Judge Randolph M. Hammock, Case Number: 23STCV17308, Date: 2023-12-15 Tentative Ruling

Judge: Randolph M. Hammock, Case: 23STCV17308, Date: 2023-12-15 Tentative Ruling

Plaintiffs Sohee Oh and Hyung Kim bring this action for violations of the Song-Beverly Act against Defendant Hyundai Motor America. On or about October 21, 2019, Plaintiffs purchased a vehicle manufactured by Defendant. Plaintiffs allege the subject vehicle exhibited engine defects, including oil leaks.

However, as will be discussed infra, if the parties are agreeable, this Court is willing to stay this entire case, including the final ruling on this motion, until the California Supreme Court issues its ruling in the Ford Motor Warranty Cases (“Ochoa”). See also, footnote 1, infra.

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.)

On or about October 21, 2019, Plaintiffs purchased a 2020 Hyundai Palisade. (Willette Decl., Exh. A.) Pursuant to that transaction, it is undisputed that Plaintiffs signed a Retail Installment Sale Contract (“RISC”). (Id.) 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.

Accordingly, the Agreement 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. (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. (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.”].)

In opposition, Plaintiffs contend that Defendant cannot invoke the arbitration agreement because the arbitration clause only contemplates disputes between Plaintiffs and the dealer. 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.

Defendant relies on Felisilda v. FCA US LLC (2020) 53 Cal. App. 5th 486. There, 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).

More recently, as noted by Plaintiffs, the Court of Appeal addressed the same issues in Ford Motor Warranty Cases (2023) 89 Cal. App. 5th 1324 (“Ochoa”). 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.) [FN 1]

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.) Separately, Ochoa also held that the manufacturer was not a third-party beneficiary of the arbitration provision. (Id. at 1340.)

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, 89 Cal. App. 5th at 1334.) The Ochoa Court also noted it was not bound by Felisilda because there is no “horizontal stare decisis” in California. (Id. at fn. 1.)

However, this conflict does not render Felisilda invalid. “[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.)

For purposes of this motion, this court adopts the ruling and rationale of Felisilda. 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 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.

The bottom line is that this Court frankly believes that any court’s finding that the manufacturer of a car “was not intended to be a third-party beneficiary” of the sales contract is hair splitting at best – delusionary at its worse. Consumers do not generally purchase or lease their new cars directly from the manufacturer. They do so through the authorized dealers of the manufacturer. The manufacturer is rarely directly involved in that transaction. Common sense dictates that the manufacturer was clearly intended to benefit from any arbitration agreement between a purchaser/lessee and the authorized dealer of the manufacturer.

However, if the parties are agreeable, this Court is willing to stay this entire case, including the final ruling on this motion, until the California Supreme Court issues its ruling in the Ford Motor Warranty Cases (“Ochoa”).

Judge of the Superior Court

FN 1 - This court is also aware that multiple appellate panels have recently concurred with the Ochoa Court’s analysis on this issue. (See, e.g., Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958; Kielar v. Superior Ct. of Placer Cnty. (2023) 94 Cal. App. 5th 614, 619; Yeh v. Superior Ct. of Contra Costa Cnty. (2023) 95 Cal. App. 5th 264.) Interestingly enough, it does appear that the California Supreme Court will, in fact, be addressing (and hopefully – resolving) this current split in the court of appeals, since it has recently granted review of the Ochoa decision.

FN 2 - On the other hand, it is certainly a fair point to also note that it would certainly be easier for the sales or lease contract to simply state that fact, since it is essentially written by the manufacturer and/or its authorized dealer.