Judge: Ronald F. Frank, Case: 23TRCV01002, Date: 2023-08-04 Tentative Ruling
Case Number: 23TRCV01002 Hearing Date: August 4, 2023 Dept: 8
Tentative Ruling¿
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HEARING DATE: August
4, 2023¿
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CASE NUMBER: 23TRCV01002
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CASE NAME: William Jones
v. Hyundai Motor America, et al.
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MOVING PARTY: (1)
Defendant, Hyundai Motor America
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RESPONDING PARTY: (1)
Plaintiff, William Jones
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TRIAL DATE: Not
Set.
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MOTION:¿ (1) Motion to Compel
Arbitration
(2)
Case management Conference
Tentative Rulings: (1) Hyundai’s
Motion to Compel Arbitration is DENIED.
(2)
The Court will discuss discovery status, what the claimed defect or defects
might be in this case, and a possible trial date in early 2025
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I. BACKGROUND¿¿
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A. Factual¿¿
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On April 3, 2023, Plaintiff,
William Jones (“Plaintiff”) filed a Complaint against Defendants, Hyundai Motor
America, Win Chevrolet Inc., d/b/a Win Hyundai Carson, and DOES 1 through 10.
The Complaint alleges causes of action for: (1) Violation of Song-Beverly Act –
Breach of Express Warranty; (2) Violation of Song-Beverly Act – Breach of
Implied Warranty; (3) Violation of the Song-Beverly Act section 1793.2’ and (4)
Negligent Repair.
The Complaint is based on a March
11, 2019 purchase by Plaintiff of a 2016 Hyundai Sonata vehicle with
corresponding identification number KMHE34L10GA020614 (hereafter
"Vehicle") from South Bay Hyundai. Plaintiff’s Complaint notes that
the vehicle was manufactured by Hyundai Motor America (“HMA”). (Complaint, ¶ 15.)
Plaintiff further notes that the causes of action contained in his complaint
arise out of warranty and repair obligations of Hyundai. (Complaint, ¶ 9.)
Plaintiff contends that the defects and nonconformities to warranty manifested
themselves within the applicable express warranty period, including but not
limited to, engine, electrical, emission, and suspension system defects. (Complaint,
¶ 11.)
Defendant,
HMA now files a Motion to Compel Binding Arbitration.
B. Procedural¿¿
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On May 11, 2023, HMA filed a Motion to
Compel Arbitration. On July 24, 2022, Plaintiff filed an opposition. On July 28,
2023, HMA filed a reply brief.
¿II. REQUEST FOR JUDICIAL
NOTICE
HMA filed a request for this
Court to take judicial notice of the following documents in support of their
Motion to Compel Arbitration:
1.
Plaintiff William Jones’s Complaint, filed on or
about April 03, 2023, a true and correct copy of which is attached to the
Declaration of Ali Ameripour as Exhibit “1”
The Court GRANTS Hyundai’s request
and takes judicial notice of the above document.
Plaintiff also filed a request
for this Court to take judicial notice of the following documents in support of
their opposition to the Motion to Compel Arbitration:
1. 1.
The Appellate Court’s Opinion, in Martha Ochoa v. Ford Motor Company
(2023)
89 Cal.App.5th 1324, Certified for Publication dated April 4, 2023,
affirming the Trial Court’s Order denying Defendant Ford Motor Company’s Motion
to Compel Arbitration is attached hereto as Exhibit 1.
2. The
Ninth’s Circuit, February 12, 2022, Opinion, in Ngo v. BMW of North America,
LLC et al., (9th Cir. 2022) 23 F.4th 942. attached hereto as Exhibit 2.
The Court grants Plaintiff’s
request and takes judicial notice of the above cases. The Court notes that the California
Suprme Court granted a Petition for Review in Ochoa on July 19, 2023, while
this motion was pending.
III. EVIDENTIARY OBJECTIONS
Plaintiff’s Evidentiary
Objections to HMA’s Evidence:
Sustain: None
Overrule: 1, 2.
IV. ANALYSIS
A.
