Judge: Michael Shultz, Case: 24STCV09069, Date: 2024-11-20 Tentative Ruling
Case Number: 24STCV09069 Hearing Date: November 20, 2024 Dept: 40
24STCV09069 Wilfredo
Argueta v. Toyota Motor Sales, USA, Inc.
[TENTATIVE] ORDER DENYING
I.
BACKGROUND
This
action arises from Defendant’s warranty obligations issued in connection with Plaintiff’s
purchase of a 2024 Toyota Grand Highlander. Plaintiff alleges the vehicle
developed serious defects and nonconformities that Defendant failed to repair.
The complaint alleges claims for violations of the Song-Beverly Consumer
Warranty Act (“SBA”).
II.
ARGUMENTS
Defendant
moves to compel this matter to binding arbitration because Plaintiff signed a lease
agreement with a dealer requiring Plaintiff to submit all disputes relating to
the vehicle’s lease to binding arbitration. Although Defendant did not sign the
agreement, Defendant contends it has standing to compel Plaintiff to submit to
arbitration as a third-party beneficiary of the agreement and based on
principles of equitable estoppel.
In opposition, Plaintiff argues that he
signed a 24STCV09069warranty agreement with the dealer, Toyota of Riverside. This
action arises out of written warranties included in the vehicle’s manual and
issued by Defendant, who did not sign the agreement between Plaintiff and the
dealer. Plaintiff argues that the agreement is procedurally and substantively
unconscionable. Defendant cannot compel arbitration based on equitable estoppel
or that Defendant was a third-party beneficiary of the contract.
Defendant did not file a reply brief by November
14, 2024 (five court days before the hearing Code Civ. Proc., § 1005 subd. (b).)
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).
Defendant 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.
Defendant
is not a party to the Closed-End Motor Vehicle Lease Agreement (“Lease”) with
the power to elect arbitration of Plaintiff’s claims that arise from a written
manufacturer’s warranty.
Courts apply state law to determine who is
bound by an arbitration agreement and who may enforce it. (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.) Contrary to Defendant’s argument, the FAA
dos not “preempt” state law on the issues presented here.
The Lease identifies Toyota of Riverside as
the lessor and Plaintiff as the lessee. (Ameripour Decl., Ex. 2, p. 1.) The
words “we”, “us”, and “our” refer to the Lessor. (Id.) Plaintiff
and the lessor have the right to elect arbitration of any claims “by you
against us.” (Id.) (Id., p. 10, ¶ 49.) Defendant argues that the description of “us” includes “any third
party providing any product or service in connection with this lease.” (Id.) However, Plaintiff is suing for breach of a warranty issued by
Defendant which does not have any connection with the lease. (Complaint, ¶ 4.)
Defendant is not a party to the lease
agreement and may not enforce the arbitration provision between Plaintiff and
the lessor. 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.)
Defendant
contends it is a covered party under the lease agreement because that provision
requires arbitration of claims against the affiliates of Toyota Lease Trust.
(Mot. 8:3-5.) First, the relationship between Defendant and Toyota Lease Trust is
not established. Moreover, the Lease agreement describes Toyota Least Trust as
an assignee. (Mot. Ex 2, ¶ 1 [“The words ‘we’, ‘us’ and ‘our’ refer to the
Lessor, and after assignment, to the Toyota Lease Trust (“TLT”) and any
subsequent assignee.”].) Finally, the provision describing “covered parties” is
qualified and applies to claims “arising from or relating to this lease,
related agreements or relationships” and includes “claims against their
affiliates, including any third party providing a product or service in
connection with the lease.” (Id.)
Again, the breach of warranty claims is independent of the Lease agreement. (Montemayor
v. Ford Motor Co. (2023) 92
Cal.App.5th 958, 972.)
B.
Defendant
has not demonstrated that Plaintiff is equitably estopped from repudiating the
arbitration clause in the Lease Agreement with the seller.
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.) To
reiterate, Plaintiff’s claims are based on the manufacturer’s warranty, not any
provision of the lease agreement. (Montemayor
v. Ford Motor Co. (2023) 92
Cal.App.5th 958, 969 [“manufacturer
vehicle warranties that accompany the sale of motor vehicles without regard to
the terms of the sale contract between the purchaser and the dealer are
independent of the sale contract.”]
