Judge Peter A. Hernandez, Case 22PSCV01092 2023-05-23 Tentative Ruling

Defendant American Honda Motor Co., Inc.’s Motion to Compel Arbitration and Stay Proceedings is DENIED.

On March 24, 2022, Plaintiff purchased a 2021 Honda Accord, VIN No. HGCV1F19MA071607 (“subject vehicle”). Plaintiff alleges that the subject vehicle suffers from various defects and that the subject vehicle has not been repaired after a reasonable number of attempts.

On September 21, 2022, Plaintiff filed a complaint, asserting causes of action against Defendant American Honda Motor Company, Inc. (“Defendant”) and Does 1-50 for:

5. Breach of the Implied Warranty of Merchantability (Civil Code § 1791.1; § 1794)

A proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Freeman v. State Farm Mutual Auto Insurance Co. (1975) 14 Cal.3d 473, 479.) Such enforcement may be sought by a party to the arbitration agreement. (Code Civ. Proc., § 1281.2.)

The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761.) The burden then shifts to the opposing party to prove by a preponderance of the evidence a defense to enforcement (e.g., fraud, unconscionability, etc.) (Id.) “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.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.)

Defendant moves the court for an order compelling Plaintiff’s claims to binding arbitration and staying the proceedings pending the outcome of the arbitration.

The court rules on Defendant’s Request for Judicial Notice as follows: Granted as to Exhibit 1 (i.e., complaint filed September 21, 2022 in this action) and Denied as to Exhibit 2 (i.e., “Notice of Entry of Dismissal and Proof of Service” filed February 11, 2016 in case styled Felisilda v. FCA US LLC, et al., Case No. 34-2015-00183668).

Defendant seeks to compel arbitration of Plaintiff’s claim pursuant to an arbitration clause set forth in a Retail Installment Sales Contract (“RISC”). (Shapiro Decl., ¶ 2, Exh. 1.) The arbitration clause here states, in relevant part, that “[e]ither you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.” The RISC defines “You” as “the Buyer” and “We” or “Us” as “the Seller – Creditor.” The RISC further identifies the Buyer as “Patricia Renteria Jimenez” and the Seller as “Car Pros Honda El Monte.” Plaintiff and Car Pros Honda El Monte signed the RISC as Buyer and Seller, respectively. Defendant is not a signatory to any part of the RISC, including the arbitration clause.

“Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it.” (Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759, 763.) However, “there are six theories by which a nonsignatory may be bound to arbitrate: (a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary.” (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 300 [quotation marks and citation omitted].)

At the outset, the court first addresses Defendant’s claim that the arbitrator should decide the arbitrability of this dispute. “Normally, the court decides the scope and validity of an arbitration agreement, including whether it is unconscionable. When the parties ‘clearly and unmistakably’ delegate issues of arbitrability to the arbitrator, the arbitrator, not the court, decides such issues as the scope of the arbitration agreement.” (Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 709 [citations omitted].) Arbitrability, however, is not the issue here; rather, Plaintiff is contending that Defendant—who is a nonsignatory of the RISC—has no standing to compel Plaintiff to arbitration. “To presume arbitrability without first establishing, independently, consent to arbitration is to place the proverbial cart before the horse.” (Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 252.)

Thus, “notwithstanding an arbitrator’s broad authority to resolve questions presented by a controversy, an arbitrator has no power to determine the rights and obligations of one who is not a party to the arbitration agreement. The question of whether a nonsignatory is a party to an arbitration agreement is one for the trial court in the first instance.” (American Builder’s Assn v. Au-Yang (1990) 226 Cal.App.3d 170, 179.)

The court, then, will proceed to address the two exceptions to the non-signatory rule Defendant claims applies here, i.e., equitable estoppel and third-party beneficiary.

Defendant next claims that, even though it is not a signatory to the RISC, it may nevertheless compel binding arbitration of Plaintiff’s claims pursuant to the doctrine of equitable estoppel.

Under that doctrine, “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.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237 [quotation marks omitted].)

Defendant argues that equitable estoppel applies pursuant to Felisilda v. FCA US LLC (2020) 53 Cal.App.5^th 486, 496.) Felisilda, supra, 53 Cal.App.5th 486. In Felisilda, Plaintiffs sued both the dealership, Elk Grove Dodge (“EGD”), and the FCA for violation of the Song-Beverly Act. EGD moved to compel the entire matter into arbitration, including FCA, even though FCA was not a signatory to the RISC. The trial court granted the motion. Plaintiffs subsequently dismissed EGD and Plaintiffs and FCA arbitrated the matter. The arbitrator found Plaintiffs did not meet their burden of proof to show their vehicle qualified as a “lemon” or that FCA had any responsibility under the Song-Beverly Act to repurchase or repair the vehicle. The trial court entered an order for judgment and judgment confirming the arbitrator’s decision. Plaintiffs thereafter appealed, arguing in part that the trial court erred in ordering them to arbitrate their claim against FCA because FCA was a nonsignatory to the RISC that contained the arbitration agreement. The appellate court, however, held that the trial court correctly determined that the doctrine of equitable estoppel applied:

claim against FCA, we conclude the trial court correctly ordered that the entire

matter be submitted to arbitration. In signing the sales contract, the Felisildas

agreed that ‘[a]ny claim or dispute, whether in contract, tort, statute or otherwise ...

between you and us ... which arises out of or relates to ... [the] condition of this

vehicle ... shall ... be resolved by neutral, binding arbitration and not by a court

action.’ (Italics added.) Here, the Felisildas’ claim against FCA relates directly to

In their complaint, the Felisildas alleged that ‘express warranties accompanied

maintain the utility or performance of [their] vehicle or provide compensation if

there was a failure in such utility or performance.’ Thus, the sales contract was the

‘delivered the vehicle to an authorized FCA ... repair facility for repair of the nonconformities.’ However, ‘FCA ... has failed to either promptly replace the new

motor vehicle or promptly make restitution in accordance with the Song-Beverly Consumer Warranty Act.

