Judge: Robert B. Broadbelt, Case: 21STCV47235, Date: 2022-12-06 Tentative Ruling

Case Number: 21STCV47235    Hearing Date: December 6, 2022    Dept: 53

Superior Court of California

County of Los Angeles – Central District

Department 53

MOVING PARTY:                Defendant American Honda Motor Co., Inc.

RESPONDING PARTIES:    Plaintiffs Nely Alejandra Correa Flores and Elvia Flores Pena

(1)   Motion to Compel Arbitration and Stay Proceedings

(2)   Demurrer to Complaint

(3)   Motion to Strike Portions of Complaint

The court considered the moving, opposition, and reply papers filed in connection with the motion to compel arbitration.   

BACKGROUND

Plaintiffs Nely Alejandra Correa Flores and Elvia Flores Pena (“Plaintiffs”) filed this lemon law action against defendant American Honda Motor Co., Inc. (“Defendant”) on December 28, 2021, alleging defects with their 2019 Honda Pilot. 

Defendant filed the following three motions that are now pending before the court: (1) motion to compel arbitration and stay proceedings, filed on May 5, 2022; (2) demurrer to Complaint, filed on February 2, 2022, and (3) motion to strike portions of Complaint, filed on February 2, 2022.

MOTION TO COMPEL ARBITRATION

Defendant moves the court for an order (1) compelling Plaintiffs to submit their claims to binding arbitration, and (2) staying this action pending completion of arbitration.

1.     Existence of a Written Agreement to Arbitrate

A written provision in any contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.  (9 U.S.C. § 2.)  The Federal Arbitration Act (“FAA”) requires courts to direct parties to proceed to arbitration on issues covered by an arbitration agreement upon a finding that the making of the arbitration agreement is not in issue.  (9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostic Sys. (9th Cir. 2000) 207 F.3d 1126, 1130.)  “The court’s role under the [FAA] is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.”  (Chiron Corp., supra, 207 F.3d at p. 1130.)  The FAA reflects “both a ‘liberal federal policy favoring arbitration,’ [citation], and the ‘fundamental principle that arbitration is a matter of contract,’ [citation].”  (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.)

A party seeking to compel arbitration bears the burden of proving a written agreement to arbitrate exists.  (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)  The burden of production as to this finding shifts in a three-step process.  (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165.)  First, the moving party bears the burden of producing prima facie evidence of a written agreement to arbitrate, which can be met by attaching a copy of the arbitration agreement purporting to bear the opponent’s signature.  (Ibid.) If the moving party meets this burden, the opposing party bears, in the second step, the burden of producing evidence to challenge its authenticity.  (Ibid.)  If the opposing party produces evidence sufficient to meet this burden, the third and final step requires the moving party to establish, with admissible evidence, a valid arbitration agreement between the parties.  (Ibid.)

Defendant produces a copy of the “Closed-End Motor Vehicle Lease Agreement—California” (the “Lease Agreement”), which was entered into by and between lessor Galpin Honda (“Lessor”) and plaintiff Nely Alejandra Correa Flores.  (Hwang Decl., Ex. A, Lease Agreement p. 1.)  The first page of the Lease Agreement contains a section entitled “Arbitration,” which states that “[t]he parties agree that any unresolved disputes shall be submitted to arbitration in accordance with the Arbitration clause (Section 52).”  (Hwang Decl., Ex. A, Lease Agreement, ¶ 15.)  This section was initialed by “N.C.” and confirms that the section and the arbitration clause had been read.  (Ibid.)  Plaintiff Nely Alejandra Correa Flores also provided her full signature on the first page of the Lease Agreement.  (Id. at ¶ 17.)

Section 52 of the Lease Agreement contains the full terms of the arbitration clause, and provides as follows:  “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.  ‘Claim’ does not include personal injury or wrongful death claims.”  (Hwang Decl., Ex. A, Lease Agreement, ¶ 52.)  The arbitration clause defines “HONDA” to include, inter alia, “Lessor, Dealer, … [and] American Honda Motor Co., Inc.,” i.e., Defendant. (Ibid.) 

