Judge: Michelle C. Kim, Case: 22STCV39430, Date: 2023-05-11 Tentative Ruling
Case Number: 22STCV39430 Hearing Date: May 11, 2023 Dept: 31
TENTATIVE
The motion to compel arbitration is therefore
DENIED.
Background
On December 20, 2022, Plaintiff Victor
Hernandez (“Plaintiff” or “Hernandez”) filed this lawsuit alleging violation of
the Song-Beverly Act exclusively against Defendant Nissan North America, Inc.
(“Defendant” or “Nissan”) for breach of manufacturer’s warranty. Plaintiff
purchased a 2020 Nissan Rogue on September 8, 2020 and entered into the Retail
Installment Sales Contract (“RISC”) with dealership Nissan of Downtown LA.
On March 9, 2023, Defendant filed
this instant motion to compel arbitration and stay proceedings. On April 28,
2023, Plaintiff filed an opposition. On May 4, 2023, Defendant filed a reply.
Request
for Judicial Notice
The parties’ Requests for Judicial
Notice are both granted.
Evidentiary
Objections
The Court sustains Plaintiff’s evidentiary request to
Declaration of Jane M. Chung ¶ 5, Exhibit 4 for lack of foundation and personal
knowledge.
Legal
Standard
When
seeking to compel arbitration of a plaintiff’s claims, the defendant must
allege the existence of an agreement to arbitrate. (Condee v. Longwood
Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to
the plaintiff to prove the falsity of the agreement. (Ibid.) After the
Court determines that an agreement to arbitrate exists, it then considers
objections to its enforceability. (Ibid.) The Court must grant a
petition to compel arbitration unless the defendant has waived the right to
compel arbitration or if there are grounds to revoke the arbitration agreement.
(Ibid.; Code Civ. Proc., § 1281.2.)
A non-signatory seeking to compel
arbitration “bears the burden to establish he or she is a party to the
arbitration agreement/provision covering the dispute.” (Jones v. Jacobson (2011)
195 Cal.App.4th 1, 15.) A non-signatory may invoke the arbitration clause if it
is a third-party beneficiary of the agreement or that plaintiff is equitably
estopped from repudiating the clause. (Jarboe v. Hanless Auto Group (2020)
53 Cal.App.5th 539, 549.)
Request
for Judicial Notice
The parties’ Requests for Judicial
Notice are both granted. However, none of those briefs, opinions, and orders are
binding on this Court or control the decision in this case.
Evidentiary
Objections
The Court sustains Plaintiff’s evidentiary request to
Declaration of Jane M. Chung ¶ 5, Exhibit 4 for lack of foundation and personal
knowledge.
Discussion
Because the Court has sustained
Plaintiff’s objection to the Declaration of Jane M. Chung, the moving party would
otherwise be unable to prove by a preponderance of admissible evidence the
existence of the sales contract which contains the language at issue. However,
here, despite the objection, the parties agree that an arbitration agreement
exists. Therefore, the court will
evaluate the merits of the motion based upon the language within the attached sales
contract.
The Parties Agree That an Arbitration
Agreement Exists.
The parties do not dispute the
existence of an arbitration agreement between Plaintiff and the non-party
dealership, and Defendants provided the RISC containing the arbitration
provision. (Chung Decl., Ex. 4 [“Arbitration Agreement”].) The front of the
contract states in a box:
Agreement to
Arbitrate. By signing below, you agree that, pursuant to the Arbitration
Provision on the reverse side of this contract, you or we may elect to resolve
any dispute by neutral, binding arbitration and not by a court action. See the
Arbitration Provision for additional information concerning the agreement to
arbitrate.
(Ibid.)
Plaintiff signed immediately under this language. Plaintiff also signed
under a notice that states:
YOU AGREE TO
THE TERMS OF THIS CONTRACT. YOU CONFIRM THAT BEFORE YOU SIGNED THIS CONTRACT,
WE GAVE IT TO YOU, AND YOU WERE FREE TO TAKE IT AND REVIEW IT. YOU ACKNOWLEDGE
THAT YOU HAVE READ ALL PAGES OF THIS CONTRACT, INCLUDING THE ARBITRATION
PROVISION ON THE REVERSE SIDE, BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY
FILLED-IN COPY WHEN YOU SIGNED IT.
(Ibid.)
