Judge: Michael Shultz, Case: 22CMCV00179, Date: 2023-03-07 Tentative Ruling
Case Number: 22CMCV00179 Hearing Date: March 7, 2023 Dept: A
Tuesday,
March 7, 2023, at 8:30 a.m.
[TENTATIVE] ORDER
I.
BACKGROUND
The complaint, filed on June 22, 2022,
alleges that Plaintiff bought a used 2019 Nissan Kicks. Plaintiff entered into
an express written contract with Nissan North America, Inc. (“Nissan”) that
obligated Nissan to preserve or maintain the vehicle’s utility and performance.
The vehicle developed numerous defects which Nissan allegedly failed to replace
or replace in violation of the Song-Beverly Consumer Warranty Act (“the SBA”)
and the Magnuson-Moss Act.
II.
ARGUMENTS
Defendant Nissan requests an order
compelling this matter to binding arbitration pursuant to the Federal
Arbitration Act (FAA) as required by the Retail Installment Sales Contract (“Sales
Contract”) that Plaintiff signed at the time of purchase. The Sales Contract required
arbitration of all claims arising out of the purchase or condition of the
vehicle. Although Nissan is not a signatory to the Sales Contract, it has
standing to enforce the arbitration provision based on theories of equitable
estoppel and third-party beneficiary.
Plaintiff argues that the case on
which Defendant relies is not applicable. Defendant cannot compel arbitration
pursuant to an agreement in which it is not a party. The agreement is
unconscionable and unenforceable. Plaintiff objects to Defendant’s evidence.
In reply, Defendant contends that
Plaintiff would not have any claims absent the Sales Contract. Evidence of the
Sales Contract is admissible.
III.
LEGAL STANDARDS
The Court
can order the parties to arbitrate the matter on petition of a party to an
arbitration agreement. (Code Civ.
Proc., § 1281.2). The petitioner’s burden is to establish that a
valid arbitration agreement exists. The opposing party’s burden is to establish
a defense to enforcement based on a preponderance of evidence. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010)
186 Cal.App.4th 696, 705).
IV.
DISCUSSION
A.
Plaintiff’s
objections to the Declaration
of James P. Leonard II and the Sales Contract are overruled.
Plaintiffs
argue that the Sales Contract is inadmissible hearsay and lacks authentication.
However, Nissan’s burden in moving to compel arbitration is to show the existence of an agreement, not its
validity. (Espejo v. Southern California Permanente Medical Group (2016)
246 Cal.App.4th 1047, 1058 ["as a preliminary matter the [trial] court is only required to
make a finding of the agreement's existence, not an evidentiary determination
of its validity.”]). To meet its burden, the moving party need only attach a copy
of the agreement to the petition and incorporate it by reference. (Id. at 1058; Cal. Rules
of Court, rule 3.1330 [“The provisions must be stated verbatim or a copy must be physically
or electronically attached to the petition and incorporated by
reference."]).
B.
Nissan is not a signatory to the Sales
Contract with the power to elect arbitration of Plaintiff’s claims.
The Sales Contract at issue is between Plaintiff and Carson Nissan. (Leonard
Decl., Ex. D.)
Nissan is not a party to the contract. (Id.). The Sales Contract
defines “We” or “Us” as the “Seller-Creditor” and states that any claim or
dispute “between you and us” shall at “your or our election” be resolved by
binding arbitration. (Leonard
Decl. Ex. D, p. 1, p. 7 paragraph 4.) While the provision states that it is governed
by the Federal Arbitration Act (“FAA”) the Court applies state law to determine
who is bound and who may enforce an arbitration agreement.
(Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614, fn. 7); (Rosenthal v. Great Western Fin. Securities Corp. (1996)
14 Cal.4th 394, 410 ["Because the California procedure for deciding motions to compel
[arbitration] serves to further, rather than defeat, full and uniform
effectuation of the federal law's objectives, the California law, rather than
section 4 of the USAA, is to be followed in California courts."]).