The court finds that Defendant has met its burden of establishing the existence of a valid written contract between plaintiff Nely Alejandra Correa Flores and Lessor.  The court further finds that Defendant has met its burden of establishing that it may invoke the arbitration clause in the Lease Agreement under the doctrine of equitable estoppel against Plaintiffs.

“‘Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it.’  [Citations.]  ‘There are exceptions to the general rule that a nonsignatory to an agreement cannot be compelled to arbitrate and cannot invoke an agreement to arbitrate, without being a party to the arbitration agreement.’”  (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236-1237 [internal citations omitted].)  One such exception is the doctrine of equitable estoppel.  (Id. at p. 1237.)  “Under the doctrine of 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.”  (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (“Felisilda”) [internal quotations omitted].)  For the doctrine of equitable estoppel to apply, “‘the claims plaintiff asserts against the nonsignatory must be dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause.’”  (JSM Tuscany, LLC, supra, 193 Cal.App.4th at p. 1238.)

The court finds that the language in the arbitration clause set forth in the Lease Agreement estops Plaintiffs from refusing to arbitrate their claims against Defendant.  As set forth above, the arbitration clause provides that the customer, Honda (defined to include Defendant), or “any involved third party” may pursue a claim, i.e., “any dispute between [the customer], Honda, or any involved third party relating to…the Vehicle, its performance and any representations, omissions or warranties.”  (Hwang Decl., Ex. A, Lease Agreement, ¶ 52.)  Here, Plaintiffs allege that their “causes of action arise out of the warranty obligations of [Defendant] in connection with a vehicle purchased [or leased] by Plaintiffs which was accompanied by written and implied warranties.”  (Compl., ¶¶ 4, 8.) 

Thus, the court finds that Plaintiffs’ Complaint expressly encompasses (1) a claim between signatory plaintiff Nely Alejandra Correa Flores and Honda (defined to include Defendant) “relating to…the Vehicle, its performance and any representations, omissions or warranties” and (2) a claim between “involved third party” plaintiff Elvia Flores Pena and Honda (defined to include Defendant) “relating to…the Vehicle, its performance and any representations, omissions or warranties.”  (Hwang Decl., Ex. A, Lease Agreement, ¶ 52.)  Although not pointed out by Defendant, the court notes that plaintiff Elvia Flores Pena did not sign the Lease Agreement, but that the arbitration clause provides that Honda—including Defendant—has the authority to pursue a claim, which includes any dispute between Honda and an involved third party relating to the Lease Agreement, the Vehicle, and its performance.  (Ibid.)

The court therefore finds that Defendant has met its burden of establishing that, because Plaintiffs agreed to arbitrate their claims relating to the vehicle, its performances, and any representations, omissions, or warranties against third parties who are not signatories to the Lease Agreement—and, in particular, against Defendant, who is expressly identified in the terms of the arbitration clause—Plaintiffs cannot refuse to arbitrate their claims against Defendant.  (Felisilda, supra, 53 Cal.App.5th at p. 497.)

The court notes that Defendant also moves to compel arbitration on the ground that it is a third party beneficiary to the arbitration agreement.

To compel arbitration as a third party beneficiary, the moving party must show that (1) the third party would benefit from the contract; (2) a motivating purpose of the contracting parties was to provide a benefit to the third party; and (3) permitting a third party to bring a claim against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.  (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

The court notes that Defendant correctly contends that the arbitration clause expressly contemplates that Defendant may move to compel arbitration.  (Hwang Decl., Ex. A, Lease Agreement, ¶ 52 [defining Honda to include Defendant, and providing that the customer, “Honda, or any involved third party may pursue a claim”].)  This evidence may be sufficient to establish that (1) Defendant would benefit from the contact by its ability to compel arbitration, and (3) permitting Defendant to bring a claim against the signatory plaintiff and involved third party plaintiff is consistent with the objectives of the Lease Agreement and reasonable expectations of the parties, since Defendant is expressly identified in the arbitration clause. However, Defendant has not produced sufficient evidence or argument establishing that a motivating purpose of the parties was to provide a benefit to it.  To establish a “motivating purpose,” Defendant must establish that “the contracting parties [had] a motivating purpose to benefit the third party, and not simply knowledge that a benefit to the third party may follow from the contract.”  (Goonewardene, supra, 6 Cal.5th at p. 830.)  Defendant has not addressed this element and thus has not met its burden to establish that this doctrine applies.

