Judge: Salvatore Sirna, Case: 22PSCV00657, Date: 2023-01-05 Tentative Ruling

Case Number: 22PSCV00657    Hearing Date: January 5, 2023    Dept: G

Defendants Nissan North America, Inc.’s Motion to Compel Arbitration and Stay Proceedings

Respondent: Plaintiffs Blanca Lopez and Rosalba Villaneda Roman

TENTATIVE RULING

Defendants Nissan North America, Inc.’s Motion to Compel Arbitration and Stay Proceedings is GRANTED.

Proceedings are STAYED pending the outcome of arbitration.

BACKGROUND

This is a lemon law action. On February 22, 2019, Blanca Lopez and Rosalba Villaneda Roman (collectively, Plaintiffs) entered into a warranty contract with Nissan North America, Inc. (Defendant) by purchasing a new 2019 Nissan Sentra. The warranty contract included basic coverage (36 months/36,000 miles) and a powertrain warranty (60 months/60,000 miles). 

On June 28, 2022, Plaintiffs filed a complaint against Defendant and Does 1-10, alleging (1) violation of the Song-Beverly Act – breach of express warranty, (2) fraudulent inducement – intentional misrepresentation, and (3) fraudulent inducement – concealment.

On October 19, 2022, Defendant filed the present motion. A hearing is set for January 5, 2023. A final status conference is set for July 26 and a jury trial is set for August 8.

REQUEST FOR JUDICIAL NOTICE

The court GRANTS Defendant’s request for judicial notice of Plaintiffs’ complaint filed in this action pursuant to Evidence Code sections 452 and 453.

EVIDENTIARY OBJECTIONS

Plaintiffs’ evidentiary objection to the declaration of Defendant’s counsel and Exhibit 1 is OVERRULED. (See Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219 (Condee).)

ANALYSIS

Defendant argues Plaintiffs’ complaint is subject to a valid and binding arbitration agreement. For the following reasons, the court agrees.

“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.” (Code Civ. Proc., § 1281.)  The court must grant a petition to compel arbitration unless it finds no written agreement to arbitrate exists, the right to compel arbitration has been waived, grounds exist for revocation of the agreement, or litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues.  (Code Civ. Proc., § 1281.2.) A petition to compel arbitration functions as a motion. (Code Civ. Proc., § 1290.2.)

“[T]he moving party bears the burden of producing ‘prima facie evidence of a written agreement to arbitrate the controversy.’” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165 (Gamboa).) Once the court finds an arbitration agreement exists, the opposing party bears the burden of establishing a defense to enforcement by preponderance of the evidence. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) In interpreting an arbitration agreement, courts apply the same principles used to interpret contractual provisions with the fundamental goal of giving effect to the parties’ mutual intentions and applying contractual language if clear and explicit. (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 177.) Because public policy strongly favors arbitration, “any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hosp. v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.)

Existence of an Arbitration Agreement

Under the Federal Arbitration Act (FAA), the court’s role “is limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” (Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc. (2019) 44 Cal.App.5th 834, 840, quoting U.S. ex rel. Welch v. My Left Foot Children’s Therapy, LLC (9th Cir. 2017) 871 F.3d 791, 796.)

In this case, Defendant claims Plaintiffs entered into a binding arbitration agreement when they purchased their vehicle from Puente Hills Nissan. The Defendant notes the sales contract included the title “Retail Installment Sale Contract – Simple Finance Charge (with Arbitration Provision)” and points to an arbitration provision on the second page of the sales contract. (Ornelas Decl., Ex. A.) In relevant part, the arbitration provision states as follows:

“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.” (Ornelas Decl., Ex. A., p. 2.)

The court notes Defendant was not a signatory to the arbitration provision, which was part of a sales contract between Plaintiffs and Puente Hills Nissan. However, “there are six theories by which a non-signatory may be bound to arbitrate: ‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary’ [Citations].” (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513, quoting 2 Oehmke, Commercial Arbitration (3d ed. 2006 update) § 41.57 at p. 41-195.) Defendant claims the right to enforce the arbitration provision under equitable estoppel and as a third-party beneficiary.

Validity

As an initial matter, the court addresses whether Defendant has established the existence of an arbitration agreement. To establish prima facie evidence of an arbitration agreement, the party moving for arbitration need only provide a copy of the arbitration provision that purports to be signed by the parties or set forth the agreement’s terms in the motion. (Gamboa, supra, 72 Cal.App.5th at p. 165.) The moving party is not required “to follow the normal procedures of document authentication.” (Ibid, quoting Condee, supra, 88 Cal.App.4th at p. 218.) The opposing party “bears the burden of producing evidence to challenge the authenticity of the agreement” and can do so with statements under oath. (Ibid.) If the opposing party meets their burden, the moving party must then establish a valid arbitration with admissible evidence by preponderance of the evidence. (Ibid.)

