficiary. “As a general rule, only a party to an arbitration agreement may enforce the agreement.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495). However, “’[a] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.’” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 827).
Here, as in Ochoa and for the same reasons stated therein, “the sale contract[] reflect[s] no intention to benefit a vehicle manufacturer under Goonewardene.” (Ochoa, 306 Cal.Rptr.3d at 623.) The holding in Ochoa applies with equal force here, inasmuch as this case includes the same contractual language and Defendant identifies no other language that it asserts demonstrates an intent to benefit FCA US LLC. (Motion at 7, fn. 2.)
Finally, citing paragraph 26 of the Complaint and Thomas v. Westlake (2012) 204 Cal.App.4th 605, Defendant asserts it is entitled to enforce the Arbitration Agreement pursuant to agency principles. (Motion at 9:23-10:6.) As noted in Thomas, “a plaintiff’s allegations of an agency relationship among defendants is sufficient to allow the alleged agents to invoke the benefit of an arbitration agreement executed by their principal even though the agents are not parties to the agreement.” (Thomas v. Westlake, 204 Cal.App.4th at 614-615.)
But Plaintiff’s Complaint here does not allege an agency relationship among the defendants.
At best, paragraph 26 of the Complaint (included in the First Cause of Action) alleges that “Defendant FCA and its representatives in this state have been unable to service or repair the Vehicle to conform to the applicable express warranties after a reasonable number of opportunities.” This language does not expressly identify the dealership or assert an agency relationship.
Moreover, to the extent that allegation could fairly be interpreted as alleging an agency relationship between Defendant FCA and the dealership, Ochoa rejected a similar theory: “When FMC has to fix something under warranty, consumers can go to a dealer to get it fixed. This does not mean the dealers are FMC’s agents in connection with the sale of vehicles to consumers that the dealer bought from FMC.” (306 Cal.Rptr.3d at 625.) “Here, there is no connection between each of (1) plaintiffs’ claims against FMC; (2) any alleged agency relationship between FMC and the dealers; and (3) the sale contracts between the dealers and plaintiffs.” (Id.) “There are no allegations that the vehicles sold belonged to FMC, as opposed to the dealer. There are no allegations that FMC, rather than the dealer, financed the sales. There are no allegations that FMC controlled or had any direct interest in the transaction. In short, there are no allegations that the dealers were transacting other than for their own account in entering into the sale contracts.” (Id. at 626.) Thus, “in the absence of some nexus between the agency allegations, plaintiffs’ claims, and the sale contracts, FMC is not entitled to compel plaintiffs to arbitrate as an undisclosed principal.” (Id.)
For the same reasons, Defendant has not demonstrated it is entitled to enforce the arbitration agreement simply by virtue of a reference to “representatives” in paragraph 26 of the Complaint.
Plaintiff’s Request for Judicial notice is DENIED, as the Court need not take judicial notice of published opinions. (C.C. v. Superior Court (2008) 166 Cal.App.4th 1019, 1021, fn. 1.)
Plaintiff is ordered to give notice.