Judge Ralph C. Hofer, Case 22GDCV00461 2023-04-21 Tentative Ruling

Plaintiffs Riad Ibrahim and Kloud Chahin allege that in August of 2018, plaintiffs purchased a new 2018 Nissan Versa vehicle. Plaintiffs allege that they entered into an express written contract, a warranty, with defendant Nissan North America, Inc. (Nissan), by which Nissan undertook to preserve or maintain the utility or performance of the vehicle or provide compensation if there was a failure in such utility or performance.

Plaintiffs allege that defects and nonconformities to warranty manifested themselves within the applicable express warranty period, including a defective continuously variable transmission (CVT), which causes consumers to experience unusual noises, stalling, premature transmission failure, hesitation from a stop before acceleration, sudden hard shaking during deceleration, jerking during acceleration, and other drivability concerns which impede the driver’s safety and prevent a CVT equipped vehicle from operating as intended by the driver, leading to serious safety risks. Plaintiffs allege that the nonconformities impair the use, value and/or safety of the vehicle.

The complaint alleges that plaintiffs delivered the vehicle to an authorized Nissan repair facility for repair of the nonconformities, but that defendant was unable to conform the vehicle to the applicable express warranty after a reasonable number of repair attempts.

It is also alleged that since October of 2012, Nissan was aware that the CVT installed in the vehicles was defective and would manifest the symptoms described above, that the CVTs were prematurely failing, requiring repeated repair or replacement, and that Nissan had no fix for the rampant problems, but continued to sell, lease and market the CVT-equipped vehicles, and failed to disclose the defect to consumers. Plaintiffs allege that they would not have purchased the vehicle, or paid significantly less for it, had they known of the CVT transmission defect and the safety hazard it creates.

Plaintiffs also allege that they delivered the vehicle to defendant K Motors SJC, LLC dba Glendale Nissan (Glendale Nissan) for repair on numerous occasions, and that defendant Glendale Nissan breached its duty to plaintiffs to use ordinary care and skill by failing to properly store, prepare and repair the vehicle in accordance with industry standards, proximately causing plaintiffs damages.

Defendant Nissan brings this motion seeking an order compelling plaintiffs to arbitrate this matter. Defendant Glendale Nissan is not identified as a moving party in the Notice of Motion, but the memorandum indicates that “Defendants move to compel arbitration…” [Memorandum, p. 1:8-9]. The opposition has not objected to the sufficiency of the notice with respect to defendant Glendale Nissan.

“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:

Generally, 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). However, as pointed out in the opposition, arbitration is “strictly a matter of consent.” Granite Rock Co. v. International Broth. of Teamsters (2010) 561 U.S. 287, 299, quotation omitted; Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 252; Civil Code section 1648 (a contract “extends only to those things concerning which it appears that the parties intended to contract.”) Accordingly, “[t]he strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement.” Comedy Club, Inc. v. Improv West Associates (9th Cir. 2009) 553 F.3d 1277, 1287, quoting Buckner v. Tamarin (2002, 2nd Dist.) 98 Cal.App. 4th 140, 142; see also, Engineers & Architects Assn. v. Community Development Dept. (1994, 2nd Dist.) 30 Cal.App.4th 644, 653.

In this case, defendants have submitted a copy of a Retail Installment Sale Contract (Sale Contract) between Universal City Nissan as Seller-Creditor and Riad Abrahim, as Buyer. [Polyakov Decl., para. 2, Ex. 1]. This Sale Contract includes an Arbitration Provision. [Ex. 1, following para. 8]. Universal City Nissan, the party named as Seller-Creditor in the Contract, has not been named as a party to this action.

Plaintiffs have filed objections to the Polyakov Declaration submitting this document. The declarant, David Polyakov, states he is counsel for defendant Nissan in this action, and that “On information and belief, attached hereto as Exhibit 1 is a true and correct copy of the Retail Installment Sale Contract… relating to Plaintiffs’ purchase of the new 2018 Nissan Versa at issue in this action.” [Polyakov Decl., paras. 1, 2]. There are no facts set forth to show how this declarant would have sufficient personal knowledge to declare that Exhibit 1 is a true and correct copy of the subject Sale Contract, and the declarant clearly concedes the document is submitted on information and belief. It does not appear that the attorney for defendant would have personal knowledge sufficient to authenticate the document.

