Judge Teresa A. Beaudet, Case 21STCV33044 2023-02-28 Tentative Ruling

Plaintiffs Jesus Marquez and Martha Marquez (jointly, “Plaintiffs”) filed this lemon law action on September 8, 2021 against Defendant Nissan North America, Inc. (“Defendant”). The Complaint asserts two causes of action for (1) violation of Song Beverly Act – breach of express warranty, and (2) violation of Song Beverly Act – breach of implied warranty, arising out of the purchase of a 2019 Nissan Frontier (the “Subject Vehicle”). (Compl., ¶ 14.)

Defendant now moves for an order compelling Plaintiffs to arbitrate this matter and staying the proceedings pending completion of arbitration. Plaintiffs oppose.

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. Securities Corp. (1996) 14 Cal.4th 394, 413-414).)

Generally, on a petition to compel arbitration, the court must grant the petition unless it finds either (1) no written agreement to arbitrate exists; (2) the right to compel arbitration has been waived; (3) grounds exist for revocation of the agreement; or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues. (Code Civ. Proc., § 1281.2; Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” (Ibid. [internal quotations omitted].) This is in accord with the liberal federal policy favoring arbitration agreements under the Federal Arbitration Act (“FAA”), which governs all agreements to arbitrate in contracts “involving interstate commerce.” (9 U.S.C. § 2, et seq.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)

“[I]n the context of a petition to compel arbitration, ‘it is not necessary to follow the normal procedures of document authentication.’” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1058 (Espejo); see Cal. Rules of Court, rule 3.1330: “A petition to compel arbitration . . . must state . . . the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.”) The Espejo Court noted that in Condee v. Longwood Management Corp., supra, 88 Cal.App.4th 215, the court “concluded that by attaching a copy of the agreement to its petition, defendants had satisfied their initial burden of establishing the existence of an arbitration agreement.” (Espejo, supra, 246 Cal.App.4th at p. 1058.)

Defendant complies with the requirements of Espejo, supra, 246 Cal.App.4th 1047, and California Rules of Court, rule 3.1330 in establishing the existence of the subject arbitration agreement. (Mot at p. 7:3-8:28; Silverman Decl., ¶ 2, Ex. C.) Specifically, Defendant submits evidence that Plaintiffs purchased the Subject Vehicle on August 4, 2019, from Glendale Nissan pursuant to a written Retail Installment Sale Contract – Simple Finance Charge (With Arbitration Provision) (the “Sale Contract”). (Silverman Decl., ¶ 2, Ex. C.)

The Sale Contract contains an arbitration clause which states in pertinent part:

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 [i.e., Plaintiffs] and us [i.e., Glendale Nissan] 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.

Plaintiffs’ causes of action fall within the broad scope of this arbitration clause because the causes of action relate to the purchase and condition of the Subject Vehicle. (See Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189 [noting that “arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question”].)

The disposition of this motion turns on whether Defendant, a nonsignatory to the Sale Contract, may compel Plaintiffs to arbitrate their claims pursuant to this arbitration clause. Defendant contends that two nonsignatory theories support its motion: (1) third party beneficiary and (2) equitable estoppel. Because the Court concludes that the equitable estoppel doctrine applies, the Court need not address the merits of Defendant’s third party beneficiary theory.

Under 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.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.) At bottom, “[t]he linchpin for equitable estoppel is equity—fairness.”” (Id. at p. 220.)

In Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 490, the California Court of Appeal examined an identical arbitration clause which stated in pertinent part: “[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, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall … be resolved by neutral, binding arbitration and not by a court action.” The appellate court found that the equitable estoppel doctrine applied: “The [buyers’] claim against [the manufacturer] directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract. Because the [buyers] 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 [the manufacturer]. Consequently, the trial court properly ordered the [buyers] to arbitrate their claim against [the manufacturer].” (Id. at pp. 496-497.)

Defendant contends that the equitable estoppel doctrine applies because Plaintiffs’ claims arise out of, and are intertwined with, the obligations of the Sale Contract. The Court agrees. As Defendant notes, this arbitration agreement is not materially different from the one examined in Felisilda. In this case, like the buyers’ claims in Felisilda, Plaintiffs’ claims against Defendant “directly relate[] to the condition of the vehicle that [allegedly] violated warranties [Plaintiffs] received as a consequence of the sales contract.” Because Plaintiffs “expressly agreed to arbitrate claims arising out of the condition of the vehicle — even against third party nonsignatories to the sales contract — [Plaintiffs are] estopped from refusing to arbitrate [their] claim against [Defendant].” As such, the Court must reach the same result here.

Moreover, the Court finds that binding California authorities support the same conclusion, even before Felisilda was decided.

