Judge: Michael Shultz, Case: 22CMCV00190, Date: 2023-01-12 Tentative Ruling
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Case Number: 22CMCV00190 Hearing Date: January 12, 2023 Dept: A
Thursday,
January 13, 2023, at 8:30 a.m.
[TENTATIVE] ORDER
I.
BACKGROUND
The complaint, filed on June 28, 2022,
alleges that Plaintiff entered into a warranty contract with Nissan North
America, Inc. (Nissan) regarding a 2019 Nissan Rogue. The vehicle developed
defects which Nissan was unable to repair. Nissan allegedly failed to comply
with its obligations to repair or replace the vehicle under the Song-Beverly
Consumer Warranty Act (the “SBA”). Plaintiff alleges claims for breach of
express and implied warranty against Nissan. Plaintiff sues Nissan of Downtown
LA (Nissan DTLA) for negligent repair.
II.
ARGUMENTS
A.
Defendant’s Motion filed December
13, 2022.
Defendant Nissan requests an order
pursuant to the Federal Arbitration Act (FAA) to compel Plaintiff to submit
this matter to binding arbitration as required by the Retail Installment Sales
Contract (Sales Contract) signed by Plaintiff when he bought the vehicle. The
Sales Contract contains a written arbitration provision. Plaintiff is equitably
estopped from avoiding the arbitration provisions since his claims are
intimately founded in and intertwined with the Sales Contract. Nissan is also a
third-party beneficiary of the Sales Contract and is, therefore, entitled to
enforce the arbitration provision notwithstanding that it did not sign the
Sales Contract.
B.
Opposition filed December 29, 2022
Plaintiff argues that the motion
should be denied because Nissan did not sign the Sales Contract. Plaintiff’s claims
do not arise from or relate to the contractual obligations in the Sales
Contract between Plaintiff and the dealership.
Estoppel does not require
Plaintiff to arbitrate claims against Nissan since Plaintiff does not rely on
any terms of the Sales Contract to assert its claims against Nissan as a nonsignatory.
Nissan has not established any
relationship between itself and the selling dealership that would entitle
Nissan to compel arbitration of Plaintiff’s claims. Additionally, the
arbitration provision is procedurally and substantively unconscionable and
cannot be enforced.
Plaintiff observes that while Defendant
contends that the FAA applies, Defendant relies on this state’s court’s
decision in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486. A federal court case determined that Felisilda was
distinguishable since the plaintiff therein sued the dealership with whom
Plaintiff signed a purchase agreement. In Felisilda, the dealership
moved to compel rather than the non-signatory manufacturer. Therefore, the
court in Ngo v. BMW of North America,
LLC (9th Cir. 2022) 23 F.4th 942 determined that Felisilda was distinguishable in this material
respect since the purchase agreement identified the involved parties as the
borrower on the one hand and the selling-creditor or dealership on the other
hand. Here, Plaintiff sued only the
manufacturer, not the dealer.
C.
Reply filed January 5, 2023
Nissan argues that Plaintiff’s
claims against the dealer would not exist but for the Sales Contract at issue.
The claims are intertwined with the Sales Contract. Nissan can enforce the
arbitration provision as a third-party beneficiary and equitable estoppel
applies to bar Plaintiff from disavowing the arbitration provision, while also
relying on the Sales Contract to bring his claims.
III.
DISCUSSION
A. 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
B.
Plaintiff’s Objection to the
Declaration of Evan J. Critchlow and the Sales Contract is overruled
Plaintiff
argues that the Sales Contract, submitted by Mr. Critchlow on information and
belief is inadmissible hearsay. However, Defendant’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 to the petition and incorporate it by
reference. Id. at 1058; California 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."]. Moreover, Plaintiff does not dispute the authenticity of his
signature on the Sales Contract.
C.
Defendant has established that
equitable estoppel applies to permit Defendant, a non-signatory, to enforce the
arbitration provision.
The Court
grants Defendant’s request for judicial notice of the complaint filed in this
action as well as Defendant’s answer. Evid. Code §452 subd. (d). The Court
denies Defendant’s request for judicial notice of a notice of entry of
dismissal in Felisilda v. FCA US, LLC filed in Sacramento Superior Court as it
is irrelevant.
