Judge: Salvatore Sirna, Case: 22PSCV03013, Date: 2023-04-24 Tentative Ruling

The Court may change tentative rulings at any time. Therefore, counsel are advised to check this website periodically to determine whether any changes or updates have been made to the tentative ruling. Counsel may submit on the tentative rulings by calling the clerk in Department G at (909) 802-1104 prior to 8:30 a.m. the morning of the hearing.

Case Number: 22PSCV03013    Hearing Date: April 24, 2023    Dept: G

Defendant Hyundai Motor America’s Motion to Compel Binding Arbitration

Respondent: Plaintiffs Martin Bautista and Community Support Services Organization

TENTATIVE RULING

Defendant Hyundai Motor America’s Motion to Compel Binding Arbitration is DENIED.

BACKGROUND

This is a lemon law action. On August 28, 2021, Plaintiffs Martin Bautista and Community Support Services Organization entered into a warranty contract with Defendant Hyundai Motor America by purchasing a 2021 Hyundai Palisade from a dealership. Plaintiffs allege the vehicle did not conform to the warranty as it had serious defects with its electrical, engine, structural, transmission, suspension, and emission systems.

On December 21, 2022, Plaintiffs filed a complaint against Defendant and Does 1-10, alleging (1)¿breach of express warranty, (2) breach of implied warranty, and (3) violation of section 1793.2, subdivision (b) of the Song-Beverly Act.

On February 21, 2023, Defendant filed the present motion. A hearing on the motion is set for April 24. A case management conference is also set for May 18.

REQUESTS FOR JUDICIAL NOTICE

Defendant’s request for judicial notice of Plaintiffs’ Complaint in this action and Plaintiffs’ request for judicial notice of appellate opinions are GRANTED.

Defendant’s request for judicial notice of trial court minute orders and rulings in other cases is improper as they are neither precedent nor binding authority for this court. (B.F. v. Superior Court (2012) 207 Cal.App.4th 621, 627, fn. 2.)  Defendant's request is therefore DENIED.

ANALYSIS

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

Legal Standard

“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

The¿Federal Arbitration Act (FAA)¿applies to contracts that involve interstate commerce (9 U.S.C. §§ 1,¿2), but since arbitration is a matter of contract, the¿FAA¿also applies if it is so stated in the agreement.  (See¿Victrola 89, LLC v. Jaman Properties 8 LLC¿(2020) 46 Cal.App.5th 337, 355 [“[T]he presence of interstate commerce is not the only manner under which the¿FAA¿may apply. … [T]he parties may also voluntarily elect to have the¿FAA¿govern enforcement of the Agreement”].) Pursuant to the 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 the sales contract executed between the dealership and Plaintiffs included an arbitration clause. (Ameripour Decl., Ex. 2.) And the agreement contains a provision establishing it is governed by the FAA. While Plaintiffs do not contest the existence of the arbitration agreement, they argue it is inapplicable to the present action because Defendant was not a party to the sales contract. Defendant argues the arbitration agreement is applicable to Defendant as a third-party beneficiary and through equitable estoppel.

Third-Party Beneficiary

“[I]t is well established that under some circumstances a third party may bring an action for breach of contract based upon an alleged breach of a contract entered into by other parties.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 826-827 (Goonewardene); Civ. Code, § 1559.) In determining if a third-party is a beneficiary of a contract, the court examines the express provisions of the contract and circumstances surrounding the contract’s formation to determine (1) if the third-party benefits from the contract, (2) if the “motivating purpose of the contracting parties was to provide a benefit to the third party,” and (3) if “permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” (Goonewardene, supra, 6 Cal.5th at p. 830.) “However, third parties ‘who are only incidentally or remotely benefitted’ by the contract may not enforce it.” (LaBarbera v. Security National Ins. Co. (2022) 86 Cal.App.5th 1329, 1340, quoting Harper v. Wausau Ins. Co. (1997) 56 Cal.App.4th 1079, 1087.) The court addresses these elements below.

Defendant argues Defendant benefits from the sales contract because it includes an arbitration provision applicable to Defendant. (Reply, p. 10:11-12.) In a recent decision, the Second District Court of Appeal considered a similar argument:

“FMC’s claim that it ‘would benefit from utilizing arbitration as an efficient means of dispute resolution’ (italics added) if treated as a third party beneficiary begs the question: does the provision directly benefit FMC? The answer is patently ‘no.’ Its direct benefits are expressly limited to 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. FMC is none of these.” (Ford Motor Warranty Cases (Apr. 4, 2023, B312261) __ Cal.App.5th __ [2023 WL 2768484, *7].)

