Judge Ronald F. Frank, Case 22TRCV00418 2023-01-17 Tentative Ruling

MOVING PARTY: Defendant, FCA US, LLC; Defendant, Scott Robinson Chrysler Dodge Jeep Ram

Tentative Rulings: (1) Defendant’s Motion to Compel Arbitration is to be ARGUED. While the Court is constrained by Felisilda, the evidence submitted by Plaintiff suggests that FCA might be estopped from asserting entitlement to arbitrate if FCA declined to establish or continue giving California customers the option to arbitrate lemon claims

This is a lemon law action brought by Plaintiff, Melanie (“Plaintiff”) against Defendants, FCA US, LLC (“FCA”), Scott Robinson Chrysler Dodge Jeep Ram, and DOES 1 through 10. The case arises out of Plaintiff’s purchase of a 2018 Jeep Compass (“Vehicle”) that she alleges is defective. Plaintiff’s Complaint notes that FCA manufactured and/or distributed the Vehicle. The Complaint alleges that Chrysler performed the bridge operation on Plaintiff’s vehicle in August 2014 with 30,262 miles on the odometer – within the three-year, 36,000 mile warranty. (Complaint (“Compl.”), ¶ 17, fn. 1.)

The Complaint alleges causes of action for: (1) Violation of Subdivision (D) of Civil Code Section 1793.2; (2) Violation of Subdivision (B) of Civil Code Section 1793.2; (3) Violation of Subdivision (A)(3) of Civil Code Section 1793.2; (4) Breach of the Implied Warranty of Merchantability Code Sections 1791.1, 1794, 1795.5; and (5) Negligent Repair

On December 13, 2022, Defendant FCA filed this Motion to Compel Arbitration and Stay Action. On January 3, 2023, Plaintiff filed an opposition to FCA’s Motion to Compel Arbitration. On January 9, 2023, FCA filed a Reply brief.

On December 12, 2022, a day before its co-defendant FCA filed such a motion, Defendant Scott Robinson Chrysler Dodge Jeep Ram also filed a Motion to Compel Arbitration. However, on January 3, 2023, Plaintiff filed a Motion to Dismiss Defendant, Scott Robinson Chrysler Dodge Jeep Ram entirely from the case. Dismissal was Entered by the Clerk on January 3, 2023, two weeks prior to the hearing on this motion.

In their opposition, Plaintiff filed a request for this Court to take judicial notice of the following documents in support of her opposition to FCA’s Motion to Compel Arbitration and Stay Proceedings: (1) Ngo v. BMW of N. Am., LLC (9^th Cir. Jan. 12, 2022) 23 F.4th 942; and (2) Davis v. Shiekh Shoes, LLC (Cal.Ct.App. Oct. 31, 2022) No. A161961; 2022 WL 16546189. The Court notes that Davis is now officially reported at 84 Cal.App.5^th 956

The Court grants Plaintiff’s request and takes judicial notice of these cases. A score of other federal cases are cited in the briefs, of which the Court does not take judicial notice but which the Court has reviewed as potentially persuasive authority.

The purpose of the Federal Arbitration Act (“FAA”) is “to move the parties in an arbitrable dispute out of court and into arbitration as quickly and easily as possible.”¿ (Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. (1983) 460 U.S. 1, 23.)¿ California Code of Civil Procedure, Section 1281 provides that “[a] written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract.”¿ “California law, like federal law, favors enforcement of valid arbitration agreements.”¿ (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.)¿ “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy” unless grounds exist not to compel arbitration.¿ (Code Civ. Proc. § 1281.2.) The Song-Beverly Act also favors arbitration of Lemon Law disputes with a series of “carrot and stick” provisions that immunize a warrantors from a species of civil penalty[1] if, like FCA, they have a certified lemon arbitration program in place.

Here, the parties agree that there was a written agreement that included an arbitration agreement. However, as Plaintiff asserts in her opposition, that agreement is between Plaintiff and Scott Robinson Chrysler Dodge Jeep Ram, to which FCA is not a party. The arbitration agreement is in the sales contract between the Plaintiff and dealership Scott Robinson Chrysler Dodge Jeep Ram, who after FCA filed is motion to compel arbitration, plaintiff strategically dismissed from this action. The Court can infer that Plaintiff was mindful of the arbitration agreement (as well as the non-diverse citizenship of the local dealer) when deciding what parties to name and what contracts to allege in their lawsuit, preferring the state court system to an arbitrator or federal court to litigate her claims.