Plaintiff signed below as Buyer. The back of the contract contains the
Arbitration Agreement, which provides:
Any claim or
dispute, whether in contract, tort, statute or otherwise (including the
interpretation and scope of this Arbitration Provision, and the arbitrability
of the claim or dispute), between you and us or our employees, agents,
successors or assigns, which arises out of or relates to your credit
application, purchase or condition of this vehicle, this contract or any
resulting transaction or relationship (including any such relationship with
third parties who do not sign this contract) shall, at your or our election, be
resolved by neutral, binding arbitration and not by a court action.
(Ibid.)
This is sufficient to show the existence of an agreement to arbitrate.
Equitable Estoppel Does Not Allow Nisan to Compel
Arbitration.
The non-signatory Defendant’s arguments for compelling
arbitration are based on the doctrine of equitable estoppel and third-party
beneficiary. (Motion at pp. 7-13.) Plaintiff argues that Defendant fails to
meet its burden of establishing equitable estoppel, that his claims against
Defendant are not intimately founded in the RISC, and that Defendant fails to
establish that it is a third-party beneficiary. (Opposition at pp. 8-12, 13-17.)
Generally, only a party to an arbitration agreement may
enforce the agreement, but the doctrine of equitable estoppel is an exception
that allows a non-signatory to enforce an agreement. (Felisilda v. FCA US
LLC (2020) 53 Cal.App.5th 486, 495 (Felisilda).) Under the doctrine
of equitable estoppel, “a nonsignatory defendant may invoke an arbitration
clause 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.) The doctrine applies in either of
two circumstances: (1) when the signatory must rely on the terms of the written
agreement containing the arbitration clause in asserting its claims against the
nonsignatory; or (2) when the signatory alleges “substantially interdependent
and concerted misconduct” by the nonsignatory and a signatory and the alleged
misconduct is “founded in or intimately connected with the obligations of the
underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209,
218-219.)
Defendant argues that equitable
estoppel applies because the signatory’s claims against a non-signatory arise
out of the underlying contract and the non-signatory’s conduct is intertwined
with a signatory's conduct. That is, Plaintiff’s claims are purportedly
premised on the RISC and the resultant purchase of the vehicle.
As to the
second basis, the Complaint does not allege any “interdependent and concerted
misconduct” between both the signatory dealership – which is not a party to
this action and not mentioned in the Complaint – and non-signatory Nissan. If
the RISC did not exist, Plaintiff would still have their warranty and fraud claims
against Nissan. (Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122,
1132 [“a consumer who purchased a vehicle with cash instead of credit would
still state a claim for which relief could be granted, absent a Purchase
Agreement”].)
The Court acknowledges that in the
Complaint, Plaintiff does allege that the violations under the Song-Beverly Act
arise from warranty obligations of Nissan in connection with a vehicle
purchased by Plaintiff and for which Nissan issued written warranties.
(Complaint, ¶¶ 8-12.) However, the Complaint otherwise does not mention the
RISC. Equitable estoppel applies if Plaintiff relies on the terms of the
agreement in asserting its claims against the non-signatory. (See Goldman v.
KPMG, LLP, supra, 173 Cal.App.4th at p. 218 [“merely ‘making
reference’ to an agreement with an arbitration clause is not enough” for
equitable estoppel].) In order to be intertwined with the purchase agreement,
Plaintiff must allege a violation of a “duty, obligation, term or condition”
imposed by the purchase agreement. (Goldman, supra, 173
Cal.App.4th at pp. 230-231.) The Complaint does not do so here.
Further, the RISC expressly
differentiates Defendant’s warranty from any warranties that the dealership may
provide. The RISC contains a provision in which the dealership disclaims all
warranties and states “If you do not get a written warranty, and the Seller
does not enter into a service contract within 90 days from the date of this
contract, the Seller makes no warranties, express or implied, on the vehicle,
and there will be no implied warranties of merchantability or of fitness for a
particular purpose.” (Chang Decl. ¶ 5, Exhib. 4.) The RISC further noted that
it did “not affect any warranties covering the vehicle that the vehicle
manufacturer may provide.” (Id.) The RISC therefore distinguishes
between dealer warranties and manufacturer warranties, the latter of which
appears to form the basis for the Complaint. (Kramer v. Toyota Motor Corp.,
supra, 705 F.3d at p. 1131.) This differentiation indicates an
intent to distinguish and distance the RISC from any warranty that Defendant
Nissan may provide. Therefore, the warranties are not intertwined with the RISC
and equitable estoppel does not apply. (See Id. at pp. 1128-1133 [“Plaintiffs
do not seek to simultaneously invoke the duties and obligations of Toyota under
the Purchase Agreement, as it has none, while seeking to avoid arbitration.