The Sales
Contract at issue is made between Plaintiff and Carson Nissan. Critchlow Declaration,
Ex. C. Defendant is not a party to the contract. Id. The Sales Contract
defines “we” or “us” as the “Seller-Creditor.” Id. The Sales Contract
states that “[a]ny arbitration under this Arbitration Provision shall be
governed by the Federal Arbitration Act … .” Id. p. 7, ¶ 4. However, the
Court is not bound by federal law in determining whether the provision is
enforceable as Plaintiff implies (Opp. 8:2-4) by citing Ngo v. BMW of North America,
LLC (9th Cir. 2022) 23 F.4th 942. Even if the FAA governs arbitration, 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, n.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 (West).
Section 3 of the FAA requires the court
on application of one of the parties to stay the action if it involves issues
referable to arbitration. 9 U.S.C.A. § 3 (West).
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 the general rule wherein 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 is the principle of equitable
estoppel which applies "when the causes of action against the nonsignatory
are ‘intimately founded in and intertwined’ with the underlying contract
obligations … .” Under those circumstances , where a plaintiff relies “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[,]” Boucher v. Alliance Title Co.,
Inc. (2005) 127 Cal.App.4th 262, 272.
Equity
is the “lynchpin” for equitable estoppel, “and the point of applying it to
compel arbitration is to prevent a situation that ‘would fly in the face of
fairness.’ [Citation.] The purpose of the doctrine is to prevent a plaintiff
from, in effect, ... ‘relying on the contract when it works to [his] advantage
[by establishing the claim] and repudiating it when it works to [his]
disadvantage [by requiring arbitration].’ [Citation.] The plaintiff's
actual dependence on the underlying contract in making out the claim against
the nonsignatory defendant is therefore always the sine qua non of an
appropriate situation for applying equitable estoppel.’" Goldman v. KPMG, LLP (2009) 173
Cal.App.4th 209, 229
[italics in original].
Thus,
in Felisilda v. FCA US LLC (2020) 53
Cal.App.5th 486 (petition
for review by the California Supreme Court denied November 24, 2020), the court
looked to the operative complaint to determine whether the plaintiff’s claims
were “founded on or intimately connected” with the sales contract.
The
contract at issue 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 ... shall ... be resolved by neutral, binding
arbitration and not by a court action.” Felisilda at 496 [italics in original].
Felisilda’s complaint 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.”
Felisilda at 496.
Plaintiff generally alleges that the
causes of action arise out of warranty obligations of Nissan in connection a
motor vehicle for which Nissan issued a written warranty. Complaint ¶ 5. In
support of the claim for breach of implied warranty, Plaintiff alleges that Nissan
and its authorized dealership at which Plaintiff purchased the vehicle knew the
purpose of the vehicle “at the time of sale”, and that the sale of the vehicle
“was accompanied by an implied warranty of fitness.” Complaint, ¶ 29. Accordingly, both the express and implied
warranty claims arise out of and in connection with the sale of the vehicle. The
second cause of action alleges that the sale was the source of the implied
warranty.
Additionally,
Plaintiff alleges that the vehicle developed defects and nonconformities to the
electrical system, suspension, steering, and brakes. Complaint ¶ 16. Therefore,
the complaint arises from the condition of the vehicle. The arbitration provision
at issue here states:
“[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..” Critchlow Declaration, Ex. C, p.7, ¶ 4 [emphasis added].
The Sales
Contract expressly contemplated arbitration of disputes arising out of purchase
or condition of the vehicle or any resulting relationship with nonsignatory
third parties.
To
distinguish Felisilda, Plaintiff relies on Ngo v. BMW of North America,
LLC (9th Cir. 2022) 23 F.4th 942. Federal opinion interpreting state law is not binding; rather the
court may rely upon federal court opinions "for their cogent reasoning and
persuasive value.” McCann v. Lucky Money, Inc. (2005)
129 Cal.App.4th 1382, 1396. Ngo disagreed with the state court’s interpretation of the provisions
of the purchase agreement and concluded that equitable estoppel did not apply
since the manufacturer’s warranties arose “independently from the Purchase
Agreements, rather than intimately relying on them.” Ngo at 950. The Ninth Circuit criticized the manufacturer’s
contention that its warranties would not apply absent the purchase agreement as
an “attenuated chain of reasoning.” Ngo at 949.