The opposition argues that there is no affidavit from defendants or the selling dealership in support of the motion attesting to any agreement between plaintiffs and defendants, so defendants have failed to meet their burden to show the instant dispute is covered by the provision.

Under Evidence Code section 702 (a), except for in connection with expert witness opinion testimony, “the testimony of a witness concerning a particular matter is inadmissible unless he has personal knowledge of the matter. Against a party’s objection, such personal knowledge must be shown before the witness may testify concerning the matter.”

“A petition to compel arbitration or stay proceedings pursuant to Code of Civil Procedure section 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be attached to the petition and incorporated by reference.”

“In determining whether an enforceable arbitration agreement exists, the initial burden is on the party petitioning to compel arbitration. “Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413; see Engalla v. Permanente Medical Group (1997) 15 Cal.4th 951, 972 [64 Cal. Rptr. 2d 843, 938 P.2d 903].) Once the petitioner has met that burden, the burden shifts to the party opposing arbitration, to “produc[e] evidence of, and prov[e] by a preponderance of the evidence, any fact necessary to the defense.” (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413”

Under federal law as well, the moving party to compel enforcement of an arbitration agreement bears the burden of establishing the existence of a valid agreement to arbitrate and that the agreement encompasses the dispute at issue, while the opposing party bears the party of establishing any defenses to enforceability. Sanfilippo v. Tinder, Inc. (C.D. Cal. 2018) 2018 WL 6681197, 2.

Defendants argue that the normal procedures of document authentication do not apply to establish the existence of an arbitration agreement, in reliance on Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218, in which the court of appeal found that the trial court had improperly denied a petition to compel arbitration on the ground that the purported arbitration agreement had not been properly authenticated. However, the court of appeal in Condee observed that, “In this case, although no evidence was ever introduced to verify the signature’s authenticity, it was never challenged.” Condee, at 218. The case also involved a situation where the trial court had denied a proffer of a declaration of a custodian of records which purported to authenticate the agreement. Condee, at 217. Similarly, the Second District observed in Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165, that if the moving party submits an unauthenticated agreement to meet its prima facie burden, “and the opposing party does not dispute the existence of the arbitration agreement,” then nothing more is required on the initial burden.

Here, there has been an objection asserted, and no declaration of a custodian offered to authenticate the material to which objection has been made, and the court could find that defendants have failed to meet their initial burden sufficient to shift the burden to the parties opposing arbitration to produce evidence of facts necessary to a defense, but the court elects not to do so.

However, because plaintiffs have not affirmatively asserted that plaintiff signatory never saw or signed the agreement, or does not remember seeing or signing the agreement, as the Second District suggested would be appropriate in Gamboa, and because plaintiffs in opposition affirmatively rely on provisions of the subject Sale Contract, the objections will be sustained in part, but the court will, in light of these factors, nevertheless consider the Sale Contract based on the relaxed authentication standard applied under case law, and the waiver implied by the reliance on the Sale Contract by plaintiffs in the opposition.

As a further preliminary matter, the moving papers argue that the question of arbitrability is for the arbitrator to decide once it is shown that a valid arbitration agreement exists which can be enforced. As discussed below, defendants have not established that a valid arbitration exists which may be enforced by the moving parties.

In any case, defendants argue that the arbitrability determination should be made by the arbitrator, as the arbitration agreement states that claims subject to arbitration include, “the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute.” [Ex. 1, following para. 8].

However, an agreement to submit arbitrability to an arbitrator must contain clear and unmistakable evidence that the parties agreed to arbitrate arbitrability, and in cases such as this one, involving non-signatories to such an arbitration agreement, the agreement does not meet this standard. In Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, the Ninth Circuit noted that while the arbitration agreements in that case may have constituted agreements to arbitrate arbitrability with the contractual party dealership, that was not the case as to the non-signatories:

“Given the absence of clear and unmistakable evidence that Plaintiffs agreed to arbitrate arbitrability with nonsignatories, the district court had the authority to decide whether the instant dispute is arbitrable. See United Bhd. of Carpenters and Joiners of Am. v. Desert Palace, Inc., 94 F.3d 1308, 1310 (9th Cir.1996).”

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.

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.”

