Judge: Michael Small, Case: 22STCV20655, Date: 2023-05-19 Tentative Ruling

Case Number: 22STCV20655    Hearing Date: May 19, 2023    Dept: 57

Plaintiff Maria Paz sued Nissan North America, Inc. (“Nissan”) under California’s Song-Beverly Consumer Warranty Act (“Song-Beverly”) for breach of a warranty related to a motor vehicle that (as alleged by Plaintiff) was manufactured and/or distributed by Nissan.   Paz purchased the vehicle from a Nissan dealership, Mossy Nissan Escondido (“Mossy”), which also is a Defendant in this case. 

Nissan has moved to compel arbitration of Paz’s claims.  Mossy did not. For the reasons set forth below, the Court is denying Nissan’s motion.

The arbitration clause on which Nissan relies in seeking to compel arbitration is in the sales contract between Paz and Mossy.  Nissan itself is not a party to that contract.   Nevertheless, Nissan contends that it is able under California law to invoke the arbitration clause in the sales contract on two distinct grounds.  First, Nissan contends that it is a third party beneficiary of the contract.  Second, Nissan contends that the doctrine of equitable estoppel prevents Paz from denying that her claims against Nissan are subject to the arbitration clause in the sales contract, even though Nissan is not a signatory to the contract.   

To support these contentions, Nissan cited Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486.  There, the Third District Court of Appeal held under California law that the manufacturer of the motor vehicle that the plaintiff in that case purchased from a motor vehicle dealership could enforce the arbitration clause in the sales contract between the plaintiff and the dealership and thereby compel the arbitration of plaintiff’s Song-Beverly claims against the manufacturer.  The Court stated that this was so because the manufacturer was a third party beneficiary of the sales contract between the plaintiff and the dealership and the doctrine of equitable estoppel prevented the plaintiff from maintaining that the manufacturer could not invoke the arbitration clause.  

In her opposition to Nissan’s motion, Paz argued that (1) the arbitration clause in the sales contract provides that federal law, not California law, determines the arbitrability of any claim, and (2) under federal law, her Song-Beverly claims are not subject to arbitration.  In other words, according to Paz, the law stated in Felisilda is inapplicable; instead, federal law applies.  Paz is mistaken on this front.  The arbitration clause in question here does not say that federal law governs whether a claim is arbitrable.  Rather, it says [i]f federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute.”  Paz identifies no federal law that provides for nonarbitrarility of her claims.  Paz points to federal caselaw that deviated from Felisilda.  But in those cases, federal courts applied California law, not federal law, in reaching different conclusions than the one reached in Felisilda on whether claims were arbitrable under the doctrine of equitable estoppel and/or third party beneficiary status.  Because Felisilda is a decision of a California State Court of Appeal, it is Felisilda, not federal decisions applying California law, that supplies precedent for the trial courts of this State.

Paz also argued in her opposition to Nissan’s motion that Felisilda is factually distinguishable and thus is inapplicable for that reason as well.  Paz is mistaken here, too.  Put simply, there is no reasonable basis on which Felisilda can be distinguished on its facts. 

At the time that Nissan filed its motion to compel arbitration, Felisilda’s holdings on third party beneficiary status and the doctrine of equitable estoppel were binding on California trial courts faced with a manufacturer’s motion to compel arbitration of Song-Beverly Act claims when the motion was based on an arbitration clause in the sales contract between the plaintiff and a dealership.  Felisilda is, however, no longer the sole California State Court precedent governing such motions.  After Paz filed her opposition to Nissan’s motion but before Nissan filed its reply brief, Paz submitted a “Notice of Supplemental authority” in support of her opposition.  The supplemental authority to which Paz referred in her Notice is the decision of Division 8 of the Second District Court of Appeal in  Ochoa v. Ford Motor Co. (2023) 89 Cal.App.5th 1324.  Nissan did not address Ochoa in its reply brief, but this Court authorized Nissan to file an additional brief to address Ochoa. 

The Court in Ochoa held under California law that neither third beneficiary principles nor the doctrine of equitable estoppel enabled a vehicle manufacturer to compel arbitration of Song-Beverly claims based on an arbitration clause in the sales contract between the plaintiff and the vehicle dealership.  In reaching that conclusion, the Court in Ochoa thoroughly analyzed and flatly rejected the reasoning of Felisilda. 

Ochoa and Felisilda obviously are in direct conflict with one another. Unless and until the California Supreme Court resolves that conflict, lower courts faced with motions to compel arbitration in Song-Beverly cases of the type that Nissan has filed here have leeway to follow either Ochoa or Felisilda.  (Auto Equity Sales, Inc. v. Superior Court (1962) 450, 456 [the doctrine of stare decisis, which requires trial courts to follow decisions of appellate courts, “has no application where there is more than one appellate court decision, and such appellate decisions are in conflict.  In such a situation, the [trial] court . . . can and must make a choice between the conflicting decisions.”].)

This Court has decided to follow Ochoa, not Felisilda.  In this Court’s view, the reasoning of Ochoa is more persuasive than the reasoning of Felisilda.  Based on Ochoa, Nissan is unable under California to rely on either third party beneficiary principles or the doctrine of equitable estoppel to compel arbitration of Paz’s Song-Beverly claims based on the arbitration clause in the sales contract between Paz and Mossy.  Accordingly, Nissan’s motion to compel arbitration is denied.  In light of the denial of Nissan’s motion, the proceedings in this case before this Court are not stayed.