Sumar Prasad v. Nissan North America, Inc.

MOTION TO COMPEL ARBITRATION

 

MOVING PARTY: Defendant Nissan North America, Inc.

RESPONDING PARTY(S): Plaintiff Sumar Prasad

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff Sumar Prasad brings this action for violations of the Song-Beverly Act against Defendant Nissan North America, Inc. Plaintiff alleges the subject vehicle exhibited electrical, transmission, and engine system defects, among other things.

Defendant now moves for an order compelling Plaintiff to arbitrate the dispute pursuant to CCP § 1281 et seq.  Plaintiff opposed.

TENTATIVE RULING:

Defendant’s Motion to Compel Arbitration is DENIED. 

Plaintiff to give notice.

This Court will consider any request for a stay of this case for up to sixty (60) days so that the Defendant may determine whether it wants to file a direct appeal of this ruling.

DISCUSSION:

Motion to Compel Arbitration

1. Judicial Notice

Pursuant to Defendant’s Request, the court takes judicial notice of Exhibits 1, 2, and 3.

Pursuant to Plaintiff’s Request, the court takes judicial notice of Exhibits A, B, C, and D.

The court takes judicial notice of the exhibits without assuming the truth of the assertions contained therein. (See Seelig v. Infinity Broad. Corp. (2002) 97 Cal. App. 4th 798, 808.)

2. Legal Standard

California has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes.  The Federal Arbitration Act (“FAA”) also manifests a policy favoring arbitration. (Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708, 1713.) “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.)  

“[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.)

3. Existence of Arbitration Agreement

On or about May 22, 2018, Plaintiff purchased a 2018 Nissan Altima from Nissan of Elk Grove in Elk Grove, CA.  Pursuant to that transaction, Plaintiff signed a Retail Installment Sale Contract (“RISC”). (Polyakov Decl. Exh. 4.) The RISC contains an arbitration clause.  In pertinent part, it provides:

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

IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.

DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.

(Id.)

The Arbitration Provision states broadly that any claim arising out of the condition of the vehicle or RISC could be resolved by binding arbitration:

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.

(Id.)

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 Agreement here, which covers “[a]ny claim or dispute…which arises out of or relates to [Plaintiff’s]…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”].) 

Consistent with the Provision’s plain language, it is also governed by the FAA and federal law, and this court will apply federal law where necessary. (See Davis v. Shiekh Shoes, LLC (2022) 84 Cal. App. 5th 956, 963 [finding the FAA applies “if it is so stated in the agreement.”].)

4. Waiver of Right to Arbitrate

Plaintiff first argues that Defendant waived its right to compel arbitration because it delayed 14-months in bringing this motion.   

Defendant, on the other hand, argues that it has not propounded its own discovery, that there has been no motion practice, no depositions, no expert discovery, and no vehicle inspections. (Polyakov Decl. ¶¶ 6, 7.)

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, 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.” (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 795 [citing Morgan v. Sundance, 142 S.Ct. 1708 (2022)].)

Here, this court cannot find waiver under these facts.  Nissan included arbitration as an affirmative defense in its Answer, signaling its intent to arbitrate from the beginning. And while this court recognizes that Defendant’s unexplained delay is significant, that alone is insufficient.  Indeed, courts have found similar delays that did not amount to waiver.  In Davis, a case with facts that otherwise closely resemble this one, the defendant waited 17-months to compel arbitration after being served with the complaint. (Davis, supra, 84 Cal. App. 5th at 967–68; see also Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal. App. 4th 651, 663 [a 14-month period from the filing of the original complaint to the filing of the motion to compel was insufficient to support the waiver].)

Importantly, there is no evidence that Defendant has “invoked the litigation machinery” in this case.  (Iskanian, 59 Cal. 4th at 375). As a comparison, Courts have found a waiver when the party seeking to compel arbitration did so only after “sen[ding] two sets of lawyers to the third-party depositions and t[aking] full advantage of every opportunity to cross-examine the deponents.”  (Guess?, Inc. v. Superior Ct. (2000) 79 Cal. App. 4th 553, 558.  They also “t[ook] full advantage of the opportunity to test the validity of Guess's claims, both legally and factually, primarily at [the plaintiff’s] expense.”  (Id.)  

Such is not the case here. Defendant has not propounded its own discovery.  This court also notes the complete absence of any law and motion practice in the case thus far.  For these reasons, there is no evidence that Defendant has used litigation to uncover information or utilize alternate means of discovery or relief that would not be available in arbitration. 

In finding no waiver here, this court notes that “any doubts regarding a waiver allegation should be resolved in favor of arbitration.”  (St. Agnes Med. Ctr., 31 Cal. 4th at 1195.)  Based on the record before it, this court cannot find a waiver in light of the strong public policy in favor of arbitration.