The parties agree that FCA is not a signatory to the Contract. Generally, only parties to a contract containing an arbitration agreement may enforce that arbitration clause. (Thomas v. Westlake (2012) 204 Cal.App.4^th 605, 613.) There are exceptions to the general rule. Under one such exception, the doctrine of equitable estoppel, a nonsignatory defendant may move to enforce an arbitration clause. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236.) “ ‘In any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.’ ” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 498 (Felisilda).)

Felisilda is instructive. The Felisildas brought a Song-Beverly cause of action against a local automobile dealership, Elk Grove Dodge Chrysler Jeep (“Elk Grove”), and the manufacturer, FCA US LLC (“FCA”). The Felisildas and the local dealer were parties to an installment sales contract that contained an arbitration clause. FCA was not a signatory to the agreement. Elk Grove moved to compel arbitration. The lower court granted the motion and ordered all the parties, including FCA to arbitration, whereupon the Felisildas dismissed Elk Grove. The action nevertheless proceeded to arbitration solely between the Felisildas and FCA. After the arbitrator found for FCA and the trial court confirmed the award, the Felisildas appealed the judgment of the court. Among the contentions on appeal was whether the trial court had authority to “order the Felisildas to arbitrate their claim against FCA because FCA was a nonsignatory to the sales contract.” (Felisilda, supra., 53 Cal.App.5^th at 489.) The Felisilda panel affirmed the trial court’s order. The Court found that by signing the sales contract, “the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the sales contract—[and] they are estopped from refusing to arbitrate their claim against FCA.” (Id. at p. 497.)

The holding in Felisilda was grounded on the express provisions of the sales contract and the Felisildas’ causes of action. First, upon examining the terms of the sale contract, the Court noted that the Felisildas agreed to arbitrate “[a]ny 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 … [the] condition of this vehicle.” (Id. at p. 490.) Second, after reviewing the Felisildas’ complaint where they alleged violations of warranties they received because of the purchase contract, the Court of Appeal found the Felisildas’ claim “directly relates to the condition of the vehicle” (Id. at p. 497.)

Turning to this case, this Court sees remarkable similarity between the facts here and Felisilda. First, the arbitration clause provided for in the Contract here and in Felisilda are word for word exact copies. Both agreements mandate arbitration whenever a claim “arises out of or relates to . . .[the] condition of this vehicle. . .” (Declaration of Trina M. Clayton (“Clayton Decl.”), ¶ 2, Exhibit A, p. 7; Felisilda, supra., 53 Cal.App.5^th at p. 490.) Second, the pleadings that the Court of Appeal found demonstrated that the Felisildas’ claim was based upon the vehicle’s condition, mirror the language of the operative complaint in this matter. For example, whereas Plaintiffs here allege that “Plaintiff’s entered into a warranty contract with Defendant FCA regarding a 2018 Jeep Compass” and that “warranty contract contained various warranties…” (Compl. ¶¶ 10-12, 14-15, 17, 26, 28, 32, 35, 37-38, 40-43), the Felisildas complaint states “the express warranties accompanied the sale of the vehicle.” (Felisilda, supra., 53 Cal.App.5^th at p. 496.) Moreover, both pleadings allege that the manufacturer “failed to either promptly replace the [Subject Vehicle] or [to] promptly make restitution.” (Compl. ¶ 18; Felisilda, supra., 53 Cal.App.5^th at p. 497.) In sum, it appears to the Court that because Plaintiff explicitly agreed to arbitrate claims arising from the condition of the vehicle, including with third parties who did not sign the contract, and “the sales contract [here] was the source of the warranties at the heart of the case” (Id. at p. 496), the holding of Felisilda may be controlling.

This Court would be acting in excess of its jurisdiction if it ignored Felisilda. (Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 455.[“[A]ll tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction.”].) This Court is bound to follow Felisilda in the absence of any other state court binding precedent, unless it determines that precedent to be distinguishable.

