Judge Randolph M. Hammock, Case 22STCV10427 2023-01-12 Tentative Ruling

Plaintiff Michelle Taus (“Plaintiff”) purchased a 2019 Honda vehicle manufactured or distributed by Defendant American Honda that allegedly contained transmission defects. Plaintiff sued Defendant for (1) violation of Song-Beverly Act – breach of express warranty, (2) violation of Song-Beverly Act – breach of implied warranty, (3) violation of Song-Beverly Act section 1793.2, and (4) fraudulent concealment.

“[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

Plaintiff executed a “Closed-End Motor Vehicle Lease Agreement—California” the day of the lease purchase from Culver City Honda. (Haghighat Decl., Exh. A.) The Lease Agreement contains an arbitration provision. It provides in relevant part:

AGREE THAT ANY CLAIM THAT YOU MAY HAVE IN THE FUTURE MUST BE RESOLVED THROUGH BINDING ARBITRATION. YOU WAIVE THE RIGHT TO HAVE YOUR DISPUTE HEARD IN COURT AND WAIVE THE RIGHT TO BRING CLASS CLAIMS. YOU UNDERSTAND THAT DISCOVERY AND APPEAR RIGHTS ARE MORE LIMITED IN ARBITRATION.

By agreeing to arbitrate, the right to go to court is waived and instead claims, disputes or controversies are submitted to binding arbitration…YOU and HONDA agree and acknowledge that this Lease affects interstate commerce and the Federal Arbitration Act (“FAA”) applies.

By signing the Arbitration Consent, YOU elect to have disputes resolved by arbitration. YOU, HONDA or any involved third party may pursue a Claim. “Claim” means any dispute between YOU, HONDA, or any involved third party relating to your account, this Lease, or our relationship, including any application, the Vehicle, its performance and any representations, omissions or warranties.

HONDA means Lessor, Dealer, Honda Lease Trust, American Honda Finance Corporation (AHFC), American Honda Motor Co., Inc., Honda Finance Exchange, Inc., Acura Financial Services (AFS), Honda Financial Services (HFS), HVT, Inc., their parents, subsidiaries, predecessors, successors, assignees, and officers, employees, representatives and agents. YOU means Lessee and Co-Lessee to this Lease

Here, because the provision covers “any dispute between [the parties], or any involved third party relating to…the Vehicle, its performance and any representations, omissions or warranties,” it applies to the Song-Beverly claims here. The Agreement is also expressly governed by the FAA. (See Davis v. Shiekh Shoes, LLC (2022) 84 Cal. App. 5th 956, 963 [stating the FAA applies “if it is so stated in the agreement.”].) The issue then becomes whether Defendant Honda, a nonsignatory of the agreement, can compel arbitration.

Plaintiff first argues that Defendant has waived the right to arbitrate. Plaintiff filed this suit on March 25, 2022. On April 29, 2022, Defendant filed a demurrer and motion to strike. In response, Plaintiff filed a First Amended Complaint. Plaintiff contends that she “has already propounded her First Set of written discovery, including Request for Admissions, Request for Production of Documents, Special Interrogatories, and Form Interrogatories, drafted and filed its Motion for Leave to Amend Complaint along with the First Amended Complaint, and drafted its opposition to Defendant’s demurrer and motion to strike and attended the hearing.” (Opp. 2: 15-19.)

Defendant contends it did not waive the right to arbitrate because it did not receive a “complete copy of the lease agreement applicable to the subject matter of this lawsuit” until September 19, 2022. (Dorenkamp Decl. ¶ 2.) From that point, it moved promptly to compel arbitration.

Here, this court recognizes Defendant’s delay in moving to compel arbitration. But that alone is insufficient. Indeed, courts have found significantly 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].)

Importantly, there is little 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 Defendant has used litigation to uncover information or utilize alternate means of discovery or relief that it would not also be entitled to in arbitration.

Finally, it is also true that Defendant filed a demurrer and motion to strike. However, the court weighs this against the fact that once Defendant received a copy of the lease agreement and learned that an agreement to arbitrate existed, it promptly moved to compel arbitration within days. Plaintiff does not rebut this version of events and does not contend that Defendant acted unreasonably or without diligence in obtaining a copy of the lease agreement. Moreover, “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.

