Judge: Stephen P. Pfahler, Case: 22CHCV01487, Date: 2023-12-29 Tentative Ruling

Case Number: 22CHCV01487    Hearing Date: December 29, 2023    Dept: F49

Dept. F-49

Date: 12-29-23

Case #22CHCV01487

ARBITRATION

MOVING PARTY: Defendant, American Honda Motor Co., Inc.

RESPONDING PARTY: Plaintiff, Jason Goldman

RELIEF REQUESTED

Motion to Compel Arbitration and Stay Action

SUMMARY OF ACTION

On June 15, 200, plaintiff Jason Goldman entered into a “warranty contract” with defendant American Honda Motor Co., Inc. for a 2020 Honda Accord vehicle. Plaintiff alleges the vehicle suffers from unspecified defects.

On December 27, 2023, Plaintiff filed a complaint for Violations Violation of Song-Beverly Act – Section 1793.2, and Breach of Implied Warranty of Merchantability. American Honda Motor Co., Inc. answered on April 11, 2023.

RULING: Denied.

Request for Judicial Notice: Granted in Part/Denied in Part.

The court takes judicial notice of the filing of the complaint, but not the content of the pleading for the truth of any matter asserted. The court declines to take judicial notice of case authority. Plaintiff may submit any and all published and citable authority in the points and authorities.

Defendant American Honda Motor Co., Inc. (Honda) moves to compel arbitration pursuant to the terms of the retail installment contract executed at the time of the acquisition of the vehicle. Honda 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. Honda in its role as manufacturer, 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 equitable estoppel.

Plaintiff in opposition challenges the authenticity and enforcement of the arbitration agreement via the financing agreement. Plaintiff also denies any third party beneficiary relationship between the dealership and manufacturer or basis of estoppel. Finally, Plaintiff contends the agreement is unconscionable.

Honda in reply reiterates the enforceability of the arbitration provision based on reliance on prior authority allowing arbitration. Honda characterizes the warranty as part of the sales contract, and emphatically cites to the language in the arbitration agreement designating Honda as a party to any arbitration.

“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 defendants sufficiently establishes competence in knowledge, and the rightful possession of the sales agreement containing the subject arbitration clause applicable to the subject action. [Declaration of Ali Ameripour, Ex. 2.] The court finds the language of the agreement also clearly applies to the warranties on the vehicle.

The court therefore considers the defenses to arbitration. Plaintiff first raises an unconscionability argument on grounds of a lack of mutuality and adhesion presentation.

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 effectively improper adhesion contract, as it was provided on a “take it or leave it” basis, buried in the terms, and without the opportunity to negotiate.

“The adhesive nature of the [consumer] contract is sufficient to establish some degree of procedural unconscionability. Yet ‘a finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.’” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915.) The court finds the circumstances regarding the transaction, including the placement of the arbitration clause itself, and lack of any conditions rendering the agreement “one sided” insufficiently supports any basis unconscionability to thwart the enforceability of the agreement on this basis. (See Id., at p. 919-921.) The court therefore finds no bar of the arbitration agreement on grounds of unconscionability.

The court next considers the argument regarding the lack of Honda 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.

The agreement itself provides in relevant part “By signing this arbitration consent ,YOU elect to have disputes resolved by arbitration ....” on “any claims, disputes, or controversies” with “HONDA.” The agreement is actually only executed by Plaintiff and Autonation Honda Velencia with no ostensible signature or indication of authority other than the language in the arbitration clause by any Honda entity identified in the clause.

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 the lack of any established third party beneficiary and/or lack of applicability of estoppel doctrine. Prior to recent cases within the Second Appellate District, auto manufacturers moved to compel on grounds of estoppel and/or third party beneficiary status. (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 an equitable estoppel basis to compel via a claim against the warranty(ies) provided by the manufacture of the vehicle itself—moving defendant Honda. The Ngo court further differentiated claims between a credit financing agreement and warranty claims. (Id. at pp. 948-950.) The court therefore distinguishes Ngo in that the complaint arises from the express and implied warranties offered and required by the manufacturer (though the vehicle is a Mercedes and not a Honda manufactured vehicle), rather than terms regarding the financed purchase of the vehicle. Plaintiff names no other defendants as responsible for adherence to the warranty (e.g. Autonation Honda Valencia).

