Judge Randolph M. Hammock, Case 21STCV46198 2023-03-06 Tentative Ruling

Defendant now moves for an order compelling Plaintiff to arbitrate the dispute pursuant to CCP § 1281 et seq. This matter first came for hearing unopposed on February 8, 2023. At the hearing, Plaintiff attributed the failure to file an opposition to a calendaring error and made an oral motion to continue the hearing so that an opposition could be filed. [FN 1] This court granted that request and continued the hearing to this date. This court has considered the moving papers, opposition, and reply, and now rules as follows.

This Court is unaware of any legal authority which requires a court to rule on evidentiary objections on a motion, except as to a motion for summary motion/adjudication (CCP § 437c (q)] or a special motion to strike (CCP § 425.16 (b)(2)); see also, Sweetwater Union High School Dist. v. Gilbane Building Co. (2019) 6 Cal.5th 931, 947-949.)

“[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 or about June 10, 2018, Plaintiff purchased a 2017 Nissan Titan from Antelope Valley Nissan in Palmdale, CA. Pursuant to that transaction, Plaintiff signed a Retail Installment Sales Contract (“RISC”). (Wilner Decl. Exh. 4.) The RISC contains an arbitration clause. In pertinent part, it provides:

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 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.”].)

Plaintiff first argues that Defendant waived its right to compel arbitration because Nissan litigated this case against Plaintiff for nearly a year before it filed the instant Motion, and “filed an Answer, engaged in discovery…and filed its Case Management Statement with no intention of seeking arbitration.” (Opp. 5: 14-16.) Plaintiff also argues, to extent he must show prejudice, that he “would be unduly prejudiced if forced to arbitrate this matter” because of the present and future delay, because he has “disclose[d] more of its trial tactics to Defendant than otherwise required to disclose in arbitration,” and because he “will be unable to compel discovery or benefit from discovery it has conducted for nearly 11 months.” (Opp. 5: 24-26.)

Defendant, on the other hand, argues that its “pretrial activity in the instant case amounts to no more than mere ‘participation in litigation’ that is not inconsistent with the right to arbitrate.” (Mtn. 14: 23-25.) Nissan has not propounded discovery, and “there has been no substantive motion practice, no depositions, no vehicle inspection, and no determination by the Court on the merits of any issue in this matter.” (Mtn. 14: 24-25.)

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)].)

Defendant relies on Quach v. California Commerce Club (2022) 78 Cal.App.5th 470, to contend no waiver occurred here. 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, the agreement here calls for application of federal law. Thus, Morgan’s “no prejudice” rule controls.

Be that as it may, the 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. (See Answer, D’s RJN, Exh. 2.) While this court recognizes that Defendant’s approximately 12-month delay to move to compel is not insignificant, that alone is insufficient. Indeed, courts have found longer delays that did not amount to waiver. (See 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].) And 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.)

Importantly, there is also 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 merely responded to Plaintiff’s own discovery. But there is nothing to suggest, contrary to Plaintiff’s assertion, that Defendant has used litigation to uncover information or utilize alternate means of discovery or relief that it would not also 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.

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).

As relied on by Plaintiff, 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.

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 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.

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.

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.)

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.)

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.