Judge: Nathan Vu, Case: 30-2023-01309099, Date: 2023-08-07 Tentative Ruling

Motion to Compel Arbitration

Defendant Hyundai Motor America’s Motion to Compel Arbitration and Stay Action is DENIED.

Defendant Hyundai Motor America shall file its responsive pleading to the Complaint within 15 days of this ruling. (See Code Civ. Proc., § 1281.7.)

Plaintiff Shahar Navon’s evidentiary objections to the Declaration of Nicole B. Croce in Support of Defendant Hyundai Motor America’s Motion to Compel Arbitration and Stay Action are OVERRULED. (See Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219 [“For purposes of a petition to compel arbitration, it is not necessary to follow the normal procedures of document authentication. . . . 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.”].)

Defendant Hyundai Motor America (Defendant Hyundai) moves to compel arbitration of all of Plaintiff Shahar Navon’s claims and to stay this action.

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 Hyundai seeks to compel arbitration pursuant to the terms of a Retail Install Sale Contract (RISC) entered into between Plaintiff and Keyes Hyundai of Van Nuys (Keyes Hyundai) on or about March 6, 2021, in which the subject arbitration provision (Arbitration Provision) appears. (See Decl. of Nicole B. Croce in Supp. of Def. Hyundai Motor America’s Mot. to Compel Arbitration and Stay Action (Croce Decl.), ¶ 2, Exh. A.)

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.” (See Croce Decl., Exh. A at p. 7.) 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 Hyundai attaches the RISC, which contains the Arbitration Provision, to the Declaration of Nicole B. Croce in Support of Defendant Hyundai Motor America’s Motion to Compel Arbitration and Stay Action. (See Croce Decl., Exh. A.) 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., ¶ 5 with Croce Decl., Exh. A at p. 1.) Plaintiff’s name is also listed in the RISC. (See Croce 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.

(Croce Decl., Exh. A at p. 7.) Thus, by its terms, the Arbitration Provision of the RISC is an agreement to arbitrate.

Compelling Arbitration Against Non-Signatory

However, Plaintiff argues that the Arbitration Provision is not an agreement to arbitrate between the parties because Defendant Hyundai is not a party to the RISC. Rather, the RISC defines “we” and “us” as the seller of the vehicle, Keyes Hyundai, who is not a party to this lawsuit. Defendant Hyundai, by contrast, is the manufacturer of the vehicle and provided the warranties for the vehicle. (See Compl., ¶¶ 5, 7.)

Defendant Hyundai does not contest this assertion and instead argues that non-signatories may compel arbitration under certain circumstances which are found here.

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 Hyundai contends that it may enforce the Arbitration Provision under the doctrine of equitable estoppel.

Standard for Equitable Estoppel

The doctrine of equitable estoppel allows ”a nonsignatory defendant [to] 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.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271, quoting McBro Planning & Development Co. v. Triangle Elec. Constr. Co., Inc. (11th Cir. 1984) 741 F.2d 342, 344.)

As the Court of Appeal has explained: “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.” (Boucher v. Alliance Title Co., Inc., supra, 127 Cal.App.4th at p. 272.)

“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.) 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. (Id. at pp. 229-230.)

Felisilda v. FCA US LLC

Defendant Hyundai 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 Consumer Warranty Act, Civil Code § 1790, et seq. (See 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

In response, Plaintiff points to two more recent opinions from the Court of Appeal that disagreed with Felisilda v. FCA US LLC.

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, review granted in Ford Motor Warranty Cases, (July 19, 2023) 2023 WL 4630837).)

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 reviewed an arbitration provision that was identical to the ones 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 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.)

Applying the Precedent

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. Further, as in those cases, the manufacturer, Defendant Hyundai, is not a signatory to the RISC or the Arbitration Provision. Finally, Plaintiff’s claims against Defendant Hyundai are not based on violations of the RISC but instead arise out of separate warranties that Defendant Hyundai provided to Plaintiff. (See Compl., ¶¶ 8-10.)

Defendant Hyundai argues that the Supreme Court granted review of Ford Motor Warranty Cases, (see Ford Motor Warranty Cases, (July 19, 2023) 2023 WL 4630837), and therefore the precedential value of that case is “diminished”.

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.

As the Supreme Court explained when it granted review:

Pending review, the opinion of the Court of Appeal, which is currently published at 89 Cal.App.5th 1324, 306 Cal.Rptr.3d 611, may be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, 20 Cal.Rptr. 321, 369 P.2d 937, to choose between sides of any such conflict.

(Ford Motor Warranty Cases, (July 19, 2023) 2023 WL 4630837.)

The Supreme Court was referring to the doctrine that, 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.”].)

