Judge: Nathan Vu, Case: 30-2022-01277293, Date: 2023-07-17 Tentative Ruling
Motion to Compel Arbitration
Defendant Premier Automotive of Placentia LLC’s Motion to Compel Arbitration and Stay Action is taken OFF CALENDAR as moot.
Defendants FCA US LLC’s Motion to Compel Arbitration and Stay Action is DENIED.
Plaintiff Sergio Alverez’s Request for Judicial Notice is GRANTED. (See Evidence Code, § 452, subds. (a), (d).)
Defendant Premier Automotive of Placentia LLC dba Premier Chrysler Dodge Jeep Ram of Buena Park (erroneously sued as Premier Chrysler Dodge Jeep Ram of Buena Park) (Defendant Premier) moves to compel arbitration of all of Plaintiff Sergio Alverez’s claims and to stay this action.
Defendant FCA US LLC (Defendant FCA) also moves to compel arbitration of all of Plaintiff Sergio Alverez’s claims and to stay this action.
Dismissal of Defendant
On July 3, 2023, Plaintiff dismissed without prejudice “Defendant Premier Automotive Of Placentia LLC, entirely from action.” (ROA #54.)
Thus, the Motion to Compel Arbitration and Stay Action of Defendant Premier is moot and must be taken off calendar.
The court will address only the Motion to Compel Arbitration and Stay Action of Defendant FCA.
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
Defendant seeks to compel arbitration pursuant to the Arbitration Provision of the Retail Installment Sale Contract (RISC) entered into by Plaintiff on November 20, 2019. (See Decl. of Gurpreet Sandhu in Supp. of Def. FCA’s Mot. to Compel Arbitration and Stay Action (Sandhu Decl.), Exh. A at p. 2.)
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. A at p. 2.) 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, Defendant FCA attaches the RISC, which contains the Arbitration Provision, to the Declaration of Gurpreet Sandhu, FCA’s counsel. (See Sandhu Decl., Exh. A at p. 2.) The description of the vehicle and the Vehicle Identification Number (VIN) alleged in the Complaint matches the description of the vehicle and VIN identified in the RISC. (Compare Compl., ¶ 10, with Sandhu Decl., Exh. A at p. 1.) Plaintiff’s name is also listed in the RISC. (See Sandhu Decl., Exh. A at p. 1.)
The RISC provides in relevant part that:
1. EITHER YOU [PLAINTIFF] OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US 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 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.
(Sandhu Decl., Exh. A at p. 2.)
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 Defendant FCA is not a party to the RISC.
Rather, the RISC defines “we” and “us” as the seller of the vehicle, Defendant Premier, who has been dismissed from this lawsuit. (See Sandhu Decl., Exh. A at p. 1; ROA #54.) The Complaint alleges that Defendant FCA manufactured and provided warranties for the vehicle. (See Compl., ¶¶ 10-11.)
Compelling Arbitration Against Non-Signatory
Defendant FCA concedes that it is not a signatory to the RSIC, but argues 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.)
Defendant FCA contends that it may enforce the Arbitration Provision under the doctrine of equitable estoppel.
Standard for 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.)
Felisilda v. FCA US LLC
Defendant FCA argues 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.)
Ford Motor Warranty Cases and Montemayor v. Ford Motor Company
However, Plaintiff argues that Felisilda v. FCA US LLC is distinguishable and that this case is controlled by two cases recently decided by the 2nd District Court of Appeal.
In Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 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 or as a third party beneficiary. (See id. at pp. 1332-1339.)
The court in Ford Motor Warranty Cases 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 p. 1334, quoting Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 496.)
The 2nd District Court of Appeal reasoned that “[the p]laintiffs’ claims are based on [Ford’s] statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty . . . . Not one of the plaintiffs sued on any express contractual language in the sale contracts.” (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1335.)
Further, “[t]he 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.)
Last month, in Montemayor v. Ford Motor Company (June 26, 2023) 2023 WL 4181909, a different division of the 2nd District Court of Appeal was again faced with an arbitration provision that was identical to that in Felisilda v. FCA US LLC and Ford Motor Warranty Cases. (Id. at p. *5.)
The court in Montemayor v. Ford Motor Company “look[ed] to the facts alleged in the complaint to determine whether the [plaintiffs’] claims against Ford are dependent on and inextricably intertwined with the obligations imposed by the sales contract” and determined that “[t]hey are not.” (Id. at p. *7.) The 2nd District Court of Appeal instead found that “the [plaintiffs] allege as part of each cause of action against Ford at issue on appeal that Ford’s obligations arose out of its express written warranty, not the sales contract.” (Ibid.)