Legal Standard
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 if, like Defendant HMA, they have a certified lemon arbitration
program in place.
Here,
the analysis is somewhat different because HMA is not a party to the
arbitration agreement, although one of its authorized dealers is a party to the
agreement upon which HMA’s motion rests, and Plaintiff is a party to that same
arbitration agreement.
B.
Discussion
a. Existence of Arbitration Agreement
Here, the parties agree that there was a
written agreement, the Retail Instalment Sales Contract (“RISC”), that included
an arbitration agreement. However, as noted in Plaintiff’s opposition, that
agreement is between Plaintiff and South Bay Hyundai, the dealership. Plaintiff
also notes that she brought this case against HMA based on its breach of its statutory
obligations under the Song-Beverly Act and the express warranty it gave on the
subject vehicle. Plaintiff also sued the repairing dealership Win Hyundai
Carson (not South Bay Hyundai) but dismissed the repairing dealership without prejudice
several months ago. The
arbitration agreement in the sales contract states as follows:
“1. EITHER YOU OR WE MAY CHOOSE TO
HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY
TRIAL.
2. IF A DISPUTE IS ARBITRATED, YOU
WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS
MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO CLASS
ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.
3. DISCOVERY AND RIGHTS TO APPEAL IN
ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT
YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.
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 […]”
(Ameripour Decl., Exhibit 2, RISC.)
b. Equitable Estoppel
The parties concede that HMA 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.4th 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.) HMA’s motion relies on Felisilda and the First
District’s reasoning on the equitable estoppel exception to the non-signatory
rule. However, there has been a recent conflict in the Court of Appeal in Lemon
Law litigation as to the enforceability of an arbitration agreement by a
non-signatory manufacturer to the dealer’s contract containing the arbitration
provision. On April 4, 2023, the Second District Court of Appeal declined to
follow Felisilda in its decision of Martha Ochoa v. Ford Motor
Company (2023) 89 Cal.App.5th 1324. The Court notes that on July 19, 2023,
the Supreme Court of California granted review of Ochoa and instructed
that California Rules of Court, Rule 8.1115(e)(3) applies. However, the Supreme
Court clarified that the Second District’s opinion may be cited to, “not only
for its persuasive value, but also for the limited purpose of establishing the
existence of a conflict in authority that would in turn allow trial courts to
exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962)
57 Cal.2d 450, 456, to choose between sides of any such conflict.”
This Court
is exercising its discretion to follow Ochoa rather than Felislida
as the better-reasoned appellate decision.
Since Ochoa, the Second District also decided Montemayor v. Ford
Motor Company (2023) 92 Cal.App.5th 958, which also declined to follow
Felisilda and affirmed a trial court’s denial of a motion to compel
arbitration brought by a manufacturer who was not a signatory tot eh dealer’s
arbitration agreement.
HMA
argues that Plaintiff is bound to arbitrate by equitable estoppel because his
claims are “entirely founded in and intertwined with the obligations in and
arising from the RISC. HMA further contends that here, as in Felisilda,
Plaintiff expressly agreed to arbitrate her claims against a third-party
non-signatory and that Plaintiff’s claims against HMA fall under the express
terms of the Arbitration Agreement as they relate directly to the “purchase or
condition of the vehicle.” HMA assert that it has standing to enforce the
Arbitration Agreement as to all of Plaintiff’s claims because they are directly
related to the condition of the Vehicle and the resulting warranty relationship
that arose out of the execution of the RISC. In Felisilda as here, the
plaintiff initially sued the selling dealer whose sales contract contained the
arbitration provision, but the plaintiffs in each case dismissed the selling
dealer after the motion to compel arbitration was filed but prior to a final
ruling on the motion.
“Inextricable
Intertwined with the Underlying Contract”
As noted above, HMA argues that
Plaintiff is bound by the doctrine of equitable estoppel to arbitrate because
her Song-Beverly claims are intimately founded in and intertwined with the
obligations of the Sales Contract giving rise to his claims. HMA even points to
the fact that Plaintiff’s Complaint against it results from and is inseparable
from the RISC and the alleged obligations of HMA that flows from the
relationship that was created through the RISC.