Beyond Plaintiffs’ evidentiary objection to the copy of the arbitration agreement in Exhibit 1 that the court overruled, Plaintiffs have failed to provide any evidence that contradicts the authenticity of the arbitration agreement. Thus, the court finds an arbitration agreement exists. 

Equitable Estoppel

The court next addresses whether the arbitration agreement is applicable to this action under equitable estoppel. Under equitable estoppel, “a non-signatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the non-signatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271.) A signatory’s claims are intertwined with the agreement containing the arbitration provision if “based on the same facts and are inherently inseparable from arbitrable claims against signatory defendants.” (Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) 140 Cal.App.4th 828, 833, quoting Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713-1714.)

In arguing Plaintiffs’ claims are intertwined with their obligations under the sales contract, Defendants cites Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (Felisilda) as binding authority. In Felisilda, the court held a non-signatory automobile manufacturer could compel plaintiffs in a lemon law action to arbitration because the sales contract expressly required arbitration for “claims arising out of the condition of the vehicle – even against third party non-signatories to the sales contract.” (Id., at p. 497.) The court noted plaintiffs’ lemon law claim “directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract.” (Ibid.)

The court finds Felisilda applicable and controlling here. The arbitration provision between Plaintiffs and Puente Hills Nissan covers any claim or dispute “which arises out of or relates to your . . . purchase of condition of this vehicle.” (Ornelas Decl., Ex. A., p. 2.) Plaintiffs also bring the same lemon law claim as well as claims for intentional misrepresentation and concealment. In Felisilda, the court noted plaintiffs established the sales contract was the source of the warranties at issue in that case because plaintiffs pled “that ‘express warranties accompanied the sale of the vehicle to [them] by which [manufacturer] . . . undertook to preserve or maintain the utility or performance of [their] vehicle or provide compensation if there was a failure in such utility or performance.” (Id., at p. 496.)

In Plaintiffs’ complaint, they allege their fraud claims “arise out of the facts that surround the

misrepresentations and concealment of material facts at the time Plaintiff(s) purchased a new motor vehicle.” (Complaint, ¶ 3.) Similarly, their lemon law claim “arise[s] from warranty

obligations of [Defendant] in connection with a vehicle purchased by Plaintiff(s) and for which [Defendant] issued written warranties.” Like in Felisilda, both of Plaintiffs’ claims arise from warranties and representations (or the lack thereof) that accompanied the sale of the vehicle under the sales contract. Also, both cases involve an arbitration agreement that explicitly applies to claims involving the condition of the vehicle and including third-parties.

Plaintiffs respond that Felisilda is inapposite and argue federal law is controlling because the arbitration provision is governed by the FAA. Plaintiffs argue the Ninth Circuit recently distinguished Felisilda in Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, 950 (Ngo). In Ngo, the Ninth Circuit held a non-signatory manufacturer could not compel arbitration of lemon law claims under equitable estoppel. (Id., at p. 948.) While the manufacturer argued Felisilda broadened equitable estoppel under California law, the Ninth Circuit disagreed. (Id., at p. 950.) Instead, the court distinguished Felisilda on the grounds that plaintiff there had brought suit against both the signatory dealership and non-signatory manufacturer and the signatory dealership was the one who sought to compel arbitration. (Ibid.) The court contrasted that case with the facts in Ngo where the non-signatory manufacturer was the only party sued and sought to compel arbitration on its own.

Even when interpreting the FAA, federal circuit decisions are persuasive at best. (See Metalclad Corp. v. Ventana Environmental Organization Partnership (2003) 109 Cal.App.4th 1705, 1714-1715.) Furthermore, Ngo’s attempt to distinguish Felisilda is a distinction without a difference. In fact, Felisilda rejected a federal court decision that declined to enforce an arbitration agreement against a non-signatory manufacturer where the manufacturer was the only defendant. (Compare Felisilda, supra, 53 Cal.App.5th at p. 498, with Jurosky v. BMW of North America, LLC (S.D. Cal. 2020) 441 F.Supp.3d 963, 966, 972 (Jurosky).) The court in Felisilda noted Jurosky glossed “over language in an arbitration clause that expressly includes third party non-signatories” as is the case here. (Felisilda, supra, 53 Cal.App.5th at p. 498.) Thus, the court rejects Plaintiffs’ arguments that Felisilda should not be followed and finds Defendant has established the arbitration provision’s applicability to this action through equitable estoppel. Accordingly, the court need not address whether Defendant can also enforce the arbitration provision as a third-party beneficiary.

