Judge Monica Bachner, Case 21STCV35175 2022-09-20 Tentative Ruling

Defendant American Honda Motor Co., Inc.’s motion to compel Plaintiff Edgar Morales Campos to submit to arbitration is granted. The case is stayed pending arbitration. The Court sets a non-appearance case review for September 15, 2023 at 8:30 a.m. The parties are directed to submit a joint statement five calendar in advance of the hearing regarding the status of the arbitration.

Defendant American Honda Motor Co., Inc. (“American Honda”) (“Defendant”) moves to compel arbitration of claims asserted by Plaintiff Edgar Morales Campos (“Morales Campos”) (“Plaintiff”) and stay the action pending completion of the arbitration. (Notice of Motion, pg. 2.)

On September 23, 2021, Plaintiff filed his Complaint against Defendant alleging causes of action for violations of the Song-Beverly Act in (1) breach of express warranty and (2) breach of implied warranty with respect to Plaintiff’s entry into a November 6, 2019 Retail Installment Sale Contract (“the Agreement”) with non-party dealership Honda World Downey (“Dealer”) regarding the purchase of a 2020 Honda Civic (“subject vehicle”). Plaintiff alleges defects and nonconformities to warranty manifested themselves within the applicable express warranty period, including but not limited to brakes, and such nonconformities substantially impair the use, value, and/or safety of the vehicle. On October 27, 2021, Defendant filed its Answer. On February 22, 2022, Defendant filed the instant motion to compel arbitration.

Plaintiff opposes the motion on the following grounds: (1) Defendant has failed to meet its burden; (2) arbitration cannot be compelled by non-signatory Defendant; (3) and the purported arbitration agreement is procedurally and substantively unconscionable and violates Plaintiff’s right to a jury trial.

In deciding a motion to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue of whether the claims are covered within the scope of the agreement. (See Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) “The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. [Citation] In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination. [Citation] No jury trial is available for a petition to compel arbitration. [Citation]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) (See also Chiron Corp. v. Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130 [“The court’s role under the [FAA] is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. [Citations]”]. The party opposing the petition to compel arbitration bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.)

Accordingly, under both the FAA and California Law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.)

Defendant has proven the existence of an arbitration agreement with Plaintiff. Defendant submitted a Retail Installment Sale Contract that on November 6, 2019, alleging Plaintiff signed an arbitration provision in the Agreement.[1] (Decl. of Vasquez ¶¶3-6, Exh. A.) The Agreement is between Plaintiff and Dealer. (Decl. of Vasquez ¶3, Exh. A.) In the Agreement, a provision titled “Arbitration Provision” states that arbitration can be compelled with respect to:

[a]ny 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 . . . 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.

(Decl. of Vasquez ¶5, Exh. A.) Further, the arbitration provision gives Plaintiff the right to choose the arbitral forum, including arbitration through the American Arbitration Association or any other arbitration organization, subject to approval. (Decl. of Vasquez ¶5, Exh. A.)

Plaintiff argues Defendant has not met its burden to prove that this dispute is covered by the arbitration provision in the Agreement, citing Condee v. Longwood Management Corporation (2001) 88 Cal.App.4th 215, 218-219 (“Condee”), on the basis that Defendant presented a declaration signed by Defendant’s counsel to show that an arbitration agreement exists. (Opposition, pg. 2.) This argument is not persuasive.

Defendant did not submit the Arbitration Agreement for the purpose of introducing it into evidence, but for supporting their contention that an Arbitration Agreement between the parties exists, and Defendant are not required to produce an authenticated arbitration agreement in moving to compel arbitration. (See Condee, supra, 88 Cal.App.4th at 218-219 [“For purposes of a petition to compel arbitration, it is not necessary to follow the normal procedures of document authentication. ‘[T]he court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists....” [(C.C.P. §1281.2)] The statute does not require the petitioner to introduce the agreement into evidence. A plain reading of the statute indicates that as a preliminary matter the court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity.”].) Indeed, Plaintiff does not assert the signature on the Arbitration Agreement is not his does not dispute having signed the Agreement. Accordingly, Defendant has met its burden of establishing the existence of an arbitration agreement that covers the causes of action asserted in the complaint.