Under
Section 2 of the FAA, written arbitration agreements are valid, irrevocable,
and enforceable “save upon such grounds as exist at law or in equity for the
revocation of a contract.” (Arthur Andersen LLP v. Carlisle (2009) 556 U.S. 624, 629–630; 9 U.S.C.A.
§ 2).
Section 3 of the FAA requires the Court
to stay the action if it involves issues referable to arbitration. (9 U.S.C.A.
§ 3).
The
Sales Contract expressly provides that the power to elect arbitration, even for
disputes resulting from relationships with third parties, was expressly limited
to “you” or “our” (namely the buyer and dealer, respectively). Thus, in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, cited by Nissan, the appellate court
acknowledged that the manufacturer did not move to compel arbitration but only
filed a notice of non-opposition to the dealership’s motion to compel. (Felisilda at 498). The Court of Appeal determined that since the
dealership’s (signatory’s) motion to compel included the manufacturer as a
party to the arbitration, the trial court had the prerogative to compel
arbitration of the claim against the manufacturer since "[i]t is the
motion that determines the relief that may be granted by the trial court
(Felisilda at 498). In other words, the dealer, as a signatory with
the power to elect arbitration, could also request arbitration of the plaintiff’s
claims against the manufacturer, although not a signatory, giving the trial
court the “prerogative” to compel all parties to arbitration.
This is critical as
the Felisilda court recognized the distinction
between who had the power to elect arbitration (“You” and “Us”) as opposed to
the scope of arbitrable issues (disputes with
third parties including nonsignatories). Defendant improperly conflates both
issues.
The
contract in Felisilda states:
“[a]ny claim
or dispute, whether in contract, tort, statute or otherwise ... between you and
us ... which arises out of or relates to ... [the] condition
of this vehicle, this contract or any resulting transaction or relationship
(including any such relation 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.” Felisilda at 490 [italics in original].
The contract at issue here is substantially
similar:
“[a]ny claim or dispute, whether in contract, tort,
statute or otherwise, … 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.” (Leonard Decl., Ex. D, ¶ 4) [emphasis added].
The
procedural posture in Felisilda distinguishes it from this case, where the Plaintiff here did not sue
the dealer, the only party other than Plaintiff who had the power to elect
arbitration. Accordingly, based on the express contract provision, Nissan does
not have the power alone to elect
arbitration of issues covered by the manufacturer’s warranty based on the
provision’s scope that
included “resulting relationships with third parties.”
C.
Nissan has not established that
equitable estoppel applies to bar Plaintiff from avoiding the requirement to
arbitrate.
Under
California law, the general rule is that “only a party to an arbitration
agreement is bound by or may enforce the agreement. (Code Civ. Proc., §
1281.2); … ." (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 613). However, there are exceptions to that
rule where a nonsignatory can invoke an arbitration clause to compel a
signatory plaintiff to arbitrate its claims. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222,
1237). One
exception recognized under California and federal law is the principle of
equitable estoppel wherein “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.’" (JSM Tuscany at 1237). The
plaintiff may be equitably estopped from repudiating the arbitration clause if
the plaintiff relies on contract terms in a claim against a nonsignatory. Id.
Nissan
contends that Plaintiff’s claims are founded in the sales contract and the
purchase and condition of the vehicle again relying on Felisilda. (Motion, 13:23-28). As stated previously, the scope of
arbitrable matters were relevant in Felisilda since it was the dealer (signatory) who moved the trial court to
compel arbitration. As such, Felisilda does not address the procedural posture present here, where Plaintiff
sues only the manufacturer.
In
applying equitable estoppel, the Court must examine Plaintiff’s claims to
determine if they are “intertwined” with the Plaintiff’s obligations imposed by
the Sales Contract. (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218). The federal court’s analysis in Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d
1122 is
persuasive. (McCann v. Lucky Money, Inc. (2005) 129 Cal.App.4th 1382,
1396 [Federal
opinion interpreting state law is not binding; rather the court may rely upon
federal court opinions "for their cogent reasoning and persuasive value.”]).
Under California law, the signatory must rely on the terms of the written
agreement in asserting its claims against the nonsignatory for equitable
estoppel to apply. (Kramer at 1128, citing Goldman, supra).