To be sure, this case presents facts
akin to Felisilda. For example, the arbitration agreements have similar
language, he plaintiffs causes of action are very similar, the charging
allegations of the complaints are similar, the Plaintiff named the dealership
and the manufacturer, and subsequently dismissed the dealership, etc.. However,
the facts here are also very similar to those presented in Ochoa. The Ochoa
court disagreed with Felisilda because the Felisilda plaintiffs
and the dealer agreed in their sale contract to arbitrate disputes between them
about the condition of the vehicle but did not expressly or impliedly agree to
arbitrate disputes under the consumer protection statutes governing
manufacturer warranties as distinct from promises or warranties made in the
sales contract with the dealer. Ochoa noted that equitable estoppel
would apply if the plaintiffs had sued FCA based on the terms of the sale. But
that was not the gravamen of the Lemon Law suit in Felisilda, Ochoa,
or here. Like the plaintiffs in Felisilda and in Ochoa, Plaintiff
here predicates the suit on HMA’s claimed breach of its statutory duties and
for breach of the express and implied warranties, not based on plaintiff’s
sales contract with the dealer.
Here,
HMA argues that Plaintiff signed a contract that bound Plaintiff to arbitration
against third party non-signatories. (Ameripour Decl., Exhibit 2, RISC.) Such
language was also present in the contracts at issue in Felisilda and Ochoa.
The Court in Ochoa disagreed with the Felisilda court’s
interpretation of the sales contract as broadly calling for arbitration of any
claims concerning the condition of the vehicle “against third party
nonsignatories,” and instead noted that it did not read that language as
consent by the purchaser to arbitrate any or all claims with third-party nonsignatories.
Rather, the Ochoa Court read it as a further delineation of the subject
matter of claims the purchasers and dealers agreed to arbitrate, noting the
purchaser(s) agreed to arbitrate disputes “between” themselves—“you and us”—
arising out of or relating to “relationship[s],” including “relationship[s]
with third parties who [did] not sign th[e] [sale] contract[s],” resulting from
the “purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.” The Ochoa
Court further noted that the “third-party” language in the arbitration clause
means that if a purchaser asserts a claim against the dealer (or its employees,
agents, successors or assigns) that relates to one of these third-party
transactions (such as electing to buy insurance, theft protection, extended
warranties, and the like), the dealer can elect to arbitrate that claim. The
Second District found that such language says nothing of binding the purchaser
to arbitrate with the universe of unnamed third parties. IF
Plaintiff had sued the individual owners or sales personnel at the selling
dealership regarding fraud in the inducement of the sale, or refusal to perform
services listed on the Due Bill, or for selling a vehicle with scratches on the
paint finish (i.e., the condition of the vehicle) that were not visible at the
time of retail delivery, or for failure to obtain a promised insurance binder,
such third-party claims would be arbitrable. But that is not what Plaintiff
here is claiming.
HMA’s warranty is not intertwined
with the sales contract. Song-Beverly claims are not intimately founded in the
sale contract. HMA and its dealer are separate entities. The warranty and the
sales contract are separate legal documents, neither of which refer to or
incorporate each other. Most automotive manufacturers prohibit their authorized
dealers from binding the manufacturer to warranties. Applying Ochoa to
this case, the Arbitration Agreement present in Plaintiff’s Sales Contract does
not bind him to arbitrate non-sale agreement issues with HMA. While a Lemon Law
case arguably is related to the “condition” of the vehicle sold via the Sales
Contract, the gravamen of Plaintiff’s suit here is not as to the condition of
the vehicle at the time of sale, but rather as to subsequent events that
manifest only after Plaintiff drove the vehicle off the lot, later experienced
malfunctions or defect, and unsuccessfully sought to have those post-sale
matters remedied within a reasonable number of repair attempts.
