Judge: Michael Shultz, Case: 23CMCV00495, Date: 2023-09-15 Tentative Ruling
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Case Number: 23CMCV00495 Hearing Date: September 15, 2023 Dept: A
23CMCV00495
Yolanda Morones, et al. v. American Honda Motor Co, Gardena Honda
[TENTATIVE] ORDER
I.
BACKGROUND
The complaint filed on April 10,
2023, alleges that Plaintiffs bought a 2020 Honda HR-V made by Defendant,
American Honda Motor Co., Inc. (Honda) on May 29, 2022. The vehicle contained
or developed electrical and engine system defects. Defendant allegedly failed to comply with its
obligations under the Song-Beverly Consumer Warranty Act (the “SBA”). Plaintiffs
allege claims for violations of the SBA against Honda and a claim for negligent
repair against Gardena Honda.
Defendant Honda 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 Plaintiffs 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 Honda is not a signatory to the Sales
Contract, it has standing to enforce the arbitration provision based on
theories of equitable estoppel and as a third-party beneficiary of the contract
between Plaintiffs and the dealer.
Plaintiffs argue that Defendant
cannot compel arbitration pursuant to an agreement to which it is not a party.
The agreement limits the parties who can elect arbitration. Defendant lacks standing under either theory asserted.
In reply, Defendant contends that Felisilda v.
FCA US LLC (2020)
53 Cal.App.5th 486 involved the identical
arbitration provision, and therefore, should apply to this case. The recent
cases cited by Plaintiffs create a split in authority.
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).
III.
DISCUSSION
A. Judicial Notice
The Court grants Defendant’s request for judicial
notice of Plaintiffs’ complaint and Plaintiffs’ request for judicial notice of
the following opinions: Martha Ochoa v. Ford Motor Company (B312261); Rosanna
Montemayor et al. v. Ford Motor Company (B320477); Mark Kielar v. Superior
Court (Hyundai Motor America) (C096773); and Ngo v. BMW of North America, LLC
et al., (9th Cir. 2022) 23 F.4th 942. (Evid. Code, § 452 (a) and (d))
B.
Honda
is not a signatory to the Sales Contract with the power to elect arbitration of
Plaintiffs’ claims.
The Sales Contract at issue is between Plaintiffs
and Carson Honda. (Decl. of Ali Ameripour, Ex. 2, .pdf p.
14.) Honda 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. (Ameripour
Decl. Ex. 2, .pdf p. 14 and .pdf p. 20, ¶ 4). While the provision states that arbitration
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 who do not sign the contract, was expressly limited to “you”
or “our” (namely the buyer and dealer, respectively). (Ameripour Decl., Ex. 2, .pdf
p. 20). Thus, in Felisilda v.
FCA US LLC (2020)
53 Cal.App.5th 486, 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 Plaintiffs’ 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:
“Any 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.” [emphasis added]. (Ameripour
Decl. Ex. 2, .pdf p. 20, ¶ 4).
The procedural posture in Felisilda distinguishes it from this case, where
the Plaintiffs here did not sue the dealer/creditor (Carson Honda), the only
party other than Plaintiffs, who had the power to elect arbitration.
Accordingly, based on the express contract provision, Honda 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.”
Recent cases have declined
to follow Felisilda. Division Eight of the Second District
Court of Appeal disagreed with Felisilda’s conclusion that the manufacturer had the power to elect arbitration
although not a signatory since the sales contract was not the source of the
manufacturer warranties at issue in the case, Plaintiff did not agree to
arbitrate claims with the manufacturer, and the sales contract “could not be
construed to bind the purchaser to arbitrate with the universe of unnamed third
parties.” (Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1335 “Ford Warranty.”) While the California Supreme Court granted review of the case, the
Supreme Court stated that the case "may be cited, not only for its
persuasive value, but also for the limited purpose of establishing the
existence of a conflict in authority that would in turn allow trial courts to
exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57
Cal.2d 450, 456, 20 Cal.Rptr. 321, 369 P.2d 937, to choose between sides of any
such conflict." (Ford Motor Warranty Cases (Cal. 2023) 310 Cal.Rptr.3d 440.) The Court exercises its discretion to follow the opinion of the
appellate court in the Ford Warranty cases.
In Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958, Division Seven of the Second
Appellate District affirmed the trial court’s order denying Defendant’s motion
to compel arbitration as Ford was not a party to the sales contract and could
not enforce the arbitration provision under the principles of equitable
estoppel or as a third-party beneficiary of the contract. (Montemayor at 971 [agreeing
with the Ford Motor cases that the language referencing “third parties who do
not sign this contract” refers to the subject matter of covered claims, not who
may enforce the arbitration provision.])
Two appellate court
decisions declined to follow Felisilda. (Kielar v. Superior Court of Placer County (2023) 94 Cal.App.5th 614 ["We join those recent decisions
that have disagreed with Felisilda and conclude the court erred in
ordering arbitration."]; Jaquelyn Yeh
v. Superior Court of Contra Costa County (Cal. Ct. App., Sept. 6, 2023, No. A166537) 2023 WL 5741703, at *4 ["As we explain, we agree with the conclusions reached by Ford
Warranty, Montemayor, and Kielar and hold that MBUSA cannot compel
arbitration with petitioners."])