Plaintiff
contends that he did not sue the dealership in this action, which Plaintiff
argues is a materially distinguishable fact rendering Felisilda inapposite.
However, Felisilda required an examination of Plaintiff’s alleged claims to
determine whether it was inextricably intertwined with the sales contract.
While Plaintiff did not sue the dealership, Plaintiff alleges that the sale of
the vehicle was accompanied by an implied warranty of fitness. Complaint, ¶¶
29-30. Plaintiff also sues to rescind
the contract, which alludes to the sales contract Plaintiff acknowledges
entering into with Carson Nissan. Opp., 10:8-9, Complaint, ¶ 38.
Plaintiff
relies on Jarboe v. Hanlees Auto
Group (2020) 53 Cal.App.5th 539 which is factually distinguishable. Jarboe was a wage and hour
action against an employer and 12 affiliated dealerships, wherein the employee signed
an employment agreement requiring arbitration of disputes. Jarboe at 544. The nonsignatories moved to compel
arbitration of the claims as third-party beneficiaries of the employment
agreement and under the doctrine of equitable estoppel. Id. The
appellate court determined that the nonsignatories did not establish both
theories in part because they did not establish that Plaintiff’s claims against
the nonsignatories were “rooted” in the plaintiff’s employment agreement with
the employer or that their relationship with the employer was a “close
relationship.” Id. at 554.
Here,
Plaintiff alleges that Nissan and its “authorized dealership” where Plaintiff
purchased the vehicle “knew the purpose of the vehicle” and that the sale was
accompanied by an implied warranty of fitness. Complaint, ¶ 29. This allegation
infers an agency relationship between Nissan and its dealership, and further
that Plaintiff imputes the dealership’s knowledge to Nissan, notwithstanding
that Plaintiff did not sue the dealership. Jarboe is inapposite. Furthermore,
while Plaintiff argues he did not sue for breach of contract and therefore,
Plaintiff’s claims are not intertwined with the Sales Contract, Plaintiff seeks
rescission of that contract. Complaint, ¶ 38.
Accordingly,
Defendant has demonstrated that equitable estoppel applies to preclude
Plaintiff from disavowing provisions of the Sales Contract while simultaneously
relying on the same agreement for his breach of warranty claims.
D. Nissan has 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 establish "(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 (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.
As
discussed previously, the Sales Contract expressly contemplated arbitration of
disputes arising out of purchase or condition of the vehicle or any
relationship with nonsignatory third parties. Critchlow Declaration, Ex. C,
p.7, ¶ 4. Accordingly, Defendant has established its right to compel
arbitration as a third-party beneficiary although it is not a signatory to the
lease agreement.
E.
Plaintiff has not established that the
arbitration provision is procedurally or substantively unconscionable.
Plaintiff
contends the agreement is not enforceable because it is unconscionable. There
are two elements for determining whether an agreement is unconscionable. There
must be evidence of “procedural unconscionability” – namely that circumstances
of oppression or surprise due to unequal bargaining power exist. The second
element involves “substantive unconscionability,” defined as the presence of
overly harsh, one-sided terms. Both elements must be present for the Court to
exercise its discretion to refuse to enforce the arbitration provision. De La Torre v. CashCall,
Inc. (2018) 5 Cal.5th 966, 982
The
Court examines the entire process and the degree to which each elements exists.
No one term of the contract determines its application. Rather, Plaintiff must
establish the factual context to determine whether both elements exist. Id. 982-983.