Breach of
Warranty versus Breach of Contract
he second argument the Court in Ochoa
rejected was that breaches of warranties are generally treated as breaches of
contract, so breaches of any warranties that accompanied the sale contract are
necessarily intertwined with the sale contract. Similar to the defendant in Felisilda,
HMA also argues that Plaintiff’s Song-Beverly breach of express warranty claim
is necessarily intertwined with the Sales Contract without the RISC, Plaintiff
would lack standing to sue under the statute. HMA contends that the fact that
Plaintiff invoked contractual causes of action and remedies against HMA to
assert these claims further confirms that the legislature conceived an express
warranty as being part of the purchase of a consumer product.
In Ochoa, the Court noted
that most of the plaintiffs there attached their sale contracts as an exhibit
to their complaints; some did so in support of general allegations about when
they bought their vehicles and to identify their vehicles by make and model;
and others attached their sale contracts in support of allegations the sale
contracts were accompanied by implied warranties under the Song-Beverly
Consumer Warranty Act. However, the Second District specifies that no
plaintiffs have alleged violations of the sales contracts’ express terms.
Rather, Plaintiff’s claims in a Lemon Law case are based on a manufacturer’s
statutory obligations to reimburse consumers or replace their vehicles when
unable to repair in accordance with the manufacturer’s warranty. Similarly
here, Plaintiff has alleged, against HMA, that HMA violated the Song-Beverly
Act by failing to repair or replace the new motor vehicle or to promptly make
restitution in accordance with that statute, not based on any provision of the
sales contract. (Complaint, ¶¶ 25-27, 42, 51, 54.) Just as Plaintiff asserts in
her opposition to HMA’s Motion to Compel Arbitration, these claims do not rely
on the terms of the dealership’s sales contract.
Further,
in regard to HMA’s reply brief argument that Plaintiff’s warranty claims are
founded in the sale contracts because California law treats warranty claims as
contract claims is not supported by California law. Although HMA did not
expressly cite to the commercial code, such arguments were distinguished and
not accepted by the Second District in Ochoa, noting that it does not
“naturally follow” from any contractual character of manufacturer warranty
claims that they inhere in a retail sales contract containing no warranty
terms.
However,
in Ochoa, the Second District noted that California law does not treat
manufacturer warranties imposed outside the four corners of a retail sale
contract as part and parcel of the sale contract. In Greenman v. Yuba Power
Products, Inc. (1963) 59 Cal.2d 57, the California Supreme Court
distinguished between, on the one hand, warranty obligations flowing from the
seller to the buyer by contract, and, on the other hand, manufacturer
warranties “that arise[ ] independently of a contract of sale between the
parties.” (Id. at p. 60, italics added; see also Corporation of
Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanaugh
(1963) 217 Cal.App.2d 492, 514 [manufacturer's express warranty “was not part
of a contract of sale between the manufacturer and the plaintiff” (italics
added)].)
Additionally,
this Court takes note that the Sales Contract here included no warranty, nor
any assurance regarding the quality of the vehicle sold, not any promise of
repairs or other remedies in the event problems arise. To the contrary, the
Sales Contract disclaims any warranty on the part of the dealers, while
acknowledging no effect on “warranties covering the vehicle that the vehicle
manufacturer may provide.” As such, the substantive terms of the sales contract
relate to sale and financing rather than the gravamen of a Lemon Law plaintiff’s
suit.
c. Third-Party Beneficiary
HMA
also argues that it can compel arbitration as a third-party beneficiary to the
arbitration provision. “ ‘A third party beneficiary is someone who may enforce
a contract because the contract is made expressly for his benefit.’ ” (Jensen
v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 301, 226 Cal.Rptr.3d
797; see also Civ. Code, § 1559 [“[a] contract, made expressly for the benefit
of a third person, may be enforced by him ....”].) A person “only incidentally
or remotely benefited” from a contract is not a third-party beneficiary. (Lucas
v. Hamm (1961) 56 Cal.2d 583, 590, 15 Cal.Rptr. 821, 364 P.2d 685.) Thus,
“the ‘mere fact that a contract results in benefits to a third party does not
render that party a “third party beneficiary.” (Jensen, at p. 302, 226
Cal.Rptr.3d 797.) Nor does knowledge that the third party may benefit from the
contract suffice. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830,
243 Cal.Rptr.3d 299, 434 P.3d 124 (Goonewardene).) Rather, the parties
to the contract must have intended the third party to benefit.
