Judge: Michael Shultz, Case: 24CMCV00154, Date: 2024-07-16 Tentative Ruling

Case Number: 24CMCV00154    Hearing Date: July 16, 2024    Dept: A

24CMCV00154 Juliana Santoyo v. Hyundai Motor America, et al.

Tuesday, July 16, 2024, at 8:30 a.m.

[TENTATIVE] ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION AND STAY ACTION

I.        BACKGROUND

       The complaint alleges that Hyundai Motor America, (“Hyundai”) issued a warranty to Plaintiff in connection with the purchase of a 2022 Hyundai Palisade. The vehicle developed defects which Defendant could not repair. Defendant allegedly failed to comply with its obligations under the Song-Beverly Consumer Warranty Act (“the Act”).

II.      ARGUMENTS

       Defendants, Hyundai Modern Equity Holdings Little Hills, Inc., request an order compelling this matter to binding arbitration pursuant to the Federal Arbitration Act (“FAA”) based on the warranty in the “Owner’s Handbook & Warranty Information” (“Handbook”) requiring arbitration of any disputes. Alternatively, Defendants argue that Plaintiff enrolled their vehicle in Hyundai’s “Bluelink Services” pursuant to a Connected Services Agreement (“CSA") that requires Plaintiff to submit claims to binding arbitration. Hyundai’s standing to demand arbitration arises from those agreements between Plaintiff and Hyundai. Plaintiff is estopped to deny the validity of the arbitration agreement while simultaneously claiming benefits pursuant to the manufacturer’s warranty.

       In opposition, Plaintiff argues that equitable estoppel does not apply because the claims do not arise from the Retail Installment Sales Contract (“Sales Contract”) between Plaintiff and the dealer. Hyundai is not a signatory to that agreement. The agreements to arbitrate are not enforceable as they are unconscionable.

       In reply, Hyundai asserts its arguments are not based on the Sales Contract. Plaintiff’s complaint arises from Defendant’s warranty and repair obligations. Equitable estoppel applies. Plaintiff cannot avoid her obligations under the warranty and claim she did not have notice of its arbitration requirements. Plaintiff did not meet her burden of establishing that the agreements at issue between Plaintiff and Hyundai are procedurally and substantively 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

       Plaintiff alleges that Defendant’s warranty obligations “arise out of warranty and repair obligations of HYUNDAI MOTOR AMERICA in connection with a vehicle Plaintiff purchased and for which HYUNDAI MOTOR AMERICA issued a written warranty. The warranty was not issued by the selling dealership.” (Complaint, ¶ 5.) Hyundai’s demand for arbitration arises from the warranty and CSA. Plaintiff improperly refers to the Sales Contract on which Hyundai does not rely.

       The warranty issued by Defendant is expressed in bold and in all caps within the Handbook and requires binding arbitration for any disputes arising from repairs under warranty.

“IF YOU PURCHASED OR LEASED YOUR VEHICLE IN CALIFORNIA, YOUR WARRANTY IS MADE SUBJECT TO THE TERMS OF THIS BINDING ARBITRATION PROVISION. BY USING THE VEHICLE, OR REQUESTING OR ACCEPTING BENEFITS UNDER THIS WARRANTY, INCLUDING HAVING ANY REPAIRS PERFORMED UNDER WARRANTY, YOU AGREE TO BE BOUND BY THESE TERMS. IF YOU DO NOT AGREE WITH THESE TERMS, PLEASE CONTACT US AT OPT-OUT@HMAUSA.COM WITHIN THIRTY (30) DAYS OF YOUR PURCHASE OR LEASE TO OPT-OUT OF THIS ARBITRATION PROVISION.” (Ali Ameripour Decl., Ex. 3, pp. 12-14.)

       The agreement expressly states it is governed by the Federal Arbitration Act, and that the agreement is to be “broadly interpreted and to make all disputes and claims between us (including our affiliated companies) relating to or arising out of your vehicle purchase, use or performance of your vehicle, or the vehicle warranty subject to arbitration to the maximum extent permitted by law.” (Id. pp. 13.)