The court finds that Plaintiffs have not met their burden of establishing that the arbitration clause set forth in the Lease Agreement is invalid or not enforceable.

First, although Plaintiffs take issue with the declaration of Defendant’s counsel, the declaration states that the Lease Agreement was produced by the Lessor pursuant to a deposition subpoena for business records.  (Hwang Decl., ¶ 2.)  Plaintiffs have not submitted any evidence disputing the authenticity of the Lease Agreement, or disputing the authenticity of plaintiff Nely Alejandra Correa Flores’s signature.

Second, Plaintiffs argue that the court cannot consider Felisilda or California state court decisions since the arbitration clause provides that it is to be governed pursuant to the FAA.  (Opp., p. 4:4-5 [“federal authority governs the terms of this agreement, not state court precedent”].)  The court disagrees.  “[A] litigant who is not a party to an arbitration agreement may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement.”  (Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1128; Ngo v. BMW of N. Am., LLC (9th Cir. 2022) 23 F.4th 942, 946 [“State law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration”].)  Although federal court decisions may be persuasive, they are not binding on state courts, and state contract law is directly relevant to the issues presented here (i.e., whether Defendant, as a nonsignatory, may compel arbitration).  (Alan v. Superior Court (2003) 111 Cal.App.4th 217, 229.)

Third, the court finds Felisilda to be instructive.  Although Plaintiffs contend that their claims do not arise out of the Lease Agreement, the court finds that (1) the Complaint alleges that the subject warranties accompanied the lease of their vehicle (Compl., ¶ 8), and (2) because the Complaint brings claims relating to “the Vehicle, its performance, and any….warranties[,]” it is subject to the arbitration clause.  (Hwang Decl., Ex. A, Lease Agreement, ¶ 52.)  Moreover, as discussed above, the arbitration clause expressly contemplates that Defendant, as associated with Honda, may move to compel arbitration.  (Ibid.)

The court therefore finds that Plaintiffs have not met their burden of establishing that a written agreement to arbitrate does not exist and may not be enforced by Defendant.

2.     Unconscionability

Plaintiffs next contend that the arbitration clause is unenforceable because it is unconscionable.

Arbitration agreements are subject to all defenses to enforcement that generally apply to contracts, and state contract law is applied to determine the validity of an arbitration agreement.  (Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170; 9 U.S.C. § 2.)  “The burden of proving unconscionability rests upon the party asserting it.”  (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (Kho).)  “‘[U]nconscionability 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.”  (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114 [citations omitted].)  “As a matter of general contract law, California courts require both procedural and substantive unconscionability to invalidate a contract.”  (Torrecillas v. Fitness International, LLC (2020) 52 Cal.App.5^th 485, 492 (Torrecillas).)  California courts “apply a sliding scale, meaning if one of these elements is present to only a lesser degree, then more evidence of the other element is required to establish overall unconscionability.  In other words, if there is little of one, there must be a lot of the other.”  (Ibid.) 

a.      Procedural Unconscionability

“Procedural unconscionability pertains to the making of the agreement . . . .”  (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.)  Procedural unconscionability “‘“focuses on two factors: ‘oppression’ and ‘surprise.’  [Citations.]  ‘Oppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’ [Citations.]  ‘Surprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.”’”  (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484 [citations omitted].)   

                                                         i.          Oppression 

“Oppression generally ‘takes the form of a contract of adhesion, “‘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.]”  (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 (Carmona).) 