In
order for a third party to show that the contracting parties intended to
benefit it, under the express terms of the contract at issue and any other
relevant circumstances under which the contract was made, “(1) “the third party
would in fact benefit from the contract”; (2) “a motivating purpose of the
contracting parties was to provide a benefit to the third party”; and (3)
permitting the third party to enforce the contract “is consistent with the
objectives of the contract and the reasonable expectations of the contracting
parties.” (Ochoa, citing Goonewardene, supra, 6 Cal.5th at p. 830.) Here, HMA
argues that the intent to benefit FCA is evident from the plain language of the
arbitration provision of the Sales Contract, noting that Plaintiff agreed to
arbitrate any claim related to the Sales Contract, including “[a]ny claim or
dispute . . . which arises out of or relates to . . . any resulting transaction
or relationship (including any such relationship with third parties who do not
sign this contract. (Ameripour Decl., Exhibit 2, RISC.) HMA argues that this
clause of the arbitration agreement is the very third-party relationship that
HMA has with Plaintiff.
This
Court disagrees. The Sales Contract here benefits those persons who might rely
on it to avoid proceeding in court – the purchaser, the dealer, and the
dealer’s employees, agents, successors or assigns. HMA is none of the
aforementioned persons. (See Ngo, supra, 23 F.4th at p. 947.) Second,
“there is no indication that a benefit to [HMA] was the signatories’
‘motivating purpose’ in contracting for the sale and purchase” of the Subject
Vehicle or a motivation for including the arbitration clause (Goonewardene,
supra, 6 Cal.5th at p. 830.) HMA argues that because the Arbitration Provision
explicitly embraces claims arising out of relationships with third parties who
do not sign the Sales Contract, Plaintiff’s warranty claims necessarily require
her to contend that HMA benefitted from the Sales Contract. While the argument
is a reasonable one, this Court disagrees with the conclusion that a benefit to
the manufacturer motivated either buyer or seller to enter into the RISC. As
noted above, and as noted by the Ochoa Court, the plaintiff’s and
dealer’s intent was to buy, sell, and finance a car, and to allow the purchaser
or the dealer to compel arbitration of the specified categories of disputes
between them, or between the purchaser and any of the dealer’s “employees,
agents, successors or assigns.” This language does not include “franchisors” or
“principals”, language which would more clearly have expressed an intention to
include Ford within the scope of arbitrability.
Lastly,
the Ochoa Court notes that allowing a 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. The Court also notes the Ninth Circuit Court of Appeal’s decision of Ngo
v. BMW of North America (9th Cir. 2022) 23 F.4th 943. As noted by the
Second District, federal authority is not binding on this court, but a discussion
of Ngo is persuasive nonetheless.
This Court
determines that the Ninth Circuit ruling with respect to the law of arbitration
is more persuasive, because the arbitration provision of the sales contract
expressly states that any arbitration under that sales contract provision
“shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and
not by any state law concerning arbitration.” In Ngo, the Ninth Circuit
Court found that BMW could not enforce the arbitration provision because the
clause, which is identical to the one at issue, was strictly limited to the
dealership and the Plaintiff, but not BMW. (See Ngo, supra, at p. 948.) As
such, BMW was not a party to the agreement, and its obligations to the Ngo
family arose independently of the plaintiff’s agreement with the dealership. (Id.
at 949.) The Second District analyzed Ngo at length, ultimately reaching
the conclusion that the Sales Contract in Ochoa did not benefit a vehicle
manufacturer under Goonewardene for three fundamental reasons that the
Court need not recite here.
Based
on the foregoing, this Court exercises its discretion to hold that the
Arbitration Agreement does not apply to HMA as an undisclosed but allegedly
intended third party beneficiary, and as such, it may not enforce it against
Plaintiff. Thus, HMA’s Motion to Compel Arbitration is tentatively denied.