Judge Randolph M. Hammock, Case 20STCV46667 2023-01-18 Tentative Ruling

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284). “In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.” (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353). “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.” (California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205).

“[A] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. [Citation.] In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion, to reach a final determination.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284).

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies. . . .” (CCP § 1281.4.)

California has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes. “Even so, parties can only be compelled to arbitrate when they have agreed to do so.” (Avila v. S. California Specialty Care, Inc. (2018) 20 Cal. App. 5th 835, 843.) “The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement.” (Id.) An arbitration agreement is a contractual agreement. “General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] ... The words of a contract are to be understood in their ordinary and popular sense.” [Citations.] (Garcia v. Expert Staffing W., 73 Cal. App. 5th 408, 412–13.)

On February 8, 2018, Plaintiffs purchased a 2018 Nissan Pathfinder from Mossy Nissan Oceanside in Oceanside, California. Pursuant to that transaction, Plaintiffs signed a Retail Installment Sales Contract (“RISC”). (Maugeri Decl. Exh. 3.) The RISC contains an agreement to arbitrate. The Agreement also incorporates form 553-CA-ARB, the “standard form used by independent Nissan dealers.” (Mtn. 3: 3-4.) In pertinent part, that form provides:

Except as otherwise stated below, 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.

The Provision also provides that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et. seq.), and not by any state law concerning arbitration.” (Id.) Moreover, “[i]f federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute.” (Id.)

Accordingly, the Pgreement here, which covers “[a]ny claim or dispute…which arises out of or relates to [Plaintiffs’]…purchase or condition of this vehicle,” covers the instant Song-Beverly claims and related causes of action. (See Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189 [noting that “arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question”].)

Plaintiffs first argue that Defendant waived its right to compel arbitration under the recent case of Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956. There, the Court held an employer waived its right to compel arbitration by waiting 17 months after service of the complaint to move to compel arbitration, and taking acts inconsistent with an intent to arbitrate. In affirming the lower court’s finding of waiver, the Court emphasized the defendant’s “lengthy delay in moving to compel arbitration” despite its “number of responses to the lawsuit.” The court continued:

[The defendant] appeared for a case management conference, demanded a trial, gave its own estimate of the time of trial, and represented it would be participating in written discovery, depositions, and expert discovery. Then, after the court scheduled a jury trial, [the defendant] engaged in rounds of discovery. It responded to multiple sets of interrogatories, a request for admissions, and a demand for productions of documents, met and conferred on those responses, and then supplemented them. Although [the defendant] objected to the discovery on a variety of grounds, it never once suggested that discovery should be barred because the case had to be arbitrated.

Thus, “[i]n light of [the defendant’s] nearly one-and-a-half-year delay in moving to compel arbitration, request for trial, active participation in discovery, acquiescence to the trial and discovery schedule, and court appearances, the trial court had ample evidence from which to conclude [the defendant’s] actions were inconsistent with an intent to arbitrate.” (Id. at 799.) [FN 1]

When considering if waiver occurred in the context of arbitration, both state and federal courts consider “(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were well into preparation of a lawsuit’ before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; [and] (5) ‘whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place…” [Citations]. (Iskanian, 59 Cal. 4th at 375). Notably, as explained in Davis, supra, under recent authority from the Supreme Court of the United States, the element of prejudice is “no longer required to demonstrate a waiver of one's right to arbitration, and the waiver inquiry should instead focus on the actions of the holder of that right.” (Id. at 795 [citing Morgan v. Sundance, 142 S.Ct. 1708 (2022)].)

Plaintiffs argue waiver occurred here because Nissan “inexplicably waited almost two years” from the time it filed its Answer to the time it filed the instant motion on December 15, 2022. (Opp. 2: 25-28.) Plaintiffs filed this lawsuit on December 7, 2020, and served Defendant later that same month. (See Proof of Service, 12/21/2020.) Defendant answered on January 22, 2021. After that, Defendant “engaged in scheduling discovery, objecting without mentioning arbitration, responded to discovery indicating it had no facts to support is arbitration affirmative defense, and failed to mention filing any motion to compel arbitration as part of its Case Management Statement and instead requested a trial date be set.” (Opp. 3: 1-4.) Defendant also “propounded its own discovery in the form of a demand for exchange of expert information.” (Opp. 9: 3-4; Tracy Decl. Exh. 4).

