Judge Michael Small, Case Number: 22STCV36648, Date: 2023-08-25 Tentative Ruling

Inform the clerk if you submit on the tentative ruling. If moving and opposing parties submit, no appearance is necessary.

Plaintiff Manuel de Jesus Sura purchased a 2022 Nissan Pathfinder (“the Subject Vehicle”) from Universal City Nissan (the “Dealership”). Sura alleges that the Subject Vehicle was defective. He sued the manufacturer of the Subject Vehicle, Nissan North America, Inc. (“NNA”), under the Song-Beverly Consumer Warranty Act (“Song-Beverly Act”) for breach of the express and implied warranties that NNA furnished to him in connection with his purchase of the Subject Vehicle. (Sura also sued Logic Automotive Group dba Gardena Nissan for negligent repair.)

NNA moved to compel arbitration of Sura’s Song-Beverly Act claims based on an arbitration clause in the Retail Installment Sale Contract (“RISC”) that Sura entered into with the Dealership. Sura opposed the motion.

NNA is not a party to the RISC. Nevertheless, NNA argues that it can enforce the arbitration clause in the RISC under the doctrine of equitable estoppel and because it is a third-party beneficiary of the RISC. Binding precedent holds that NNA is wrong on both fronts. Equitable estoppel is inapplicable here. And NNA is not a third party beneficiary of the RISC. Accordingly, NNA’s motion to compel arbitration is denied.[1] With the denial of the motion, the stay of proceedings in this Court that went into effect when NNA filed the motion is lifted, and the Court will proceed to set the case for trial.

The doctrine of equitable estoppel authorizes “a nonsignatory defendant [to] invoke an arbitration clause [in a contract] to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237, internal quotations omitted; Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218.) In support of the argument that it can avail itself of the doctrine of equitable estoppel to enforce the arbitration clause in the RISC, NNA relies on the Third District Court of Appeal decision in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (“Felisilda”). Felisilda was a Song-Beverly Act case. The Court of Appeal held that the doctrine of equitable estoppel enabled the manufacturer of the automobile that was the subject of the plaintiffs’ Song-Beverly Act claims to enforce the arbitration clause in the sales contract between the plaintiffs and the dealership from which they purchased the vehicle.

Felisilda was precedent when NNA filed its motion to compel arbitration. Now, however, Felisilda is no longer good law. Earlier this month, in Keilar v. Superior Court (August 16, 2023) Case No. C096773, 2023 Westlaw 5270559, the Third District Court of Appeal expressly repudiated Felisilda. (Id. at * 1.) The Court issued a preemptory writ of mandate directing the trial court in the case to vacate an order compelling arbitration of a plaintiff’s Song-Beverly Act claims against an automobile manufacturer based on an arbitration clause in the purchase agreement between the plaintiff and the dealer from which the plaintiff purchased the automobile. (Ibid.) The trial court order in Keilar was premised on Felisilda’s view that the doctrine of equitable estoppel applied in this context. (Ibid.) The Third District in Keilar held that it does not apply. (Ibid.)

In abandoning Felisilda, the Third District in Keilar adopted instead the rulings of Division Eight of the Second District in the Ford Motor Warranty Cases, known by the lead case, Ochoa v. Ford Motor Co. (2023) 89 Cal.App.5th 1324, and Division Seven of the Second District in Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958. (Keilar, supra, 2023 Westlaw 5270559, at *3 [discussing Ochoa and Montemayor]. The Courts in Ochoa and Montemayor rejected the reasoning of Felisilda and held that Song-Beverly Act claims against a non-signatory automobile manufacturer are not intimately founded in and intertwined with the obligations in the contract containing the arbitration clause between the plaintiff and the dealer from which the plaintiff purchased the automobile at issue, and therefore the manufacturer could not invoke the doctrine of equitable estoppel to enforce the arbitration clause. (Ochoa, supra, 89 Cal.App.5th at p. 1333; 1335-1336; Montemayor, supra, 92 Cal.App.5th at pp. 969-971.)

With Felisilda jettisoned by the very District that issued it, there is no precedent supporting NNA’s contention here that it can avail itself of the doctrine of equitable estoppel to enforce the arbitration clause in the RISC. All the precedents – Ochoa, Montemayor, and Keilar – say the opposite. Those precedents control. They instruct that the doctrine of equitable estoppel is off limits to NNA.[2]

Third Party Beneficiary Status

In the alternative to the doctrine of equitable estoppel, NNA’s contends that it should be treated as a third-party beneficiary of the RISC with the right therefore to enforce the arbitration clause in that agreement. Here, too, NNA collides head on with precedent that is directly on point and directly to the contrary. And once again, that precedent is Montemayor and Ochoa. The Courts in those cases said no to the pleas of an automobile manufacturer -- Ford Motor Company in both cases -- that it was a third party beneficiary of clauses in the agreements between purchasers of the automobiles and the dealers that sold the automobiles.

The test for determining if a non-party to a contract is a third party beneficiary of the contract is whether (1) the third party actually would benefit from the contract; (2) a motivating purpose of the parties to the contract was to benefit the third party; and (3) allowing a third party to sue one of the parties for breach of contract is consistent with the expectations of the parties. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830). Applying that test and stopping after the second prong, the Courts in Montemayor and Ochoa held that nothing in the sales agreements between the purchasers and the dealers directly benefited Ford and there was nothing in the agreements evincing an intent by the parties to benefit Ford. (Montemayor, supra, 92 Cal.App.5th at pp. 973-974; Ochoa, supra, 89 Cal.App.5th at p. 1338.

In sum, Montemayor and Ochoa teach that third beneficiary status is not a hook for enforcement by NNA of the arbitration clause in the RISC.

[1] Because the Court has denied the NNA’s motion to compel arbitration on the grounds that neither the doctrine of equitable estoppel nor third party beneficiary principles empowers NNA to enforce the arbitration clause in the RISC, itis unnecessary for the Court to address Sura’s contention that the motion should be denied on the ground that it would be unconscionable to enforce the arbitration clause in the RISC.

[2] The Supreme Court granted review in Ochoa on July 19, 2023. (Ford Motor Warranty Cases (2023) – Cal.5th, 310 Cal.Rptr.3d 440. In its order granting review, the Supreme Court instructed trial courts pursuant to California Rule of Court 8.1115(e)(3) that “[p]ending review, [Ochoa] 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 . . . to choose between sides of any such conflict.” (Ibid.) The “conflict” that the Supreme Court referenced was the conflict that existed at the time between Ochoa and Felisilda. In light of the subsequent repudiation of Felisilda by Keilar, there is no conflict now. The upshot might be that pending the Supreme Court’s review in Ochoa, the decision of Division Eight of the Second District cannot be cited as precedent, but merely as persuasive authority. For purposes of our case here, however, this is largely academic, because Montemayor and Keilar constitute precedent dictating that this Court cannot grant NNA’s motion based on the doctrine of equitable estoppel.