Defendants argue that while they did not sign the Sale Contract, they can enforce the Arbitration Provision under the doctrine of equitable estoppel because plaintiffs’ claims against defendants arise out of and are intertwined with the obligations of the Sale Contract.

With respect to the argument by defendants that they are entitled to enforce the arbitration provision based on equitable estoppel, in Boucher v. Alliance Title Co. (2005) 127 Cal.App.4th 262 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.

Defendants cite to Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, in which the court of appeal reversed an order denying a motion to compel arbitration, observing with respect to equitable estoppel in such a context:

“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).)

Defendants argue that they can compel plaintiffs to arbitrate the claims in the complaint based on equitable estoppel, relying on Felisilda v. FCA US LLC (2000) 53 Cal.App.5th 486, in which 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 which 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.

Defendants argue that the court in Felisilda addressed an arbitration provision in a vehicle sales contract which allowed arbitration of “[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.” Felisilda, at 496.

The court of appeal found that in the circumstances before it, in which the signatory dealership had moved to compel arbitration of the entire action and the manufacturer did not oppose that motion, the trial court had correctly ordered that the entire matter be submitted to arbitration, noting that:

“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.”

Plaintiffs point out that the case here is distinguishable from Felisilda on the ground there is no involvement of the dealership, and no claims are brought jointly against the manufacturer and the dealership. Instead, plaintiffs here seek to enforce the warranties owed by the manufacturer independently of the rights and duties set forth under the Sale Contract. As noted above, and argued in the opposition, in Felisilda, the dealer defendant from which the vehicle was obtained moved to compel arbitration, falling squarely within the parties defined in the sales contract with standing to compel arbitration, that is, “YOU,” the buyer, or “US,” defined as the seller. The dealer was the seller in that case, but there has been no motion to compel arbitration by the dealer which is the seller here.

Defendants argue that plaintiffs’ claims here are inextricably intertwined with the Sale Contract because the Sale Contract provides plaintiffs standing under the Song-Beverly Act which requires that a consumer buy or lease a new motor vehicle from a person engaged in the business of manufacturing, distributing, selling or leasing new motor vehicles at retail to bring a claim, and that the law recognizes the close relationship between warranties and underlying purchase agreements that create them. Defendants also argue because plaintiffs invoke contractual remedies against defendants, the fact that the obligations are inextricably intertwined is further confirmed.

Plaintiffs in opposition point out that the complaint here does not rely on any provision of the Sale Contract with the dealership for financing the purchase, but relies on the separately issued warranty from the manufacturer, alleged statutory claims for violation of the Song-Beverly Act, alleged fraud by concealing problems Nissan knew to be widespread, and alleged breach by defendant Glendale Nissan of its duties in connection with the repair of the vehicle, which do not depend in any way on the terms of the Sale Contract.

“The plaintiffs in Felisilda purchased a used 2011 Dodge Grand Caravan from the Elk Grove Dodge dealership and signed a purchase agreement containing an arbitration provision that was virtually identical to the one Ngo signed. See id. After discovering “serious defects” with the car, the Felisildas sued both the dealership and the manufacturer. Id. at 491, 266 Cal.Rptr.3d 640. The dealership moved to compel arbitration. Id. at 489, 266 Cal.Rptr.3d 640. After the manufacturer filed a notice of non-opposition, the trial court compelled arbitration. Id. at 491, 266 Cal.Rptr.3d 640. The Felisildas then dismissed the dealership, and the district court ordered it to arbitrate with the manufacturer alone. Id. at 499, 266 Cal.Rptr.3d 640. The California Court of Appeal affirmed. Id.

It makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer. In Felisilda, it was the dealership—a signatory to the purchase agreement—that moved to compel arbitration rather than the non-signatory manufacturer. See id. at 489, 266 Cal.Rptr.3d 640 (“Relying on the retail installment sales contract ... signed by the Felisildas, Elk Grove Dodge moved to compel arbitration.”). Furthermore, the Felisildas dismissed the dealership only after the court granted the motion to compel arbitration. Accordingly, 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.

In this case, it is clear that the dealership is not named or pursued in this action, and is not seeking to compel arbitration, but the motion is brought by the manufacturer and a separate repair facility without implicating other parties. The distinction would also apply here to justify denying the motion.

