Judge Ralph C. Hofer, Case 22GDCV00063 2022-07-29 Tentative Ruling

Parties to the agreement are not parties to an action with a third party arising out of the same transaction, occurrence, or event with the possibility of conflicting rulings on a common issue of law or fact (CCP §1281.2(c))* [but does not apply to arbitration of professional negligence of health care providers made pursuant to CCP §1295): Not mentioned

Plaintiff Gary Adamson alleges that in March of 2021, plaintiff purchased a 2019 Nissan Titan vehicle from Glendale Nissan in Glendale, California, which vehicle was manufactured by defendant Nissan North America, Inc. Plaintiff alleges that upon plaintiff’s purchase of the new motor vehicle, defendant issued an express warranty, undertaking to preserve or maintain the utility or performance of the subject vehicle.

Plaintiff alleges that since purchasing the subject vehicle, plaintiff has delivered the vehicle for repair to defendant or its authorized repair facilities no less than ten times for repair of non-conformity to the warranty, and that on each occasion the subject vehicle was returned to plaintiff without properly repairing the non-conformities.

Plaintiff alleges that the defects and nonconformities include transmission malfunction, engine malfunction, electrical malfunction, fender malfunction, the transmission getting stuck in gears, the radio failing to operate, no sound or visuals from the radio, the radio turning black, static from the speakers, the brake pedals sinking in, the vehicle failing to accelerate and/or hesitating, a rattle, clacking, and/or knocking noise while driving, the air conditioner failing to blow cold air, the heater failing to blow hot air, the temperature sensor failing to operate, a whining noise from the air conditioner, sudden bursts of air from the air conditioner, and the kickpanel separating.

Plaintiff alleges that defendant or its authorized repair facilities have failed to service or repair the subject vehicle to warranty after a reasonable number of attempts, begin repairs within a reasonable time, or complete repairs within thirty days to conform to the applicable warranties.

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

There is a strong public policy in favor of arbitration of disputes and any doubts concerning the scope of arbitrable disputes should be resolved in favor of arbitration. Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 (“courts will ‘indulge every intendment to give effect to such proceedings.’”) (quotation omitted). “[A]rbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question.” Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189, quoting Weeks v. Crow (1980) 113 Cal.App.3d 350, 353. See also AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 339.

In this case, defendant has provided a copy of a written arbitration agreement included in a Retail Installment Sale Contract (“Purchase Agreement”) between plaintiff Gary Adamson and Glendale Nissan. [Critchlow Decl., Ex. A]. Plaintiff in opposition submits the same document. [Diamse Decl., Ex. 2].

Any claim or dispute, whether in contract, tort, statute or otherwise (including the 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….”

Defendant Nissan North America (“Nissan”) argues that this agreement constitutes a valid arbitration agreement, and that although Nissan was not a signatory to the Sale Contract, it is entitled to enforce the arbitration clause because defendant is incorporated by reference into the arbitration provision and is an intended third-party beneficiary of the arbitration provision. Defendant also argues that the doctrine of equitable estoppel must also apply to require arbitration of the instant lawsuit.

In Boucher v. Alliance Title Co. (2005) 127 Cal.App.4th 262, the Second District reversed the trial court’s denial of a petition to compel arbitration in the employment context, noting that with respect to non-signatories to an arbitration agreement, the federal courts have developed five exceptions where such a non-signatory may also compel compliance with an arbitration agreement:

“The federal courts have identified five theories pursuant to which an arbitration clause can be enforced by or against a nonsignatory. (E.g., Bel-Ray Co., Inc. v. Chemrite (Pty) Ltd. (3d Cir. 1999) 181 F.3d 435, 445–446; Thomson-CSF, S.A. v. American Arbitration Assn. (2d Cir. 1995) 64 F.3d 773, 776.) These are “limited exceptions” to the general rule under the United States Arbitration Act that arbitration is a contractual right available only to signatories to the agreement. ( MS Dealer Service Corp. v. Franklin (11th Cir. 1999) 177 F.3d 942, 947 (MS Dealer); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc. (11th Cir. 1993) 10 F.3d 753, 757 (Sunkist).) The five theories are, as described by the Second Circuit Court of Appeals: “1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.” ( Thomson-CSF, S.A. v. American Arbitration Assn., supra, 64 F.3d at p. 776; see also MS Dealer, supra, 177 F.3d at p. 947 [agency and related principles; third party beneficiary].) Here, defendant relies only on equitable estoppel principles.”

