Judge: Stephen P. Pfahler, Case: 22CHCV00469, Date: 2023-04-21 Tentative Ruling

Case Number: 22CHCV00469    Hearing Date: April 21, 2023    Dept: F49

Dept. F-49

Date: 4-21-23

Case #22CHCV00469

ARBITRATION

MOVING PARTY: Defendant, Nissan North America, et al.

RESPONDING PARTY: Plaintiffs, Edgar Rodriguez aka Cabrera, et al.

RELIEF REQUESTED

Motion to Compel Arbitration and Stay

SUMMARY OF ACTION

On December 30, 2021, plaintiff Rodriguez aka Cabrera and Chavez purchased a 2018 Nissan Altima vehicle. Plaintiffs allege the vehicle was covered by warranties, and defects with the vehicle under said categories of warranties. Plaintiff alleges Defendants failed to repair the “emergency brake” problems with the vehicle. Plaintiffs also allege Nissan concealed/failed to disclose the emergency braking defect.

On June 23, 2022, Plaintiff filed a complaint for Violation of the Song-Beverly Act – Breach of Express Warranty, Fraudulent Inducement – Intentional Misrepresentation, and Fraudulent Inducement – Concealment. Nissan North America answered the complaint on August 1, 2022.

RULING: Denied.

Request for Judicial Notice: Granted.

The court takes judicial notice of the existence of the pleadings for the existence of their filing, not for the content of the items. The court takes judicial notice of the notice of entry, but again, not for the truth of the matter asserted.

Evidentiary Objections to the Declaration of Evan Critchlow: Overruled.

Defendant Nissan North America (Nissan) moves to compel arbitration pursuant to the terms of the retail installment contract executed at the time of the acquisition of the vehicle. Nissan 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. Nissan 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.

Plaintiff in opposition challenges enforcement of the arbitration agreement by Nissan North America. Plaintiff also contends the arbitration clause is unconscionable, due to the imposition of an arbitration fee payment limit.

Defendants in reply reiterate the enforceability of the arbitration provision, deny any unconscionability, and rely on grounds of equitable estoppel for enforcement by a non-signatory part. Defendant also challenges the latest holding from the Second District Court of Appeal and contends prior case law is better reasoned.

“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 Nissan North 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. [Declaration of Evan Critchlow.] Evidentiary objections aside, Plaintiff implicitly acknowledges the existence of the agreement based on the allegations regarding the purchase of the vehicle with a warranty, and opposition challenging the fee cap provision and signatory parties.

The language of the agreement clearly covers the Song-Beverly claims. Nissan also argues that the arbitration clause envelops the fraud claims in that the subject claims in that the subject matter arises from the purchase and condition of the vehicle. (Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1717-1718 [Plaintiff may not avoid arbitration by casting a complaint in tort over contract].) Plaintiff submits no opposition to this argument.

Plaintiff raises an unconscionability argument on grounds of the $5,000 arbitration fee cap payable by Nissan within the agreement itself. Unconscionability claims have both a “‘procedural’” and “‘substantive’” element. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1531.) “‘Procedural unconscionability’” concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.) “‘The procedural element focuses on two factors: “oppression” and “surprise.”  “Oppression” arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. “Surprise” involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.’” (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1532.) “Substantive unconscionability” involves contracts leading to “‘“overly harsh”’” or “‘“one-sided”’” results.’” … “[U]nconscionability turns … on an absence of ‘justification “for it…” [and therefore] must be evaluated as of the time the contract was made.’” (Id. at p. 1532.)

Plaintiff argues the agreement constitutes an improper adhesion contract, as it was provided on a “take it or leave it” basis, and without the opportunity to negotiate. The argument finds support under the circumstances, but the existence of a procedurally unconscionable agreement will not necessarily render it unenforceable. The determination depends on the terms themselves. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 913–915.)

On substantive unconscionability, Plaintiff depends on the argument that the fee cap improperly undermines the statutory attorney fee and costs recovery guarantees to a prevailing plaintiff, and said clause presents a “deterrent” effect on a parties to pursue a claim. Plaintiff also adds in a challenge to the terms themselves, whereby the arbitrator is tasked with the determination of unconscionability.

Given the court’s requirement to determine unconscionability, the court declines to consider the delegation clause in that it’s not pertinent to the disposition of the subject action. 