Both sides cite to Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, which suggests that the appropriate analysis here would conclude that in a case such as this one, where there is no mention of or reliance on the Sale Contract to support the statutory claims based on the manufacturer’s responsibility under separate warranty obligations relating to defects in the vehicle, the requisite intertwining, and equity are not present.

“Looking to California contract law, the correct analysis is whether Plaintiffs would have a claim independent of the existence of the Purchase Agreement (equitable estoppel applies “when the signatory must rely on the terms of the written agreement in asserting its claims against the nonsignatory,” Goldman, 173 Cal.App.4th at 222, 92 Cal.Rptr.3d 534(emphasis added), or “when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations,” Jones, 195 Cal.App.4th at 20, 125 Cal.Rptr.3d 522 (emphasis added)), not whether the court must look to the Purchase Agreement to ascertain the requested relief. The emphasis of the case law is unmistakably on the claim itself, not the relief. Despite Toyota's focus on Plaintiffs' relief, Toyota offers no cases to support Toyota's proposed application.

Here, Plaintiffs' claims are premised on California consumer law, unfair competition, false advertising, breach of the implied warranty of merchantability, and breach of contract. In order for Toyota's equitable estoppel argument to succeed, Plaintiffs' claims themselves must intimately rely on the existence of the Purchase Agreements, not merely reference them. Toyota is correct that Plaintiffs' claims presume a transaction involving a purchase of a Class Vehicle. The claims do not, however, rely upon the existence of a Purchase Agreement. For illustration, a consumer who purchased a vehicle with cash instead of credit would still state a claim for which relief could be granted, absent a Purchase Agreement. In this regard, the facts resemble the facts of Goldman and Mundi, in which Plaintiffs' claims arose independently of the terms of the agreements containing arbitration provisions. Moreover, we note that Plaintiffs' First Amended Complaint never actually references the Purchase Agreement, either in the prayer for relief or otherwise.

Similarly, in this case, plaintiffs’ claims are not rooted in the Sale Contract, there is no reliance on any contract terms from the Sale Contract in the claims against defendant Nissan or defendant Glendale Nissan, and all of plaintiff’s claims would be the same had plaintiffs not financed the purchase of the vehicle but obtained the vehicle in some other manner. The complaint attaches the stand-alone warranty issued by Nissan as the basis for the Song-Beverly claims against Nissan. [See Complaint, Ex. 1].

Overall, considering the underlying basis of the equitable indemnity doctrine, as emphasized in Metalclad, above, upon which defendants rely, this does not appear to be a case where plaintiffs’ own conduct renders assertion of plaintiffs’ rights contrary to equity, that is where plaintiffs are seeking enforcement of other provisions of the same contract that benefit plaintiffs. See Metalclad, quoted above, at 1713.

In Ochoa v. Ford Motor Company (Ford Motor Warranty Cases) (2023) 2023 WL 2768484, the Second District affirmed a trial court order denying the motion of defendant Ford Motor Company (FMC) to compel arbitration of plaintiffs’ claims relating to defects in vehicles it manufactured, agreeing with the trial court that FMC, “could not compel arbitration based on plaintiffs’ agreements with the dealers that sold them the vehicles.” Ochoa, at 1. With respect to equitable estoppel, the Second District held, “Equitable estoppel does not apply because, contrary to FMC’s arguments, plaintiffs’ claims against it in no way rely on the agreements.” Ochoa, at 1.

In analyzing the equitable estoppel argument, the Second District addressed an arbitration provision including the same relevant language included in the Sale Contract here, and expressly declined to follow the Third District determination that equitable estoppel applied based on the same contractual language in Felisilda. Ochoa, at 4-5.

The court of appeal disagreed with the Felisilda court’s interpretation of broadly calling for arbitration of claims against third party non-signatories based on the language, “including any such relationship with third parties who do not sign this contract,” reasoning:

“We do not read this…language as consent by the purchaser to arbitrate claims with third party nonsignatories. Rather, we read it as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate. They agreed to arbitrate disputes “between” themselves—“you and us”—arising out of or relating to “relationship[s],” including “relationship[s] with third parties who [did] not sign th[e] [sale] contract[s],” resulting from the “purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.”

