Judge Monica Bachner, Case 22STCV16014 2023-03-03 Tentative Ruling

Defendant’s motion to compel arbitration of Plaintiffs’ claims in this action is granted. The case is stayed as to Defendant pending arbitration. The matter is set for a status conference regarding arbitration on March 4, 2024, at 8:30 a.m. The parties are ordered to file a joint status report five court days in advance of the hearing.

Defendant Nissan North America, Inc. (“Nissan”) (“Defendant”) moves for an order compelling arbitration of all claims asserted by Plaintiffs Jessica Ceren aka Jessica Bail (“Jessica”) and Raul Ceren Bolanos aka Raul Ceren (“Raul”) (collectively, “Plaintiffs”) and staying the action pending completion of arbitration pursuant to the Federal Arbitration Act (“FAA”). (Notice of Motion, pgs. 1-2; 9 U.S.C. §2; C.C.P. §1281.4)

Plaintiffs’ 2/17/23 evidentiary objection to the Declaration of Hang Alexandra Do (“Do”) is denied as to No. 1.

Defendant’s 10/10/22 request for judicial notice of Plaintiffs’ complaint in this action is denied, as this Court does not need to take judicial notice of previous filings in the instant case.

On May 13, 2022, Plaintiffs filed the instant action for breach of express warranty under the Song Beverly Consumer Warranty Act (“Song-Beverly”), fraudulent inducement- intentional misrepresentation, and fraudulent inducement- concealment against Defendant in connection with Plaintiffs’ October 8, 2018, purchase of a 2018 Nissan Sentra (“Subject Vehicle”) from third-party Nissan of Duarte. (Complaint ¶7; Decl. of Do, Exh. B.) Defendant filed the instant motion on October 10, 2022. On February 17, 2023, Plaintiffs filed their opposition. On February 24, 2023, Defendant filed its reply.

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 proved the existence of an arbitration agreement with Plaintiffs. Defendant submitted evidence that on October 8, 2018, Plaintiffs signed a Retail Installment Sale Contract (“RISC”) with Nissan of Duarte (“Dealer”) that contained a valid and enforceable arbitration clause (“Arbitration Agreement”). (Decl. of Do, Exh. B 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 Sales Contract defines the Buyer as Plaintiff and the Seller-Creditor as Dealer. (Decl. of Do, Exh. B at pg. 1.) The Arbitration Agreement provides as follows:

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

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 [Plaintiffs] and [Dealer] or [Dealer’s] employees, agents, successors or assigns, which arises out of or relates to [Plaintiffs’] . . . 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 [Plaintiffs’] 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.

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

By signing below, [Plaintiffs] 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.

Plaintiffs do not deny signing the RISC containing the Arbitration Agreement. (See Opposition.) Rather, Plaintiffs argue Defendant is not entitled to enforce the arbitration agreement against Plaintiffs.

By its terms, the Arbitration Agreement is governed by the FAA. Moreover, the Arbitration Agreement affects commerce for purposes of FAA applicability since the RISC involves the purchase and sale of a motor vehicle, which is moved in interstate commerce. (See Comley v. Giant Inland Empire RV Center, 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, 273-274) [“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, review denied (Nov. 24, 2020).) “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.” (Id. at pg. 496.) Here, Plaintiffs’ 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 RISC containing the arbitration provision Defendant seeks to enforce as a non-signatory. As in Felisilda, given Plaintiffs’ assertion of Song-Beverly allegations against Defendant and given Plaintiffs’ express agreement to arbitrate claims arising out of the condition of the vehicle, even against third-party non-signatories to the sales contract, Plaintiffs are estopped from refusing to arbitrate their claims against Defendant. Here, Plaintiffs’ causes of action relate to the condition of the subject vehicle and Plaintiffs entering into the RISC with Nissan of Duarte. The Court finds Defendant has established the existence of a valid arbitration agreement between Plaintiffs and Dealer, which is enforceable by Defendant, notwithstanding the fact Nissan of Duarte is not a party to this action.

The federal authorities cited by Plaintiffs do not change this conclusion. Felisilda remains binding authority on this court, and the reasoning in Ngo v. BMW N.S. 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.)

Defendant is also entitled to enforce the Arbitration Agreement as a third-party beneficiary to the RISC. (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 “any claim or dispute . . . between [Plaintiffs] and [Dealer] or [Dealer’s] employees, agents, successors, or assigns, which arises out of or relates to . . . [Plaintiffs’] purchase or condition of [the subject] vehicle,] this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract).” (Decl. of Do, Exh. B at pg. 7.) Defendant submitted no evidence that it is embraced in this language as one of Dealer’s “assigns” or otherwise for the Arbitration Agreement to explicitly apply to claims between Plaintiffs 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 relationships between Defendant and non-party Nissan of Duarte. Given the Arbitration Agreement explicitly embraces the types of claims Plaintiffs assert against Defendant by applying to claims resulting from relationships arising from the RISC 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 RISC.

Based on the foregoing, Defendant proved the existence of a valid Arbitration Agreement between non-party Nissan of Duarte and Plaintiffs that is enforceable by Defendant.

Plaintiffs’ claims relate to the condition of the subject vehicle, and the Arbitration Agreement specifically contemplates claims relating to the “condition” of the Subject Vehicle. In addition, the RISC underlies Plaintiffs’ standing to bring the instant action as well as their right to assert a cause of action for breach of express 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 Plaintiffs’ complaint.

