Judge Michael P. Linfield, Case Number: 23STCV11730, Date: 2023-11-13 Tentative Ruling

Judge: Michael P. Linfield, Case: 23STCV11730, Date: 2023-11-13 Tentative Ruling

On May 23, 2023, Plaintiff Chul Hak Gwag filed his Complaint against Defendants FCA US LLC (“FCA”) and Sierra LA CDJR, LLC (“Sierra”).

On July 12, 2023, both Defendant Sierra and Defendant FCA filed their Answers to the Complaint.

On October 4, 2023, Defendant FCA filed its Motion to Compel Arbitration and Stay Action. In support of its Motion, Defendant FCA filed its Proposed Order.

On October 17, 2023, Plaintiff filed his Opposition to the Motion. In support of his Opposition, Plaintiff concurrently filed: (1) Request for Judicial Notice; and (2) Evidentiary Objections.

On October 23, 2023, Defendant FCA filed its Reply regarding the Motion. In support of its Reply, Defendant FCA concurrently filed Declaration of John Stock.

On November 8, 2023, Plaintiff filed its second Request for Judicial Notice (“Supplemental Request for Judicial Notice”).

Plaintiff filed evidentiary objections to Defendant FCA’s evidence. The following are the Court’s rulings on these objections.

Objection
1	SUSTAINED
2	SUSTAINED
3	SUSTAINED
4	SUSTAINED

Plaintiff requests that the Court take judicial notice of various opinions by Courts of Appeal. Plaintiff later requests that the Court take judicial notice of a writ of mandate in an ongoing appellate matter.

The Court DENIES judicial notice to these of these items. Plaintiff may cite published opinions as authority in its memorandum. However, “an opinion of a California Court of Appeal or superior court appellate division that is not certified for publication or ordered published must not be cited or relied on by a court or a party in any other action.” (California Rules of Court, Rule 8.115.) Plaintiff’s counsel should know better than to ask this Court to take judicial notice of unpublished opinions.

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists [unless it makes certain determinations].” (Code Civ. Proc., § 1281.2.)

“Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable. . . . Reasons that would render any contract revocable under state law include fraud, duress, and unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239, citations omitted.)

“The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence the existence of an arbitration agreement.¿The party opposing the petition bears the burden of establishing a defense to the agreement's enforcement by a preponderance of the evidence.¿In determining whether there is a duty to arbitrate, the trial court must, at least to some extent, examine and construe the agreement.” (Tiri, supra, at p. 239.)

Defendant FCA moves the Court to compel Plaintiff to arbitration and stay this action pending the completion of arbitration. (Motion, p. 15:4–5.)

Defendant FCA argues: (1) that Plaintiff’s claims are subject to arbitration pursuant to the signed “Agreement to Arbitrate”; (2) that Plaintiff’s claims are subject to arbitration pursuant to the signed “Retail Installment Sale Contract”; (3) that the Agreement to Arbitrate may also be enforced through the procedures set forth in the California Arbitration Act (CAA); (4) that the arbitration provisions in both agreements are valid and enforceable; (5) that the arbitration provisions are neither procedurally nor substantively unconscionable; and (6) that this matter must be stayed while the application to arbitrate is pending through the conclusion of arbitration. (Motion, pp. 1:3–16, 5:23, 7:14, 8:19–20, 10:4, 12:11–12, 14:13–14.)

Plaintiff opposes the Motion, arguing: (1) that the Motion must be denied because Defendant FCA does not provide competent evidence of an arbitration agreement; (2) that Defendant did not demonstrate that Plaintiff consented to the arbitration provisions; (3) that both arbitration provisions are unconscionable; (4) that there is no consideration for the Agreement to Arbitrate; (5) that equitable estoppel does not prevent Plaintiff from refusing to arbitrate; and (6) that the Court should follow certain case law and not other case law. (Opposition, pp. 5:8–9, 6:1–3, 7:12, 9:11, 9:18–19, 14:24.)