While Honda strenuously relies on the designation of Honda as a named party in the lease, a leading case decided in the Second Appellate District distinguishes the contractual basis of warranty claims. (Ford Motor Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324.) 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 2015-2016 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 obligations, and therefore claims against the manufacturer arise independently from the sales contract. (Id. at p. 1324, 133-1334.)

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 pp. 1334-1335) Another recent case in the Second Appellate District on the subject affirms the holding of the Ford Warranty case. (Montemayor v. Ford Motor Company (Cal. Ct. App., June 26, 2023, No. B320477) 2023 WL 4181909, at *8–10. The Third Appellate District recently granted a writ of mandate reversing an order compelling arbitration citing the Second District opinions in support. (Kielar v. Superior Court of Placer County (Cal. Ct. App., Aug. 16, 2023, No. C096773) 2023 WL 5270559, at *3-4.)

Again, Honda depends on a finding of privity of contract among the parties and therefore a basis of standing for enforcement of the warranties. As addressed in the plain language of the Song-Beverly Act statute, along with other California law, purchasers gain vested warranties with the purchase of new and certain used automobiles. The Ford Motor Warranty Cases specifically found the arbitration clause within the finance contracts constitutes a separate and independent consideration from said legally vested warranties imposed outside the purchase contract context. (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at pp. 1334-1335.) The Ford Motor Warranty Cases court specifically decoupled inherently owed warranties from contractual principles governing arbitration. In separating the governing spheres, the court specifically found warranties shall not be governed by sales contracts. (Id. at pp. 1335-1336.) The court also specifically held that said contracts lack evidence in support of any independent argument for a third party beneficiary relationship. (Id. at pp. 1336-1337.)

The California Supreme Court granted review of the Ford Motor Warranty Cases. “Grant of review by the Supreme Court of a decision by the Court of Appeal does not affect the appellate court's certification of the opinion for full or partial publication under rule 8.1105(b) or rule 8.1110, but any such Court of Appeal opinion, whether officially published in hard copy or electronically, must be accompanied by a prominent notation advising that review by the Supreme Court has been granted. [¶] (2) The Supreme Court may order that an opinion certified for publication is not to be published or that an opinion not certified is to be published. The Supreme Court may also order depublication of part of an opinion at any time after granting review.” (Cal. Rules of Court, rule 8.1105(e)(1)(B), (e)(2).) “Pending review and filing of the Supreme Court's opinion, unless otherwise ordered by the Supreme Court under (3), a published opinion of a Court of Appeal in the matter has no binding or precedential effect, and may be cited for potentially persuasive value only. Any citation to the Court of Appeal opinion must also note the grant of review and any subsequent action by the Supreme Court.” (Cal. Rules of Court, 8.1115(e)(1).) The court agrees that the Montemayor case will also likely be included under any review of the California Supreme Court and therefore considers both under the discretionary standard.

Notwithstanding the California Supreme Court review, the court still considers the cases persuasive impacts. “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).)

The court finds the reasoning of Ford Motor Warranty Cases regarding the legal separation of warranty obligations from sales contract arbitration contract principles sufficiently dissociates any findings of an inextricably intertwined contractual relationship on grounds of estoppel between Plaintiff and Honda. The motion otherwise lacks any argument or evidence establishing a third party beneficiary relationship, or authority of the Autonation representative from executivng the agreement on behalf of Honda. [See Ameripour Decl.] Thus, for both court policy reasons, and factual agreement with the Ford Motor Warranty Cases and Montemayor, the court continues to adhere to the subject authority pending California Supreme Court review. The court otherwise declines to consider the legally supported foundation to the Ford Motor Warranty cases argued in the reply, and instead defers to the case precedent, especially pending California Supreme Court review.

The motion is therefore denied.

Case Management Conference to be concurrently held. The case is now at issue.

Defendant to provide notice.