Purchasers, like plaintiff Mathew Davidson-Codjoe, whose sale contract we described above, can elect to buy insurance, theft protection, extended warranties and the like from third parties, and they can finance their transactions with those third parties under the sale contracts. The “third party” language in the arbitration clause means that if a purchaser asserts a claim against the dealer (or its employees, agents, successors or assigns) that relates to one of these third party transactions, the dealer can elect to arbitrate that claim. It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.

“no plaintiffs alleged violations of the sale contracts’ express terms. Rather, plaintiffs’ claims are based on FMC’s statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty. Certain plaintiffs also sued on theories of breach of implied warranty or merchantability and fraudulent inducement. Not one of the plaintiffs sued on any express contractual language in the sale contracts.”

“The 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.”

The Second District also rejected the manufacturer’s argument in that case that the warranty claims were founded in the sales contracts, explaining, by reference to multiple authorities, that “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.” Ochoa, at 5.

“Again, the “ ‘ “fundamental point” ’ ” of using equitable estoppel to compel arbitration is to prevent a party from taking advantage of a contract's substantive terms while avoiding those terms requiring arbitration. (Felisilda, supra, 53 Cal.App.5th at p. 496, 266 Cal.Rptr.3d 640.) Plaintiffs’ claims in no way rely on the sale contracts. Equitable estoppel does not apply.”

Defendants in the reply argue that the Ochoa case from the Second District is not controlling on this court, as it contradicts Felisilda, out of the Third District, and under such circumstances, the trial court may follow either Felisilda or Ochoa, regardless of the fact that this court sits in the Second District. Defendants rely on Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, in which the California Supreme Court, in considering the rule of stare decisis, observed:

“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.”

Defendants then argue that for the reasons set out in the moving papers, the court should follow the reasoning of Felisida, which is based on more recent law, while Ochoa relies on older case law, including law decided before the Song Beverly Act or the UCC were enacted.

This court has carefully reviewed the analysis of both Felisilda, and Ochoa, and opts to apply the analysis set forth in Ochoa, finding that the reasoning is sound, and follows and further develops sound reasoning applied since Felisilda by the Ninth Circuit in Kramer and Ngo.

Defendant Nissan also argues that it may compel arbitration as a third-party beneficiary of the Sale Contract pursuant to the plain language of the Sale Contract, which includes a reference to any “claim or dispute…which arises out of or relates to… any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract)….” [Ex. 1, following para. 8]. This argument is not made by defendant Glendale Nissan.

‘[A] review of this court's third party beneficiary decisions reveals that our court has carefully examined the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. All three elements must be satisfied to permit the third party action to go forward.”

Defendant Nissan argues that the intent to benefit Nissan is evident from the plain language of the Sale Contract, which included relationships with third parties who do not sign the contract, and that plaintiff’s purchase of the vehicle, memorialized by the Sale Contract, resulted in a warranty relationship with Nissan, and plaintiffs’ claims necessarily require them to contend that Nissan benefitted from the Sale Contract, so that allowing Nissan to enforce the Arbitration Provision is consistent with the objectives of the Sale Contract and the reasonable expectations of plaintiffs and the seller.

Plaintiffs in opposition argue that defendant Nissan as manufacturer fails to establish these elements. Plaintiffs argue that the Sale Contract disclaimed all warranties by the dealer, and more importantly, that the Arbitration Provision expressly encompasses only claims between “you,” defined as “the Buyer (and Co-buyer, if any)” and “we” or “us,” defined as the “Seller-Creditor,” or Universal City Nissan, the dealership from which plaintiff purchased the vehicle and obtained financing. [See Ex. 1, pp. 1]. Plaintiffs argues that by limiting the parties who could enforce the arbitration clause to plaintiff and Universal City Nissan, the arbitration provision demonstrates an intent not to benefit defendant, or anyone else falling outside the Sale Contract’s definitions of “you” and “we.”

Overall, it does not appear that permitting defendant manufacturer to enforce the clause would be consistent with the objectives of the contract, and not violate the reasonable expectations of the contracting parties. The objective of the Sale Contract here was to finance plaintiff’s vehicle purchase, and the objective of the arbitration clause specifically was to enable, “you” and “us,” plaintiff and Universal City Nissan, to choose to arbitrate disputes. Allowing defendant Nissan to take advantage of the arbitration provision would not effectuate either of these objectives.