The Felisildas’ claim against FCA directly relates to the condition of the vehicle

that they allege to have violated warranties they received as a consequence of the

sales contract. Because the Felisildas expressly agreed to arbitrate claims arising

out of the condition of the vehicle – even against third party nonsignatories to the

sales contract – they are estopped from refusing to arbitrate their claim against FCA. Consequently, the trial court properly ordered the Felisildas to arbitrate their claim against FCA.

Defendant argues that the arbitration provision here[1] and in Felisilda are materially the same and that Plaintiff’s causes of action here are, as per Felisilda, inextricably intertwined with the RISC because they are based on the condition of the vehicle he acquired through the RISC.

Plaintiff, in turn, argues that Felisilda is not controlling authority where, as here, Plaintiff has only sued a nonsignatory manufacturer, rather than a nonsignatory manufacturer and a signatory dealership. Plaintiff further asserts that Felisilda is distinguishable because plaintiffs’ complaint there consisted of a single cause of action against both the manufacturer and the dealership, which was significant to the court’s finding that plaintiffs’ claims against the manufacturer there were “inextricably intertwined” with their claims against the dealership. Both points are well taken.

Plaintiff further notes that the Second District Court of Appeal in Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (“Ochoa”) recently declined to follow Felisilda; in doing so, the court determined, inter alia, that (1) the Felisilda plaintiffs were not equitably estopped from asserting that the manufacturer had no right to demand arbitration just because they and the dealer had agreed in their sales contract to arbitrate disputes between them about the condition of the vehicle; that (2) the Felisilda plaintiffs’ breach of warranty claims against the manufacturer were not based on their sales contracts with the sealers; (3) 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 and that (4) the language in the sale contract in Felisilda (i.e., reading that “[a]ny claim or dispute, whether in contract, tort, statute or otherwise ..., between you and us or our employees, agents, successors or assigns, which arises out of or relates to ... purchase or condition of this vehicle, the cont[r]act 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 ....”) did not constitute consent by the purchaser to arbitrate claims with third party signatories but was “a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate. (Id. at 619-620). The court noted that the sales contracts before them “disclaim[ed] any warranty on the part of the dealers, while acknowledging no effect on ‘any warranties covering the vehicle that the vehicle manufacturer may provide” and “[i]n short,” “relate[s] to sale and financing and nothing more.” (Id. at 620).

The RISC at hand contains a provision entitled “WARRANTIES SELLER DISCLAIMS,” which provides as follows: “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.” (Shapiro Decl., ¶ 2, Exh. 1.) The RISC, then, differentiates between warranties provided by the signatory dealership versus warranties from Defendant.

The court determines that Ochoa applies here. Further, “[a]s a practical matter, a superior court ordinarily will follow an appellate opinion emanating from its own district. . .” (McCallum v. McCallum (1987) 190 Cal.App.3d 308, 315, fn. 4). The court, then, determines that Defendant has failed to meet its burden of demonstrating that the doctrine of equitable estoppel applies.

Defendant finally claims that it may compel binding arbitration of Plaintiff’s claims as a nonsignatory to the RISC because it is a third-party beneficiary. To enforce a contract, a third party must show the following: (1) the third party would in fact benefit from the contract; (2) the contracting parties’ motivating purpose was to benefit the third party and (3) it would be “consistent with the objectives of the contract and the reasonable expectations of the contracting parties” to permit the third party to enforce the contract. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

In Ochoa, the court determined that the manufacturer was not a third-party beneficiary of the sales contracts because there was no basis to conclude that the plaintiffs and their dealers entered into them with the intention of benefitting the manufacturer; in doing so, the court noted that (1) “nothing in the sales contracts or their arbitration provision offer[ed] any direct ‘benefit’ to [manufacturer],” (2) there was “no indication that a benefit to [manufacturer] was the signatories ‘motivating purpose’ in contracting for the sale and purchase of a Ford vehicle” and that (3) “allowing FMC to enforce the arbitration provision as a third party beneficiary would be inconsistent with the ‘reasonable expectations of the contracting parties’ where they twice specifically vested the right of enforcement in the purchaser and the dealer only” (Ochoa, supra, 89 Cal.App.5^th at 623-624). Again, the court determines that Ochoa is controlling here.

The court determines that Defendant has failed to meet its burden of demonstrating that it is a third-party beneficiary entitled to compel binding arbitration.

The court determines that Defendant has failed to meet its burden of demonstrating the existence of an arbitration agreement between it and Plaintiff. The court’s tentative then is to deny the motion. However, a Petition for Review of the Ochoa decision was filed with the California Supreme Court on May 12, 2023. The court will hear from the parties to see if a stay is warranted pending the determination of the Petition.

[1] The arbitration provision here provides, in relevant part, that “[a]ny claim or dispute, whether in contract, tort, statute or otherwise. . . between you and us or our employees, agents, successors or assigns, which arises out of or relates to . . . [the] condition of this vehicle, this contract or any resulting transaction or relationship (including any such 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. . .” (Shapiro Decl., ¶ 2, Exh. 1.)