Judge: Nathan Vu, Case: 2022-01292276, Date: 2023-05-22 Tentative Ruling

Motion to Compel Arbitration


Defendants Ford Motor Company’s and Tuttle Click Ford Lincoln & Collision Center’s Motion to Compel Arbitration is DENIED.


Plaintiff Derek Lorati’s Request for Judicial Notice is GRANTED. (See Evidence Code, § 452, subd. (d).)


Defendants Ford Motor Company (Defendant Ford) and Tuttle Click Ford Lincoln & Collision Center (Defendant Tuttle) move to compel arbitration of all of Plaintiff Derek Lorati’s claims.


Standard for Compelling Arbitration


The right to arbitration depends upon contract, and thus, a motion to compel arbitration is akin to a suit in equity seeking specific performance of that contract. (See Little v. Pullman (2013) 219 Cal.App.4th 558, 565.) The parties may, among other things, agree that the arbitration agreement will be controlled by the Federal Arbitration Act (FAA), which includes both procedural and substantive provisions.


The FAA states that written arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) The United States Supreme Court has described this provision as reflecting both a “liberal federal policy favoring arbitration,” and the “fundamental principle that arbitration is a matter of contract.” (AT & T Mobility LLC v. Concepcion (2011) 563 U.S. 333.)


The FAA permits agreements to arbitrate to be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability.” (Id.) When deciding whether a valid arbitration agreement exists, courts generally apply “ordinary state-law principles that govern the formation of contracts.” (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944.) “[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration.” (Green Tree Fin. Corp. v. Randolph (2000) 531 U.S. 79, 91.)


On a motion to compel arbitration under the FAA, the court’s role is limited to deciding: “(1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute.” (Brennan v. Opus Bank (9th Cir. 2015) 796 F.3d 1125, 1130.) If these conditions are satisfied, the court is without discretion to deny the motion and must compel arbitration. (9 U.S.C. § 4; Dean Witter Reynolds, Inc. v. Byrd (1985) 470 U.S. 213, 218 [“By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration.”].)


Applicability of the Federal Arbitration Act


Defendants seek to compel arbitration pursuant to the Arbitration Provision of the Retail Installment Sale Contract (RISC) entered into by Plaintiff on May 11, 2019. (See Decl. of Riahna A. Buuck (Buuck Decl.), Exh. A at p. LOR00008.) The Arbitration Provision states that “Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. s 1 et seq.) and not by any state law concerning arbitration.” (Id., Exh. 1 at p. LOR00008.) Thus, the Federal Arbitration Act (FAA) applies here.


Existence of An Arbitration Agreement


Parties moving to compel arbitration “may meet their initial burden to show an agreement to arbitrate by attaching a copy of the arbitration agreement purportedly bearing the opposing party's signature.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060; see also Cal. Rules of Ct., rule 3.1330 [in motion to compel arbitration, arbitration provision must be stated verbatim or copy must be attached to motion and incorporated by reference].)


Here, Defendants attach the RISC, which contains the Arbitration Provision, to their Motion to Compel Arbitration. (See Mem. P.&A.s in Supp. of Mot. to Compel Arbitration at p. 2:6-28; Buuck Decl., Exh. A at p. LOR00008.) The Vehicle Identification Number as alleged in the Complaint matches the Vehicle Identification Number identified in the RISC. (Compare Compl., ¶ 10, with Buuck Decl., Exh. 1 at p. LOR00001.) Plaintiff’s name is also listed in the RISC. (See Buuck Decl., Exh. A at p. LOR00001.)


The RISC provides in relevant part that:




. . .


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.


(Buuck Decl., Exh. A at p. LOR00008.)


Thus, there is no dispute that the Arbitration Provision of the RISC is an agreement to arbitrate. However, Plaintiff argues that the Arbitration Provision is not an agreement to arbitrate between the parties because the Defendants are not parties to the RISC.


Rather, the RISC defines “we” and “us” as the seller of the vehicle, nonparty Theodore Robins Inc. (See Buuck Decl., Exh. 1 at p. LOR00001.) The Complaint alleges that Defendant Ford is the manufacturer of the vehicle and Defendant Tuttle made repairs to the vehicle. (See Compl., ¶¶ 12, 72.)


Compelling Arbitration Against Non-Signatory


Defendants concede that they are not signatories to the RSIC, but argue that non-signatories may compel arbitration under certain circumstances.


Courts recognize “six theories by which a nonsignatory may [compel or] be bound to arbitrate: ‘(1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing or alter ego; (5) estoppel; and (6) third-party beneficiary.’” (Suh v. Superior Ct. (2010) 181 Cal.App.4th 1504, 1513, quoting 2 Oehmke, Commercial Arbitration (3d ed. 2006 update) § 41.57 at pp. 41–195.)


These exceptions to the general rule that one must be a party to invoke or be bound by an arbitration agreement “generally are based on the existence of a relationship between the nonsignatory and the signatory, such as principal and agent or employer and employee, where a sufficient ‘identity of interest’ exists between them.” (Jones v. Jacobson (2011) 195 Cal.App.4th 1, 18 & fn. 9.)


Defendants contend that they may enforce the Arbitration Provision under the doctrine of equitable estoppel.