Defendant does not address Davis in its memorandum and has not filed a Reply brief. Instead, Defendant relies on Quach v. California Commerce Club (2022) 78 Cal.App.5th 470. There, the trial court denied a defendant’s motion to compel arbitration. The Court of Appeal reversed, concluding that there had “been no judicial litigation of the merits of arbitrable issues.” (Id. at 473.) Notably, the Court also placed weight on the factor that Plaintiff had not shown prejudice. “His showing below indicated nothing more than the parties participated in litigation. That participation, moreover, largely was limited to party-directed discovery, with no trial court involvement, and certainly no determinations by the court on the merits. Quach has not shown any prejudice apart from the expenditure of time and money on litigation.” (Id. at 479.)

The instant case is distinguishable from Quach. In that opinion, the court used prejudice as a factor of waiver. Whether prejudice is still a factor under California law is a question that is currently under review. The Supreme Court of California has granted a petition for review in Quach, and thus the Court of Appeal’s 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 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 Quach v. California Com. Club, 515 P.3d 623 (Cal. 2022).) Of course, the California Supreme Court may split from the Supreme Court of the United States to find that prejudice is still required under California law. Be that as it may, like in Davis, the agreement here calls for application of federal law. Thus, Davis/Morgan’s “no prejudice” rule controls.

On these facts, the court finds Defendant has waived the right to arbitrate. The analysis here is simple: Plaintiff served Defendants with the summons and Complaint in December of 2020. Defendant then sat on its right to arbitrate for approximately two years, finally filing this motion in December of 2022. Tellingly, Defendant fails to provide any justification whatsoever for this two-year delay—reasonable or not. That alone constitutes waiver.

This court is mindful that “any doubts regarding a waiver allegation should be resolved in favor of arbitration.” (St. Agnes Med. Ctr., 31 Cal. 4th at 1195.) But as in Davis, when considering Defendant’s “delay in moving to compel arbitration, request for trial, active participation in discovery, acquiescence to the trial and discovery schedule, and court appearances,” this court has “ample evidence” to conclude Defendant’s actions were inconsistent with an intent to arbitrate. (Davis, supra, 84 Cal.App.5th at 799.) Coupled with Defendant’s failure to provide any justification for this delay, there is little doubt Defendant waived its right to arbitrate.

It is undisputed that Defendant is not a signatory to the RISC, which contains the arbitration clause. Generally, a party must be a signatory to a contract to enforce the arbitration clause. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236 (JSM).) There are exceptions, however, as discussed below.

“As a general rule, only a party to an arbitration agreement may enforce the agreement. [Citation.] However, there are several exceptions that allow a nonsignatory to invoke an agreement to arbitrate. [Citation.] The doctrine of equitable estoppel is one of the exceptions. (Ibid.)” (Felisilda v. FCA US LLC, (2020) 53 Cal. App. 5th 486, 495, review denied (Nov. 24, 2020)). Under equitable estoppel, “as applied in ‘both federal and California decisional authority, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are “intimately founded in and intertwined” with the underlying contract obligations.’ [Citations.] ‘By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.’ [Citation.] (Id.)

As relied on by Defendant, in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 489, the plaintiffs sued a car manufacturer and car dealer for violations of Song-Beverly. The dealer moved to compel arbitration of the claims based on an arbitration provision. (Id.) The trial court ordered arbitration of the claims against both the dealer and manufacturer. The plaintiffs then dismissed the dealer, and arbitrated their claims with the manufacturer. (Id.) After the trial court confirmed the arbitrator’s decision, the plaintiffs appealed, arguing that the trial court could not order plaintiffs to arbitrate the claim with the manufacturer because it was a nonsignatory to the sales contract. (Id.)

The Court of Appeal rejected this argument. The court explained that the express warranties allegedly breached by the manufacturer arose from the sales contract. (Id. at 496-97). “Because the [plaintiffs] expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party nonsignatories to the sales contract – they are estopped from refusing to arbitrate their claim against [the manufacturer].” (Id. at 497).

Plaintiff, however, relies on the federal case Ngo v. BMW of America, 23 F.4th 942, 950 (9th Cir. 2022). There, the plaintiff sued BMW, who manufactured the car, but did not include the dealer. Notably, the arbitration provision was nearly identical to the one in Felisilda. The manufacturer then attempted to compel arbitration based on the provision. The Court rejected this attempt, finding equitable estoppel theory inapplicable to the manufacturer. As the court explained:

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. [Citation]…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.

Plaintiff contends Defendant cannot invoke equitable estoppel because Nissan utilizes a warranty with its own arbitration provisions. As Exhibit 1, Plaintiff attaches Nissan’s “2018 Warranty Information Booklet.” (Tracy Decl., Exh. 1.) At page 2, the booklet contains a “BBB Auto Line” mediation and arbitration process. (Id. at p. 2-3.) The booklet also contains a separate arbitration process for vehicles using Bridgestone Firestone tires. (Id. at p. 21-25.) In multiple places, the booklet states that “Nissan does not authorize any person to create for it any warranty, obligation or liability in connection with this vehicle.” (Id., p. 6, 9, 13, 17, 18, 57.)