Under both California and federal case law, “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.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (“Felisilda”).) “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.” (Id., at p. 496.) Here, Plaintiff’s claims for Song-Beverly violations against Defendants are related to the purchase and condition of the subject vehicle, and as such they are intertwined with the Sales Contract containing the arbitration provision Defendants seek to enforce as a non-signatories. As in Felisilda, given Plaintiff’s assertion of Song-Beverly allegations against Defendant and given Plaintiff’s express agreement to arbitrate claims arising out of the condition of the vehicle, even against third-party non-signatories to the sales contract, Plaintiff is estopped from refusing to arbitrate his claims against Defendant. Here, Plaintiff’s causes of action relate to the condition of the subject vehicle and Plaintiff’s entering into the Sales Contract with Dealer. The Court finds Defendant has established the existence of a valid arbitration agreement between Plaintiff and Dealer, which is enforceable by Defendant, notwithstanding the fact Dealer is not a named defendant in the instant action and, as such, has not moved to compel arbitration.

Here, Plaintiff’s claims for Song-Beverly violations against Defendant are related to the purchase and condition of the subject vehicle, and as such they are intertwined with the Sales Contract containing the arbitration provision Defendant seeks to enforce as a non-signatory. As in Felisilda, given Plaintiff’s assertion of Song-Beverly allegations against Defendant and given Plaintiff’s express agreement to arbitrate claims arising out of the condition of the vehicle, even against third-party non-signatories to the sales contract, Plaintiff is estopped from refusing to arbitrate his claims against Defendant. Here, Plaintiff’s causes of action relate to the condition of the subject vehicle and Plaintiff’s entering the Agreement with Dealer. The Court finds Defendant has established the existence of a valid arbitration agreement between Plaintiff and Dealer, which is enforceable by Defendant, notwithstanding the fact Dealer is not a named defendant in the instant action and, as such, has not moved to compel arbitration.

The federal authorities cited by Plaintiff do not change this conclusion. Felisilda remains binding authority on this court, and the reasoning in Ngo v. BMW N.S. LLC (9^th Cir. 2022) 23 F.4^th 942, 946, and similar federal authorities does not find support in California decisional authority. To the extent Ngo distinguishes Felisilda on the basis a non-signatory moved to compel arbitration, such a distinction is not found in California case law. Indeed, California cases repeatedly discuss equitable estoppel as a means for a non-signatory to “enforce” an arbitration agreement. (Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 229-230; see also Jarboe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539,549 [when the equitable estoppel doctrine applies “a nonsignatory is allowed to enforce an arbitration clause because the claims against the nonsignatory are dependent on, or inextricably intertwined with, the contractual obligations of the agreement containing the arbitration clause”];.)

Defendant is also entitled to enforce the Arbitration Agreement as a third-party beneficiary to the Agreement. (See Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 836.) A third party is entitled to enforce a contract where: (1) it benefits from the contract, (2) a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) permitting the third party to enforce the contract is consistent with the objectives of the contract and reasonable expectations of the parties. (Goonewardene v. ADP, I LC (2019) 6 Cal.5th 817, 830.)

Here, the Arbitration Agreement specifically applies to “any claim, dispute or controversy… between [Plaintiff] and [Dealer] or [Dealer’s] employees, agents, successors, or assigns, which arises out of or relates to… [Plaintiff’s] purchase [of the subject vehicle][,] [the] condition of [the subject] vehicle…[,] or any resulting transaction or relationship (including any such relationship with third parties who did not sign this contract)….” (Decl. of Vasquez ¶5, Exh. A, emphasis added.) Defendant submitted no evidence that Defendant is embraced in this language as one of Dealer’s “assigns” or otherwise for the Arbitration Agreement to explicitly apply to claims between Plaintiff and Defendant. However, Defendant is an intended third-party beneficiary as the Arbitration Agreement expressly states that it governs claims arising out of “resulting relationships or transactions… with third parties who do not sign this contract.” This language contemplates Defendant’s “resulting relationship,” which is based on the subject vehicle’s purchase and condition as well as alleged agency/warranty relationship between Defendant and Dealer. Given the Agreement explicitly embraces the types of claims Plaintiff asserts against Defendant by applying to claims resulting from relationships arising from the Agreement with third parties who did not sign this contract, permitting such a third-party to enforce the Arbitration Agreement is consistent with the objectives of the contract and the parties’ reasonable expectations. The Court finds Defendant is entitled to enforce arbitration as a third-party beneficiary to the Agreement.

