Judge Ralph C. Hofer, Case 22GDCV00514 2023-02-03 Tentative Ruling

Plaintiff Khristopher Kobaian alleges that in March of 2018, plaintiff entered into a warranty contract with defendant Ford Motor Company regarding a 2018 Ford F-150 vehicle which was manufactured or distributed by defendant Ford Motor Company. Plaintiff alleges that the warranty contract contained various warranties, including a bumper to bumper warranty, powertrain warranty, and emissions warranty.

Plaintiff alleges that since entering into the warranty agreement, and during the warranty period, the vehicle manifested defects and nonconformity to warranty, including but not limited to, the electrical system, the engine, and the transmission, which defects substantially impair the use, value, or safety of the vehicle.

Plaintiff alleges that defendant Ford Motor Company and its representatives have been unable to service or repair the vehicle to conform to the applicable express warranties after a reasonable number of opportunities, and have failed to promptly replace the subject vehicle or make restitution to plaintiff as required under Civil Code sections 1793.2 and Civil Code section 1793.1, and that plaintiff has been damaged by defendant’s failure to comply with its obligations. The complaint alleges that defendant’s failure to comply was willful, in that defendant and its representatives were aware they were unable to service or repair the vehicle to conform to applicable express warranties and does not maintain a qualified third party dispute resolution process complying with statute, entitling plaintiff to civil penalties.

The complaint alleges that plaintiff delivered the subject vehicle to defendant Star Ford Lincoln for substantial repair on at least one occasion and that defendant Star Ford Lincoln failed to properly store, prepare and repair the subject vehicle in accordance with industry standards, proximately causing plaintiff damages.

The complaint alleges causes of action for violation of subdivision (D) of Civil Code section 1793.2, violation of subdivision (B) of Civil Code section 1793.2, violation of subdivision (A)(3) of Civil Code section 1793.2, breach of the implied warranty of merchantability, fraudulent inducement, and negligent repair.

“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 California Motor Vehicle Lease Agreement between plaintiff Khristophour Kobaian and Ford of Upland. [Keithly Decl., Exs. A, B]. Plaintiff in opposition relies upon this same documentation.

“15. Agreement to Arbitrate: By signing below You agree that pursuant to the arbitration provision on the reverse side of this lease, You or we may resolve any dispute by neutral, binding arbitration and not be a court action. See the Arbitration provision for any additional information concerning the agreement to arbitrate.

Arbitration is a method of resolving any claim, dispute, or controversy (collectively, a "Claim") without filing a lawsuit in court. Either you or Lessor/Finance Company/Holder ("us" or "we") (each, a "Party") may choose at any time, including after a lawsuit is filed, to have any Claim related to this contract decided by arbitration. Neither party waives the right to arbitrate by first filing suit in a court of law. Claims include but are not limited to the following: 1) Claims in contract, tort, regulatory or otherwise; 2) Claims regarding the interpretation, scope, or validity of this provision, or arbitrability of any issue except, for class certification; 3) Claims between you and us, our employees, agents, successors, assigns, subsidiaries, or, affiliates; 4) Claims arising ,out of or relating to your, application for credit, this contract, or any resulting transaction or relationship, including that with the dealer, or any such relationship with third parties who do not sign this contract.”

Defendants argue with respect to defendant Ford that under the arbitration agreement plaintiff expressly agreed to arbitrate any vehicle related claims against Ford’s wholly-owned subsidiary, Ford Motor Credit Company (FMCC), that the arbitration provision identifies FMCC as the “Finance Company,” entitled to arbitrate, and that according to FMCC’s Annual Report on Form 10-K for the Year Ended December 31, 2018, that company is “an indirect, wholly owned subsidiary of Ford Motor Company.” [Keithly Decl., para. 4, Ex. C; RFJN, Ex. 1]. Defendants argue that this establishes that Ford is entitled to enforce the arbitration agreement as an “affiliate” under the Lease. Defendants argue that Ford may compel arbitration as a third party beneficiary to the Lease through its affiliate, FMCC.

Defendants also argue that while defendants Ford and Star Ford did not sign the Lease, both defendants may enforce arbitration under the doctrine of equitable estoppel because plaintiff’s claims against both defendants rely on and are inextricably intertwined with the Lease.

Defendants initially argue that the arbitrability determination in any case should be made by the arbitrator, as the arbitration agreement states that claims subject to arbitration include, “Claims regarding the interpretation, scope of validity of this provision, or arbitrability of any issues except for class certification.” [Ex. B].

However, as pointed out in the opposition, 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. Plaintiff relies on Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, in which the Ninth Circuit noted that while the arbitration agreements in that case may have constituted agreements to arbitrate arbitrability with the contractual parties dealerships, 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.

Defendants first argue that defendant Ford may compel arbitration as a third-party beneficiary of the Lease through its wholly owned subsidiary FMCC because the Lease assigns certain rights and duties and allows FMCC’s “affiliates,” including Ford, to enforce arbitration.

