Judge: Monica Bachner, Case: 22STCV05366, Date: 2023-01-04 Tentative Ruling

Case Number: 22STCV05366    Hearing Date: January 4, 2023    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

Defendant Toyota Motor Sales U.S.A., Inc.’s motion to compel arbitration of Plaintiff Omar Hernandez Santiago’s claims in this action is granted.  The case is stayed pending arbitration. 

The Court sets a non-appearance case review for October 2, 2023.  The parties are directed to submit a joint statement five court days in advance, apprising the Court of the status of the arbitration.

Defendant Toyota Motor Sales U.S.A., Inc. (“TMS”) (“Defendant”) moves for an order compelling arbitration of all claims asserted by Plaintiff Omar Hernandez Santiago (“Hernandez Santiago”) (“Plaintiff”) and staying the action pending completion of arbitration.  (Notice of Motion, pgs. 1-2; C.C.P. §§1281.2, 1281.4.) 

Background

On February 14, 2022, Plaintiff filed the instant action for breach of warranty claims under the Song Beverly Consumer Warranty Act (“Song-Beverly”) against Defendant in connection with his January 22, 2020, purchase of a 2020 Toyota Corolla (“subject vehicle”). (Complaint ¶¶4, 8.)  Defendant filed the instant motion on July 8, 2022.  Plaintiff filed his opposition on December 21, 2022.  Defendant filed its reply on December 27, 2022.

Plaintiff opposes the motion to compel arbitration on the following grounds: (1) Defendant waived its purported right to compel arbitration by engaging in conduct inconsistent with an intent to arbitrate; (2) Defendant is not an intended third-party beneficiary of the Retail Installment Sale Contract’s (“RISC”) arbitration clause; and (3) Defendant cannot reply on equitable estoppel to force Plaintiff to arbitrate.  

Motion to Compel Arbitration

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.)

A.  Arbitration Agreement

Defendant proved the existence of an arbitration agreement with Plaintiff.  Defendants submitted evidence that on January 22, 2020, Plaintiff signed an RISC with Dealer Hamer Toyota (“Dealer”) for the subject vehicle that contained a valid and enforceable arbitration clause (“Arbitration Agreement”).  (Decl. of Yao ¶¶2, 3, Exh. A at pg. 7.)

The RISC provides that the term “you” refers to the Buyer and that “we” and “us” refer to the Seller-Creditor.  The RISC defines the Buyer as Plaintiff and the Seller-Creditor as Dealer.  (Decl. of Yao, Exh. A at pg. 1.)  The Arbitration Agreement provides as follows:

EITHER [Plaintiff] OR [Dealer] MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN [Plaintiff and Dealer] DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

. . .

Any claim or dispute, whether in contract or tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision and the arbitrability of the claim or dispute) between [Plaintiff] and [Dealer] or [Dealer’s] 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 [Plaintiff’s] or [Dealer’s] election be resolved by neutral, binding arbitration and not by a court action.

. . .

Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et. seq.) [(“FAA”)] and not by any state law concerning arbitration.

(Decl. of Yao, Exh. A at pg. 7 (Emphasis added).)

          In addition, at the bottom of the first page of the RISC, Plaintiff signed below the following:

By signing below, you agree that, pursuant to the Arbitration provision on page 7 of this contract, [Plaintiff] or [Dealer] 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.

(Decl. of Yao, Exh. A at pg. 1.)

Plaintiff does not deny signing the Sales Contract containing the Arbitration Agreement.  (See Opposition.)  Rather, Plaintiff argues Defendant is not entitled to enforce the arbitration agreement against Plaintiff. 

By its terms, the Arbitration Agreement is governed by the FAA. Moreover, the Arbitration Agreement affects commerce for purposes of FAA applicability since the Sales Contract involves the purchase and sale of a motor vehicle, which is moved in interstate commerce.  (See Comley v. Giant Inland Empire RV Ctr., Inc. (C.D. Cal. Aug. 7, 2013) 2013 WL 12131180, at *2 (quoting Allied-Bruce Terminix Companies, Inc., v. Dobson (1995) 513 U.S. 265, 273-74) [“This contract plainly concerned a vehicle, which either itself or through its parts moved in interstate commerce.”].)

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.)  “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.”  (Id. at pg. 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-signatory.  As in Felisilda, given Plaintiff’s assertion of Song-Beverly allegations against Defendants 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 Defendants.  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 Defendants have 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 of North America LLC (9th Cir. 2022) 23 F.4th 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. (See, e.g., 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”]; Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 229-230.)

