Judge Ralph C. Hofer, Case Number: 23GDCV00753, Date: 2024-01-19 Tentative Ruling

Judge: Ralph C. Hofer, Case: 23GDCV00753, Date: 2024-01-19 Tentative Ruling

Case Number: 23GDCV00753 Hearing Date: January 19, 2024 Dept: D

TENTATIVE RULING

Calendar: 7

Date: 1/19/2024

Case No. 23 GDCV00753 Trial Date: None Set

Case Name: Taylor v. Hyundai Motor America

MOTION TO COMPEL ARBITRATION

Moving Party: Defendant Hyundai Motor America

Responding Party: Plaintiff Stacey Taylor

RELIEF REQUESTED:

Order compelling arbitration and staying this action

SUMMARY OF FACTS:

Plaintiff Stacey Taylor alleges that in July of 2020, plaintiff purchased a new 2020 Hyundai Sonata vehicle from Glendale Hyundai, and that upon the purchase defendant Hyundai Motor America issued an express warranty to plaintiff, pursuant to which defendant undertook to preserve or maintain the utility or performance of the vehicle.

Plaintiff alleges that since purchasing the vehicle, plaintiff has delivered the vehicle for repair to defendant or its authorized repair facility not less than three times for repair of nonconformity to warranty, including for defects which have manifested in the vehicle stalling and dying while driving. Plaintiff alleges that the nonconformities have substantially impaired the vehicle’s use, value, and safety, and that on each occasion plaintiff delivered the subject vehicle for repair to defendant or its authorized repair facility, the vehicle was returned to plaintiff without properly repairing the nonconformities.

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

The complaint alleges a cause of action for violation of the Song-Beverly Consumer Warranty Act.

ANALYSIS:

Defendant Hyundai Motor America (Hyundai) brings this motion seeking an order compelling plaintiff to arbitrate this matter.

CCP § 1281.2, governing orders to arbitrate controversies, provides, in pertinent part:

“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:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for rescission of the agreement.”

Under the Federal Arbitration Act, arbitration agreements “shall be valid, irrevocable and enforceable, save upon such grounds that exist at law or in equity for the revocation of a contract.” 9 U.S.C. section 2.

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, 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, defendant has submitted a copy of a Retail Installment Sale Contract (Sale Contract) between Glendale Hyundai as Seller-Creditor and Stacey R. Taylor as Buyer. [Croce Decl., para. 2, Ex. A]. This Sale Contract includes an Arbitration Provision. [Ex. A, p. 7]. Glendale Hyundai, the party named as Seller-Creditor in the Contract, has not been named as a party to this action.

Defendant Hyundai, the manufacturer, argues that the matter must be arbitrated pursuant to the arbitration clause set forth in the Sale Contract, which provides, in pertinent part:

“ARBITRATION PROVISION

PLEASE REVIEW—IMPORTANT—AFFECTS YOUR LEGAL RIGHTS

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL….

Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”

[Croce Decl., Ex. A, Sale Contract, p. 7, emphasis in original].

As noted above, the parties and signatories to this Sale Contract are Seller-Creditor, Glendale Hyundai, and Buyer Stacey L. Taylor. Defendant Hyundai is not named as a party to this Sale Contract and did not sign it. [See Ex. A].

Defendant concedes that it is not a signatory to the Sale Contract.

Defendant argues that while it did not sign the Sale Contract, it can enforce the Arbitration Provision under the doctrine of equitable estoppel because plaintiffs’ claims against defendant arise out of and are intertwined with the obligations of the Sale Contract.

With respect to the argument by defendant that it is 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, quotation omitted.

In Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 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).)”

Metalclad, at 1713.

Defendant argues that it can compel plaintiffs to arbitrate the claims in the complaint based on equitable estoppel, relying on Felisilda v. FCA US LLC (2020) 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.

Defendant argues 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 sales contract in the Felisilda case included language similar to the language in the Sale Contract in this case, including the language quoted above.

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.”

Felisilda, at 496, italics in original.

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.

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 being brought under the Sale Contract. Instead, plaintiff here seeks to enforce the warranties owed by the manufacturer independently of the rights and duties set forth under the Sale Contract.

Defendant argues that here, as in Felisilda, plaintiffs’ claims relate directly to the condition of the vehicle, as plaintiffs allege in their complaint that the vehicle has defects and nonconformities to support the Song-Beverly claim. [Complaint, paras. 4, 9, 11, 13].

Plaintiff in opposition points 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 warranties from the manufacturer and argues that had plaintiff made a cash purchase rather than financing under the Sale Agreement, such manufacturer warranties would still have been recognized under the Song-Beverly Act.

Plaintiff also relies on language in the Sale Agreement which plaintiff argues disclaims any warranties concerning the vehicle and indicates the separateness of the manufacturer’s warranty. However, the language is quoted by reference to the Croce Declaration submitted with the moving papers, and a review of what appears to be an incomplete Sale Agreement submitted with that declaration does not include the referenced language.

In any case, plaintiff also relies on the warranty from defendant which plaintiff indicates is attached to the vehicle at the time of manufacture/distribution, and indicates that defendant Hyundai’s warranty exists independent of any contract for sale, stating, “…warranty coverage described in this handbook apply to the vehicle regardless of a change in ownership, and are transferable to subsequent owners…” [Hollins Decl., Ex. A, p. 17].

