Judge: Sandy N. Leal, Case: 2022-01287396, Date: 2023-08-10 Tentative Ruling

Motion to Compel Arbitration

Defendants, Toyota Motor Sales, U.S.A., Inc.  and DWWTO, Inc., dba Toyota of Orange’s Motion to Compel Arbitration is GRANTED in part and DENIED in part.

“California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes.  To further that policy, Code of Civil Procedure, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies.  Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.”  (Code of Civ. Proc., § 1281.2; Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967.)  Similarly, public policy under federal law favors arbitration and the fundamental principle that arbitration is a matter of contract and that courts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms.  (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.)

In deciding a motion or petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties and then determine whether the claims are covered within the scope of the agreement.  (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)  The opposing party has the burden to establish any defense to enforcement.  (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 [“The petitioner ... bears the burden of proving the existence of a valid arbitration agreement and the opposing party, plaintiffs here, bears the burden of proving any fact necessary to its defense.”].) A party may demonstrate express acceptance of the arbitration agreement in order to be bound. (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal. App. 4th 1105.)

Defendants Toyota Motor Sales, U.S.A., Inc. and DWWTO, Inc. dba Toyota of Orange (Defendants) move for an order compelling binding arbitration and dismissing this case or staying all proceedings in connection with this lawsuit pending the conclusion of arbitration.

Defendants contend that an order compelling arbitration is warranted because the Retail Installment Sales Contract (RISC) Plaintiff signed to purchase the Vehicle contains an arbitration provision (Arbitration Provision) which applies to Plaintiff’s claims against both Defendants.

The RISC provides in pertinent part:

“ARBITRATION PROVISION

 PLEASE REVIEW – IMPORTANT - AFFECTS YOUR LEGAL RIGHTS

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. If federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute. Any claim or dispute is to be arbitrated by a single arbitrator on an individual basis and not as a class action. You expressly waive any right you may have to arbitrate a class action. You may choose the American Arbitration Association, 1633 Broadway, 10th Floor, New York, New York 10019 (www.adr.org), or any other organization to conduct the arbitration subject to our approval. You may get a copy of the rules of an arbitration organization by contacting the organization or visiting its website.”

(Declaration of John W. Myers IV (Myers Decl.), ¶ 3, Exhibit A.)

The RISC also states that “Toyota of Orange, Inc.” is the “Seller-Creditor,” and that Plaintiff is the Buyer. Specifically, the RISC includes the following definition:

“You, the Buyer (and Co-Buyer, if any), may buy the vehicle below for cash or on credit. By signing this contract, you choose to buy the vehicle on credit under the agreements on all pages of this contract. You agree to pay the Seller- Creditor (sometimes “we or “us” in this contract) the Amount Financed and Finances Charges in  U.S. funds according to the payment schedule below.”

(Myers Decl., Exhibit A, pg. 1.)

The central issue in this motion is the parties’ dispute about whether Felisilda v. FCA US LLC (2020), 53 Cal. App. 5th 486 (Felisilda) or In Re Ford Motor Warranty Cases (2003) 89 Cal.App.5th 1324 (Ochoa) should apply to Defendants’ motion.

Felisilda involved Plaintiffs suing for violation of the Song-Beverly Act against the dealer and manufacturer. (Felisilda, supra, 53 Cal.App.5th 4 at 489.) The dealer moved to compel arbitration relying on the RISC signed by Plaintiffs and the manufacturer filed a notice of non-opposition. (Id.) The trial court ordered Plaintiffs to arbitrate against both parties and Plaintiffs dismissed the dealer. (Id.) The arbitrator then found in favor of the manufacturer, and Plaintiffs appealed, contending that the trial court lacked discretion to order Plaintiffs to arbitrate against the manufacturer, a non-signatory to the RISC. (Id.) The Court of Appeal concluded that the trial court correctly ordered arbitration as to the manufacturer, reasoning:

“Based on language in the sales contract and the nature of the Felisildas’ claim against FCA, we conclude the trial court correctly ordered that the entire matter be submitted to arbitration. In signing the sales contract, the Felisildas agreed that “[a]ny claim or dispute, whether in contract, tort, statute or otherwise ... between you and us ... which arises out of or relates to ... [the] condition of this vehicle ... shall ... be resolved by neutral, binding arbitration and not by a court action.” (Italics added.) Here, the Felisildas’ claim against FCA relates directly to the condition of the vehicle.” (italics original)

Because the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party nonsignatories to the sales contract – they are estopped from refusing to arbitrate their claim against FCA. Consequently, the trial court properly ordered the Felisildas to arbitrate their claim against FCA.”

(Felisilda, supra, 53 Cal.App.5th at 496-497.) Felisilda also rejected Plaintiffs’ reliance on Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122 because the RISC at issue in Kramer “did not contain any language that could be construed as extending the scope of arbitration to third parties.”

In Ochoa, vehicle owners brought an action against the manufacturer asserting claims for breach of warranty, fraudulent inducement and concealment relating to transmission defects in vehicles. (Ochoa, supra, 89 Cal.App.5th at 1329-1330.) The trial court denied the manufacturer’s motion to compel arbitration and the manufacturer appealed. (Id. at 1331.) The Court of Appeal found that the equitable estoppel does not apply because “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,” disagreeing with Felisilda. (Id. at 1334.) Ochoa also disagreed with Felisilda’s interpretation of the RISC as “broadly calling for the arbitration of claims “against third party nonsignatories.”” (Id. at 1334.) The Ochoa court reasoned:

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 cont[r]act 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.”