Based on the foregoing, Defendant has proven the Agreement is enforceable by Defendant.

Plaintiff’s claims relate to the condition of the subject vehicle, and the Arbitration Agreement specifically contemplates claims relating to the “condition” of the subject vehicle. As discussed above, Plaintiff does not dispute he signed the Sales Contract, which specifically applies to claims arising out of the condition of the subject vehicle. In addition, the Sales Contract underlies Plaintiff’s standing to bring the instant action as well as his right to assert a cause of action for breach of implied warranties and any claim for remedies. Based on the foregoing, Defendants met their burden of establishing the Arbitration Agreement covers the causes of action asserted in Plaintiff’s complaint.

Plaintiff argues the arbitration agreement is procedurally and substantively unconscionable. (Opposition, pgs. 12-14.) “[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.) The courts invoke a sliding scale which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Armendariz, supra, 24 Cal.4th at pg. 114.) Plaintiff bears the burden of proving that the provision at issue is both procedurally and substantively unconscionable.

“Procedural unconscionability focuses on the elements of oppression and surprise. [Citations] ‘Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice…Surprise involves the extent to which the terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.’ [Citations]” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.)

Plaintiff argues that the Agreement is procedurally unconscionable because it was presented as a “take it or leave it” agreement. (Opposition, pg. 12.)

Here, Plaintiff did not submit evidence relating to the circumstances surrounding Plaintiff’s signing of the Agreement; however, based upon a review of the Agreement, the Agreement is an ordinary contract of adhesion that does not involve any surprises or sharp practices, and as such contains, at most, a degree of procedural unconscionability. (See Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1244 (“[T]here are degrees of procedural unconscionability. At one end of the spectrum are contracts that have been freely negotiated by roughly equal parties, in which there is no procedural unconscionability.... Contracts of adhesion that involve surprise or other sharp practices lie on the other end of the spectrum. [Citation.] Ordinary contracts of adhesion, although they are indispensable facts of modern life that are generally enforced, contain a degree of procedural unconscionability even without any notable surprises, and ‘bear within them the clear danger of oppression and overreaching.’”)

The evidence before the Court suggests the arbitration provision was on the reverse side of the Agreement that reads “Arbitration Provision” in bold, capitalized letters that was separately signed by Plaintiff, and that it indicated that, by signing, Plaintiff was agreeing to arbitration of any claim. Accordingly, notwithstanding the fact the agreement was one of adhesion that may have been a requirement to complete Plaintiff’s purchase, no evidence suggests Plaintiff’s signature was the product of oppression or surprise.

Based on the foregoing, the Court finds the Agreement is at most minimally procedurally unconscionable. However, as discussed below, the Court finds the Arbitration Agreement is not substantively unconscionable.

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results’ [Citations] that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation] Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided’ in favor of the employer without sufficient justification, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration’ [Citations].” (Roman, supra, 172 Cal.App.4th at 1469-1470.)

Plaintiff argues that the Agreement is substantively unconscionable because: (1) the alleged arbitration provision allows for choice of the arbitrator but only so long as the selling dealer or creditor approves the choice; (2) the arbitration provision deprives Plaintiff of his fundamental and constitutional right to a jury trial; (3) the arbitration provision contains a fee shifting provision onto Plaintiff which is incompatible with the Song-Beverly Act as it will pay up to a maximum of $5,000.00 which is routinely exceeded in private arbitration; and (4) the arbitration provision includes provisions that at first appear facially neutral but in practice skew the benefits to the Seller-Creditor and are “illusory bi-lateral terms.” (Opposition, pgs. 13-14.)