It would also appear that the contract on its face limits arbitrable disputes to those “between you and us or our employees, agents, successor or assigns,” when defendant has not submitted any argument or evidence establishing how defendant has any of these relationships to the dealer Universal City Nissan. Plaintiffs point out that defendant Nissan submits no factual showing establishing, for example, that Nissan has any particular relationship with the seller, Universal City Nissan, which would establish that Nissan would fall within the expressly delineated parties with which a dispute may be arbitrated. There is no evidence offered that defendant Nissan enjoys such a relationship with the dealership seller defined as “us” in the Contract, or any evidence whatsoever on this point. To the extent Nissan were to in fact submit evidence showing that it is, for example, the parent company of the dealership, this is a type of relationship not included in “employees, agents, successor or assigns,” and which could have been expressly included if intended, and the lack of the term “parent companies,” or “manufacturer” appears to indicate an intent not to include such parent companies, which would have been a party known to the parties at the time into which the contract was entered.

Plaintiffs again cite to Ngo v. BMW of North America, LLC (USDC., 9th Cir. 2022) 23 F.4th 942, discussed above, in which the Ninth Circuit reversed the district court’s granting of a manufacturer’s motion to compel arbitration based on an arbitration provision very similar to the form contract provision at issue here. With respect to the argument that the manufacturer in that case was an intended third-party beneficiary, the Ninth Circuit found that defendant manufacturer had failed to establish any of the required elements to demonstrate it was a third-party beneficiary.

The Ninth Circuit concluded that the manufacturer had failed to establish in that case that it was a third party which in fact benefitted from the contract, setting forth the “you” and “we” designations in that case from the same form used here, and noting that in that case, the arbitration provision through this language expressly provided that only three parties, plaintiff, the dealership, and, in that case, the assignee, could compel arbitration, and that arbitrable disputes were limited to the dealership’s employees, agents, successors, or assigns, which did not include BMW. The Ninth Circuit reasoned:

“That BMW could, at some point down the line, receive some benefit if the arbitration clause were read to extend to the manufacturer is of no moment: incidental or secondary benefit is not sufficient. See Lucas, 56 Cal. 2d at 590, 15 Cal.Rptr. 821, 364 P.2d 685. The clause is pellucid that only three parties may compel arbitration, none of which is BMW. Language limiting the right to compel arbitration to a specific buyer and a specific dealership (and its assignees) means that extraneous third parties may not compel arbitration. See Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1128 (9th Cir. 2013) (finding similar language to evince the buyer's intent to arbitrate with the expressly named parties and no one else); see also Safley v. BMW of N. Am., LLC, No. 20-cv-00366-BAS-MDD, 2021 WL 409722, at 5–6 (S.D. Cal. Feb. 5, 2021); Qi Ling Guan v. BMW of N. Am., LLC, No. 20-cv-05025-MMC, 2021 WL 148202, at 2 (N.D. Cal. Jan. 15, 2021); Manuwal v. BMW of N. Am., LLC, No. CV 20-2331 DSF, 484 F. Supp. 3d 862, 868 (C.D. Cal. 2020). Any benefit that BMW might receive from the clause is peripheral and indirect because it is predicated on the decisions of others to arbitrate. BMW therefore fails to meet the first prong of the Goonewardene test.

The Ninth Circuit in Ngo also found that BMW had failed to establish that the contracting parties had the “motivating purpose” of providing a benefit to the manufacturer such as had been recognized in case law in cases involving agreements to draft wills or manage trusts or mutual funds, “arrangements inherently formed with third parties in mind.” The court reasoned that, in contrast:

“the vehicle purchase agreement in question was drafted with the primary purpose of securing benefits for the contracting parties themselves. In such an agreement, the purchaser seeks to buy a car, and the dealership and assignees seek to profit by selling and financing the car. Third parties are not purposeful beneficiaries of such an undertaking.

The text of the arbitration clause supports this conclusion. It provides that claims and disputes “which arise[ ] out of or relate[ ] 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.” (emphasis added). Though the language allows for arbitration of certain claims concerning third parties, it still gives only Ngo, the dealership, and the assignee the power to compel arbitration. Nothing in the clause or, for that matter, in the purchase agreement reflects any intention to benefit BMW by allowing it to take advantage of the arbitration provision.