In Boucher, the Second District found that a non-signatory defendant could invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims “when the causes of action against the non-signatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” Boucher, at 272.

“Equitable estoppel precludes a party from asserting rights 'he otherwise would have had against another' when his own conduct renders assertion of those rights contrary to equity." (Schwabedissen, supra, 206 F.3d at pp. 417–418.) In the arbitration context, a party who has not signed a contract containing an arbitration clause may nonetheless be compelled to arbitrate when he seeks enforcement of other provisions of the same contract that benefit him. (Id. at p. 418; NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 81 [100 Cal. Rptr. 2d 683] (NORCAL).)

Defendant argues it can compel plaintiff to arbitrate his claims based on equitable estoppel, based on recent binding authority involving similar facts and an arbitration provision nearly identical to that presented here. In Felisilda v. FCA US LLC (2000) 53 Cal.App.5th 486, the court of appeal found that the trial court had not erred in granting a motion to compel arbitration of a Song-Beverly Act claim which plaintiffs had filed against both the dealer who had sold them the subject vehicle and the vehicle manufacturer who had undertaken express warranties concerning the utility and performance of the vehicle. The court of appeal found that the arbitration provision in that case supported the trial court’s order despite plaintiffs’ argument that the manufacturer was not a signatory to the sales contract.

The sales contract in that case included language similar to the language in the Sale Contract in this case, including the language that arbitration would apply to any claim or dispute “which arises out of or relates to… any resulting transaction or relationship,” the language referring to a claim arising out of or relating to the “condition of this vehicle,” as well as a parenthetical following the word “relationship,” which, as here, also read, “(including any such relationship with third parties who do not sign this contract.)”

“Based on language in the sales contract and the nature of the Felisildas’ 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 the condition of the vehicle.”

The court of appeal concluded that this language and the express mention of third-party non-signatories in the arbitration provision supported the trial court’s order. Similarly, here, the claim against Nissan relates directly to the “condition” of the vehicle, as expressly covered in the agreement.

Defendant argues that the instant case presents a situation where plaintiff expressly agreed that any claim arising out of the purchase or condition of the vehicle would be arbitrated, and that the claims are also inextricably intertwined with the Sale Contract, as plaintiff alleges that “Defendant’s express warranty was integral to Plaintiff’s purchase of the Subject Vehicle.” [See Complaint, para. 10]. Defendant also argues that to even have standing to bring a Song-Beverly Act, the consumer must buy or lease a new motor vehicle. See Civil Code section 1791. The Complaint, at paragraph 6, alleges:

“The Subject Vehicle is a new motor vehicle that was purchased primarily for personal, family, or household purposes or it is a new motor vehicle with a gross vehicle weight under 10,000 pounds that was purchased or used primarily for business purposes by an entity to which not more than five motor vehicles are registered in this state. The Subject Vehicle is a “new motor vehicle” under the Act.”

The express and particularly the “implied” warranties alleged by plaintiff seem to be under the authorities properly considered a term of the Sale Contract. [Complaint, paras. 15, 16]. Defendant also points out that the remedies plaintiff seeks here include entitlement to reimbursement or refund of the purchase price of the vehicle, restitution, which would necessarily require examination of the Sale Contract. [Complaint, paras. 18, 19; Prayer, para. 3].

“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.

We reject the Felisildas’ reliance on Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122 (Kramer). In Kramer, purchasers of Toyota vehicles agreed to arbitrate between themselves and dealerships. (Id. at p. 1128.) The retail sales contracts in Kramer did not contain any language that could be construed as extending the scope of arbitration to third parties. (Ibid.) By contrast, the arbitration provision in this case provides for arbitration of disputes that include third parties so long as the dispute pertains to the condition of the vehicle. As the operative complaint makes clear, the Felisildas’ claim arises out of the condition of the vehicle.

Plaintiff in opposition argues that plaintiff’s claims here arise out of defendant’s breach of the separate warranty agreement, and that plaintiff does not rely on the Sale Contract or allege a violation of any duty, obligation, term, or condition imposed by it, but does not mention the Sale Contract or allege any wrongdoing by Glendale Nissan.