‘[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 Ford argues that the Lease assigns certain rights and duties to FMCC and expressly allows FMCC’s “affiliates,” including Ford, to enforce arbitration. Defendant argues that FMCC is listed as the “Finance Company,” and the Lease required plaintiff to make lease payments to FMCC, and grants FMCC the power to act on the Holder’s behalf to “administer, enforce and defend this Lease.” Defendants argue that Ford stood to benefit from the Lease because plaintiff was required to make payments to FMCC, its affiliate, that there was a motivating purpose to provide benefits to Ford because the Lease conferred benefits on Ford’s subsidiary, and that for these reasons allowing Ford to compel arbitration is consistent with the Lease’s objective and the reasonable expectations of the party, particularly as the Lease refers to a Standard new vehicle warranty provided by the manufacturer.

Plaintiff in opposition argues that third party beneficiary status has not been established here, as the arbitration agreement expressly applies to permit “Either you or Lessor/Finance Company/Holder (‘us’ or ‘we’)” to choose to have claims decided by arbitration, when Ford is not the Lessor, Finance Company, or Holder under the Lease.

While Finance Company is identified as FMCC, plaintiff argues that this is not the entity being sued. The argument is that any reference to third parties does not create an additional category of those who also have the power to elect arbitration. Plaintiff also argues that Ford does not fall into the category of “employees, agents, successors, subsidiaries or affiliates,” as the specific language of the arbitration provision does not extend rights to parent companies, and that the inclusion of the term “subsidiaries,” but the lack of the term “parent companies,” indicates an intent not to include parent companies, such as defendant Ford, which would have been a party known to the parties at the time into which the Lease was entered.

To the extent the argument is that since defendant Ford is in a particular relationship with FMCC which would give rise to defendant Ford qualifying as an affiliate, plaintiff argues that the document submitted by defendant with a request for judicial notice does not establish such a relationship.

The moving papers are curious, as they are supported by a declaration of counsel for defendants in this matter, who attaches a cover page of the Ford Motor Credit Company, LLC’s Annual Report on Form 10-K for the year ended December 31, 2018, and states that “according to the Report, FMCC is ‘an indirect, wholly owned subsidiary of Ford Motor Company.’” [Keithly Decl., para. 4, Ex. C, p.1, Overview]. The report itself is not authenticated by any witness with personal knowledge, and there is no evidence of the relationship between FMCC and Ford offered by a representative of defendant Ford with personal knowledge.

To the extent there is a request to judicially notice this document as part of a government filing, the court may judicially notice only limited matters, and does not take judicial notice of the truth of the representations made in a report to a governmental entity. Defendants cite to Evidence Code section 452 which specifies matters which may be judicially noticed, and lists, “(c) Official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.” The specification by FMCC of facts in a report is not an official act of a department of the State or United States. There is accordingly no admissible evidence before this court from which the court can determine what the relationship is between Ford and FMCC, which the moving papers seem to concede are distinct business entities.

Plaintiff relies on In re Ford Motor Co. DPS6 Powershift Transmission Products Liability Litigation (C.D. Cal. 2020) 470 F.Supp. 3d 1117, 1125, a federal district court case, which is not binding on this court, but which addressed and denied a motion to compel arbitration by Ford Motor Company interpreting the same language in a Lease which identified FMCC as the “Finance Company.” The district court engaged in a persuasive analysis with respect to the third party beneficiary argument, rejecting the argument Ford asserted in that case, and is also asserting here, with respect to being an “assign” of a wholly-owned subsidiary:

“In true shot-gun fashion, Ford also argues that it is “entitled to enforce the Arbitration Provision since assignment of the Lease to CAB West places Ford within the class of persons (i.e., assigns) whom the arbitration provision was intended to benefit,” because “Fiesta Ford assigned the Lease to CAB West, which is a wholly-owned subsidiary of Ford Credit, itself a wholly-owned subsidiary of Ford.” Mot. 9:18-22. In other words, Ford claims that it itself is an “assign” of the Lease because its wholly-owned subsidiary's wholly-owned subsidiary is an “assign” of the Lease. But it is axiomatic that, in the absence of corporate veil-piercing—an equitable remedy to prevent injustice—parent and subsidiary corporations are distinct entities, with distinct obligations and liabilities. See, e.g., Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538, 99 Cal.Rptr.2d 824 (2000). Thus, in seeking to enforce the Arbitration Provision as an “assign” based on its subsidiary's subsidiary being an “assign,” Ford implicitly takes the bizarre position that its own corporate veil should be pierced, thereby also implying that there is some abuse of the corporate form in its own chain of ownership, from which, incidentally, it should benefit. This is nonsensical and the Court rejects this argument without further discussion.”