In its Reply, Defendant FCA argues: (1) that the Agreement to Arbitrate is a business record and is thus admissible under an exception to the hearsay rule; (2) that Plaintiff received a warranty in consideration for the Agreement to Arbitrate; and (3) that Defendant FCA can enforce the arbitration provision in the Retail Installment Sale Contract as a third-party beneficiary. (Reply, pp. 2:24–25, 3:15–16, 4:5–6, 4:15–16.)

Plaintiff FCA has attached several exhibits to its Motion to Compel Arbitration, including what it purports to be an arbitration agreement. However, the Court has sustained Defendant’s objections to these exhibits because none of these exhibits were authenticated.

The fact that Mr. Stock, Plaintiff’s custodian of records, authenticated the exhibits in FCA’s reply is not sufficient. “The general rule of motion practice, . . . is that new evidence is not permitted with reply papers.” (Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1538-1539 [cleaned up], quoting Plenger v. Alza Corp. (1992) 11 Cal.App.4th 349, 362, fn. 8.) “Points raised in the reply brief for the first time will not be considered, unless good reason is shown for failure to present them before.” (Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn.3. See also, Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010; Neighbours v. Buzz Oates Enterprises (1990) 217 Cal.App.3d 325, 335, fn. 8; Alcazar v. LAUSD (2018) 29 Cal.App.5th 86, fn. 5.)

FCA has presented no reason at all – let alone a good reason – for presenting these new facts in its reply. Therefore, FCA has failed to prove the existence of an arbitration agreement.

However, as indicated below (see sections IV(C) and IV(D), even if the Court were to consider the arbitration agreement, the Court would deny the motion to compel.

C. The Arbitration Provision in the Retail Installment Sale Contract does not Compel Defendant to Arbitrate with FCA

The Retail Installment Sale Contract contains an arbitration provision. (Decl. Stock, Exh. A, p. 5.)

The Court need not restate the exact terms of the arbitration provision because the Retail Installment Sale contract is only signed by Plaintiff and Defendant Sierra, not by Defendant FCA.

The situation here – where a non-signatory automobile manufacturer attempts to compel a consumer to arbitration – is similar to that in Ford Motor Warranty Cases (2023), review pending at Ochoa v. Ford Motor Co. (In re Ford Motor Warranty Cases) (2023) Cal. LEXIS 4235. On the other hand, the Court finds that Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 – in which a signatory automobile dealership moved to compel arbitration based on the contract that it signed – is neither binding nor persuasive.

The Ford Motor Warranty Cases held that: (1) equitable estoppel does not apply because the manufacturer has not shown that the claims against it are founded in or intertwined with the sale contract; (2) the manufacturer’s warranty outside of the contract is not a part of the sales contract; (3) the manufacturer is not a third-party beneficiary of the sale contract; and (4) there is no agency connection that gives the manufacturer the right to compel arbitration as an undisclosed principal. (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at pp. 1332, 1335, 1336, 1340.)

Further, several recent cases have agreed with the holdings in Ford Motor Warranty Cases. These cases include: Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958, 968, 972; Kielar v. Superior Court (2023) 94 Cal.App.5th 614, 620–621; and Yeh v. Superior Court (2023) 95 Cal.App.5th 264, 269–279. The facts in these cases are also similar to the situation in the case before us today.

The Court adopts the reasoning of the Ford Motor Warranty Cases and its progeny and declines to compel arbitration based on the arbitration provision in the Retail Installment Sale Contract.

Pursuant to the Agreement to Arbitrate contained below, you agree that you or FCA will resolve any dispute through a neutral, binding arbitration process and not by a court action.

Please carefully read this agreement to arbitrate, which applies to any dispute between you and FCA US LLC and its affiliates (together ‘FCA,’ ‘we’ or ‘us’).

If you have a concern or dispute, please send a written notice describing it and your desired resolution to FCA US Office of the General Counsel, 1000 Chrysler Drive, CIMS 485-13-62, Auburn Hills, MI 48326-2766.

