Judge: Michael Shultz, Case: 22CMCV00192, Date: 2023-03-02 Tentative Ruling
Case Number: 22CMCV00192 Hearing Date: March 2, 2023 Dept: A
Thursday,
March 2, 2023, at 8:30 a.m.
[TENTATIVE] ORDER
I.
BACKGROUND
The complaint, filed on June 29, 2022,
alleges that Plaintiff bought a new 2019 Nissan Sentra. 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’s transmission was defective, and 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 violations of
the SBA, fraudulent misrepresentation, and fraudulent concealment of material
facts.
II.
ARGUMENTS
Defendant Nissan requests an order
to compel Plaintiff to submit 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. Plaintiff did not file an opposition.
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.
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. (Decl. of Rachel F. Kashani, Ex. 3). 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. Ex. 3, p. 7, ¶ 5.
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. introduced
(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). (Kashani
Decl., Ex. 3, p. 7, ¶ 4).
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.” Kashani Decl., Ex. 3, p. 7,
¶ 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 its own warranty based on the provision’s scope that included “resulting relationships
with third parties.”
B.
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, 14:18-20. 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, ¶ 4).
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. Kashani Decl., Ex. 3, p. 5, ¶ 4. The Sales
Contract expressly differentiates dealer warranties from manufacturer
warranties and disclaimed any effect on manufacturer’s warranties. Id.
Nissan
argues that the Sales Contract “constitutes the fundamental underlying
transaction” for her claims. Motion, 11:12-13. However, Defendant must show
that Plaintiff is relying on obligations imposed by the Sales Contract in order
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, ¶ 4. As Defendant acknowledges, “[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. (Franklin v. Cmty. Reg'l Med. Ctr. (9th Cir. 2021) 998 F.3d 867, 875.).
Additionally,
Plaintiff alleges claims for fraud and concealment of material facts based on
Nissan’s marketing brochures that it drafted, produced, and distributed.
Complaint, ¶ 101. These claims are not “intimately founded in and intertwined with
the underlying contract obligations" between Plaintiff and the dealer. (JSM Tuscany at 1237). Accordingly, Nissan has not
established that equitable estoppel applies.
C.
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 17:23-24. 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.” Kashani decl., Ex. 3, p.1
first paragraph [“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.
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.