In
Kramer, the plaintiff’s claims against Toyota
alleged violations of California unfair competition law, false advertising, and
breach of the implied warranty of merchantability. Kramer at
1131. Here, Plaintiff’s claims against Nissan are based on violations of the SBA.
Plaintiff is not relying on the terms of the Sales Contract to assert his claims
against Nissan. Rather, Plaintiff’s claims are based on Nissan’s breach of
obligations arising from its warranty. (Complaint
¶ 7).
Under
California law, warranties from a non-party manufacturer are not part of the
contract of sale. (Corporation of Presiding Bishop of Church of Jesus Christ of Latter-Day
Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514, citing Greenman v. Yuba Power Products, Inc. (1963)
59 Cal.2d 57). Here, the dealer expressly disclaimed any warranties, express or
implied on the vehicle including for warranties of merchantability or of
fitness. (Leonard
Decl, Ex. D, page 7 ¶ 4). The Sales Contract expressly differentiates dealer warranties from
manufacturer warranties and disclaimed any effect on manufacturer’s warranties.
Id.
Defendant
must show that Plaintiff is relying on obligations imposed by the Sales
Contract for equitable estoppel to apply. Here, Plaintiff’s claims are premised
on written warranties issued by Nissan that guarantee the performance of the
vehicle, and Nissan’s failure to comply with its obligations under the Act. (Complaint,
¶¶ 7-8); (Franklin
v. Cmty. Reg'l Med. Ctr. (9th Cir. 2021) 998 F.3d 867, 875. [“[i]n matters of equity, such as the application of equitable
estoppel, it is the substance of the plaintiff's claim that counts, not
the form of its pleading.”].Accordingly, Nissan has not established that equitable estoppel
applies.
D.
Nissan
has not established that it may enforce the contract as a third-party
beneficiary.
A
contract that is made expressly for the benefit of a third person, “may be
enforced by him at any time before the parties thereto rescind it." (Civ. Code,
§ 1559).
Persons who are “only incidentally or remotely benefited by it" are
excluded. (Lake Almanor Associates L.P. v. Huffman-Broadway Group, Inc. (2009)
178 Cal.App.4th 1194, 1199). To establish that it is an intended, third-party
beneficiary of the contract, Defendant must show "(1) whether the third
party would in fact benefit from the contract, but also (2) whether a
motivating purpose of the contracting parties was to provide a benefit to the
third party, (“and not simply acknowledge that a benefit to the third party may
follow from the contract”), and (3) whether permitting a third party to bring
its own breach of contract action against a contracting party is consistent
with the objectives of the contract and the reasonable expectations of the
contracting parties. All three elements must be satisfied to permit the third-party
action to go forward." (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830).
Nissan
again relies on the scope of the arbitration provision that refers to claims
arising from any resulting relationship with third parties. Motion 17:16-20. However,
the mere mention of third parties in the provision governing scope does not
establish that the Sales Contract’s motivating purpose or intent was to benefit
Nissan. The “motivating purpose” of the Sales Contract was to finance the
vehicle by Carson Nissan, the “Seller-Creditor.” (Leonard Decl, Ex. D, p. 1 [“By
signing this contract, you choose to buy the vehicle on credit under the
agreements on all pages of this contract” in the financed amount and based on
finance charges shown on the included schedules.].) As stated previously, the
dealer expressly disclaimed any warranties, and as California law provides,
manufacturer warranties are separate from the sales contract. Accordingly,
Nissan has not established that it can invoke the arbitration provision as a
third-party beneficiary.
Finally,
Plaintiff’s unconscionability argument is rendered moot because the agreement
is not enforceable by Defendant as discussed previously.
V.
CONCLUSION
A
moving party’s burden is to establish that a valid arbitration agreement exists
between the parties. (Molecular
Analytical Systems v. Ciphergen Biosystems, Inc. (2010)
186 Cal.App.4th 696, 705). Defendant has not met its initial burden.
Accordingly, the motion is DENIED.
.