Jack Richmond v. Hyundai Motor America

MOTION TO COMPEL ARBITRATION

 

MOVING PARTY: Defendant Hyundai Motor America

RESPONDING PARTY(S): Plaintiff Jack Richmond

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff Jack Richmond brings this action for violations of the Song-Beverly Act against Defendant Hyundai Motor America. Plaintiff alleges it purchased a 2022 Hyundai Santa Cruz that has defects and nonconformities to warranty, including powertrain and transmission defects.

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

TENTATIVE RULING:

The court exercises its discretion to STAY the case in its entirety and defer its ruling on the motion to compel arbitration, pending a Cal. Supreme Court decision in Ford Motor Warranty Cases, S279969.

A Status Conference is set for February 7, 2025, at 8:30 a.m.

Defendant to give notice, unless waived.

DISCUSSION:

Motion to Compel Arbitration

1. 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.)

2. Existence of Arbitration Agreement

On or about January 21, 2022, Plaintiff purchased a 2022 Hyundai Santa Fe from South Bay Hyundai. (Willette Decl., Exh. A.) Pursuant to that transaction, it is undisputed that Plaintiff signed a Retail Installment Sale Contract (“RISC”). (Id.) 

The RISC references an arbitration clause in multiple places. First, Plaintiff signed the box titled “Agreement to Arbitrate.” (Willette Decl., Ex. A.) By doing so, Plaintiff “agree[d] that, pursuant to the Arbitration Provision on the reverse side of this contract, you or we may elect to resolve any dispute by neutral, binding arbitration and not by a court action.” (Id.) That box also instructed Plaintiff to “[s]ee the Arbitration Provision for additional information concerning the agreement to arbitrate.” (Id.) 

Additionally, by later signing the RISC at the bottom, Plaintiff agreed:

YOU AGREE TO THE TERMS OF THIS CONTRACT. YOU CONFIRM

THAT BEFORE YOU SIGNED THIS CONTRACT, WE GAVE IT TO YOU,

AND YOU WERE FREE TO TAKE IT AND REVIEW IT. YOU

ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES OF THIS

CONTRACT, INCLUDING THE ARBITRATION PROVISION ON THE

REVERSE SIDE, BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU

RECEIVED A COMPLETELY FILLED-IN COPY WHEN YOU SIGNED IT.

(Id.) 

It does not appear that Defendant has provided the full text of the arbitration provision itself, which is contained on the “reverse side” of the RISC. However, Plaintiff does not dispute that the terms of the arbitration provision cover the instant Song-Beverly claims. The scope of the arbitration provision would appear to be broad, since the provision referencing the reverse side states the agreement applies to “any dispute.” (Id.; see also 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”].) Plaintiff appears to cite portions of the RISC’s broader arbitration provision in his opposition to the motion when arguing that the agreement is substantively unconscionable. (See Opp. 4: 16-22.) Therefore, there is no dispute as to what the arbitration provision(s) in the RISC say. 

Consistent with the arbitration 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.”].)

3. Enforceability by Nonsignatory Defendant

In opposition, Plaintiffs contend that Defendant cannot invoke the arbitration agreement because the arbitration clause in the RISC 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.)

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.) 

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.   

Therefore, the arbitration provision here was enforceable—and under current law and Auto Equity Sales, remains enforceable—by the nonsignatory manufacturer under the RISC.

Be this as it may, this court is also aware that multiple appellate panels have recently concurred with the Ochoa Court’s analysis on this issue, holding that a manufacturer cannot invoke arbitration under the equitable estoppel theory and/or as a third-party beneficiary. (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 one or more of these decisions.  (See Ford Motor Warranty Cases, S279969.) As of this date, that matter has been fully briefed and is awaiting oral argument. 

“’[A] court ordinarily has inherent power, in its discretion, to stay proceedings when such a stay will accommodate the ends of justice.’ (People v. Bell (1984) 159 Cal.App.3d 323, 329.) As the Court in Landis v. North American Co. (1936) 299 U.S. 248, 254, explained, ‘the power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 141; see also Frieberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1481, 1489 [“Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.”].)

Here, the court exercises its discretion to STAY the case, and defer its ruling on the motion to compel arbitration, pending a decision in Ford Motor Warranty Cases, S279969.

Moving party is ordered to give notice.

IT IS SO ORDERED.

Dated:   October 9, 2024 ___________________________________