If your concern or dispute is not resolved within 60 days, you agree that any dispute arising out of or relating to any aspect of the relationship between you and FCA will not be decided by a judge or jury but instead by a single arbitration administered by the American Arbitration Association (AAA) under its Consumer Arbitration Rules in effect at the time you signed this agreement. This includes claims arising out of your warranty and claims arising before this Agreement, such as claims related to statements about our products.

We will pay all AAA fees and costs for any arbitration, which will be held in the city or county of your residence. To learn more about the rules and how to begin an arbitration, you may call any AAA office or go to www.adr.org.

The arbitrator may resolve only disputes between you and FCA and may not consolidate claims without the consent of all parties. You and FCA may bring claims against the other only in your or its individual capacity and not as a plaintiff or class member in any class or representative action. The arbitrator cannot hear class or representative claims on behalf of others purchasing or leasing FCA vehicles. If a court or arbitrator decides that any part of this agreement to arbitrate cannot be enforced as to a particular claim for relief or remedy (such as declaratory relief), then that claim or remedy (and only that claim or remedy) shall be severed and must be brought in court and any other claims must be arbitrated.

If you prefer, you may instead take an individual dispute to small claims court.

You may opt out of arbitration within 30 days after signing this agreement by sending a letter to: FCA US Office of the General Counsel, 1000 Chrysler Drive, CIMS 485-13-62, Auburn Hills, MI 48326-2766, stating your name, Vehicle Identification Number, and intent to opt out of the arbitration provision. If you do not opt out, then this agreement to arbitrate is binding.

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 BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY FILLED-IN COPY WHEN YOU SIGNED IT.

2. Plaintiff’s Arguments regarding Consent, Consideration, and Estoppel are not Persuasive

Plaintiff argues that there was neither consent nor consideration for the Agreement to Arbitrate. Plaintiff also argues that it cannot be estopped.

Plaintiff clearly signed the Agreement to Arbitrate, indicating his consent. Further, Defendant FCA correctly notes that there is consideration. Specifically, the sale of the car and the warranties provided with it are part of the consideration.

As to equitable estoppel, Plaintiff is correct regarding the arbitration provision in the Retail Installment Sale Contract but not regarding the Agreement to Arbitrate. In the latter, Defendant FCA is alleged party, not Defendant Sierra. Thus, equitable estoppel is inapplicable.

Plaintiff’s remaining argument is that the Agreement to Arbitrate is unconscionable.

“Agreements to arbitrate may be invalidated if they are found to be unconscionable.” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 713, citations omitted.)

“Unconscionability consists of both procedural and substantive elements. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. (Pinnacle Museum Tower Ass’n v. Pinnacle Mkt. Dev. (US), LLC (2012) 55 Cal.4th 223, 246, citations omitted.)

“‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa. (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 114, [cleaned up], italics in original, abrogated in part on other grounds by AT&T Mobility LLC v. Concepcion (2010) 565 U.S. 333.).)

“The party resisting arbitration bears the burden of proving unconscionability.” (Pinnacle, supra, 55 Cal.4th at p. 247, citation omitted.)

“Moreover, courts are required to determine the unconscionability of the contract ‘at the time it was made.’” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 920, quoting Civ. Code, § 1670.5.)

“[P]rocedural unconscionability requires oppression or surprise. Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.” (Pinnacle, supra, 55 Cal.4th at p. 247 [cleaned up].)

“The procedural element of an unconscionable contract generally takes the form of a contract of adhesion . . . .” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.)

The Agreement to Arbitrate is clearly a contract of adhesion. Despite the language at the bottom of the agreement that is bolded and capitalized, there is no doubt that this is a contract of adhesion. The entire contract, including the Agreement to Arbitrate, is a classic take-it-or-leave-it document that did not give Plaintiff a meaningful choice or opportunity to negotiate.

A contract can be adhesive when it is presented for signature on a ‘take it or leave it’ basis and where the other party was given no opportunity to negotiate any of the preprinted terms in the lease. (See, Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77; Sanchez v. Valencia Holding Co., LLC (2011) 201 Cal.App.4th 74, 90.)