Equitable Estoppel


“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. By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495–496, citations omitted.)


“In any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 219, italics original; see Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at pp. 495-496.) In determining whether the plaintiff’s claim is founded on or intimately connected with the sales contract, the court examines the facts of the operative complaint. (Goldman v. KPMG, LLP, supra, 173 Cal.App.4th at pp. 229-230.)


Defendants argue that the holding of Felisilda v. FCA US LLC applies to this case. The plaintiffs in Felisilda v. FCA US LLC were buyers of a vehicle who brought claims against the manufacturer under the Song-Beverly Act. (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 489.) The complaint in that case alleged that there were “express warranties [that] accompanied the sale of the vehicle to [the plaintiffs] by which [the manufacturer] . . . undertook to preserve or maintain the utility or performance of [the plaintiffs’] vehicle or provide compensation if there was a failure in such utility or performance.” (Id. at p. 496.)


Based on the above allegation, the 3rd District Court of Appeal ruled that the trial court had properly compelled arbitration because “the sales contract was the source of the warranties at the heart of this case”. (Ibid.) In other words, “the [plaintiffs’] claim against [the manufacturer] directly relates 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.)


However, Plaintiff points to the recently decided case of Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324. There, the 2nd District Court of Appeal held that a non-signatory vehicle manufacturer may not enforce an arbitration provision in a retail installment sales contract under the doctrine of equitable estoppel. (See Ford Motor Warranty Cases, supra, 89 Cal.App.5th at pp. 618-621.)


The 2nd District Court of Appeal explicitly stated:


We disagree with Felisilda that “the sales contract was the source of [FCA's] warranties at the heart of this case.” . . . [M]anufacturer vehicle warranties that accompany the sale of motor vehicles without regard to the terms of the sale contract between the purchaser and the dealer are independent of the sale contract.


(Ford Motor Warranty Cases, supra, 89 Cal.App.5th at pp. 619-620, quoting Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 496.)


Defendants respond that if Felisilda v. FCA US LLC and Ford Motor Warranty Cases are in conflict with each other, this court may follow either precedent. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal. 2d 450, 455-456 [“Decisions of every division of the District Courts of Appeal are binding upon all the justice and municipal courts and upon all the superior courts of this state, and this is so whether or not the superior court is acting as a trial or appellate court. . . . Of course, the rule under discussion has no application where there is more than one appellate court decision, and such appellate decisions are in conflict. In such a situation, the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.”].)


In this case, the court chooses to follow Ford Motor Warranty Cases. First, this case is presents a different situation than that described in Felisilda v. FCA US LLC. Unlike in that case, the warranty that forms the basis of Plaintiff’s lawsuit did not accompany the sale of the vehicle.


The Complaint alleges Plaintiff entered into a warranty contract with Defendant Ford on or about April 25, 2019. (See Compl., ¶ 10.) The warranty contract contained various warranties, including a bumper-bumper [sic], powertrain, and emission warranties. (See Compl., ¶ 11.) Plaintiff’s causes of action arise out of the warranty obligations of Defendant Ford contained in the warranty contract. (See Compl., ¶ 14.) Plaintiff’s claims are, essentially, that Defendant Ford failed to repair the vehicle consistent with its obligations under the warranty contract, and thereafter did not promptly repurchase or replace the vehicle. (See Compl. ¶¶ 18-19, 36.)


The Complaint does not allege that the signatory to the RISC, Theodore Robins, Inc., provided any warranty to Plaintiff. In fact, the RISC explicitly provided that Theodore Robins, Inc. was not providing any warranty and that any warranty from the vehicle manufacturer was separate and independent from the RISC:


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.


This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide. If the Seller has sold you a certified used vehicle, the warranty of merchantability is not disclaimed.


(See Buuck Decl., Exh. 1 at p. LOR00007.)


Thus, Plaintiff’s warranty and repair claims against the Defendants are distinct from any claim Plaintiff could have against the seller, Theodore Robins. Inc. The crux of Plaintiff’s action is the alleged breach of Defendants’ express warranty and alleged negligent repair, not any terms in the RISC.


However, even if this case was factually the same as Felisilda v. FCA US LLC, the court would still choose to follow the holding of Ford Motor Warranty Cases. As explained in the latter case, claims involving breach of a written warranty provided by a manufacturer are not so inextricably intertwined with the obligations contained in the sales and purchase contract that the manufacturer, who did not sign the contract, should be able to enforce an arbitration provision contained in the contract. (See Goldman v. KPMG, LLP, supra, 173 Cal.App.4th at pp. 217-218 [equitable estoppel applies only if “the claims the plaintiff asserts against the nonsignatory [are] dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause.”].)


A recent Ninth Circuit decision, Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, although not binding, adds to the weight supporting adoption of the holding of Ford Motor Warranty Cases. (See Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 299 [federal court decisions interpreting California law are “persuasive but not binding”].) There, the Ninth Circuit rejected the contention that equitable estoppel applied in a case similar to one at bar. (See Ngo v. BMW of North America, LLC, supra, 23 F.4th at p. 950 [“. . . Felisilda does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own. We therefore decline to affirm on the ground of equitable estoppel.”].)


Plaintiff shall give notice of this ruling.