Judge: Michael Shultz, Case: 23CMCV01045, Date: 2024-05-14 Tentative Ruling
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Case Number: 23CMCV01045 Hearing Date: May 14, 2024 Dept: A
23CMCV01045
Barbara Brown v. Hyundai Motor America
[TENTATIVE] ORDER DENYING DEFENDANT’S MOTION TO
COMPEL ARBITRATION AND STAY ACTION
I.
BACKGROUND
The
complaint alleges that Hyundai Motor America (“Hyundai” or “Defendant”) issued
a warranty to Plaintiff in connection with their purchase of a 2019 Hyundai
Elantra. The vehicle developed defects and nonconformities, which Defendant
could not repair. Defendant allegedly failed to comply with its obligations
under the Song-Beverly Consumer Warranty Act (“the Act”).
II.
ARGUMENTS
Hyundai
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 required arbitration to
solve disputes concerning the purchase or condition of the vehicle. Defendant
can elect arbitration as a third-party beneficiary, on principles of equitable
estoppel, and because the FAA requires enforcement of an arbitration agreement like
the one at issue here.
Plaintiff argues that Defendant is not entitled to enforce an
arbitration provision between Plaintiff and the dealer. None of the theories
asserted by Defendant permits Defendant to compel arbitration. The Court should
not follow Felisilda v. FCA US, LLC (2020) 53 Cal.App.5th
486.
In reply, Defendant argues that Ochoa v. Ford Motor Cases,
on which Plaintiff relies, creates a split of authority. Felisilda
remains good law.
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.)
Hyundai need only 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.”].) 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."].)
IV. DISCUSSION
A.
Hyundai is not a
signatory to the Sales Contract with the power to elect arbitration of
Plaintiff’s claims.
Contrary
to Defendant’s contention, Plaintiff’s claims are not preempted by the Federal
Arbitration Act (“FAA”). Courts apply 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 at issue is between
Plaintiff and Win Chevrolet Hyundai, who is not a party to this action. (Ameripour
decl., Ex. 2.) Hyundai, the manufacturer, is not a party to the contract.
(Id.) The Sales Contract defines “We” or “Us” as the
“Seller-Creditor.” (Id. .pdf
p. 10). It provides that any claim or dispute “between you and us”
shall at “your or our election” be resolved by binding arbitration, for
disputes arising out of or relating to “the buyer’s credit application,
purchase or condition of the vehicle, this contract or any resulting transaction
or relationship (including any such relationship with third parties who do not
sign this contract… ” (Id. Ex. 2, .pdf p. 14, ¶ 4.)
Hyundai conflates the provision governing
who can elect arbitration (“You” and “Us”) and the provision governing the scope
of arbitrable issues (disputes arising out of or relating to the contract or
any “resulting transaction or relationship with third parties.”) (Id.) In Ford
Motor Warranty Cases
(2023) 89 Cal.App.5th 1324, 1335
(“Ford Warranty”) the court held that the manufacturer did not have the
power to elect arbitration as it was not a signatory and because the sales
contract with the dealer 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
Warranty at 1335.)
Ford Warranty did
not follow Felisilda’s interpretation of the sales contract. Felisilda construed the contract language to mean that buyer
consented to arbitrate claims with third-party, non-signatories, however, Ford Motor disagreed. “Rather, we read it as a further delineation
of the subject matter of claims the purchasers and dealers agreed to
arbitrate.” (Ford
Motor, at 1334–1335.)
The California Supreme Court granted
review of Ford Warranty precluding the courts from relying on it for
precedential value. However, 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.) Accordingly,
the Court exercises its discretion to follow the opinion of the appellate court
in the Ford Warranty cases.
Two
additional appellate court decisions chose to follow Ford Warranty and Montemayor. (Kielar
v. Superior Court (2023) 94
Cal.App.5th 614, 617 ["We
join those recent decisions that have disagreed with Felisilda and
conclude the court erred in ordering arbitration."]; Yeh
v. Superior Court of Contra Costa County
(2023) 95 Cal.App.5th 264, 272 ["As
we explain, we agree with the conclusions reached by Ford Warranty,
Montemayor, and Kielar and hold that [Mercedes-Benz USA] cannot
compel arbitration with petitioners."].) The weight of authority falls in
Plaintiffs’ favor.
Defendant’s reliance on Sanchez
v. Valencia Holding Co., LLC (2015)
61 Cal.4th 899 is misplaced. The
issue in Sanchez was whether the arbitration clause was
procedurally or substantively unconscionable, and therefore, unenforceable. (Sanchez
at 909.) Plaintiff’s argument is that Hyundai, as a third-party
non-signatory, does not have the power to elect arbitration based on an
agreement between Plaintiff and the dealer.
B.
Defendant
has not shown it is a third-party beneficiary of the Sales Contract.
A non-signatory may enforce a contract where
the contract was made expressly for the benefit of a third person. (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.)
Hyundai contends that the arbitration
agreement intends to benefit third parties based on the scope of the provision
that refers to claims arising out of or relating to Plaintiff’s purchase or
condition of the vehicle or “any resulting transaction or relationship
(including any such relationship with third parties who do not sign this
contract.” (Ameripour Decl., Ex. 2, page 5.)
As previously discussed, the provision
governing the scope of arbitrable issues cannot be construed to “bind the
purchaser to arbitrate with the universe of unnamed third parties.” (Ford
Warranty at 1335.) 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 a car manufacturer. The “motivating
purpose” of the Sales Contract was to finance the vehicle through the dealer,
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.].)
C. Defendant has not demonstrated that Plaintiff is equitably estopped
from repudiating the arbitration clause in the Sales Contract.
A
recognized exception permitting non signatories to compel arbitration 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 Plaintiff’s alleged 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.) Hyundai
contends that Plaintiff’s claims presumes the existence of the written
agreement and necessarily relies on it. (Mot. 7:14-17.) However, Plaintiff’s claims
are founded on the manufacturer’s warranty contract, not the Sales Contract with
the dealer, precluding application of equitable estoppel.
The Sales Contract obligated Plaintiff to
pay the dealer/creditor for the purchase price of the vehicle according to the
stated terms and conditions. (Ameripour decl., Ex. 2, .pdf p.10.) The complaint does not assert any claim
founded upon Plaintiff’s payment obligations to the dealer/creditor. Rather, Plaintiff’s
claims are based on Hyundai’s statutory obligations to reimburse consumers or
replace the vehicles when unable to repair in accordance with its warranty
(which Plaintiff alleges was issued by the manufacturer, not the dealer).
Therefore, the Sales Contract is not “closely intertwined” with Plaintiff’s
claims under the Song-Beverly Consumer Warranty Act.
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 of the vehicle including
warranties of merchantability or of fitness. (Ameripour decl., Ex. 2, .pdf p. 13,
¶4.)
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 the
manufacturer’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 sales contract.
(Montemayor
at 971 [agreeing with the Ford
Warranty cases that the language referencing “third parties who do not sign this contract” refers to the subject
matter of arbitrable claims, not who may enforce the arbitration provision.].)
V. CONCLUSION
Based on the
foregoing, Hyundai’s motion to compel arbitration is DENIED.