Plaintiff relies on Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, distinguished in Felisilda, above, in which the Ninth Circuit affirmed an order of the District Court which had denied a motion to compel arbitration in a class action by car owners which alleged that corporate manufacturers of the vehicles had notice of a defect in the anti-lock braking system of the subject vehicles, but failed to disclose the defects and continued to manufacture and sell vehicles with the defective systems.

Plaintiffs in Kramer had purchased their vehicles on credit by entering into a Retail Installment Sales Contract or Purchase Agreement with a dealership, which included an arbitration provision. Plaintiffs asserted claims for violation of the Consumer Legal Remedies Act, unfair competition, false advertising, breach of implied warranty of merchantability, and common law breach of contract. The manufacturer, Toyota, which was not a signatory to the Agreements with the dealerships, moved to compel arbitration.

“If either you or we elect, any claims or disputes arising out of this transaction, or relating to it, will be determined by binding arbitration and not by court action. This includes all claims and disputes arising out of, or relating to: the vehicle, your credit application, this contract, the sale or financing of the vehicle, and any collection activities.

The arbitration agreement in the Kramer case did not include reference to the “condition” of the vehicle, as is the case here, or expressly mention the intent to extend the arbitration agreement to those with which relationships resulted, “including any such relationship with third parties who do not sign this contract,” making the provision here distinguishable from Kramer, and providing the express intent to arbitrate claims with the manufacturer concerning the condition of the vehicle which was absent in Kramer.

Plaintiff argues that numerous courts have rejected defendant’s attempts to assert equitable estoppel under the circumstances presented here, in reliance primarily on federal district cases which are not published California court of appeal precedent. Plaintiff argues that Felisilda represents a dramatic departure from appellate case law and should be rejected as aberrant. However, this trial court does not have the authority to reject binding published court of appeal case law as aberrant and reject such authority on this ground. It accordingly is clear that under Felisilda, and the showing submitted by defendant, plaintiff is bound by the arbitration agreement pursuant to principles of equitable estoppel, as the complaint concerns the “condition” of the vehicle.

With respect to the argument that defendant Nissan would qualify as a third-party beneficiary, under Civil Code § 1559, “A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.”

Generally, to claim entitlement to enforcement as a third-party beneficiary "an intent to make the obligation inure to the benefit of the third party must have been clearly manifested by the contracting parties." Shutes v. Cheney (1954) 123 Cal.App.2d 256, 262.

Defendant argues that intended third party beneficiaries include those falling within the class of persons or entities for whom the arbitration provision was intended. See Boston Telecommunications Group, Inc. v. Deloitte Touche Tohmatsu (N.D. Cal. 2003) 278 F.Supp. 2d 1041, 1048; Sherer v. Green Tree Servicing, LLC (5th Cir. 2016) 548 F.3d 379, 382 (holding language agreeing to arbitrate any claims arising from “the relationships which result from the agreement” sufficiently broad to permit non-signatory third party to compel arbitration).

Again, as discussed above, this is the type of language which, in contrast to the facts reviewed in Kramer, is language suggesting the manufacturer is an intended beneficiary, based on the express language and breadth of the subject arbitration provision. Defendant is entitled to compel the matter to arbitration on either of these theories. The motion accordingly is granted.

Defendant argues that the arbitrability determination in any case should be made by the arbitrator. However, the Second District in Benaroya v. Willis (2018) 23 Cal.App.5th 462, found that the trial court had improperly confirmed an arbitration award, holding that only the court and not the arbitrator had authority to determine whether a non-signatory to an arbitration could be compelled to arbitrate. Benaroya, at 810. The Second District in Benaroya held, “The question of whether a nonsignatory is a party to an arbitration agreement is one for the trial court in the first instance.” Benaroya, at 469, quoting American Builder's Assn. v. Au-Yang (1990, 2nd Dist.) 226 Cal.App.3d 170, 179.

To successfully establish unconscionability, a party must show that an arbitration agreement was both procedurally and substantively unconscionable. Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114. It is the burden of the party attempting to establish the unconscionability of an arbitration agreement to introduce sufficient evidence to establish unconscionability. Arguelles-Romero v. Superior Court (2010, 2nd Dist.) 184 Cal.App.4th 825, 843.

“We explained the judicially created doctrine of unconscionability in Scissor-Tail, supra, 28 Cal.3d 807. Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. (Id. at pp. 817-819.) “The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694 [10 Cal.Rptr. 781].) If the contract is adhesive, the court must then determine whether “other factors are present which, under established legal rules-legislative or judicial-operate to render it [unenforceable].” (Scissor-Tail, supra, 28 Cal.3d at p. 820, fn. omitted.)”