Like the arbitration agreement at issue in Ford Motor Warranty Cases, the present arbitration agreement is limited to any claim or dispute “between you and us or our employees, agents, successors or assigns.” (Ameripour Decl., Ex. 2, p. 6.) Thus, the arbitration provision does not directly benefit Defendant as they are not one of the parties enumerated under the definition of “us.” Because Defendant does not benefit from the arbitration agreement, they cannot seek to enforce the arbitration agreement as third-party beneficiaries.

Equitable Estoppel

Pursuant to the doctrine of equitable estoppel, “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.” (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 (Turtle Ridge Media Group), quoting Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713-1714.)

In arguing Plaintiff’s claims are intertwined with their obligations under the sales contract, Defendant 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 nonsignatories to the sales contract.” (Id., at p. 497.) However, Ford Motor Warranty Cases declined to follow Felisilda despite interpreting an identical arbitration agreement. (Ford Motor Warranty Cases, supra, __ Cal.App.5th __ [2023 WL 2768484, *4-5].) “Decisions of every division of the District Courts of Appeal are binding upon all . . . superior courts of this state.” (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.) However, when there are conflicting appellate court decisions, “the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.” (Id., at p. 456.)

In relevant part, the present arbitration provision provides 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.” (Ameripour Decl., Ex. 2, p. 6.)

In Felisilda, the Third District Court of Appeal held the plaintiff’s lemon law claims were directly related to the condition of their vehicle and had expressly agreed to arbitrate vehicle condition claims against third parties. (Felisilda, supra, 53 Cal.App.5th at p. 496-497.) The Second District Court of Appeal rejected this interpretation, suggesting that breaches of a manufacturer’s warranty are separate from purchaser-dealer sales contracts. (Ford Motor Warranty Cases, supra, __ Cal.App.5th __ [2023 WL 2768484, *4].) The court there noted that plaintiffs did not allege breach of sales contract terms and the sales contracts did not include a warranty. (Id., at p. *5.)

The court held the sales contract in Felisilda was the source of the warranties because the warranties accompanied the vehicle’s sale. (Felisilda, supra, 53 Cal.App.5th at p. 496-497.) However, as Ford Motor Warranty Cases notes, “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.” (Ford Motor Warranty Cases, supra, __ Cal.App.5th __ [2023 WL 2768484, *5]; see also Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 61 [warranties can arise from sales contract or independently through common law]; Corporation of Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514 [“[T]he express warranty herein involved was not part of a contract of sale between the manufacturer and the plaintiff. The actual sale was by [manufacturer] to [defendant].”].)

Defendant points to Plaintiff’s allegation that the “the sale of the Subject Vehicle was accompanied by an implied warranty that the Subject vehicle was merchantable pursuant to Civil Code section 1792.” (Complaint, ¶ 34.) While Defendant and Felisilda are correct that warranty obligations arise from the sale of the vehicle to Plaintiffs, such a connection is not the standard for equitable estoppel. The proper standard—being intimately founded in and intertwined with—demands a closer connection. (Turtle Ridge Media Group, supra, 140 Cal.App.4th at p. 828 [defining intertwined as “based on the same facts and are inherently inseparable from arbitrable claims”].)

In the present case, Plaintiffs allege these “causes of action arise out of warranty and repair obligations of [Defendant] in connection with a vehicle Plaintiffs purchased and for which [Defendant] issued a written warranty. The warranty was not issued by the selling dealership.” (Complaint, ¶ 5.) Furthermore, Plaintiffs do not provide a copy of the sales contract nor do they join the dealership as a party. In line with Ford Motor Warranty Cases, the court finds Plaintiffs’ causes of action are not intertwined and intimately founded in the sales contract between Plaintiffs and the dealership. Instead, they arise from a separate warranty agreement between Plaintiffs and Defendant.

The court in Felisilda also put significant weight on the fact that the arbitration agreement applied to relationships with third parties. (Felisilda, supra, 53 Cal.App.5th at p. 497-498.) However, the court in Ford Motor Warranty Cases interpreted the reference to third parties “as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate.” (Ford Motor Warranty Cases, supra, __ Cal.App.5th __ [2023 WL 2768484, *5].) The court finds this is the correct interpretation. As noted above with regards to the third-party beneficiary issue, the arbitration agreement covers claims or disputes “between you and us or our employees, agents, successors or assigns” and does not include the reference to third parties. (Ameripour Decl., Ex. 2, p. 6.) Instead, “relationship with third parties” is subsequently listed as a category of claims or disputes covered by the arbitration agreement. (Ameripour Decl., Ex. 2, p. 6.) Thus, the court follows Ford Motor Warranty Cases and finds equitable estoppel does not apply.

Accordingly, because Defendant is not a signatory to the arbitration agreement here and cannot enforce the agreement as a third-party beneficiary or through equitable estoppel, the court DENIES Defendant’s motion.

CONCLUSION

Based on the foregoing, Defendant’s motion to compel arbitration is DENIED.