As discussed above, “[o]pression . . . occurs when there is a lack of negotiation and meaningful choice.”  (Torrecillas, supra, 52 Cal.App.5^th at p. 493.)  “Adhesion contracts are form contracts a party with superior bargaining power offers on a take-it-or-leave-it basis.”  (Ibid.)  Plaintiffs do not present evidence that the Lease Agreement was offered to them on a take-it-or-leave it basis (e.g., by submitting a declaration attesting to that fact).  However, Plaintiffs argue, in their opposition, that “they were not provided any option to negotiate the terms of the lease, nor were the terms even explained to them.”  (Opp., p. 12:23-25.)  The court considers this in its analysis, and finds that the adhesive nature of the Lease Agreement establishes a low level of procedural unconscionability.

                                                       ii.          Surprise

As discussed above, “[s]urprise is when a prolix printed form conceals the arbitration provision.”  (Torrecillas, supra, 52 Cal.App.5^th at p. 493.)  Plaintiffs have not presented any evidence or argument as to surprise.

The court finds that Plaintiffs have established that there is a low level of procedural unconscionability based on the adhesive nature of the Lease Agreement.  (Ajamian, supra, 203 Cal.App.4th at p. 796 [“Where there is no other indication of oppression or surprise, the degree of procedural unconscionability of an adhesion agreement is low”].) 

“For [Plaintiffs] to invalidate [their] agreement, then, minimal procedural unconscionability means [Plaintiffs] would have to demonstrate a high degree of substantive unconscionability.”  (Torrecillas, supra, 52 Cal.App.5th at p. 496.)

b.     Substantive Unconscionability

“‘Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.  [Citations.]  A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be “so one-sided as to ‘shock the conscience.’”’”  (Carmona, supra, 226 Cal.App.4th at p. 85.)  “‘“[T]he paramount consideration in assessing [substantive] unconscionability is mutuality.”’”  (Ibid.)

Plaintiffs contend that the arbitration clause in the Lease Agreement is substantively unconscionable because (1) it allows for a choice of arbitrator subject to Defendant’s approval; (2) it seeks to deprive Plaintiffs of their rights to a jury trial; and (3) it contains a fee-shifting provision that is incompatible with the Song-Beverly Act.

First, the court finds that Plaintiffs have not met their burden to establish that the arbitration selection forum provision is substantively unconscionable.  Plaintiffs quote the arbitration clause to state the following: “You may choose the American Arbitration Association…, or any other organization to conduct the arbitration subject to our approval.”  (Opp., p. 13:19-21.)  Plaintiffs do not cite to any particular portion of the Lease Agreement that purportedly contains this language.  The arbitration clause, however, does not appear to contain this language.  Instead, it states that the customer or Honda “may select arbitration with American Arbitration Association, JAMS or National Arbitration and Mediation.”  (Hwang Decl., Ex. A, Lease Agreement, ¶ 52.)

Second, Plaintiffs argue that the arbitration clause is substantively unconscionable because it requires Plaintiffs to waive their rights to a trial by jury.  The court finds that Plaintiffs have not met their burden to establish that the arbitration clause is unconscionable on this ground.  “[I]t has always been understood without question that parties could eschew jury trial either by settling the underlying controversy, or by agreeing to a method of resolving that controversy, such as arbitration, which does not invoke a judicial forum.  Consequently when the Legislature enacted the specific language of the California Arbitration Act [citation] to govern the enforcement of arbitration agreements, it did not require that such agreements conform to section 631.”  (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 713; Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1117, fn. 7 [“Inherent in an arbitration agreement is a waiver of trial by jury—a waiver that is not precluded by the Constitution or the Code of Civil Procedure”].)

Third, Plaintiffs contend that the arbitration clause contains a fee-shifting provision that is incompatible with the Song-Beverly Act, asserting that the arbitration clause states that Defendant will only pay up to $5,000 in fees.  (Opp., pp. 13:28-14:2.)  However, the arbitration clause states that, if there are no fee waivers, Honda “will pay filing and arbitrator fees up to $5,000, unless law requires more.”  (Hwang Decl., Ex. A, Lease Agreement, ¶ 52 [emphasis added].)  Thus, to the extent that the Song-Beverly Act or any other statute requires Defendant to pay fees beyond this amount, the arbitration clause will not permit Defendant to escape those obligations.  The court therefore finds that Plaintiffs have not met their burden of establishing that this provision is substantively unconscionable.