C.
Plaintiff’s claims are founded on the
manufacturer’s warranty contract, not the sales contract with the dealer,
precluding application of equitable estoppel.
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, 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.)
In applying equitable
estoppel, the Court examines Plaintiffs’ claims to determine if they are
“intertwined” with the Plaintiffs’ obligations imposed by the Sales Contract. (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218.) Defendant contends that Plaintiffs’ claims are based on the purchase
and condition of the vehicle which is an arbitrable claim as described in the
sales contract. Defendant concludes that Plaintiffs are equitably estopped from
repudiating the arbitration provision, which is part of the same contract.
The Sales Contract obligated
Plaintiffs to pay the dealer/creditor for the purchase price of the vehicle
according to the stated terms and conditions. (Ameripour Decl., Ex. 2.) The complaint does not assert any claim
founded upon Plaintiffs’ payment obligations to the dealer/creditor. Rather,
Plaintiffs’ claims are based on Defendant’s statutory obligations to reimburse
consumers or replace the vehicles when unable to repair in accordance with its
warranty. (Complaint, ¶¶ 27-31; 40-44; 51-58.)
Ford Warranty observed that warranties from a non-party manufacturer are not part of
the sales contract. (Ford Warranty at 1335, citing Corporation of Presiding Bishop of Church of Jesus Christ of
Latter-Day Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514 and 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. (Ameripour Decl., Ex. 2, .pdf p. 20,
¶ 4.). The Montemayor court adopted the same reasoning as Ford Warranty. (Montemayor at 972.)
Honda contends that Plaintiffs’
claims arise out of and relate to the relationship between the parties and are
centered on the purchase and condition of the vehicle again relying on Felisilda. (Motion, 14:15-19.) As stated
previously, the scope of arbitrable matters were relevant in Felisilda since it was the dealer (signatory)
who moved to compel arbitration. As such, Felisilda does not address the procedural posture present here, where Plaintiffs
sue only the manufacturer.
With respect to estoppel, the
federal court’s analysis in Kramer v.
Toyota Motor Corp. (9th
Cir. 2013) 705 F.3d 1122, cited by Plaintiffs 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.”]). Equitable estoppel applies if
the signatory relies on the terms of the written agreement in asserting its
claims against the nonsignatory. (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.) As noted above, Plaintiffs’ claims against Honda are based on violations
of the SBA. Plaintiffs are not relying on the terms of the Sales Contract with
the dealer/creditor.
Honda contends that
Plaintiffs’ claims are also inextricably intertwined with the Sales Contract
because the contract furnishes Plaintiffs with standing to pursue claims under
the SBA. (Motion, 8:26-9:12). The statute confers standing on "any
individual who buys or leases a new motor vehicle from a person (including any
entity) engaged in the business of manufacturing, distributing, selling, or
leasing new motor vehicles at retail.” (Dagher v. Ford Motor Co. (2015) 238 Cal.App.4th 905, 926.)
A “buyer” is defined as an
individual “who buys consumer goods from a person engaged in the business of
manufacturing consumer goods at retail." (Dagher at 917). The statute does not confer standing
based on entering into a financing agreement. As Plaintiffs observe, Plaintiffs
would have standing to sue under the SBA whether it paid in cash or financed
the purchase. (Opp. 11:3-7; Fuentes v. TMCSF, Inc. (2018) 26 Cal.App.5th 541, 553 [where Plaintiff was not relying on the security agreement to
establish statutory claims because “[e]ven if he had paid cash for the
motorcycle, his complaint would be identical.”]).
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. (Ameripour Decl., Ex. 2, .pdf p. 18, item 4).
The Sales Contract expressly differentiates dealer warranties from manufacturer
warranties. (Id.)
Honda argues that Plaintiffs’
claims “fundamentally result from and are inseparable from the Sales Contract.”
(Motion 8:7-10.) However, Defendant must show that Plaintiffs are relying on
obligations imposed by the Sales Contract in order for equitable estoppel to
apply. As referenced above, Plaintiffs’ claims are premised on Honda’s written
warranties. Finally, “[i]n matters of equity, such as the application of
equitable estoppel, it is the substance of the Plaintiffs' claim that
counts, not the form of its pleading. (Franklin v. Cmty. Reg'l Med. Ctr. (9th Cir. 2021) 998 F.3d 867,
875.) Accordingly,
Honda has not established that equitable estoppel applies.
D.
Honda
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).
Honda contends that the
arbitration agreement intends to benefit third parties such as Honda, relying
on the scope of the provision that refers to claims arising from any “resulting
relationship including with third parties.” (Motion 6:5-9.) 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 Honda.
The “motivating purpose” of the Sales Contract was to finance the vehicle by
Carson Honda, the “Seller-Creditor.” (Ameripour decl., Ex. 2, .pdf p. 14, 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.
Lastly, Honda’s contention that
the arbitration provision must be enforced given the California Supreme Court’s
opinion in Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, is without merit. Sanchez determined that an arbitration
provision in a sales contract was not unconscionable. Plaintiffs’ opposition is
not based on grounds the agreement is unconscionable.
Based on the foregoing, Honda
has not established that it can invoke the arbitration provision as a
third-party beneficiary.
IV.
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.
.