Thus, the inequities that the doctrine of equitable estoppel is designed to
address are not present”].)
Accordingly, the second basis for
finding equitable estoppel does not apply.
As to the first basis, the issue is
whether Plaintiff’s claims against Defendant depend on the specific terms of
the RISC. Defendant primarily relies on Felisilda v. FCA US LLC (2020)
53 Cal.App.5th 486 (Felisilda). There, the court examined a similar arbitration clause contained in
a dealer’s sales contract:
Any claim or dispute, whether in contract, tort, statute or otherwise
(including the interpretation and scope of this Arbitration Provision, and the
arbitrability of the claim or dispute), between you and us or our employees,
agents, successors or assigns, which arises out of or relates to . . .
condition of this vehicle, this contract or any resulting transaction or
relationship (including any such relationship with third parties who do not
sign this contract) shall, at your or our election, be resolved by neutral,
binding arbitration and not by a court action. . . .
(Felisilda,
supra, 53 Cal.App.5th at p. 490.) The court concluded that the equitable
estoppel doctrine applied: “Because the [buyers] expressly agreed to arbitrate
claims arising out of the condition of the vehicle – even against third party
nonsignatories to the sales contract – they are estopped from refusing to
arbitrate their claim against [the manufacturer]. Consequently, the trial court
properly ordered the [buyers] to arbitrate their claim against FCA.” (Id.
at p. 497.)
Plaintiff alleges that he received various warranties in
connection with the purchase. (E.g., Complaint ¶¶ 8-10.) The court in Felisilda
held that a similar allegation established that “the sales contract was the
source of the warranties at the heart of this case.” (Felisilda, supra,
53 Cal.App.5th at p. 496.) As in Felisilda, Plaintiff’s claims against
the manufacturer “directly relate[] to the condition of the vehicle that they
allege to have violated warranties they received as a consequence of the sales
contract.” (Id. at p. 497.) Plaintiff argues that Felisilda is
distinguishable because the plaintiffs there brought claims against both the
dealership and the manufacturer, the dealership moved to compel arbitration,
and the manufacturer filed a notice of non-opposition. (Opposition at pp. 5-6.)
But in Felisilda, the claims against the dealership were eventually
dismissed, leaving only the claims against the manufacturer before the
plaintiffs’ appeal. (See Felisilda at p. 489.) The Court of Appeal also
expressly framed the issue as “whether a nonsignatory to the agreement has a
right to compel arbitration under that agreement.” (Id. at p. 495.)
Plaintiff also points to the Court of Appeal’s ruling in Martha
Ochoa v. Ford Motor Company (2023) ___ Cal.App.5th____ [2023 WL 2768484] (Ochoa),
which declined to follow Felisilda. This Court can now choose to either
continue to follow Felisilda or instead adopt Ochoa’s reasoning.
(Sarti v. Salt Creek Ltd. (2008) 167 Cal.App.4th 1187, 1193 [“All trial
courts are bound by all published decisions of the Court of Appeal . . . Unlike
at least some federal intermediate appellate courts, though, there is no
horizontal stare decisis in the California Court of Appeal.”].)
The Ochoa court determined that equitable estoppel
did not apply because the plaintiffs failed to show that their claims were
founded in or intertwined with the sales contracts. (Ochoa, supra,
2023 WL 2768484, at pp. *3-*6.) The court “disagree[d] with Felisilda
that ‘the sales contract was the source of [FCA’s] warranties at the heart of
this case.’” (Id. at p. *4.) Like in Ochoa, Plaintiff’s claims
here “are based on [the defendant’s] statutory obligations to reimburse
consumers or replace their vehicles when unable to repair in accordance with
its warranty,” not based “on any express contractual language in the sale
contracts.” (Id. at p. *5.) Plaintiff’s claims do not arise directly out
of the sales contract, even if Nissan’s warranties accompanied the sale of the
vehicle. “The sale contracts include no warranty, nor any assurance regarding
the quality of the vehicle sold, nor any promise of repairs or other remedies
in the event problems arise. To the contrary, the sale contracts disclaim any
warranty on the part of the dealers, while acknowledging no effect on ‘any
warranties covering the vehicle that the vehicle manufacturer may provide.’ In
short, the substantive terms of the sale contracts relate to sale and financing
and nothing more.” (Ibid.)