Plaintiffs argue the arbitration agreement is procedurally and substantively unconscionable. (Opposition, pgs. 16-19.) “[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 come to the conclusion that the term is unenforceable, and vice versa. (Id., at pg. 114.) Plaintiffs bear 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.)

Plaintiffs argue that the Arbitration Agreement is procedurally unconscionable because: (1) the RISC was presented to Plaintiffs on a “take it or leave it” basis; and (2) Dealer was the only party with meaningful bargaining power and therefore Plaintiffs were essentially forced to waive their statutory rights under the Song-Beverly Act. (Opposition, pgs. 16-17.)

Plaintiffs do not submit evidence suggesting that the agreement was provided on a “take it or leave it basis.” Indeed, Plaintiffs submit no declaration in support of their opposition to provide evidence in support of their arguments. However, even assuming arguendo, Plaintiffs were to submit evidence that their experience in signing and reviewing the RISC prior to signing conforms with arguments they raise in opposition, these issues do not demonstrate procedural unconscionability. Dealer personnel’s failure to explain that a Sales Contract contains an arbitration provision or to point out the provision does not demonstrate procedural unconscionability. (See Sanchez v. Valencia Holding Co. (2015) LLC, 61 Cal.4th 899, 914 [(“Valencia was under no obligation to highlight the arbitration clause of its contract, nor was it required to specifically call that clause to Sanchez’s attention. Any state law imposing such an obligation would be preempted by the FAA.”].) Moreover, the RISC includes a provision, signed by Plaintiffs, indicating it can be changed in writing with both parties’ signatures, but that no oral changes would be binding, contradicting Plaintiffs’ claims they could not negotiate its form language and that it was presented on a take it or leave it basis. (Decl. of Do, Exh. B at pg. 3.)

Defendant did not submit evidence relating to the specific circumstances surrounding Plaintiffs’ signing of the arbitration agreement; however, based upon a review of the RISC, the evidence suggests the Arbitration Agreement is an ordinary contract of adhesion in the context of Plaintiffs’ purchase of the subject vehicle 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 that while the Arbitration Agreement was included in the form language of the RISC, Plaintiffs separately signed sections in which they indicated that, by signing, they were agreeing to arbitration. Accordingly, notwithstanding the fact the agreement was one of adhesion, no evidence suggests Plaintiffs’ signatures were the product of oppression or surprise.

Based on the foregoing, the Court finds the Arbitration 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, 172 Cal.App.4th at pgs. 1469-1470.)

Plaintiffs argue the Agreement is substantively unconscionable because it includes provisions that directly contradict with the Song-Beverly Act, and as such, are unenforceable. (Opposition, pgs. 17-19.) Specifically, Plaintiffs take issue with provisions that provide that: (1) the Agreement allows for a choice of arbitrator but only so long as the selling dealer or creditor approves the choice, (2) the Agreement deprives Plaintiffs of their fundamental and constitutional right to a jury trial, (3) the Agreement contains a fee-shifting provision onto Plaintiffs that is incompatible with the Song-Beverly Act as it requires Dealer to only pay up to a maximum of $5,000, which is routinely exceeded in private arbitrations, and (4) the clause includes provisions that first appear facially neutral but in practice skew the benefits to the Seller-Creditor. (Opposition, pg. 17.)

First, Plaintiffs argue 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, Plaintiffs cite to Chavarria v. Ralph’s (9th Cir. 2013) 733 F. 3d 916, a non-binding federal court decision. Chavarria is inapposite as it concludes 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, 733 F.3d at pgs. 923-925.) Here, Plaintiffs may stipulate to the American Arbitration Association or select any other arbiter of their choosing.

Second, Plaintiffs argue they are deprived of their right to a jury trial. Plaintiffs cite no authority for the proposition that an arbitration clause, which by definition results in no jury trial, makes the arbitration agreement substantively unconscionable. Indeed, Plaintiffs acknowledged and agreed to the Arbitration Agreement and waived their right to a jury trial. (Decl. of Do, Exh. B at pg. 7.)

Third, Plaintiffs argue 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 Do, Exh. B at pg. 7.) 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, Plaintiffs identify “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. Plaintiffs cite to People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 20, for support that such terms can render an arbitration clause unconscionable. 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 that 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].) Moreover, the California Arbitration Act preserves the right of any party to apply to a court for equitable remedies, including not only injunctive relief, but also restraining orders and writs of possession under C.C.P. §1281.8.[1] (See Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246-1248.) Therefore, Plaintiffs have not shown that the arbitration agreement is substantively unconscionable.

Based on the evidence before the Court, the terms of the Arbitration Agreement do not create overly harsh or one-sided results, satisfying the requirements for a substantively conscionable agreement. (Armendariz, 24 Cal.4th at pgs. 101-113.)

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 March 4, 2024. The parties are directed to submit a joint statement no later than February 26, 2024, apprising the Court of the status of the arbitration.

[1] C.C.P. §1281.8(b) states: “A party to an arbitration agreement may file in the court in the county in which an arbitration proceeding is pending, or if an arbitration proceeding has not commenced, in any proper court, an application for a provisional remedy in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief. The application shall be accompanied by a complaint or by copies of the demand for arbitration and any response thereto. If accompanied by a complaint, the application shall also be accompanied by a statement stating whether the party is or is not reserving the party’s right to arbitration.”