Judge Robert S. Draper, Case 22STCV39278 2023-05-23 Tentative Ruling

Plaintiffs Ariadne Acosta and Sonia Acosta (“Plaintiffs”) purchased a new 2019 Nissan Sentra (the “Subject Vehicle”) manufactured by defendant Nissan North America (“Nissan”). (Compl. ¶ 5.) The Subject Vehicle was purchased with express and implied warranties. (Compl. ¶ 7.) Plaintiffs have delivered the Subject Vehicle to Nissan’s authorized repair facility four times, but Nissan has been unable to conform the vehicle to the applicable warranties. (Compl. ¶¶ 10, 13.)

On April 7, 2023, the Court heard the matter. As the Court’s decision was based on a newly decided case issued after all briefing was submitted, the Court allowed the parties to submit supplemental briefing.

Nissan moves to compel arbitration pursuant to an arbitration provision (“Arbitration Agreement”) in the Retail Installment Sales Contract (the “Sales Contract”) entered into between Plaintiffs and the dealership where they purchased the Subject Vehicle, non-party Cerritos Nissan (the “Dealership”.)

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. (Mejia Decl., Ex. D.)

Nissan contends that Nissan may compel arbitration as a non-party to the Sales Contract under the doctrine of equitable estoppel, or as a third-party beneficiary. Nissan cites Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 to support this contention.

In Felisilda, plaintiff purchased a vehicle from defendant dealership. After the car broke down during the warranty period, plaintiff brought a claim under the SBA against defendant dealership and defendant manufacturer. Relying on an arbitration provision in the sales contract that was identical to the instant Arbitration Agreement, defendant dealership moved to compel arbitration; defendant manufacturer filed a notice of non-opposition.

The trial court granted defendants’ motion to compel arbitration. Thereafter, plaintiff dismissed defendant dealership. After the arbitrator found in defendant manufacturer’s favor, plaintiff appealed.

On appeal, plaintiff argued that the trial court lacked jurisdiction to order plaintiffs to arbitrate their claim against defendant manufacturer because defendant manufacturer was a non-signatory to the sales contract.

The Felisilda Court affirmed, holding that defendant manufacturer could compel arbitration pursuant to the doctrine of equitable estoppel. The Court found that as plaintiff’s claim against defendant manufacturer related directly to the condition of the vehicle, and “[b]ecause [plaintiff] expressly agreed to arbitrate the 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 their claim against [defendant manufacturer].” (Felisilda at p. 497.)

While Nissan’s argument is compelling, in the recently decided Ford Motor Warranty Cases, No. B312261, 2023 WL 2768484 (Cal. Ct. App. Apr. 4, 2023) (“Ochoa”), the Second District of the Court of Appeal explicitly declined to follow Felisilda, holding 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 at p. 4.)

Defendant manufacturer in Ochoa argued that arbitration could be compelled pursuant to a sales contract identical to the instant Sales Contract under the doctrine of equitable estoppel, or as a third-party beneficiary.

In rejecting defendant manufacturer’s equitable estoppel argument, the Court held that as California law does not treat manufacturer warranties imposed outside the four corners of a retail sales contract as part of the sale contract, “Plaintiff’s claims in no way rely on the sale contracts. Equitable estoppel does not apply.” (Id. at p. 7.)

In rejecting defendant manufacturer’s third-party beneficiary theory, the Court held that “allowing [defendant manufacturer] to enforce the arbitration provision as a third party beneficiary would be inconsistent with the reasonable expectations of the contracting parties where they twice specifically vested the right of enforcement in the purchaser and the dealer only.” (Id. at p. 8.)

As Ochoa was decided in the Second Appellate District, it is binding on this Court. And, as the Ochoa Court considered arguments identical to those in front of this Court, based on an Arbitration Agreement identical to that in front of this Court, the decision is on-point and mandates that Nissan cannot compel Plaintiffs to arbitrate pursuant to a Sales Contract to which it is not a party.

At the April 7, 2023, hearing on this matter, the Court granted Nissan leave to submit supplemental briefing as to why the Court should not follow Ochoa, as Ochoa was decided after the initial briefing on this matter was filed.

In its Supplemental Reply, Nissan makes two arguments as to why the Court should decline to follow Ochoa and should instead follow Felisilda.

First, Nissan notes that as Ochoa created a split in the Court of Appeal, this Court may follow either Ochoa or Felisilda and is not bound by Ochoa simply because this Court sits in the Second District.

Second, Nissan argues that Ochoa’s finding that a manufacturer’s warranty is not a part of the sales contract is erroneous as it relied on two cases that predated both the passage of the UCC and the SBA: Greenman v. Yuba Power Products, Inc. 59 Cal.2d 57 (1963), and Corporation of Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanaugh, 217 Cal.App.2d 492 (1963). Nissan urges the Court to follow the Felisilda Court’s analysis regarding a warranty’s inseparability with a sales contract instead.

However, Nissan does not cite to any analysis or language it finds persuasive on this matter in the Felisilda opinion. Indeed, Nissan cannot cite to such analysis as the Felisilda Court did not analyze whether manufacturers’ warranties are inherently intertwined with the underlying sales contract.

The Felisilda Court addressed plaintiff’s argument that in Soto v. American Honda Motor Co. Inc (N.D. Cal., Nov. 20, 2012) 2012 WL 5877476, the Northern District of California found that a vehicle purchaser’s product liability claim against the manufacturer was not intertwined with the sales contract merely because there would have been no warranty in the absence of a sale. The Felisilda Court found that Soto “involved an arbitration provision that did not expressly include third parties as does the language of the sales contract in this case.” (Felisilda at p. 497.)

Accordingly, the Felisilda Court did not find that in California, a manufacturer’s warranty is inherently intertwined with the sales contract; instead, the Felisilda based its decision on the language of the sales contract in question.

The Felisilda court relied on the following italicized language to conclude that third parties could enforce the arbitration provision: “ ‘Any claim or dispute, whether in contract, tort, statute or otherwise . . . , between you and us or our employees, agents, successors or assigns, which arises out of or relates to . . . purchase or condition of this vehicle, the 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 . . . .’ ” [citation].

We do not read this italicized language as consent by the purchaser to arbitrate claims with third party nonsignatories. Rather, we read it as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate. . .

Purchasers, like plaintiff . . . can elect to buy insurance, theft protection, extended warranties and the like from third parties, and they can finance their transactions with those third parties under the sale contract. The “third party” language in the arbitration clause means that if a purchaser asserts a claim against the dealer . . . that relates to one of those third-party transactions, the dealer can elect to arbitrate that claim. It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.

The Court finds Ochoa’s interpretation of the quoted to be the better one. Moreover, the Court will not reject the Court of Appeal’s analysis of manufacturer’s warranties in Ochoa in favor of Felisilda, a decision which did not fully analyze the relationship between manufacturer’s warranties and underlying sales contracts.