5. Enforceability by Nonsignatory Defendant

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.) There are exceptions, however, as discussed below.

A. Relevant Authorities

This court begins its analysis with a discussion of the relevant California and federal authorities addressing Song-Beverly motions to compel arbitration by nonsignatories. 

First, 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).

Then, in Ngo v. BMW of America, 23 F.4th 942, 950 (9th Cir. 2022), 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.

(Id. at 950).

Ngo also went on to hold that the manufacturer was not a third-party beneficiary of the agreement.  (Id. at 946.) 

Most recently, the California Court of Appeal addressed the issues in Ford Motor Warranty Cases, No. B312261, 2023 WL 2768484 (Cal. Ct. App. Apr. 4, 2023) (“Ochoa”), a case certified for publication. In relevant part, the Ochoa Court converged from Felisilda’s position that “the sales contract was the source” of the warranties at issue. (Felisilda, supra, 53 Cal.App.5th at p. 496.) Instead, the Ochoa court concluded that “manufacturer vehicle warranties that accompany the sale of motor vehicles without regard to the terms of the sale contract between the purchaser and the dealer are independent of the sale contract.” (Ochoa, supra, 2023 WL 2768484 at *4 [emphasis added].) Thus, the court found equitable estoppel to be inapplicable because the plaintiffs’ claims “in no way rel[ied] on the sale contracts.” (Id.) Therefore, the Plaintiffs were not attempting “to prevent a party from taking advantage of a contract's substantive terms while avoiding those terms requiring arbitration,” which is the “’fundamental point’ of using equitable estoppel to compel arbitration.” (Id.)

Ochoa also disagreed with Felisilda’s holding that a manufacturer could compel arbitration as a third-party beneficiary of the sales contract.  Instead, it found Ngo “persuasive,” agreeing that “the sale contracts reflect no intention to benefit a vehicle manufacturer.” (Id. at *7.)

An application of these authorities to the instant case follows.

B. Equitable Estoppel 

Defendant first argues that it has standing to compel arbitration under the doctrine of equitable estoppel.

“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.)

Defendant contends that Felisilda controls and demands a finding of arbitrability here. (Felisilda, supra, 53 Cal. App. 5th.) And Defendant recognizes Ngo’s (and Ochoa’s) conflict with Felisilda, but argues Ngo, as federal authority, “is not binding on this court.” (Mtn. 11: 11-12.) 

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.” (Polyakov Decl. Exh. 4 [Emphasis added].)  This appears to be an express contractual agreement that federal law will govern the interpretation of the Agreement.  Accordingly, to give effect to the terms of the Agreement, this court will apply federal law in determining if the non-signatory Defendant can compel arbitration here.

It is apparent that the facts of the instant case are indistinguishable from Ngo.  Based on the foregoing, and applying federal law as the Arbitration Agreement requires, this Court finds that Defendant cannot invoke equitable estoppel.

The analysis can stop there. But for discussion purposes, this court notes that the two California authorities—Felisilda and Ochoa—are directly in conflict.  Indeed, Ochoa did not purport to distinguish Felisilda.  Rather, the Court stated flatly that it “disagree[s] with Felisilda’s analysis.” (Ochoa, supra, 2023 WL 2768484 at *4.) The Ochoa Court also noted it was not bound by Felisilda because there is no “horizontal stare decisis” in California. (Id. at fn. 1.)

“[W]here there is more than one appellate court decision, and such appellate decisions are in conflict…. the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.” (See Auto Equity Sales, Inc. v. Superior Ct. of Santa Clara Cnty. (1962) 57 Cal. 2d 450, 456.)  [FN 1]  But for purposes of the instant motion—based on the RISC’s directive to apply federal case law—this court need not choose a side between Ochoa and Felisilda. As noted, it will apply Ngo.

Be that as it may, were this court to apply Ochoa, the result would be the same as that when applying Ngo. At least for present purposes, those decisions are in accord, and Defendant cannot rely on equitable estoppel under either.

Were this court, however, to rely on and apply Felisilda, the decision would require a different result in this case.  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 flatly 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.   [FN 2]

As was the case in Felisilda, Plaintiff’s claims against Nissan relate directly to the condition of the vehicle.  Because Plaintiff 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, Plaintiff is estopped from refusing to arbitrate the claims against the manufacturer.  

C. Third Party Beneficiary 

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.)  

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, 23 F.4th 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.)

Thus, applying Ngo—which controls and to which the facts here are nearly identical—Defendant is not a third-party beneficiary of the RISC. The result is the same under Ochoa. The Court need not go further to address whether other California authorities may allow for a different result.

Accordingly, Defendant’s motion to compel arbitration is DENIED.

Plaintiff to give notice.

IT IS SO ORDERED.

Dated:   April 20, 2023 ___________________________________

Randolph M. Hammock

Judge of the Superior Court