In opposition, Plaintiff asserts that Felisilda is factually and procedurally distinguishable from this case, including on the grounds recognized by the Ninth Circuit in Ngo v. BMW of North America, LLC (9^th Cir. 2022) 23 F.4^th 942, 950. Plaintiff contends that where the signatory dealership is not a party to the action, or where the signatory dealership is dismissed before the hearing of the arbitration motion, Felisilda is inapplicable. The Ngo decision recognizes this point of distinction. Specifically, in Felisilda the moving party for the motion to compel arbitration was the signatory Elk Grove. Only after the trial court granted the motion and ordered the case into arbitration was the signatory dismissed. Here, by contrast, FCA, a non-signatory is attempting to compel arbitration while Scott Robinson CDJR, a signatory who was originally named as a party defendant, was dismissed from the case before the hearing on the motion. Felisilda expressly rebuffed the argument that identity of the moving party is determinative: “We also reject the Felisildas’ contention that the rule requiring mutual consent to arbitrate is violated for lack of the Felisildas’ consent to arbitrate their claim against FCA. As explained above, the Felisildas’ agreement to the sales contract constituted express consent to arbitrate their claims regarding vehicle condition even against third parties.” (Felisilda, supra., 53 Cal.App.5^th at p. 498.) Stated otherwise, it was the identity of the signatories, the Plaintiffs, and the terms of the agreement that they assented that was critical to the Court of Appeal’s equitable estoppel analysis. Thus, here, as in Felisilda, Plaintiffs, as signatories to the Contract, may be found to be equitably estopped from distancing themselves from the arbitration agreement they voluntarily entered.

But there is a different point of distinction between this case and Felisilda that the parties have not expressly addressed. Here, Plaintiff has provided evidence that FCA has no Lemon Arbitration program appliable in California. Plaintiff’s counsel attached a copy of FCA’s warranty booklet which, on page 24, contains express reference to an FCA “Customer Arbitration Process” in some customers’ geographic areas. The problem for FCA here, however, is that said arbitration process applies only in 5 of the 50 states, and not in California. Unlike the vast majority of motor vehicle manufacturers listed in the State of California’s annual report on certified Lemon Arbitration programs, FCA apparently rejected the idea of giving its California customers a pre-litigation alternative via arbitration. Accordingly, one might argue, FCA should be estopped from relying on an arbitration ADR because it declined to participate in California’s legislatively encouraged lemon arbitration program. However, the Court can also take judicial notice of the State of California’s Department of Consumer Affairs annual customer satisfaction survey of certified lemon arbitration programs, the most recent of which available online is from 202. It indicates that FCA does (or at that time did) have the California Dispute Settlement Program or CDSP in place as a certified Lemon Arbitration program. The Court will take oral argument at the motion hearing on this issue.

The public policy supporting equitable estoppel must also be considered. “[I]f a plaintiff relies on the terms of an agreement to assert his or her claims against a nonsignatory defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause of that very agreement. In other words, a signatory to an agreement with an arbitration clause cannot ‘“ ‘have it both ways’ ” ’; the signatory ‘cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory.’ ” (internal citations omitted) (Goldman v. KPMG, LLP (2009) 173 Cal. App. 4th 209, 220.) But can FCA be subject to the same public policy argument, i.e., should the non-signatory FCA similarly be accused of attempting to have it both ways? Can FCA seek to mandate that its California customers move their litigated cases into an arbitration forum when FCA itself, according to plaintiff’s evidence, refused to give its California customers that alternative to filing in court, limiting the FCA Customer Arbitration Process to five other states and not California? Estoppel is an equitable doctrine; is it equitable for FCA to take advantage of its dealer’s arbitration provision when FCA itself declined to take advantage of California’s certified lemon arbitration provisions? Or was the evidence plaintiff submitted on this issue incomplete or mistaken?