As set forth above, both procedural and substantive unconscionability must be shown for the defense of unconscionability to be established.  (Kho, supra, 8 Cal.5th at p. 125.)  Although Plaintiffs have established a low level of procedural unconscionability due to the adhesive nature of the Lease Agreement, Plaintiffs have not established any substantively unconscionable terms. 

The court therefore finds that Plaintiffs have not met their burden of establishing that the Lease Agreement is unconscionable.

3.     Waiver

Finally, Plaintiffs contend that Defendant waived its right to compel arbitration by filing a demurrer and motion to strike prior to bringing the pending motion to compel arbitration.

“[W]aiver of the right to compel arbitration is a rule for arbitration, such that the FAA controls.”  (Sovak v. Chugai Pharm Co. (9th Cir. 2002) 280 F.3d 1266, 1270.)  To prove that Defendant waived its right to arbitration, Plaintiffs must show (1) Defendant had knowledge of its right to compel arbitration, (2) Defendant acted inconsistently with that right, and (3) Plaintiffs suffered prejudice from their delay in moving to compel arbitration.  (Ibid.)  The court notes that it, however, may not “condition a waiver of the right to arbitrate on a showing of prejudice[,]” and must instead “focus[] on the actions of the person who held the right” to arbitrate.  (Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708, 1712-1713.)  Thus, the primary inquiry focuses on whether a party acted inconsistently with the right to arbitrate.

The court finds that Plaintiffs have not met their burden of establishing that Defendant waived its right to compel arbitration by filing its demurrer and motion to strike before bringing the instant motion.  Plaintiffs filed this action on December 28, 2021, and Defendant filed its demurrer and motion to strike on February 2, 2022.  Thereafter, on May 5, 2022, Defendant field this motion—only two days after receiving the Lease Agreement from nonparty Lessor.  (Hwang Decl., ¶ 2.)  The court finds that the circumstances presented do not establish that Defendant knowingly waived its right to compel arbitration.

4.     Conclusion

Because (1) Defendant has met its burden to establish the existence of a valid agreement to arbitrate the claims alleged by Plaintiffs in their Complaint, and (2) Plaintiffs have not met their burden to establish that the arbitration agreement is unconscionable, or that Defendant waived its right to arbitration, the court grants defendant American Honda Motor Co., Inc.’s motion to compel arbitration.  (9 U.S.C. § 4.)

The court orders that this action is stayed pending completion of arbitration.  (9 U.S.C. § 3.)

DEMURRER AND MOTION TO STRIKE

On February 2, 2022, Defendant filed (1) a demurrer to Plaintiffs’ fourth cause of action, and (2) a motion to strike portions of Plaintiffs’ Complaint.

The court has granted Defendant’s motion to compel arbitration and stay proceedings. The court therefore orders that the pending demurrer and motion to strike are taken off calendar.

ORDER

The court grants defendant American Honda Motor Co., Inc.’s motion to compel arbitration and stay proceedings.

The court orders (1) plaintiffs Nely Alejandra Correa Flores and Elvia Flores Pena and defendant American Honda Motor Co., Inc. to arbitrate the claims alleged in Plaintiffs’ complaint in this action, and (2) this action is stayed until arbitration is completed.

The court takes off calendar the hearings on the demurrer and motion to strike filed by defendant American Honda Motor Co., Inc., and vacates all other future hearing dates scheduled in this action.

The court sets an Order to Show Cause re completion of arbitration for hearing on ____________________, 2023, at 11:00 a.m., in Department 53.

The court orders defendant American Honda Motor Co., Inc. to give notice of this order.

IT IS SO ORDERED.

DATED: December 6, 2022

_____________________________

Robert B. Broadbelt III

Judge of the Superior Court