Montemayor v. Ford Motor Company acknowledged that “the [Plaintiffs] would not have sued Ford for the defective condition of the vehicle but for the sale of the vehicle by AutoNation pursuant to the sales contract [a]nd Ford provided an express warranty to the Montemayors as a result of the sale.” (Ibid.) However, that did not lead to the conclusion that “Ford’s obligation to provide a non-defective vehicle under its separate express warranty is in any way founded on an obligation imposed by the sales contract or is intertwined with those obligations.” (Ibid.)
Thus, the court in Montemayor v. Ford Motor Company concluded that “[w]e too decline to follow Felisilda and [instead] adopt the reasoning in Ford Warranty [Cases].” (Id. at *5.)
Application to This Case
The arbitration provision in this case is identical to that in Felisilda v. FCA US LLC, Ford Motor Warranty Cases, and Montemayor v. Ford Motor Company. And as in those cases, Defendant FCA is not a signatory to the RISC or the Arbitration Provision, and Plaintiff’s claims against Defendant FCA are not based on violations of the RISC but instead arise out of separate warranties that Defendant FCA provided to Plaintiff. (See Compl., ¶¶ 10-11, 14-15, 27-31, 33-36, 38-39, 41-44.)
Defendant FCA responds that Ford Motor Warranty Cases is “currently pending review by the Supreme Court and, thus, has no binding or precedential effect” and that Montemayor v. Ford Motor Company should not be relied upon because it “will likely be appealed.” (Reply at p. 1:5-9, 1:12.)
Defendant FCA is wrong on this point. The California Rules of Court state that “[a] published California opinion may be cited or relied on as soon as it is certified for publication or ordered published.” (Cal. Rules of Ct. rule 8.1115(d).) Both Ford Motor Warranty Cases and Montemayor v. Ford Motor Company have been certified for publication and ordered published and thus, may be cited and relied upon.
An opinion of the Court of Appeal is divested of binding or precedential effect where the Supreme Court has granted review of that decision. (See Cal. Rules of Ct. rule 8.1115(e)(1).) Defendant Ford Motor Company has sought review of Ford Motor Warranty Cases in the Supreme Court, but the Supreme Court has not granted review. And by Defendant FCA’s own admission, no petition for review has been filed in the Supreme Court with respect to Montemayor v. Ford Motor Company.
Defendant FCA also argues that Ford Motor Warranty Cases is distinguishable because in that case, the plaintiff did not sue the dealer signatory to the RISC and here, Plaintiff has sued the signatory dealer (Defendant Premier) in addition to the manufacturer (Defendant FCA). However, Plaintiff has dismissed the dealer. (See ROA #54.)
In any case, the plaintiffs in Montemayor v. Ford Motor Company sued both the signatory dealer and the manufacturer and the 2nd District Court of Appeal held that this made no difference. (Montemayor v. Ford Motor Company (June 26, 2023) 2023 WL 4181909, *8 [“[W]hether vehicle purchasers file suit against only the manufacturer, or the manufacturer and the car dealer, does not affect the analysis of whether a cause of action against the manufacturer may be compelled to arbitration.”].)
Finally, Defendant FCA argues that Felisilda v. FCA US LLC was correctly decided and Ford Motor Warranty Cases and Montemayor v. Ford Motor Company were not.
Where decisions of the Court of Appeal are in conflict with each other, the trial 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.”].)
Here, the court will follow Ford Motor Warranty Cases and Montemayor v. Ford Motor Company. The holding in those cases that the warranties that form the basis of Plaintiff’s lawsuit did not accompany the sale of the vehicle is sound and conforms with the allegations of the Complaint in this case. (See Compl., ¶¶ 10-11. 14-15.)
As in Ford Motor Warranty Cases and Ford Motor Warranty Cases and Montemayor v. Ford Motor Company, the Complaint here does not allege that the signatory to the RISC, Defendant Premier, provided any warranty to Plaintiff. In fact, the RISC explicitly provided that Defendant Premier 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 Sandhu Decl., Exh. A at p. 2.)
Thus, Plaintiff’s warranty and repair claims against the Defendant FCA are distinct from any claim Plaintiff could have against the seller, Defendant Premier. The crux of Plaintiff’s action is the alleged breach of Defendant FCA’s express warranties and alleged negligent repair, not any terms in the RISC.
In addition, this court agrees that, as a general matter, 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 and Montemayor v. Ford Motor Company. (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 the 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.