Judge: Stephen P. Pfahler, Case: 21CHCV00917, Date: 2022-08-01 Tentative Ruling

Case Number: 21CHCV00917    Hearing Date: August 1, 2022    Dept: F49

Dept. F-49

Date: 8-1-22

Case #21CHCV00917

ARBITRATION

MOVING PARTY: Defendant, Hyundai Motor America

RESPONDING PARTY: Plaintiff, Thomas Miller

RELIEF REQUESTED

Motion to Compel Arbitration and Stay

SUMMARY OF ACTION

On November 29, 2017, Plaintiff Thomas Miller “acquired” a new 2018 Hyundai Elantra vehicle from an unspecified “licensed California dealer of automobiles.” Plaintiff alleges the vehicle was covered by warranties for five years/60,000 miles and 10 year/100,000 miles. On an unspecified date, the vehicle began experiencing unspecified problems.

On December 2, 2021, Plaintiff filed a complaint for Breach of Implied Warranty of Merchantability, and Breach of Express Warranty. Hyundai Motor America answered the complaint on January 5, 2022.

RULING: Granted.

Evidentiary Objections to the Declaration of Mark Skanes: Overruled.

Defendant Hyundai Motor America (Hyundai) moves to compel arbitration pursuant to the terms of the retail installment contract executed at the time of the acquisition of the vehicle. Hyundai seeks arbitration on grounds that the claims arise from alleged defects with the vehicle. The “condition” of the vehicle is a term within the contract requiring arbitration. Hyundai concedes it was not a signatory party to the agreement, but insists it can enforce the agreement as the party responsible for the warranty provisions under both the terms of the contract and case authority. Defendant challenges any arguments for waiver, and contends the clause in no way violates the unconscionable standards. Plaintiff in opposition presents three main arguments: waiver, lack of a signatory party to the contract, and lack of admissible evidence even establishing the existence of the arbitration clause. Defendant in reply denies any waiver, and reiterates the basis of authority for a non-signatory beneficiary right to enforce an arbitration agreement.

“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.) “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for the revocation of the agreement.” (Code Civ. Proc., § 1281.2.)

The law creates a general presumption in favor of arbitration. In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. The burden then shifts to the resisting party to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.). (Rosenthal v. Great Western Fin'l Securities Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Ctr., Inc. (2006) 144 Cal.App.4th 754, 758.) Any challenges to the formation of the arbitration agreement should be considered before any order sending the parties to arbitration. The trier of fact weighs all evidence, including affidavits, declarations, documents, and, if applicable, oral testimony to determine whether the action goes to arbitration. (Hotels Nevada v. L.A. Pacific Ctr., Inc., supra, 144 Cal.App.4th at p. 758.)

The court finds the declaration of counsel for defendant Hyundai Motors America sufficiently competent in knowledge and establishing rightful possession of the sales agreement containing the subject arbitration clause based on said position representing the corporate entity. Evidentiary objections and opposition aside, Plaintiff at least agrees to the existence of a purchase contract for the vehicle, which based on the opposition contains an arbitration agreement.[1] Thus, if the court finds the agreement enforceable, the subject dispute belongs in arbitration. Nothing in the opposition raises a lack of enforceability on grounds the arbitration clause constitutes a substantively or procedurally unconscionable agreement.

The court first considers the argument for waiver based on conduct of Defendant leading up to the instant motion to compel arbitration. “Although a court may deny a petition to compel arbitration on the ground of waiver (§ 1281.2, subd. (a)), waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof. (Citations.) [¶] Both state and federal law emphasize that no single test delineates the nature of the conduct that will constitute a waiver of arbitration. (Citations.) ‘“In the past, California courts have found a waiver of the right to demand arbitration in a variety of contexts, ranging from situations in which the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration [citations] to instances in which the petitioning party has unreasonably delayed in undertaking the procedure. [Citations.] The decisions likewise hold that the ‘bad faith’ or ‘wilful misconduct’ of a party may constitute a waiver and thus justify a refusal to compel arbitration. [Citations.]”’ (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195–1196.)

Waiver generally occurs upon a finding of prejudice against the challenging party. Examples include the propounding discovery or service of an answer, where such action reveals the strategies or theories that would not otherwise be available to the party in arbitration. (Berman v. Health Net (2000) 80 Cal. App. 4^th 1359, 1367; Davis v. Continental Airlines, Inc. (1997) 59 Cal. App. 4^th 205, 212.) Where an agreement lacks a specific time frame, an excessive and unreasonable delay in a demand for arbitration can support a finding of a waiver. (Spear v. California State Auto. Assn. (1992) 2 Cal.4th 1035, 1043; Allstate Ins. Co. v. Gonzalez (1995) 38 Cal.App.4th 783, 790.) “‘[W]hat constitutes a reasonable time is a question of fact, depending on the situation of the parties, the nature of the transaction, and the facts of the particular case.’ Among the facts a court may consider is any prejudice the opposing party suffered because of the delay. [Citation.]” (Spear v. California State Auto. Assn. supra, 2 Cal.4th at 1043.)

The determination of diligence applicable to an arbitration motion commences upon the filing of the action. (Allstate Ins. Co. v. Gonzalez, supra, 38 Cal.App.4th at 790; Schumpert v. Tishman Co. (1988) 198 Cal.App.3d 598, 603.) The subject complaint was filed on December 2, 2021, and the instant motion to compel arbitration was filed on May 13, 2022—approximately six months later. Nothing in the simple period of time between the filing of the action, answer filed less than 30 days later, and demand for arbitration, in and of itself, supports a finding of a lack of diligence in seeking arbitration under the standard. (Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 446 [Defendant “litigated the merits of [the] claims through multiple demurrers and motions to strike and participated in discovery without raising its right to arbitration” during the four month period between complaint and motion to compel arbitration];

Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1451 [During six month delay between complaint and motion to compel arbitration, “defendant filed two demurrers, accepted and contested discovery request[s], engaged in efforts to schedule discovery, [and] omitted to mark or assert arbitration in its case management statement”]; Kaneko Ford Design v. Citipark, Inc. (1988) 202 Cal.App.3d 1220, 1228 [Kaneko participated in settlement negotiations with Citipark, did not notify Citipark that it intended to seek arbitration, and also obtained information as to the legal strategies of Citipark by means of the latter's answer to the complaint].)