First, Defendant contends it can invoke the arbitration agreement because it is expressly named within the definition of “HONDA.” Indeed, the Agreement provides that Plaintiff or “Honda” can pursue a claim through arbitration. In turn, Honda is defined to include “American Honda Motor Co., Inc.,” among other entities. (Haghighat Decl., Exh. 1.)

Accordingly, this court agrees with Defendant that because the Agreement must be read to “specifically refer[] to claims between Plaintiff and American Honda Motor Co., Inc.,” Defendant here can invoke the arbitration agreement on this ground alone. (Mtn. 10: 19.) But even if it could not, the court finds a separate ground by which Defendant can invoke the Agreement, 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.)

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, and 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 the 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).

The Court recognizes that federal courts have narrowly interpreted, and in some cases, rejected the holding of Felisilda. In Ngo v. BMW of America, 23 F.4th 942, 950 (9th Cir. 2022), the plaintiff sued BMW—the car’s manufacturer—but did not include the dealer. 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. 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.

Ngo is certainly a reasonable interpretation of Felisilda. However, being federal authority, Ngo is not binding on this court. Plaintiff argues that the federal authority, Ngo, should govern here because the Agreement requires it. However, the Agreement provides only that the FAA governs. But unlike the agreements utilized by some other dealers, the Agreement here does not mandate that all federal law controls. [FN 1]

Further, 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 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 suggests it would have come out differently had the manufacturer alone been the one who compelled arbitration. Absent further guidance from a California court, this court declines to impose such a requirement on its own.

Here, in signing the Lease Agreement, Plaintiff agreed that “any dispute between [the parties], or any involved third party relating to…the Vehicle, its performance and any representations, omissions or warranties,” would be resolved by binding arbitration. Plaintiff alleges that “[e]xpress and implied warranties accompanied the lease of the vehicle to Plaintiff,” that the vehicle was backed by Honda’s “Vehicle Limited Warranty,” and that an “implied warranty of merchantability also accompanied the lease.” (FAC ¶¶ 8, 9, 10.) As was the case in Felisilda, Plaintiff’s claims against Honda 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––Plaintiff is estopped from refusing to arbitrate the claims against American Honda. (Felisilda, 53 Cal.App.5th at 497.)

Based on the foregoing, the court finds that the arbitration provision at issue covers the dispute here, and Defendant American Honda has standing to compel arbitration. This conclusion is consistent with the policy that “[d]oubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration.” (California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205).

Plaintiff argues that even if a valid agreement to arbitrate does apply to this dispute, it should be disregarded based on principles of unconscionability. Unconscionability has “both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results. (Sanchez v. Valencia Holding Company, LLC (2015) 61 Cal.4th 899, 910.) Under California law, an arbitration agreement must be in some measure both procedurally and substantively unconscionable in order for the agreement to be unenforceable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114; De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 982.) “But they need not be present in the same degree. . . . [T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, supra, 24 Cal.4th at p. 114.)

Plaintiff argues the agreement is procedurally unconscionable because it was a contract of adhesion. “The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” [Citation]. (Id. at 113).

Here, the “take it or leave it” nature of the agreement is sufficient to establish “some degree of procedural unconscionability.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915). This means the substantive terms of the agreement must be scrutinized to ensure they are not manifestly unfair or one-sided. (Id.)

Plaintiff also argues the Agreement is substantively unconscionable because it deprives Plaintiff of her right to a jury trial. Of course, arbitration always deprives a Plaintiff of her right to a jury trial—but that alone does not make arbitration unconscionable. In Armendariz, the California Supreme Court outlined five elements that must be present in an arbitration agreement in order to avoid substantive unconscionability. (24 Cal.4th at p. 102.)

As relevant here, Armendariz factor 5 provides that the agreement must not “require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.” (24 Cal.4th at p. 102.) Here, the Agreement provides that the Defendant will pay Plaintiff’s fees up to $5,000.00, “unless the law requires more.” (Haghighat Decl., Exh. 1). Accordingly, to the extent this provision is inconsistent with the Song-Beverly Act, the Act will prevail.

Judge of the Superior Court

FN 1 - To illustrate, some dealers have adopted arbitration provisions with language to the effect that arbitration “shall be governed by the Federal Arbitration Act” and also that “if 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.” In that event, this court has treated the language as the parties’ contractual agreement that federal statutes and case authority should govern. But where, as here, the Agreement states only that the FAA applies—but does not include the latter language mandating that federal law controls—the court has consistently applied binding California case authority.

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.