The Court is mindful of federal district court decisions that have denied compelling arbitration when a non-signatory party seeks to enforce its dealer’s arbitration provision. But other federal courts have gone the other way. A few months before Felsilda, a federal district judge in the Southern District denied a petition to compel arbitration despite virtually identical language in the dealer’s sales contract. In Jurosky v. BMW of North America, LLC (S.D. Cal. 2020) 441 F.Supp.3d 963, 970, the District Court applied the “intimately founded and intertwined” standard and found that none of the Plaintiff's claims there referenced the purchase agreement that contained the arbitration clause. Jurovsky relied on the Ninth Circuit case of Kramer v. Toyota Motor Corp. (9th Cir 2013) 705 F.3d 1122, 1126-27, cert. denied, 571 U.S. 818, a case where the dealership had not been named as a defendant. The Jurovsky court stated that “Even if Plaintiff's complaint referenced the purchase agreement, in order to be intertwined with the purchase agreement, Plaintiff must allege a violation of a “duty, obligation, term or condition” imposed by the purchase agreement,” but the gravamen of the suit was breach of duties arising from the manufacturer’s warranties rather than any dealer warranty. (Jurovsky, supra, 441 F.Supp. at p. 970.) Jurovsky also applied the second prong of the Ninth Circuit standard for determining whether a non-signatory party can compel arbitration: “when the signatory alleges substantially interdependent and concerted misconduct by the non-signatory and another signatory and the allegations of interdependent misconduct are founded in or intimately connected with the obligations of the underlying agreement.” (Kramer, supra, 705 F.3d at 1128-29.) The Jurovksy court found that the Plaintiff did not allege substantially interdependent and concerted misconduct by the manufacturer and the dealer, so the motion to compel arbitration failed to meet the second Ninth Circuit test too. (Jurosky, supra, 441 F.Supp.3d at pp. 970–971.) Felisilda explicitly rejected the holdings of Kramer and Jurosky.

Another exception to the general rule that non-signatories cannot compel arbitration is that the manufacturer is a third-party beneficiary of the dealer’s sales contract and its arbitration provision. BMW has sought to compel arbitration as a third-party beneficiary to its dealers’ contract many times over the past year, and federal courts in California have decided the issue both ways. Compare Tseng v. BMW of N. Am., LLC, No. 2:20-cv-00256-VAP-AFMx, 2020 WL 4032305, at *4 (C.D. Cal. Apr. 15, 2020) (BMW was an affiliate and therefore an intended beneficiary); Phillips-Harris v. BMW of N. Am., LLC, No. CV 20-2466-MWF (AGRx), 2020 WL 2556346, at *10 (C.D. Cal. May 20, 2020) (BMW's provision of the warranty makes it an intended third-party beneficiary) with Ngo v. BMW of N. Am., LLC. (2022) 23 F.4th 942 (reversed trial court granting of motion to compel arbitration when dealer was not the moving party and manufacturer failed to show that a motivating purpose behind arbitration provision was to provide a benefit to manufacturer); Schulz v. BMW of N. Am., LLC, No. 5:20-CV-01697-NC, 2020 WL 4012745, at *5 (N.D. Cal. July 15, 2020) (BMW NA was not a third-party beneficiary because the clause at issue “refers to the subject matter of the dispute, not to the parties involved in the dispute”) and Nation v. BMW of North America, LLC (C.D. Cal., Dec. 28, 2020, No. 220CV02709JWHMAAX) 2020 WL 7868103, at *2 (denying the motion to compel arbitration because the court found the Schulz case to be better reasoned.)

Here, the Court does not rely on the third-party beneficiary exception to the general rule that non-signatories are not bound by -- nor can they enforce -- arbitration agreements. Despite its bargaining position viz-a-viz its authorized dealers, Defendant FCA is not named in the arbitration clause in the subject purchase and sales agreement with Plaintiffs, and there is no collateral evidence presented that the dealer or plaintiffs intended Defendant FCA to benefit by arbitration of claims concerning the condition of the vehicle where the dealership was not named as a party.

For the foregoing reasons, Defendant’s Motion to Compel Arbitration is to be argued, especially as to the equitable estoppel issue. Depending on the outcome of the argument, the Court will or will not conduct a CMC.

[1] California law does not require a consumer to utilize an available certified lemon arbitration program before filing suit. However, the Song-Beverly Act encourages manufacturers to establish such programs by exempting the manufacturers with these programs in place from (a) a consumer’s use of the Lemon Presumption in litigation when the consumer filed suit without prior resort to the manufacturer’s ADR Program (Civ. Code, § 1793.22(c)), and (b) exposure to a non-willful civil penalty in trial. (Id. § 1794(e)(2).) A customer who does use a certified ADR program may still bring a lawsuit if she or he is not satisfied with the arbitrator’s decision, but a losing manufacturer is bound by the arbitrator’s decision.