The Ochoa court also “disagree[d] with the Felisilda
court’s interpretation of the sale contract as broadly calling for arbitration
of claims ‘against third party nonsignatories.’” (Ibid.) The court instead read the language
“including any such relationship with third parties who do not sign this
contract” as “a further delineation of the subject matter of claims the
purchasers and dealers agreed to arbitrate.” (Id. at pp. *4-*5.) The
parties “agreed to arbitrate disputes ‘between’ themselves—‘you and us’—arising
out of or relating to ‘relationship[s],’ including ‘relationship[s] with third
parties who [did] not sign th[e] [sale] contract[s],’ resulting from the
‘purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.’” (Id.
at p. *5.) Here too the parties agreed to arbitrate any claim or dispute
“between you and us or our employees, agents, successors or assigns, which
arises out of or relates to . . . [the] condition of this vehicle, this
contract or any resulting transaction or relationship (including any such
relationship with third parties who do not sign this contract).” (Chung Decl. ¶
5, Exhib 4.)
This Court agrees with Ochoa’s interpretation of
this language and rejects Felisilda’s assumption that the parties agreed
to arbitrate claims “even against third party nonsignatories to the sales
contract” and “disputes that include third parties so long as the dispute
pertains to the condition of the vehicle.” (Felisilda, supra, 53
Cal.App.5th at p. 497.) Ochoa clearly distinguishes between (1) the
parties to the claims or disputes (here, “you and us or our employees, agents,
successors or assigns”), and (2) the subject matters of the claims or disputes
(e.g., arising out of or relating to “any resulting transaction or relationship
(including any such relationship with third parties who do not sign this
contract”). If there was a dispute between Plaintiff and the dealership that
arose out of or related to a resulting transaction or relationship with a third
party, then Plaintiff and the dealership would arbitrate that dispute. But
based on the arbitration provision’s language and Ochoa’s clear
interpretation thereof, there is no agreement requiring Plaintiff to arbitrate
a claim or dispute between himself and a non-signatory third-party.
Accordingly, the reasoning and holding of Ochoa
lead to the conclusion that equitable estoppel does not permit Defendant to
compel arbitration. The motion is denied as to Defendant.
Nissan is Not a Third-Party Beneficiary
Defendant asserts that it is a third-party beneficiary
based on the clause in the RISC stating that Plaintiff agrees to arbitrate any
claims, “including any such relationship with third parties who do not sign
this contract.”
“A contract, made expressly for the benefit of a third
person, may be enforced by him at any time before the parties thereto rescind
it.” (Civ. Code § 1559.) In evaluating whether a third party is a beneficiary,
a court must analyze the “express provisions of the contract at issue, as well
as all of the relevant circumstances” to determine (1) whether the third party
would in fact benefit from the contract . . . (2) whether a motivating purpose
of the contracting parties was to provide a benefit to the third party, and (3)
whether permitting a third party to [enforce the contract] 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.)
Here, the “motivating purpose” of
the RISC was not to provide a benefit to Defendant Nissan. The RISC was
“drafted with the primary purpose of securing benefits for the contracting parties
themselves . . . the purchaser seeks to buy a car, and the dealership and
assignees seek to profit by selling and financing the car. Third parties are
not purposeful beneficiaries of such an undertaking.” (Ngo (9th Cir. 2022) 23
F.4th 942, 947.) In addition, given that the RISC itself “does not affect any
warranties covering the vehicle that the vehicle manufacturer may provide,”
this suggests that the parties expressly opted not to include Nissan as a
contracting party or beneficiary. (See Id. at p. 948.) Therefore,
because Nissan has failed to show that a “motivating purpose” of the parties
was to provide a benefit to Nissan, it cannot invoke the arbitration clause as
a third-party beneficiary.
In addition, the language of the
arbitration clause indicates that Nissan is not an intended beneficiary. While
the claims subject to arbitration are broad and include “such relationship with
third parties who do not sign this contract,” this is limited to the scope of
the arbitration agreement. As to who may compel arbitration, the RISC is more
limited: “at your or our election,” which applies to only Nissan of Downtown LA
and Hernandez. In other words, the decision to arbitrate claims with third
party non-signatories belongs to the signatories. (See also Ngo, supra,
23 F.4th at pp. 946-947.) Accordingly, Defendant is not an intended
beneficiary, and it may not compel arbitration in this matter.
Because Defendant lacks standing to enforce the
Arbitration Agreement, the Court does not consider the arguments concerning
waiver and arbitrability.
Conclusion
Defendant has not met its burden as a non-signatory to
establish that it may invoke the arbitration provision against signatory
Plaintiff under either principles of equitable estoppel or the third-party beneficiary
doctrine. The motion to compel arbitration is therefore denied.
Moving party to give notice.