“In the area of consumer arbitration, the Legislature has addressed costs in a different way. In 2002, shortly after Armendariz was decided, the Legislature enacted Code of Civil Procedure section 1284.3 to address fees and costs in consumer arbitration. Subdivision (a) of section 1284.3 provides that ‘[n]o neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses.’ Most pertinently, section 1284.3, subdivision (b)(1) provides that ‘[a]ll fees and costs charged to or assessed upon a consumer party by a private arbitration company in a consumer arbitration, exclusive of arbitrator fees, shall be waived for an indigent consumer. For the purposes of this section, “indigent consumer” means a person having a gross monthly income that is less than 300 percent of the federal poverty guidelines. Nothing in this section shall affect the ability of a private arbitration company to shift fees that would otherwise be charged or assessed upon a consumer party to a nonconsumer party.’ Subdivision (b)(2) requires the arbitration provider to give notice of the fee waiver provision, and subdivision (b)(3) provides that “[a]ny consumer requesting a waiver of fees or costs may establish his or her eligibility by making a declaration under oath on a form provided to the consumer by the private arbitration company for signature stating his or her monthly income and the number of persons living in his or her household. No private arbitration company may require a consumer to provide any further statement or evidence of indigence.” (Code Civ. Proc., § 1284.3, subd. (b)(2) & (3).)”

(Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 918–919.)

In other words, the provision cannot be unconscionable absent a showing of indigence or other deterrent effect. (Ibid.; Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89–91.) Plaintiff presents no basis of unaffordability to bring this case on behalf of the Plaintiff, or inability to recovery said potential fees and costs as part of any successful arbitration. Plaintiff also represents one arbitration charge of $9,120 and otherwise cites required retainer payments charged by the arbitrator in other actions. [Declaration of Zachary Powell, ¶ 5.] The court declines to consider any unmade arguments on the subject given the additional distinctions between consumer arbitration clause requirements relative to the additional heightened remedies available under the Song-Beverly Act.

Even if the costs were somehow unrecoverable and imposed an unconscionable burden on Plaintiff, the court also declines to make any assumptions on the potential costs of this arbitration, as a basis for denial. The court therefore finds the fee $5,000 fee cap contribution in no way renders the agreement unconscionable for purposes of the subject motion.

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. California also imposes an implied warranty of merchantability barring a disclaimer. (Civ. Code, § 1792.)

The agreement itself is only executed by Nissan of Mission Hills. 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 (Felisilda); 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.)

Although Plaintiff submitted a number of cases, the court focuses on Ngo as the leading case addressing the differences between a contractual warranty claim and a credit financing agreement. Unlike in 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 Nissan North 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. While the claims against Defendant are arguably “intertwined” with the terms of the contract regarding claims under contract, statute and/or tort, a leading case decided in the Second Appellate District distinguishes the contractual basis of warranty claims. (Ford Motor Warranty Cases (Cal. Ct. App., Apr. 4, 2023, No. B312261) 2023 WL 2768484.)

The Ford Motor Warranty Cases specifically confronted the exact situation regarding a third party non-signatory manufacturer seeking to compel arbitration(s) via (a) sales contract(s) of the various purchasing parties for 2015-206 manufacturing dated vehicles. The court categorically distinguished Felisilda whereby non-signatory manufacturers could compel arbitration on grounds of equitable estoppel. The holding, at least in part, relies on a finding that the warranty claims against the manufacturer arise independently from the sales contract. (Id. at *4-6.)

The court also found that Ford Motor Company was precluded from making an argument as a third party beneficiary, due to the failure to establish any showing within the express terms of the contract. . (Id. at *6-8.) While Nissan presents significant argument seeking to distinguish the contractual terms, the court finds no argument or evidence in support of any independent argument for a third party beneficiary relationship.

“As a practical matter, a superior court ordinarily will follow an appellate opinion emanating from its own district even though it is not bound to do so. Superior courts in other appellate districts may pick and choose between conflicting lines of authority.” (McCallum v. McCallum (1987) 190 Cal.App.3d 308, 315 (footnote 4).) For both court policy reasons, and factual agreement with the Ford Motor Warranty Cases, the court follows the authority of the Ford Motor Company cases, and accordingly denies the motion to compel arbitration.

Case Management Conference set for May 24, 2023. The case is now at issue.

Defendant to provide notice.