The
second element, substantive unconscionability, requires a determination that
the terms are overly harsh or one sided. More precisely, “substantive
unconscionability examines the fairness of a contract's terms. This analysis
‘ensures that contracts, particularly contracts of adhesion, do not impose
terms that have been variously described as ‘overly harsh’ [citation], ‘unduly
oppressive’ [citation], so one-sided as to ‘shock the conscience’ [citation],
or ‘unfairly one-sided’ [citation]. All these formulations point to the central
idea that the unconscionability doctrine is concerned not with ‘a simple
old-fashioned bad bargain’ [citation], but with terms that are ‘unreasonably
favorable to the more powerful party.” Prima Donna Development Corp. v. Wells
Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 38.
Plaintiff
has not proffered any evidence to establish that the Sales Contract was a
contract of adhesion. Plaintiff argues generally that purchase agreements in
“the auto sales world” are routinely presented to auto consumers as a “take it
or leave it” agreement in a high-pressure sales environment at a car
dealership, leaving no real opportunity to negotiate. Consumers purportedly
have no choice but to accept all of the selling dealership’s terms “as is.” Opp.
16: 25-28. There is no evidence that Plaintiff experienced any of these conditions
when negotiating the purchase of the vehicle at issue. Plaintiff does not
provide any authority that Plaintiff waived his statutory rights under the SBA.
Nor has
Plaintiff established that the Sales Contract is “overly harsh” or “one-sided”
as to “shock the conscience.” The provision permits Plaintiff to choose the
American Arbitration Association or any other organization subject to “our
approval.” Critchlow declaration, Ex. C, page 7. Plaintiff is not deprived of
an arbitrator of his own choosing, nor is Plaintiff deprived of a neutral
arbitrator, which was held "essential to ensuring the integrity of the
arbitration process.” Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal.4th 83, 103
Plaintiff
relies on Chavarria v. Ralphs Grocery
Co. (9th Cir. 2013) 733 F.3d 916, which is factually distinguishable. First, Chavarria involved
an employment contract provision for arbitration. In that context, arbitration
requirements are a “condition of employment without an opportunity to negotiate
and are, therefore, adhesive in nature.” Armendariz at 114-115.
In Chavarria,
the employer’s arbitrator selection provision would always produce an
arbitrator proposed by Ralphs in employee-initiated arbitration proceedings.
Second, the court cited the preclusion of institutional arbitration
administrators, namely AAA or JAMS, which have established rules and procedures
to select a neutral arbitrator." Chavarria at 923. The arbitration at issue here is not
so one-sided.
Plaintiff
next contends that the fee shifting provision is incompatible with the SBA as
the dealer will pay up to $5,000 for arbitration fees routinely exceeded in private
arbitration. Plaintiff relies on Gutierrez v. Autowest, Inc. (2003)
114 Cal.App.4th 77 which
is factually distinguishable. In that case, the lessors were required to pay an
initial filing fee and a case service fee to initiate
arbitration. Gutierrez at 90. Here, the provision provides that the
dealership would advance costs up to $5,000 “unless the law or the rules of the
chosen arbitration organization require us to pay more.” Critchlow declaration,
Ex. C, page 7, ¶ 5. Therefore, contrary to Plaintiff’s argument, the provision
does not vitiate the remedies available to consumers under the Act.
Plaintiff
has not established that the provision permitting both parties to retain the
right to seek remedies in small claims court, is one-sided. Plaintiff argues
that in practice, the seller is more likely to avail itself of this remedy
“because the relatively low jurisdictional limits reduce the available actions
to those matters in which damages tend to be a fraction of the purchase price
of the vehicle.” Opp. 19:1-6. This argument is unintelligible. If Plaintiff’s
damages exceed the jurisdiction of the small claims court, then the claims
cannot be adjudicated in that forum. It is the amount of damages that controls the
court’s jurisdiction which does not favor one party over another.
Finally,
that the provision excludes from arbitration such remedies such as repossession
does not render the provision one-sided merely because in practice, only the
dealer would avail itself of that remedy. This provision does not affect, or
limit Plaintiff’s claims as alleged in the complaint.
IV.
CONCLUSION
Based
on the foregoing, Defendant’s Motion to Compel Arbitration is GRANTED. The
action is stayed pursuant to 9 U.S.C. § 3 of the FAA. The court sets an Order
to Show Cause re: completion of arbitration for
_________________________________ at 8:30 a.m. in Department A of the Compton
courthouse.