First, Plaintiff argues that the following language in the arbitration agreement is unconscionable: “You may choose the American Arbitration Association…, or any other organization to conduct the arbitration subject to our approval.” In support of this argument, Plaintiff cites to Chavarria v. Ralph’s (9^th Cir. 2013) 733 F. 3d 916 (“Chavarria”), a non-binding federal court decision. Chavarria is inapposite as it conclude such a provision is unconscionable in the context of employment, rather than the sale of a consumer good. The arbitration clause in Chavarria is further inapposite because it expressly excluded various arbiters, created a structure the employer admitted would disadvantage one party at the expense of the other, and essentially ensured the employer would be able to choose its preferred arbiter over the objection of the employee. (Chavarria, supra, 733 F.3d at 923-925.) Here, Plaintiff may stipulate to the American Arbitration Association or select any other arbiter of their choosing.

Plaintiff argues he is deprived of his right to a jury trial. Plaintiff cites no authority for the proposition that an arbitration clause which by definition results in no jury trial makes the arbitration agreement substantively unconscionable. Indeed, Plaintiff acknowledged and agreed to the arbitration provision and waived his right to a jury trial. (Decl. of Vasquez, Exh. A.)

Third, Plaintiff argues the Agreement is substantively unconscionable because it includes a fee-shifting provision that directly contradicts the Song-Beverly Act, and as such, is unenforceable. The provision reads:

We will pay your filing, administrative, service, or case management fee and your arbitrator or hearing fee all up to a maximum of $5000, unless the law or rules of the chosen arbitration require us to pay more. The amount we pay may be reimbursed in whole or in part by decision of the arbitrator if the arbitrator finds that any of your claims is frivolous under applicable law. Each party is responsible for its own attorney, expert, and other fees, unless awarded by the arbitrator under applicable law.

(Decl. of Vasquez, Exh. A.) The provision is not unconscionable. The Agreement places limitations on the costs of arbitration, and Defendant will pay the filing, administrative and arbitrator or hearing fees up to a maximum, and the Agreement allows the arbitrator to award attorney’s fees “under applicable law.”

Fourth, Plaintiff identifies “illusory bi-lateral terms” such as “You and we retain the right to seek remedies in small claims court for disputes or claims within that court’s jurisdiction,” and exclusion of self-help remedies such as repossession, the arbitration provision unfairly favors the Defendant while forcing consumers to litigate their claims. . Plaintiff cites to Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1147-1148, stating “[w]here a clause provides for the arbitration of claims most likely to be brought by the weaker party, but exempts the claims most likely to be filed by the stronger party, the clause is substantively unconscionable.” (Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1147-1148; Baker v. Osborne Development (2008) 159 Cal.App.4th 884, 896; Fitz v. NCR Corp. (2004).) The California Supreme Court, in examining such mutual exemption clauses, has not found them to be unconscionable. (See Sanchez v. Valencia Holding Co., Ltd. (2015) 61 Cal.4th 899, 922 (holding although the remedy [of repossession] is favorable to the drafting party, the contract provision that preserves the ability of the parties to go to small claims court likely favors the car buyer.”) Therefore, Plaintiff has not shown that the arbitration agreement is substantively unconscionable.

Based on the foregoing, the Court finds the Arbitration Agreement is not substantively unconscionable.

Defendant’s motion to compel arbitration is granted. The case is stayed pending arbitration. The Court sets a non-appearance case review for September 15, 2023 at 8:30 a.m. The parties are directed to submit a joint statement five calendar in advance of the hearing regarding the status of the arbitration.

[1] The Court notes Defendant’s submitted Exhibit A of the Agreement is not entirely legible, and it is difficult to discern Plaintiff’s signatures on the document. However, in his Opposition, Plaintiff concedes he entered the Agreement with the non-party selling dealership. (Opposition, pg. 2.)