Judge: Michael Shultz, Case: 22CMCV00432, Date: 2023-04-04 Tentative Ruling
Case Number: 22CMCV00432 Hearing Date: April 4, 2023 Dept: A
Tuesday,
April 4, 2023, at 8:30 a.m.
[TENTATIVE] ORDER
I.
BACKGROUND
The complaint, filed on October
21, 2022, alleges that Plaintiff entered into a warrant contract with
Defendant, Nissan North America, Inc. (“Nissan”) when she purchased a 2019
Nissan Kicks. The vehicle developed numerous defects which Nissan allegedly failed
to replace or replace in violation of the Song-Beverly Consumer Warranty Act (“the
SBA”). Plaintiff alleges a separate claim for negligent repair against Nissan
of Torrance, LLC.
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 asks the Court to take
this matter under submission until a final decision is reached in the Second
District Court of Appeal. A hearing is set for March 30, 2023. The Court of
Appeal will be addressing the same issues raised by Defendant in its motion.
Plaintiff also argues that Defendant
is not entitled to enforce the arbitration provision since it is not a
signatory to the Sales Contract. Plaintiff argues Defendant is not entitled to
enforce the agreement on any of the theories asserted. The agreement is not
enforceable because it is unconscionable. Plaintiff objects to Defendant’s
evidence.
In reply, Defendant contends that there
is no need to wait for the Court of Appeal to render its decision. Felisilda
v. FCA US, LLC applies and supports compelling arbitration. The Sales
Contract is not unconscionable.
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
As an initial matter, the Court
declines to continue this hearing in anticipation of any Court of Appeal
decision addressing the same issues raised by Defendant’s motion. As further
explained below, Defendant, as a non-signatory to the Sales Contract, has not
established it has the right to compel Plaintiff to arbitrate her claims
arising from Nissan’s express warranty which were not a part of the Sales
Contract between Plaintiff and the dealer.
A.
Plaintiff’s objections.
Plaintiff’s objections to the Declaration of Jason Richardson and the Sales Contract are overruled. Plaintiff argues 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. (Richardson
Decl., Ex. 1). 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. Richardson Decl., Ex. 1, pp. 1 and 7 ¶ 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). Nissan 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.” (Richardson decl., Ex. 1,
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 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. 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 claims
against Nissan. Rather, Plaintiff’s claims are based on Nissan’s breach of
obligations arising from its warranty. (Complaint, 15).
Defendant’s
case authority notwithstanding, 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. (Richardson Decl. Ex. 1, p. 5,
¶ 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,
¶15; (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 11:27 –
12:2. 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.” (Richardson Decl,
Ex. 1, 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 in the first instance.
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.