Judge Randolph M. Hammock, Case 22STCV24273 2023-01-26 Tentative Ruling

Judge: Randolph M. Hammock, Case: 22STCV24273, Date: 2023-01-26 Tentative Ruling

This is a lemon law case. Plaintiff Evelyn Menendez brings this action against Defendants Nissan North America, Inc., and K Motors SJC LLC (dba Glendale Nissan) for (1) violation of the Song-Beverly Act, breach of express warranty, and (2) negligent repair. Plaintiff alleges her vehicle exhibited engine, electrical, and transmission defects. Plaintiff further alleges that Defendant Glendale Nissan negligently repaired the vehicle on numerous occasions.

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 June 6, 2021, Plaintiff purchased a Nissan Rogue from Nissan of Downtown LA, who is not a party to this action. Pursuant to that transaction, Plaintiff signed a Retail Installment Sales Contract (“RISC”). The RISC contains an agreement to arbitrate. In pertinent part, it provides:

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.)

In the First Cause of Action for breach of the Song-Beverly Act, Plaintiff alleges her vehicle exhibited “defects and nonconformities,” that Defendant “was unable to conform the Subject Vehicle to the applicable express warranty after a reasonable number of repair attempts,” and Defendant “has failed to either promptly replace the Subject Vehicle or to promptly make restitution.” (Compl. ¶¶ 16, 19, 21.) In the Second Cause of Action for Negligent repair, Plaintiff alleges she “delivered the Subject Vehicle to Defendant Glendale Nissan for repair on numerous occasions,” but Defendant “fail[ed] to properly store, prepare, and repair” the vehicle. (Id. ¶¶ 28, 30.)

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 claim, as well as the negligent repair cause 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 Agreement’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 [stating the FAA applies “if it is so stated in the agreement.”].)

It is undisputed that neither Defendant is a signatory to the RISC, which contains the arbitration clause. Rather, the subject RISC was entered into by Plaintiff on one hand, and Nissan of Downtown LA, on the other. Nissan of Downtown LA is not a Defendant in this action. 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 Defendants, 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 its 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). Defendants here argue that just like in Felisilda, “this matter is proceeding against the manufacturer—a nonsignatory to the arbitration agreement—and without the selling dealership.” (Mtn. 9: 1-2.) “[I]t makes no difference,” Defendant argues, “that Plaintiff did not also sue the selling dealership.” (Id. 11: 3.)

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. 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.

Plaintiff argues that because the RISC expressly calls for the application of the FAA, 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.” (Richardson Decl. Exh. 1.)

Generally, this court would agree with Defendants, because “[s]tate law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration.” (See Ngo, supra, 23 F.4th at 946.) Here, however, the arbitration agreement goes a step further. It provides not only that the FAA applies, but 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 Defendants can compel arbitration here. Thus, applying Ngo, this court concludes Defendants cannot invoke equitable estoppel.

Were this court, however, to rely solely on California authority (i.e. Felisilda), the court would come to the opposite conclusion, at least as to Nissan North America. [FN 1] 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 claim 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.

Defendants also argue they can compel arbitration as third-party beneficiaries of the RISC. They contend the “intent to benefit Nissan is evident from the plain language of the arbitration provision of the Sales Contract,” in which Plaintiff agreed to arbitrate “[a]ny claim or dispute . . . which arises out of or relates to . . . any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract). (Mtn. 12: 7-11 [quoting the RISC at p. 7].)

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.)

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, presented to Plaintiff on a “take it or leave it” basis. “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. First, Plaintiff argues substantive unconscionability because the selling dealer or creditor has the final say on choice of arbitrator. Be that as it may, this court is aware of no authority suggesting such a fact renders a degree of unconscionability.

Second, Plaintiff argues the agreement is unconscionable because it deprives 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.)

Armendariz factors 2 and 3 require that the arbitration agreement “provide for more than minimal discovery” and that the arbitrator issue a written opinion. (24 Cal.4th at p. 102.) Here, there is nothing in the agreement to suggest that it does not provide for more than minimal discovery. The provision notes that “discovery and right to appeal in arbitration are generally more limited than in a lawsuit,” as is nearly always the case. Discovery would otherwise follow the rules of the American Arbitration Association (“AAA”), or another arbitration body “subject to [Defendant’s] approval.” (Id.) It also provides that the arbitrator’s award “shall be in writing.”

Armendariz factor 4 requires that the agreement provide for all types of relief that would otherwise be available in court. (24 Cal.4th at p. 102.) Here, the Agreement provides that the “arbitrator shall apply governing substantive law.” There is nothing to suggest the agreement limits either parties’ remedies.

Finally, 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 or the rules of the chosen arbitration organization” requires more. (Morales Decl., Exh. A). Accordingly, to the extent this provision is inconsistent with the Song-Beverly Act or Armendariz, those authorities will prevail.

Judge of the Superior Court

FN 1 - The same would not necessarily be true as to the dealer Defendant here, Glendale Nissan. That is because Glendale Nissan was not the selling dealer in the transaction at issue, and its relationship with the selling dealer (Nissan of Downtown LA) is unclear. While under Felisilda, equitable estoppel applies to the manufacturer invoking an arbitration provision to which the dealer was the signatory, it is not clear that such a rule can or should apply to an entirely separate dealership. Likewise, this court is unaware of any authority holding one dealer is a third-party beneficiary of another dealer. Be that as it may, this court need not decide that issue now, as it finds that neither party can invoke the arbitration provision.

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.