“As explained in A & M Produce Co., supra, 135 Cal.App.3d 473, “unconscionability has both a 'procedural' and a 'substantive' element,” the former focusing on “ 'oppression' ” or “ 'surprise' ” due to unequal bargaining power, the latter on “ 'overly harsh' ” or “ 'one-sided' ” results. (Id. at pp. 486-487.) “The prevailing view is that [procedural 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.” (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1533 (Stirlen).) But they need not be present in the same degree. “Essentially a sliding scale is invoked 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.” (15 Williston on Contracts (3d ed. 1972) § 1763A, pp. 226-227; see also A & M Produce Co., supra, 135 Cal.App.3d at p. 487.) In other words, 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.”

Plaintiff argues that the Sale Contract here, and the arbitration agreement, were a contract of adhesion, imposed and drafted by the party of superior bargaining strength, and with plaintiff only given the opportunity to adhere to the contract or reject it. Plaintiff relies on a declaration from plaintiff’s counsel, in which counsel states:

“4. After negotiating the price of the vehicle with Glendale Nissan, Plaintiff was presented with a preprinted Retail Installment Sale Contract (‘RISC’) on a ‘take-it-or-leave-it’ basis and was not given any opportunity to negotiate the specific terms of the agreement.

There are no facts included in the declaration of counsel indicating how counsel would have personal knowledge of the facts concerning plaintiff entering into the Sale Contract, so the declaration in this regard lacks foundation and is based on inadmissible hearsay. Plaintiff has not submitted a declaration from plaintiff setting forth any facts concerning the circumstances under which the contract was formed. There is no representation, admissible or not, that plaintiff inquired whether plaintiff was required to accept the arbitration provision or could strike it from the agreement. The declaration concedes that the price of the vehicle was subject to negotiation and does not foreclose the possibility of negotiation of other terms.

In addition, it is recognized outside the employment context that the party arguing that an arbitration provision is unconscionable must produce evidence of the parties bargaining power and circumstances surrounding the execution of the agreement to show that transaction is tainted with surprise or oppression. Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1162, 1164-1166.

As noted above, the Second District recognizes it is the burden of a party attempting to avoid an agreement as unconscionable to introduce sufficient evidence to establish unconscionability. Arguelles-Romero, at 843. Plaintiff has failed to introduce admissible evidence to establish any procedural unconscionability in connection with the subject agreement. Again, to establish unconscionability, both procedural and substantive unconscionability must be shown. Armendariz, at 114. Without any evidence here of facts giving rise to procedural unconscionability, the motion is not denied on this ground.

The Court finds that defendant Nissan North America, Inc. has sufficiently established that an agreement to arbitrate the current controversy exist, that there is no showing that there has been any waiver of the right to compel arbitration, and no showing that the agreement has been rescinded or that grounds exist for rescission of the agreement.

The Court finds that the arbitration agreement provided in the Retail Installment Sale Contract expressly authorizes the pursuit of arbitration in these circumstances, arising from a claim or dispute in statute which arises out of or relates to the condition of this vehicle, and a resulting relationship pursuant to warranty with a third party who did not sign the contract. The express language, as well as third party beneficiary analysis, supports the entitlement of moving defendant to enforce the arbitration provision.

Please make arrangement in advance if you wish to appear via LACourtConnect/Microsoft Teams by visiting www.lacourt.org to schedule a remote appearance. Please note that LACourtConnect/Microsoft Teams offers free audio and video appearance. Counsel and parties (including self-represented litigants) are encouraged not to personally appear. With respect to the wearing of face masks, Department D recognizes that currently, the Los Angeles Department of Public Health strongly recommends masks indoors, especially when interacting with individuals whose vaccination status is unknown; for individuals who have a health condition that puts them at higher risk for severe illness; individuals who live with someone who is at higher risk; and for individuals who are around children who are not yet eligible for vaccines. In accordance with this guidance, it is strongly recommended that anyone personally appearing in Department D wear a face mask. The Department D Judge and court staff will continue to wear face masks. If no appearance is set up through LACourtConnect/Microsoft Teams, or otherwise, then the Court will assume the parties are submitting on the tentative.