Plaintiff argues that this warranty is not dependent on the terms of any Sale Contract, and does not depend on their being any Sale Contract at all, so plaintiff’s claims under this warranty do not rely on the Sale Contract or give rise to equitable estoppel.

In this case, it is clear that plaintiff’s 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, 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.

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

Plaintiffs here are not seeking to invoke the duties and obligations of any defendant under the Sale Contract while simultaneously seeking to avoid the arbitration provision of that Sale Contract.

Plaintiff also argues that Hyundai’s argument has been rejected by numerous federal courts in California, and that Felisilda is an outlier decision inconsistent with the general approach taken by courts on these issues.

Plaintiff relies on a recently published California court of appeal case, Ford Motor Warranty Cases (2023) 89 Cal.App. 5th 1324 (Ford Warranty), not addressed in the moving papers, which addressed this issue and distinguished Felisilda.

Although not mentioned in the opposition, on July 19, 2023, the California Supreme Court granted a petition for review of the Ford Warranty case.

The Supreme Court opinion states:

“The issue to be briefed and argued is limited to the following: Do manufacturers' express or implied warranties that accompany a vehicle at the time of sale constitute obligations arising from the sale contract, permitting manufacturers to enforce an arbitration agreement in the contract pursuant to equitable estoppel?

Pending review, the opinion of the Court of Appeal, which is currently published at 89 Cal.App.5th 1324, 306 Cal.Rptr.3d 611, may be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, 20 Cal.Rptr. 321, 369 P.2d 937, to choose between sides of any such conflict. (See Standing Order Exercising Authority Under California Rules of Court, Rule 8.1115(e)(3), Upon Grant of Review or Transfer of a Matter with an Underlying Published Court of Appeal Opinion, Administrative Order 2021-04-21; Cal. Rules of Court, rule 8.1115(e)(3) and corresponding Comment, par. 2.)”

Ford Motor Warranty Cases (2023) 532 P.3d 270 (Mem).

Under CRC Rule 8.1115(e)(3), cited by the Supreme Court:

“(e) When review of published opinion has been granted

(3) Supreme Court order

At any time after granting review or after decision on review, the Supreme Court may order that all or part of an opinion covered by (1) or (2) is not citable or has a binding or precedential effect different from that specified in (1) or (2).”

The Editor’s Notes Comments to the section provide:

“As provided in Standing Order Exercising Authority Under California Rules of Court, Rule 8.1115(e)(3), Upon Grant of Review or Transfer of a Matter with an Underlying Published Court of Appeal Opinion, Administrative Order 2021-04-21, under this subdivision, when the Supreme Court grants review of a published Court of Appeal opinion, the opinion may be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow superior courts to exercise discretion under Auto Equity, supra, 57 Cal.2d at page 456, to choose between sides of any such conflict. Superior courts may, in the exercise of their discretion, choose to follow a published review-granted Court of Appeal opinion, even if that opinion conflicts with a published, precedential Court of Appeal opinion. Such a review-granted Court of Appeal opinion has only this limited and potential precedential effect, however; superior courts are not required to follow that opinion's holding on the issue in conflict. Nor does such a Court of Appeal opinion, during the time when review is pending, have any precedential effect regarding any aspect or holding of the Court of Appeal opinion outside the part(s) or holding(s) in conflict. Instead, it remains, in all other respects, “potentially persuasive only.”

(Italics in the original).

In Ford Warranty, 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.” Ford Warranty, at 1329. 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.” Ford Warranty, at 1329.

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. Ford Warranty, at 1330.

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 that the language of the sale contracts delineated the subject matter of claims the purchasers and dealers agreed to arbitrate. The court of appeal also offered a reasoning not included in the federal cases, based on interpretation of the sale contracts and the typical components of a vehicle sale transaction, describing several examples of third party transactions which the parties to a sale contract could themselves reasonably expect to elect to arbitrate:

“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.”

Ford Warranty, at 1334-1335.

The Ford Warranty court also found that plaintiffs’ claims were not founded in the sale contracts, as:

“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.”

Ford Warranty, at 1335.

The Second District noted:

“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.”

Ford Warranty, at 1335.

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.” Ford Warranty, at 1335.

The Ford Warranty opinion then circles around to the underlying policy supporting the application of equitable estoppel, concluding:

“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.”

Ford Warranty, at 1336.

The reasoning applied in Ford Warranty is sound, and it also applies here.

As noted above in the Supreme Court’s opinion granting the petition for review, the Ford Warranty opinion may be considered for its persuasive value pending review, and also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, to choose between sides of any such conflict.

The Ford Warranty case is from the Second District, while Felisilda was decided by the Third District, and under such circumstances, to the extent the cases conflict, the trial court may follow either Felisilda or Ford Warranty.

In Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 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.”

Auto Equity Sales, at 456.

This court has carefully reviewed the analysis of both Felisilda, and Ford Warranty, and opts to apply the analysis set forth in Ford Warranty, finding that the reasoning is sound.

The motion to compel arbitration accordingly is denied. This action is not inextricably intertwined with the Sale Contract, plaintiff does not seek to enforce provisions of that Sale Contract while at the same time seeking to avoid the arbitration provision such that equitable estoppel does not apply here.

RULING:

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

DEPARTMENT D IS CONTINUING TO CONDUCT AND ENCOURAGE

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