Defendant relies on Mance
v. Mercedes-Benz USA (N.D.
Cal. 2012) 901 F.Supp.2d 1147
which the court does not find persuasive in light of other authority on the
same issue. Mance applied equitable estoppel because the
manufacturer warranty "presumes the existence of” the underlying contract.
Mercedes–Benz's duty to comply with its warranty arose only when Mr. Mance
bought the car. Had he not signed the contract, he would not have received the
warranty from Mercedes–Benz. In other words, his claim for breach of warranty
is premised on, and arises out of, the contract." (Mance
at 1157.)
However, the court in Soto
v. American Honda Motor Co., Inc.
(N.D. Cal., Nov. 20, 2012, No. C 12-01377 SI) 2012 WL 5877476, at *3 rejected the “but-for” test applied in Mance holding that "the Ninth Circuit has since clarified the equitable
estoppel test that district courts must use: whether there is “a close
relationship between the entities involved’ and whether “the claims were
intertwined with the underlying contractual obligations.”(Soto
at *2). Defendant's contention that “but-for” the
lease agreement, Defendant would not have issued a warranty, is no longer the
test. (Id. [“[t]he
resolution of [the plaintiff's] claim does not require the examination of any
provisions of the [contract]” and the plaintiff was not making any allegations
against the other signatory of the contract. Id. at 1047."].)
Similarly,
in In re
Toyota Motor Corp. Hybrid Brake Marketing, Sales, Practices and Products
Liability Litigation (C.D. Cal. 2011) 828 F.Supp.2d
1150, the federal district court stated "Toyota
here mistakenly equates the mere purchase of the vehicles and the mere fact
that Plaintiffs executed a purchase agreement with the interrelatedness between
Plaintiffs' claims and the obligations in the Purchase Agreements. The extent
of the obligations in the Purchase Agreements concern Plaintiffs' financing and
insurance obligations.” (Id. at 1161.) The “operative document” in Toyota
on which the Plaintiff sued was the alleged fraudulent statements in the
manufacturer’s marketing materials. (Id.)
Here,
the operative document is the warranty issued by the manufacturer, not financing
obligations of the lease agreement set forth in the Lease.
C. Defendant has not
established it may enforce the arbitration provision as a third-party
beneficiary of the lease agreement.
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.) An exception to that rule is where a contract is
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).
Defendant
argues it is a third-party beneficiary because the lease agreement was assigned
to Toyota Lease Trust, an affiliate of Defendant, and the provision includes
any claim or dispute arising out of the lease, including any third party
providing a product or service in connection with the lease. (Mot 8: 20-25.)
The mere
mention of third parties who provide a product or service in connection with
the lease does not establish that the lease’s motivating purpose or intent was
to benefit Defendant manufacturer. The “motivating purpose” of the lease was to
provide a schedule and amounts due on the vehicle, Plaintiff’s option to
purchase at the end of the lease term, maintenance during the lease, prohibited
uses, and insurance and other requirements relating to the leasing arrangement.
(Ameripour decl., , Ex. 2, ¶¶ 2-15.)
Although
Defendant urges the court to follow Felisilda
v. FCA US LLC (2020) 53
Cal.App.5th 486, both Ford Warranty and Montemayor
rejected Felisilda. Two additional
appellate courts chose to follow Ford
Warranty and Montemayor. (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."; Rivera
v. Superior Court of Ventura County
(2024) 105 Cal.App.5th 288, 294 [“Felisilda does not apply here. [Ford’s] obligations to petitioners as the buyers of a
Ford vehicle exist independently of the sale contract."; Davis
v. Nissan North America, Inc.
(2024) 100 Cal.App.5th 825, 831 ["Since
the trial court's ruling, four published Court of Appeal decisions have
rejected Felisilda and the Supreme Court has granted review to resolve
the conflict. We now join the more recent line of authorities. Accordingly, we
affirm the order denying Nissan's motion to compel arbitration."
Lastly, Defendant’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. Plaintiff’s chief argument is that Defendant
may not compel Plaintiff to arbitrate these claims as a non-signatory in the
first instance.
V.
CONCLUSION
Based on the foregoing, Defendant’s motion
to compel arbitration is DENIED.