       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.) Even when the FAA applies, state law governs such matters as who is bound by and who may enforce an arbitration agreement [citations omitted].” (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614, n.7.) Finally, California contract law principles determine if an agreement to arbitrate exists; “the basic requirements for formation of a contract must be present,” including parties capable of contract, consent, a lawful object, and sufficient consideration. (Lopez v. Charles Schwab & Co., Inc. (2004) 118 Cal.App.4th 1224, 1230.)

       Plaintiff has not established any defenses to enforcement of the contract. Plaintiff’s claims are expressly alleged to arise from Defendant’s failure to adhere to its warranty obligations. The warranty is issued by Hyundai, and Plaintiff acknowledges receiving the Handbook at the time of delivery. (Santoyo decl., ¶ 6.)

       Defendant argues that Plaintiff is estopped to argue that the arbitration agreement is invalid since Plaintiff expressly alleges she relied on the benefits and warranties of the manufacturer’s warranty and not the Sales Contract. (Complaint, ¶9.) Plaintiff attempts to negate her own allegations asserting that she did not rely on either the Sales Contract or the Handbook, but rather she relied “exclusively” on the representations by Win Hyundai Carson. (Santoyo decl., ¶ 8.) Plaintiff did not allege a claim against Win Hyundai Carson. (Complaint, pp. 2:1-6.)

       Ordinarily, estoppel would apply to enforce a contract against a non-signatory. The principle of equitable estoppel 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.) Here, Hyundai is a party to the arbitration agreement set forth in its written warranty on which Plaintiff’s claims are based.

       Plaintiff has not established that the warranty agreement is unconscionable. The court considers two elements to determine whether that is a valid defense. The first element, procedural unconscionability, requires evidence that the contract was adhesive in nature, such as where the employee lacks the ability to negotiate and lacks meaningful choice or where the unconscionable provision is hidden within a “prolix printed form.” (Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1144.) The second element, substantive unconscionability, involves a contract that is one-sided or overly harsh. (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 713 [Agreements that are “unfairly one-sided” and lack “mutuality of obligations” such as where the weaker party is required to arbitrate, while the stronger party is afforded a choice of forums are unenforceable.].)

       While both elements are required to be present, they do not have to be present to the same degree. Rather, "the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.)

       Plaintiff argues she was not given notice of the warranty in the Handbook and its requirement for arbitration and was not made aware of it until she received Defendant’s motion. Plaintiff asserts that the warranty is “buried” and unenforceable. An agreement is not procedurally unconscionable if a person is "pressed for sufficient time to thoroughly read and understand an arbitration agreement." (Dougherty v. Roseville Heritage Partners (2020) 47 Cal.App.5th 93, 103–104.) Moreover, a plaintiff can be bound by an arbitration agreement regardless of whether she read it or was aware of it. (Id.)

       Nor is Defendant obligated to "highlight the arbitration clause of its contract, nor […] to specifically call that clause to [plaintiff’s] attention. Any state law imposing such an obligation would be preempted by the FAA. … Furthermore, we have held that even when a customer is assured it is not necessary to read a standard form contract with an arbitration clause, “it is generally unreasonable, in reliance on such assurances, to neglect to read a written contract before signing it." (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 914–915.)

       Moreover, Defendant permitted Plaintiff to opt out of the arbitration agreement. (Ali Ameripour Decl., Ex. 3, pp. 12-14. [“IF YOU DO NOT AGREE WITH THESE TERMS, PLEASE CONTACT US AT OPT-OUT@HMAUSA.COM WITHIN THIRTY (30) DAYS OF YOUR PURCHASE OR LEASE TO OPT-OUT OF THIS ARBITRATION PROVISION.”].) By its terms, the agreement to arbitrate was not mandatory. This was not a “take it or leave it” provision.

       Plaintiff has not established that the agreement was substantively unconscionable.   Plaintiff does not refer to any terms that are one-sided or lack mutuality of obligation. Instead, Plaintiff refers to characteristics she believes were procedurally unconscionable, which is the first element of unconscionability. (Opp. 13:1-6.) Here, the obligation to arbitrate was imposed on Hyundai and Plaintiff equally. Defendant agreed to pay for arbitration fees except for the initial fee. (Ameripour decl., Ex. 3, pp. 13.).

V.      CONCLUSION