Unconscionability

“Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable” including “fraud, duress, and unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.) In this case, Plaintiffs contend the arbitration agreement is unenforceable due to procedural and substantive unconscionability.

“‘[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 Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, quoting A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 486-487.) While both elements must be present to prevent enforcement, courts evaluate them as a sliding scale in that “the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

Procedural Unconscionability

Plaintiffs contend the arbitration agreement here is procedurally unconscionable because it was a contract of adhesion that essentially forced them to waive their statutory rights under the Song-Beverly Act. However, when “there is no other indication of oppression or surprise, ‘the degree of procedural unconscionability of an adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive unconscionability is high.’” (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704, quoting Ajamian v. CantorCO2e (2012) 203 Cal.App.4th 771, 796.)

Here, Plaintiffs do not point to any specific instances of oppression or surprise. Instead, Plaintiffs generally refer to the agreement in the context of “take it or leave it” high-pressure sales environments, claim consumers have no choice but to accept all a dealership’s terms, and suggest dealerships do not explain or negotiate the terms of such provisions with customers. Furthermore, while Plaintiffs argue arbitration agreements cannot waive unwaivable statutory rights, the authority cited by Plaintiffs deals with statutory rights under the California Fair Employment and Housing Act. (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1130.) Plaintiffs provide no supporting authority for the suggestion that consumer rights under the Song-Beverly Act cannot be waived. Thus, to the extent the arbitration agreement is procedurally unconscionable, the court finds such procedural unconscionability low.

Substantive Unconscionability

Plaintiffs maintain the arbitration agreement is substantively unconscionable for four reasons. First, Plaintiffs note the arbitration agreement allows for Plaintiffs to choose the arbitrator but only if Defendant approves the choice. As support, Plaintiffs cite to Chavarria v. Ralphs (9th Cir. 2013) 733 F.3d 916 (Chavarria) for the principal that an arbitration selection process always favoring the employer is substantively unconscionable. However, the court in Chavarria was primarily concerned with allocation of arbitration costs. (Id., at p. 926.) Plaintiffs provide no other support for the argument that requiring parties to agree on the arbitrator is somehow substantively unconscionable.

Second, Plaintiffs claim the arbitration agreement deprives Plaintiffs of their constitutional right to a jury trial. This argument is entirely without merit as it is well established a party may contractually waive their right to a jury trial. (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 804.) Here, the arbitration agreement explicitly states “either you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.” (Ornelas Decl., Ex. A., p. 2.)

Third, Plaintiffs argue the cost-shifting provisions of the arbitration agreement violate the Song Beverly Act as Defendant only agrees to cover up to $5,000 in arbitration costs. Plaintiffs claim arbitration fees in similar cases can exceed $9,000. (see Mukai Decl., ¶ 5, Ex. 1A-1E.) “[I]t is substantively unconscionable to require a consumer to give up the right to utilize the judicial system, while imposing arbitral forum fees that are prohibitively high.” (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 90.) The reasonability of arbitration fees is determined “on a case-by-case basis, with the consumer carrying the burden of proof.” (Id., at p. 97.) In the past, consumers have carried this burden by providing evidence of their financial situation and inability to pay arbitration fees. (Swain v. LaserAway Medical Group, Inc. (2020) 57 Cal.App.5th 59, 74-75 [collecting cases].) Here, while Plaintiffs’ counsel estimates arbitration costs can exceed $9,000, the arbitration agreement makes clear Plaintiffs are only responsible for less than half of that amount. In addition, the court cannot determine whether fees are unreasonably high in this case as Plaintiffs have not provided any evidence of their financial situation or income. Thus, Plaintiffs have failed to establish the cost-shifting provisions are substantively unconscionable.

Fourth and last, Plaintiffs maintain the arbitration agreement is unevenly skewed in favor of Defendant. In particular, Plaintiffs point to the right to seek remedies in small claims court and exclusion of self-help remedies such as repossession or “an action to recover the vehicle.” However, the mere fact that the arbitration agreement provides some benefits to Defendant that Plaintiffs are unlikely to utilize is not sufficient to skew the entire agreement in an unconscionable direction. Ultimately as a whole, the court does not find the arbitration agreement is unduly harsh, oppressive, or one-sided.

Accordingly, because Defendant established the existence and applicability of an arbitration agreement while Plaintiffs failed to establish procedural and substantive unconscionability, the court GRANTS Defendant’s motion.

CONCLUSION

Based on the foregoing, Defendant’s motion to compel arbitration is GRANTED. This action is STAYED pending completion of arbitration.