The court examines the parties conduct during the time frame. Plaintiff contends the parties engaged in discovery practices, including Defendant responding to Plaintiff propounded discovery and producing over 100 pages of documents. Defendant concedes to the responses, but denies any other activity in the action other than the answer. Defendant states it responded in order to “protect” its interests, and otherwise propounded no discovery of its own. Defendant also requested Plaintiff voluntarily submit to arbitration. [Declaration of Mark Skanes, ¶¶ 11-12.] Defendant represents that beginning on January 5 though April 4, 2022, counsel reached out in order to try and settle the matter. Defendant also requested extensions of time to respond to the discovery. Upon realizing settlement discussions were not going to productively occur, Defendant elected to file the motion to compel arbitration. Defendant preserved its right to seek arbitration in the answer. [Supp. Declaration of Mark Skanes, ¶¶ 5-10.]

It’s not clear from either party what was exactly requested and presented in discovery. Nevertheless it is undisputed that any and all discovery was propounded by Plaintiff only. The court also finds no argument with Defendant’s representation to seeking resolution of the claims without either submitting to arbitration or proceeding with the action. Notwithstanding, Plaintiff exclaims prejudice again based on the six-month time frame without any other factually supported argument.

The court finds the limited discovery presented and certain amount of unaccounted for delay certainly constitutes factors for finding of a waiver. Still, nothing in the opposition in any way establishes how said discovery and delays with nothing more than offers to engage in settlement discussions and an answer, somehow conveyed Plaintiff’s position in the case, thereby presenting an advantage to Defendant. If anything, Plaintiff garnered additional information, and it would be Defendant that can make a stronger argument for prejudice. Thus, the court concludes no showing of prejudice as a result of the six-month time frame, discovery, or filing of the answer.

Finally, the court considers the argument regarding the lack of Defendant as a signatory party to the agreement, thereby barring enforcement of the contract. The retail installment contract itself provides for the terms of the financing, and includes the referenced arbitration clause. Section 3 of the clause provides in part: “Any claim or dispute, whether in contract, tort, statute or otherwise…which arises out of or relates to the your…purchase or condition of this vehicle…shall…be resolved by neutral arbitration.” While the express warranty language is not part of the agreement, it is undisputed in the complaint that Plaintiff seeks relief against Defendant for warranty claims. At a minimum, every vehicle sale comes with an implied warranty of merchantability barring a disclaimer. (Civ. Code, § 1792.) Thus, even if just for the breach of implied warranty, the court finds a nexus between the contractual language and the instant complaint.

The agreement itself is only executed by R & A Alexander Investments.[2] Arbitration agreements may only be generally compelled by parties to the agreement. The doctrine of equitable estoppel allows for a non-signatory party to compel arbitration “‘when the causes of action against the nonsignatory are “intimately founded in and intertwined” with the underlying contract obligations.’” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237; Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495-496; Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218; Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1070 [Under equitable estoppel, a party cannot avoid participation in arbitration, where the party received “a direct benefit under the contract containing an arbitration clause…”]; Boucher v. Alliance Title Co, Inc. (2005) 127 Cal.App.4th 262, 271).)

Plaintiff in opposition seeks to distinguish the number of cases enforcing an arbitration clause by a third party based on based on the lack of any established third party beneficiary. (Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942 (“Ngo.”) “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.) The Ngo case involved BMW of North America seeking to compel arbitration over a dispute regarding the financing agreement, and found BMW of North America lacked any basis to compel arbitration as a third party beneficiary, due to the failure to establish any third party beneficiary status. (Ngo, supra, at p. 948.)

Unlike Ngo, the subject action involves both an equitable estoppel basis to compel as well as a claim against the warrany(ies) provided by the manufacture of the vehicle itself—moving defendant Hyundai Motor America. The Ngo court itself in fact distinguished claims between a credit financing agreement and warranty claims in finding the distinction between the claims. (Id. at pp. 948-950.) Again, the complaint itself seeks relief under express and implied warranties offered and required by the manufacturer of the vehicle. No other parties are alleged as responsible for adherence to the warranty. The claims against Defendant are therefore clearly “intertwined” with the terms of the contract regarding claims under contract, statute and/or tort. Plaintiff is equitably estopped from both seeking to enforce the warranties owed by the manufacturer, while denying the existence of contractual rights connected via the financing agreement thereby allowing acquisition of the vehicle and conveyance of warranty rights. The court therefore rejects the extensive arguments under Ngo on grounds that equitable estoppel compels arbitration of the warranty claims.

The action is therefore ordered to arbitration in compliance with the terms of the agreement. The parties are to select an arbitration organization, which may include the American Arbitration Association, or any other. Selection of the arbitrator shall proceed under the selected organization rules. If the parties cannot agree on an organization, the court orders the parties to submit a list of one to two organizations from each party, where the court will select the organization. If the selected organization itself lacks a method for selecting an arbitrator, the court will again accept one to two arbitrators from each party within the organization and select from the list. The parties have 30 days from the date of this order to begin the selection process.

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.4.) The court orders the action stayed.

The court will set an OSC re: Status of Arbitration and Stay at the time of the hearing.

Defendant to provide notice.