Here, the Sale Contract is similarly an arrangement pursuant to which plaintiff Ibrahim as the buyer sought to purchase and finance a car, and the dealership sought to profit by selling and financing the car. The arbitration provision itself similarly gives only plaintiff and the dealership the power to compel arbitration, not the manufacturer, and defendant has pointed to no other language or circumstances to distinguish this case from this analysis.

The Ninth Circuit in Ngo also interpreted this contractual language to establish that the third element had not been met, that is, that permitting the third party to enforce the contract must be consistent with the objectives of the contract and the reasonable expectations of the contracting parties, concluding:

“Nothing in the contract here evinces any intention that the arbitration clause should apply to BMW. The arbitration clause's enforcement provisions are limited to the dealership, the assignee, and Ngo. The compelling inference from this arrangement is that the parties knew how to give enforcement powers to non-signatories when they wished to do so but gave none to BMW.”

“We agree with Ngo that the sale contracts reflect no intention to benefit a vehicle manufacturer under Goonewardene. First, nothing in the sale contracts or their arbitration provision offers any direct “benefit” to FMC (Goonewardene, supra, 6 Cal.5th at p. 830, 243 Cal.Rptr.3d 299, 434 P.3d 124). FMC's claim that it “would benefit from utilizing arbitration as an efficient means of dispute resolution” (italics added) if treated as a third party beneficiary begs the question: does the provision directly benefit FMC? The answer is patently “no.” Its direct benefits are expressly limited to those persons who might rely on it to avoid proceeding in court—the purchaser, the dealer, and the dealer's employees, agents, successors or assigns. FMC is none of these.

Second, there is no indication that a benefit to FMC was the signatories’ “motivating purpose” (Goonewardene, supra, 6 Cal.5th at p. 830, 243 Cal.Rptr.3d 299, 434 P.3d 124) in contracting for the sale and purchase of a Ford vehicle. The manifest intent of the parties was to buy, sell and finance a car, and to allow either the purchaser or the dealer to compel arbitration of the specified categories of disputes between them, or between the purchaser and any of the dealer's “employees, agents, successors or assigns.” (See Martinez v. BaronHR, Inc. (2020) 51 Cal.App.5th 962, 967, 265 Cal.Rptr.3d 523 [intent of arbitration agreement ascertained solely from words of written agreement, if possible; language controls if clear and explicit].)

Any interest FMC may have in where its dealers and consumers choose to resolve their disputes is remote and certainly not articulated in FMC's briefing. If the signatories had intended to benefit FMC, such a purpose would have been easy to articulate. They could have simply named FMC—directly or by class as the vehicle's manufacturer—as a person entitled to compel arbitration. But they did not. What they said was that “EITHER YOU OR WE”—the purchaser or the dealer—“MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION,” and reiterated that arbitrable disputes “shall, at your or our”—the purchaser's or the dealer's—“election, be resolved by neutral, binding arbitration ....” (Italics added.)….

Finally, allowing FMC to enforce the arbitration provision as a third party beneficiary would be inconsistent with the “reasonable expectations of the contracting parties” (Goonewardene, supra, 6 Cal.5th at p. 830, 243 Cal.Rptr.3d 299, 434 P.3d 124) where they twice specifically vested the right of enforcement in the purchaser and the dealer only.”

In any case, this court again finds the analysis in Ochoa and the other cited authorities in the opposition distinguishing Felisidas, and interpreting the Sale Contract language, well-reasoned and appropriate, and will follow the court of appeal precedent set forth in Ochoa.

UNOPPOSED Request for Judicial Notice in Support of Motion to Compel Arbitration and Stay Proceedings is GRANTED only to the extent permitted by law. See Evidence Code § 452 (d); Day v. Sharp (1975) 50 Cal.App.3d 904, 914; Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882.

Plaintiffs’ Evidentiary Objections to Declaration of David Polyakov in Support of Defendants’ Motion to Compel Arbitration and Stay Proceedings are SUSTAINED. However, the Court will nevertheless consider the Sale Contract submitted, although without proper authentication, based on the relaxed authentication standard applied under case law cited by defendants, and the waiver implied by the reliance by plaintiffs in their opposition papers on the terms of the submitted Sale Contract.

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