Defendants are also entitled to enforce the Arbitration Agreement as third-party beneficiaries to the Sales Contract.  (See Epitech, Inc. v. Kann (2012) 204 Cal.App.4th 1365, 1371; see also 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 “[a]ny claim or dispute, whether in contract or tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision and the arbitrability of the claim or dispute) between [Plaintiff] and [Dealer] or [Dealer’s] 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).”   (Decl. of Yao ¶3, Exh. A at pg. 7, emphasis added.)  Defendant submitted no evidence that Defendants are embraced in this language as one of Dealer’s “assigns” or otherwise for the Arbitration Agreement to explicitly apply to claims between Plaintiff and Defendants.  However, Defendant is an intended third-party beneficiary as the Arbitration Agreement’s expressly states that it governs claims arising out of “resulting transaction or relationship . . . with third parties who do not sign this contract.”  (Decl. of Yao ¶3, Exh. A at pg. 7.)  This language contemplates Defendant’s “resulting relationship,” which is based on the subject vehicle’s purchase and condition as well as alleged agency/warranty relationships between Defendant and Dealer.  Given the Arbitration Agreement explicitly embraces the types of claims Plaintiff asserts against Defendants by applying to claims resulting from relationships arising from the Sales 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 Defendants are entitled to enforce arbitration as a third-party beneficiary to the RISC. 

Based on the foregoing, Defendant proved the existence of a valid Arbitration Agreement between Dealer and Plaintiff that is enforceable by Defendant. 

B. Covered Claims

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 RISC, which specifically applies to claims arising out of the condition of the subject vehicle.  In addition, the RISC 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, Defendant met its burden of establishing the Arbitration Agreement covers the causes of action asserted in Plaintiff’s complaint.

          C. Waiver

The “party arguing waiver of arbitration bears a heavy burden of proof” and “[n]o single test delineates the nature of the conduct that will constitute a waiver of a contractual agreement to arbitrate.”  (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195-1196.)  “A party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration.”  (Bower v. Inter-Con Security Systems, Inc. (2014) 232 Cal.App.4th 1035, 1042 [internal citations omitted]; see also U.S. v. Park Place Association, Ltd. (9th Cir. 2009) 563 F.3d 907, 921.)  Waiver does not occur by mere participation in litigation; the critical issue is whether the party opposing arbitration has been prejudiced.  (St. Agnes Medical Center, 31 Cal.4th at pg. 1203.)

          Plaintiff argues Defendant waived its right to compel arbitration by engaging in conduct inconsistent with an intent to arbitrate.  (Lewis v. Fletcher Jones Motor Cars, Inc. (2018) 205 Cal.App.4th 436, 448-449; Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443; Guess? Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 557-558.)  Plaintiff argues Defendant’s delayed decision to attempt to invoke arbitration would be unduly prejudicial to Plaintiff at this stage in the action because Defendant fully availed itself of the discovery process and other litigation mechanism not ordinarily viable in arbitration.  (Decl. of Pfeffer ¶¶26-33; Exhs. 22-29; Guess?, 79 Cal.App.4th at pg. 558.)  Plaintiff further argues being forced into arbitration would prejudicially restart the clock on Plaintiff’s claims and could take additional years before a final decision is rendered.  (Opposition, pg. 2.)

          Plaintiff has not met its burden to demonstrate Defendant waived its right to arbitrate.  Defendant plead in its answer its fourteenth affirmative defense that Plaintiff’s RISC contained an Arbitration Agreement.  (See Answer, pg. 5.)  Defendant declares that at the time of filing its answer, Defendant did not have a copy of the RISC, but pled the affirmative defense to avoid waiver of such a defense.  (Supp.-Decl. of Yao ¶2.)  Defendant further declares that it served discovery on Plaintiff concurrent with filing its answer in order to obtain a copy of Plaintiff’s RISC and to notice Plaintiff’s deposition.  (Supp.-Decl. of Yao ¶3.)  Defendant declares Plaintiff only provided a partial copy of the RISC to Defendant, omitting the Arbitration Agreement, and Defendant had to independently reach out to Dealer to retrieve a copy of the complete RISC.  (Supp.-Decl. of Yao ¶¶4-5.)  Defendant declares that upon receipt of the complete RISC, it filed the instant motion.  (Supp.-Decl. of Yao ¶6.)  Unlike Guess?, here, Defendant propounded discovery and noticed Plaintiff’s deposition prior to obtaining a complete copy of the RISC with the Arbitration Agreement.  Further, Defendant did not conduct any depositions or inspections in this action.  (Supp.-Decl. of Yao ¶7.)  Based on the foregoing, Defendant did not waive its right to arbitration.

D. Conclusion

          Defendant’s motion to compel arbitration is granted.  The case is stayed pending arbitration. The Court sets a non-appearance case review for October 2, 2023.  The parties are directed to submit a joint statement five court days in advance, apprising the Court of the status of the arbitration.

Dated:  January _____, 2023

Hon. Monica Bachner

Judge of the Superior Court