(italics original) (Id. at 1334-1335.)

As of July 19, 2023, Supreme Court review has been granted on Ochoa.

Based on the above discussion, Felisilda and Ochoa represent a split in authority regarding whether a non-signatory manufacturer can move to compel arbitration based on an arbitration provision in the RISC and the principles of equitable estoppel or third-party beneficiary. The Court will exercise its discretion and follow Ochoa, as it finds that Ochoa is more persuasive. (see Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456.)

Based on Ochoa, the Court must analyze whether the Complaint’s allegations arise out of the RISC.

 Here, the Complaint alleges as follows: “The Vehicle is “hydrogen-powered,” meaning its fuel tank holds liquid hydrogen, which is used to power an electric motor that propels the vehicle. The Vehicle was advertised by Toyota and its dealership network including Dealer as having “zero-emissions” and a range of over 400 miles on a single tank of hydrogen. The over-400-mile range was advertised in such forums as Toyota’s website at https://www.toyota.com/mirai/features/mileage_estimates/3002 [¶] For Plaintiff, the over-400-mile range was a major selling point for the Vehicle. That meant the Vehicle, unlike many other “zero emissions” vehicles which had much lower ranges, could be driven in a normal fashion. Plaintiff relied on both Toyota’s advertising and Dealer’s advertising, including verbal comments by Dealer’s salesperson that the Vehicle, in fact, could be driven over 400 miles on a single tank of hydrogen. Plaintiff would not have purchased the Vehicle if it, in fact, was not capable of achieving the advertised over-400-mile range in ordinary use. [¶] Unfortunately, the Vehicle is not capable of being driven anywhere close to 400 miles on a single tank of hydrogen in ordinary use, nor are like models of the Vehicle capable of that, generally. Toyota’s advertising and its dealership network’s advertising, including Dealer’s advertising, are patently false on that point. Plaintiff since purchase has attempted to maximize he range of the Vehicle by driving conservatively, not using air conditioning, not accelerating quickly, not driving at high speeds, cruising at steady speeds, driving with the windows up, and not carrying heavy loads, but under no circumstances has been able to achieve a range over approximately 250 miles per tank. This is not only a significant inconvenience for an average driver like Plaintiff, but places the Vehicle within the advertised range of less expensive “zero emissions” vehicles which cost half as much. Moreover, because hydrogen-fueling stations are few and far between, a range of only 250 miles is even more of a detriment.” (Complaint, ¶¶ 7-9.)

 The Complaint then alleges that Defendants’ failure to provide a vehicle that could drive the advertised “over-400 miles” range constitutes violation of the Consumer Legal Remedies Act (CLRA), a breach of implied warranty of merchantability, and conversion of the funds Plaintiff used to purchase the Vehicle. (see Complaint, ¶¶ 10-23.)

Therefore, based on the allegations of the Complaint, Plaintiff’s claims against Defendants do not arise out of the RISC because Plaintiff is alleging that Defendants’ failure to ensure that the vehicle could drive the “over-400-miles” as advertised is a violation of the CLRA, a breach of the implied warranty of merchantability and conversion as to the funds Plaintiff used to purchase the Vehicle. The claim that the Vehicle failed to live up to an advertisement is not related to any of the terms of the RISC.

Thus, because Plaintiff’s claims against Defendants do not arise out of the RISC, pursuant to Ochoa, the Court declines to compel arbitration against TMS, as it is not a signatory to the RISC.

As to whether the Court should compel arbitration against Dealer, Defendant contends that regardless of the holding of Ochoa, Dealer is a party to the RISC and has a contractual right to compel arbitration.

In Opposition, Plaintiff contends that in the event the Court compels arbitration against Dealer but not TMS, the Court should “[s]tay arbitration as to one party (dealer) and have the claims against the other party (Toyota) continue in the trial court” pursuant to Code of Civil Procedure section 1281.2 would be acceptable. (Opposition, 7:3-9:28.)

In reply, Defendants seem to concede that compelling arbitration against Dealer but not against manufacturer is acceptable pursuant to Code of Civil Procedure section 1281.2, so long as the arbitration proceeds first and the civil case is stayed pending completion of arbitration. (Reply,6:12-7:28.)

Code of Civil Procedure section 1281.2 provides in pertinent part: “[i]f the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c), the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.”

Here, based on the language of the RISC, the Court will exercise its discretion under Code of Civil Procedure section 1281.2 and grant the motion as to Dealer, while staying the action as to TMS. Specifically, the Court grants the motion as to Dealer because the RISC specifically provides that “you” or “us” may compel arbitration as to  “[a]ny 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).” The Court finds that this portion of the Arbitration Provision grants Dealer, on its face, a contractual right to compel arbitration relating to the “condition of the vehicle.” Plaintiff’s claim that the Vehicle does not live up to its advertised usage is a claim relating to the “condition of the vehicle.”

Therefore, Defendants, Toyota Motor Sales, U.S.A., Inc.  and DWWTO, Inc., dba Toyota of Orange’s Motion to Compel Arbitration is GRANTED in part as to the request for order compelling arbitration againts Defendant DWWTO, Inc. dba Toyota of Orange. Plaintiff is ordered to arbitrate her claims against Defendant, DWWTO, Inc. dba Toyota of Orange.

Defendants’ Motion is DENIED as to the request for order compelling arbitration against Defendant Toyota Motor Sales, U.S.A., Inc. The Court stays this action pending completion of arbitration against DWWTO, Inc. dba Toyota of Orange.

The Court sets a Status Conference re: Arbitration for ___.

Defendants are to give notice.