Thus, while it is true Ford Motor Warranty Cases and Montemayor v. Ford Motor Company are persuasive and not binding, the same can be said of Felisilda v. FCA US LLC. The Supreme Court’s grant of review in Ford Motor Warranty Cases does not make it any less persuasive than Felisilda v. FCA US LLC.

Defendant Hyundai also argues that Felisilda v. FCA US LLC was correctly decided and Ford Motor Warranty Cases and Montemayor v. Ford Motor Company were not.

However, the court finds that the holdings in Ford Motor Warranty Cases and Montemayor v. Ford Motor Company – that claims that the defendant violated the manufacturer warranties were not founded on or intertwined with the sales contracts – correctly applies the principles of equitable estoppel.

As a general matter, claims involving breach of a written warranty provided by a manufacturer are not founded in or so inextricably intertwined with the obligations contained in the sales 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.”].)

This holding applies with even more force given the allegations of the Complaint. (See Compl., ¶¶ 5, 7, 8-10.) Plaintiff’s first cause of action against Defendant Hyundai is based on allegations of “an express warranty” that was “appended to the VEHICLE” and was provided by Defendant Hyundai. (Compl., ¶¶ 5, 7.) The Complaint does not allege that the signatory to the RISC, Keyes Hyundai, provided any express warranty to Plaintiff.

To the contrary, the RISC distinguishes manufacturer warranties from those of the dealer/seller. The RISC explicitly states that Defendant Riverside is not providing any warranty and that any warranty from the vehicle manufacturer is 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 Croce Decl., Exh. A at p. 5.)

In this case, the crux of Plaintiff’s action is the alleged breach of Defendant Hyundai’s express warranties and alleged failure to repair the subject vehicle. Thus, Plaintiff’s warranty and repair claims against Defendant Hyundai are distinct from any claims that could arise from the RISC.

In fact, there is nothing in the Complaint that alleges that any provision of the RISC was violated. Therefore, the claims against Defendant Hyundai are not “founded on or intimately connected” with the RISC. (See Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1334 [equitable estoppel does not apply because “manufacturer 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”].)

It is true that the causes of action against Defendant Hyundai can be connected to the RISC and the Arbitration Provision, but the relationship is attenuated. Plaintiff’s claims are based on the Song-Beverly Act, which applies because the manufacturer made express warranties that covered the vehicle, which the manufacturer provided in order to induce Plaintiff to purchase the vehicle, which transaction is embodied in the RISC, which contained the Arbitration Provision.

It is possible to connect nearly any claim to an arbitration provision if enough intervening steps may be taken. However, that does not mean that the claim is “intimately founded in” and “inextricably bounded up” with the agreement containing the arbitration provision.

The 2nd Cause of Action alleges that Defendant Hyundai breached the implied warranty of merchantability. The implied warranty of merchantability arises out of Civil Code section 1792, which is a part of the Song-Beverly Act. Thus, the implied warranty claim is no more founded on or inextricably intertwined with the RISC than the express warranty claims.

Finally, the 3rd Cause of Action alleges a breach of Civil Code section 1793.2 when Defendant Hyundai failed to complete repairs within 30 days. Section 1793.2 is also a part of the Song-Beverly Act and is not related to the RISC.

A recent Ninth Circuit decision, Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, although not binding, supports the 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.”].)

Stay Pursuant to Civil Procedure Code Section 1281.4

Defendant Hyundai also argues that the court should stay these proceedings to allow the Supreme Court to decide Ford Motor Warranty Cases and provide further guidance, pursuant to Civil Procedure Code section 1281.4.

That provision provides:

If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.

If an application has been made to a court of competent jurisdiction, whether in this State or not, for an order to arbitrate a controversy which is an issue involved in an action or proceeding pending before a court of this State and such application is undetermined, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until the application for an order to arbitrate is determined and, if arbitration of such controversy is ordered, until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.

(Code Civ. Proc., § 1281.4.)

However, as stated above, the Federal Arbitration Act, and not the California Arbitration Act, controls here. Thus, Civil Procedure Code section 1281.4 may not apply to this case at all. (See Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1114-1115, 1122 [Civil Procedure Code section 1281.2 does not apply where arbitration agreement is controlled by Federal Arbitration Act].)

But even if Section 1281.4 applied to this case, it does not grant the court the power to stay these proceedings pending the Supreme Court’s decision in Ford Motor Warranty Cases. The Court of Appeal recently held that “section 1281.4 authorizes a stay only if a court has ordered arbitration of a question between the parties to an agreement, and the same question and the same parties are involved in the pending action.” (Leenay v. Superior Court (2022) 81 Cal.App.5th 553, 555-556.)

Here, this court has not ordered any arbitration, nor is there any application for arbitration pending, involving a question between Plaintiff and Defendant Hyundai. And the court does not have the authority under Section 1281.4 to grant a stay simply because a similar issue was ordered to be arbitrated in another case between other parties.

Plaintiff shall give notice of this ruling.