The federal district court in In Re Ford Motor Co. went on to find that the elements under Goonewardene had not been established to permit a third party to enforce a contract, and rejected Ford’s argument that the relationship of Ford as a parent to the party to the Lease establishes third party beneficiary status, based in part on the failure of the language to include a parent company amongst the specified third parties:

“[T]he Court does not find these elements satisfied. For example, the Arbitration Provision is contained in a form Lease, and the Court cannot find that “a motivating purposes of the contracting parties” was to benefit Ford as either the manufacturer or parent corporation of one of the signatories. Nor, given the vagueness of the term “affiliate,” can the Court find that Plaintiffs could have reasonably expected the term to encompass the manufacturer of the vehicle, an entity whose identity was plainly known when the Lease was entered into, or one of the signatories' parent corporations merely based on it being a parent corporation. Furthermore, although Ford insists it is an “affiliate” because it is the parent of two parties to the contract, the Arbitration Provision does not specifically encompass claims involving signatories' parent corporations, yet it does specifically encompass claims involving the signatories' “subsidiaries.” In light of the Arbitration Provision's omission of parent corporations, but it inclusion of subsidiaries, the Court cannot find that the parties were motivated to benefit parent corporations like Ford, or that the Plaintiffs reasonably expected Ford to be within the class of third-party beneficiaries identified in the Provision.”

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.

“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 they can compel plaintiff to arbitrate his claims 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 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.

Defendants argue that the court in Felisilda addressed an arbitration provision in a vehicle sales contract which allowed arbitration of “any claim or dispute, whether in contract, tort, statute or otherwise…which arises out of or relates to…the 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.”

The sales contract in Felisilda case did include language similar to the language in the Lease 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,” as well as a parenthetical following the word “relationship,” which read, “(including any such relationship with third parties who do not sign this contract.)” However, the provision in the Lease in this case does not include the language referring to a claim arising out of or relating to the “condition of this vehicle.” [See Exs. A, B].

“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. Here, however there is no direct mention in the arbitration provision which makes arbitrable a claim relating to the “condition” of the vehicle, which was the key provision emphasized in Felisilda. The court of appeal expressly distinguished the case before it from Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, in which the arbitration provision was lacking such a provision:

“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 points 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, plaintiff here seeks to enforce the warranties owed by the manufacturer independently of the rights and duties set forth under the Lease. Plaintiff argues that the published cases which have cited Felisilda since its ruling have found that the reasoning did not apply where the signatory dealership was not part of the action. See Messih v. Mercedes-Benz USA, LLC (N.D.Cal. 2021) 2021 WL 2588977, at 10-11; Ruderman v. Rolls Royce Motor Cars, LLC (C.D.Cal. 2021) 511 F.Supp.3d 1055, 1060; Woo v. American Honda Motor Co., Inc. (N.D.Cal. 2021) 2021 WL 2826692, at 3, fn, 3; Safley v. BMW of North America, LLC (S.D.Cal., Feb. 5, 2021) 2021 WL 409722, at 7-8; Ellington v. Eclipse Recreational Vehicles, Inc. (C.D.Cal. 2020) 2020 WL 8073607, at 3-4; Nation v. BMW of North America, LLC (C.D.Cal. 2020) 2020 WL 7868103, at 4.

“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 signatory 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 nonsignatory dealership alone without implicating other parties. That distinction would also apply here to justify denying the motion.

“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.

“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.

Similarly, in this case, plaintiff’s claims are not rooted in the Lease, there is no reliance on any contract terms from the Lease in the claims against Ford or Star Ford, and all of plaintiff’s claims would be the same had plaintiff not leased the vehicle but obtained it in some other manner.

“Ford argues that …all of Plaintiffs' claims are intertwined with the Lease because Plaintiff would not have the vehicle or its corresponding warranty but for the Lease. But none of Plaintiffs' warranty or misrepresentation claims against Ford are not [sic] “founded in” the Lease, as they are not breach of contract claims or tied to any promise in the Lease. See Kramer, 705 F.3d at 1130-1131 (holding that none of plaintiffs' consumer protection or warranty claims were founded in or intertwined with the purchase contract because defendant's obligations did not arise out of the contract but were independent of them). Even the fraudulent inducement claim, which is premised on Plaintiffs having transacted with the Dealership to obtain the vehicle, does not trigger equitable estoppel. This is, again, because the actionable conduct alleged in the Complaint does not arise out of any obligations of the Lease. The Lease and its terms are incidental to Plaintiffs' claims….

As the Kramer Court concluded, “in this case, Plaintiffs do not seek to simultaneously invoke the duties and obligations of [Ford] under the [Lease] Agreement, as it has none, while seeking to avoid arbitration. Thus, the inequities that the doctrine of equitable estoppel is designed to address are not present.” Id. at 1134.

Overall, this is also a case where plaintiff is not seeking to simultaneously invoke the duties and obligations of any defendant under the Lease while seeking to avoid arbitration. There has been no connection whatsoever established with respect to defendant Star Ford, a dealership distinct from the dealership which was the party to the Lease.

Defendants also have on calendar this date a motion to stay this matter, including discovery, pending the determination of a motion to compel arbitration. Since the motion to compel arbitration has now been determined, there is no need to stay the matter while it is pending, and the motion to stay is deemed moot. The stay is lifted.

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.