“Absent unusual circumstances, a contract offered on a take-it-or-leave-it basis is deemed adhesive, and a commercial transaction conditioned on a party‘s acceptance of such a contract is deemed procedurally unconscionable.” (Vasquez v. Greene Motors, Inc. (2013) 214 Cal.App.4th 1172, 1184.)

The fact that the arbitration agreement may give Plaintiff 30 days to opt-out of the arbitration does not make it less unconscionable at the time it was signed.

“Substantive unconscionability focuses on overly harsh or one-sided results. In assessing substantive unconscionability, the paramount consideration is mutuality.” (Fitz, supra, 118 Cal.App.4th at p. 723 [cleaned up].)

The Agreement to Arbitrate is almost entirely devoid of any mutuality. Specifically, the Agreement to Arbitrate binds Plaintiff to arbitration while it seemingly gives Defendant FCA complete freedom to choose between arbitration and court.

· “Pursuant to the Agreement to Arbitrate contained below, you agree that you or FCA will resolve any dispute through a neutral, binding arbitration process and not by a court action.”

· “If your concern or dispute is not resolved within 60 days, you agree that any dispute arising out of or relating to any aspect of the relationship between you and FCA will not be decided by a judge or jury . . . .”

· “If you prefer, you may instead take an individual dispute to small claims court.” (Decl. Stock, Exh. B [emphases added].)

Nothing in the Agreement to Arbitrate binds Defendant FCA to arbitrate. In fact, it is not even clear that Defendant FCA has given its consent to arbitration. Indeed, the language of this agreement seemingly gives Defendant FCA the ability to choose whether to file a case in court or with an arbitrator.

Even the first, bolded line of the “Notice of Agreement to Arbitrate” is ambiguous. This line says

“[p]ursuant to the Agreement to Arbitrate contained below, you agree that you or FCA will resolve any dispute through a neutral, binding arbitration process and not by a court action.”

It does not state that both Plaintiff and FCA “will resolve any dispute through a neutral, binding arbitration process and not by a court action.” It does not say that both Plaintiff and FCA agree that they will resolve any dispute through arbitration. Rather, it simply states that Plaintiff agrees that either he or FCA will resolve any dispute through arbitration. In other words, this is a statement about Plaintiff’s belief; it is not a statement that binds FCA to arbitration.

It is also worth noting that the Agreement to Arbitrate is not even signed by Defendant FCA. The Agreement may be on FCA’s letterhead (although FCA has presented no evidence of this “fact”) but it is only signed by Plaintiff.

Lastly, it is worth noting that the arbitration agreement was drafted by FCA. If there is any dispute as to the meaning of the words in the Agreement, it must be interpreted against FCA. (See, e.g., CACI 320.)

The Court finds that the Agreement to Arbitrate is substantively unconscionable.

A contract is unconscionable if there is “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243.)

“The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement.” (Magno v. The College Network, Inc. (2016) 1 Cal.App.5th 277, 285.)

As indicated above, the Court finds the Agreement to Arbitrate both procedurally and substantively unconscionable. Further, the Court finds that it would be impossible to sever the unconscionable clauses so as to save can save this agreement.

“[U]pholding this type of agreement with multiple unconscionable terms would create an incentive for [a manufacturer] to draft a onesided arbitration agreement in the hope [consumers] would not challenge the unlawful provisions, but if they do, the court would simply modify the agreement to include the bilateral terms the [manufacturer] should have included in the first place.” (Mills v. Facility Solutions Group, LLC (2022) 84 Cal.App.5th 1035, 1045.)

The Court declines to compel arbitration: the Agreement to Arbitrate is both procedurally and substantively unconscionable. Further, any semblance of mutuality is belied by the explicit terms of the Agreement to Arbitrate – an agreement that was drafted by Defendant FCA.

For the reasons stated above in sections IV(B) and IV(D), FCA’s Motion to Compel Arbitration is DENIED.