Plaintiff’s argument—as understood by this Court—goes that because Defendant Nissan prohibits the dealer from creating any “warranty, obligation or liability in connection” with the vehicle, Defendant forfeited its own right to invoke the dealer’s RISC. Moreover, because the Warranty Information Booklet expressly recognizes that alternate arbitration processes exist, Defendant was aware that it could have recognized the one listed in the standard form RISC. Because it did not—and indeed, actually disclaimed its own right to do so—Defendant cannot rely on it.

Plaintiff next argues that because the RISC expressly calls for the application of the FAA and federal law, this court must apply Ngo, the federal authority. The Agreement here provides that “[i]f federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute.” (Maugeri Decl. Exh. 4.)

Generally, this court would agree with Defendant. Here, however, the arbitration agreement does not merely provide that the FAA applies. In addition, it also provides that “[i]f federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute.” (Emphasis added.) This appears to be an express contractual agreement that federal law will govern the interpretation of the Agreement. Accordingly, this court will apply federal law in determining if the non-signatory Defendant can compel arbitration here.

Were this court, however, to rely solely on California authority (i.e. Felisilda), the court would come to the opposite conclusion. A close reading of Felisilda does not indicate that the California Court of Appeal considered it material whether the plaintiff named the dealership in the suit, or whether the dealer (but not the manufacturer) was the party seeking to compel arbitration. Indeed, the Felisilda court expressly stated it was dealing with the case where a “nonsignatory may compel arbitration.” (Felisilda, 53 Cal.App.5th at 496) (Emphasis added). Rather, the court appeared more focused on the fact that the arbitration provision expressly extended to third parties, as it also does here. (Id. at 498). There is nothing in the decision that implies it would have come out differently had the manufacturer alone been the one who compelled arbitration.

As was the case in Felisilda, Plaintiffs’ claims against Nissan relate directly to the condition of the vehicle. Because the Plaintiffs expressly agreed to arbitrate claims arising out of the condition of the vehicle––even against third party nonsignatories to the sales contract like Nissan––under Felisilda, they are estopped from refusing to arbitrate their claims against the manufacturer.

Be that as it may, because the Agreement calls for the application of federal law, it is Ngo—and not Felisilda—that controls the analysis here. Based on the foregoing, and applying federal law as the Arbitration Agreement requires, this Court finds that Defendant cannot invoke equitable estoppel.

Defendant also argues it can compel arbitration as a third-party beneficiary of the RISC. To permit a third-party action to go forward, three factors must be established: (1) the third party would in fact benefit from the contract; (2) a motivating purpose of the contracting parties was to provide a benefit to the third party; and (3) permitting the third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and reasonable expectations of the third parties. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

Plaintiff again relies on the federal case Ngo in opposition. Ngo also directly addressed the third-party beneficiary theory and applied the Goonewardene factors. There, the Court found that BMW could not show it would benefit from the arbitration agreement (prong 1) because “only three parties—Ngo, the dealership, and the assignee—may compel arbitration.” (Ngo, supra, at 946.) The court recognized that the contract “defines ‘you’ as Ngo and ‘we’ as the dealership and its assignee,” and specified that “[e]ither you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.” (Id.) The court found any benefit to BMW was “peripheral and indirect.” (Id.) Applying the second prong, the Court found for similar reasons that it was not a “motivating purpose” of the contracting parties to confer a benefit on BMW. And applying the third prong, the court found extending coverage to BMW was not consistent with “the objective of the contract.” The Court reasoned that “[n]othing 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.” (Id. at 948.)

This court notes here, again, that the subject arbitration provision and facts at issue in this case are similar, if not identical, to that of Ngo. Applying Ngo, Defendant is not a third-party beneficiary of the RISC. Thus, even if Defendant had not waived the right to compel arbitration, this court would still find that Defendant cannot invoke the arbitration agreement.

Judge of the Superior Court

FN 1 - It should be noted that because the “inferences to be drawn from the essential facts [were] conflicting,” the Davis Court reviewed the trial court’s decision under the “substantial evidence” standard of review—not de novo review. Thus, in giving deference to the trial court’s decision, the court repeatedly noted that the record supported the trial court’s finding. Presumably, however, had the trial court came to the opposite conclusion (e.g. that no waiver had occurred), it is possible the reviewing court could conclude that the evidence supported even that finding.

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.