To wit, California law reveals a strong interrelationship between warranties and underlying purchase agreements. “A warranty is a contractual term concerning some aspect of the sale, such as title to the goods, or their quality or quantity.” (Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1200 (emphasis added).) “A warranty is as much one of the elements of sale and as much a part of the contract of sale as any other portion of the contract and is not a mere collateral undertaking.” (A.A. Baxter Corp. v. Colt Industries, Inc. (1970) 10 Cal.App.3d 144, 153.) To this point, in reviewing the Song-Beverly Act’s legislative history, the California Supreme Court has noted that “the Legislature apparently conceived of an express warranty as being part of the purchase of a consumer product.” (Gavaldon v. DaimlerChrysler Corp. (2004) 32 Cal.4th 1246, 1258); (see also Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 496 [“[T]he sales contract was the source of the warranties at the heart of this case.”].)

In view of this legal backdrop, the equitable estoppel doctrine applies in lemon law cases like this because the buyer relies upon the underlying purchase agreement to (1) establish standing, (2) invoke implied warranties, and (3) obtain remedies.

Standing: Standing to bring Song-Beverly Act claims is limited to a “buyer of consumer goods” (Civ. Code, § 1794(a)), which the Song-Beverly Act defines as “any individual who buys consumer goods from a person engaged in the business of manufacturing, distributing, or selling consumer goods at retail.” (Id., § 1791(b).) Without the Sale Contract, Plaintiff cannot meet this standing requirement or, indeed, the standing requirement for any warranty claim. (Jones v. ConocoPhillips Co., supra, at p. 1201 (“As a general rule, a cause of action for breach of implied [or express] warranty requires privity of contract; ‘there is no privity between the original seller and a subsequent purchaser who is in no way a party to the original sale.’ ”).)

Implied Warranties: The implied warranty of merchantability attaches to “every sale of consumer goods that are sold at retail in this state,” unless properly disclaimed. (Civ. Code, § 1792.) Without the Sale Contract, Plaintiffs would have no implied warranties to invoke.

Remedies: According to the Complaint, Plaintiffs seek restitution and rescission. (Complaint, Prayer, p. 5:12.) These remedies require examination and presentation of the Sale Contract.

Because the Sale Contract underlies Plaintiffs’ causes of action, the equitable estoppel doctrine must apply.

In the opposition, Plaintiffs appear to argue that Felisilda is not applicable because the subject Sale Contract provides that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et. seq.), and not by any state law concerning arbitration.” (Silverman Decl., ¶ 2, Ex. C, p. 7.) But this provision of the Sale Contract does not provide that state law does not apply for purposes of determining the arbitrability of Plaintiffs’ claims in in this action.

In addition, Plaintiffs asserts that Felisilda is distinguishable, citing to Ngo v. BMW of N. Am., LLC (9th Cir. 2022) 23 F.4th 942, 950, in which the Ninth Circuit Court of Appeals found that “[i]t makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer… Furthermore, the Felisildas dismissed the dealership only¿after¿the court granted the motion to compel arbitration. Accordingly,¿Felisilda¿does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own.” (Emphasis omitted.) Here, Plaintiffs make no claims against the signatory selling dealership. This distinction is without a meaningful difference. The reasoning in Felisilda for upholding the equitable estoppel finding was that the buyers’ claims related to the condition of the subject vehicle and the buyers expressly agreed to arbitrate their claims arising out of the condition of the subject vehicle, including those against third party nonsignatories to the sales contract. This same finding has been made here. In addition, in Felisilda, after the dealership was dismissed, the Felisildas and FCA proceeded to arbitrate the matter. (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 491.) 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 were estopped from refusing to arbitrate their claim against FCA. (Id. at p. 497.) In any event, as Defendant notes, Ngo is nonbinding.

Plaintiffs also assert that Defendant has failed to establish a close relationship between it and Glendale Nissan, the selling dealership. Plaintiffs cite to Jarboe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539, 544, where “[f]ollowing his termination at Leehan of Davis, Jarboe brought [a] wage and hour action individually and on behalf of a putative class against the Hanlees Auto Group (Hanlees), its 12 affiliated dealerships, including DKD of Davis and Leehan of Davis, and three individual defendants, Dong K. Lee, Kyong S. Han, and Dong I. Lee (collectively defendants). Defendants moved to compel arbitration based on an employment agreement between Jarboe and DKD of Davis. The trial court granted the motion as to 11 of the 12 causes of action against DKD of Davis, but denied the motion as to the other defendants…Hanlees, its affiliated dealerships, and the individual defendants contend[ed] they [were] entitled to enforce the agreement to arbitrate between Jarboe and DKD of Davis as third party beneficiaries of Jarboe’s employment agreement or under the doctrine of equitable estoppel.” The Court of Appeal found that “[t]he record fails to support either theory.” (Ibid.) The Jarboe Court noted that “[i]n contrast to the proven close relationships between the signatories and the nonsignatories in Metalclad, Boucher, and Garcia, the precise nature of the relationship between Hanlees and its affiliated dealerships is unproven in this record. While the record shows that the dealerships are subject to common ownership, there is no evidence showing the relationship among the separate corporate entities or how they operated with respect to each other’s employees. Nothing indicates that being hired by DKD of Davis, meant that Jarboe concurrently worked for all the other dealerships. Rather, the record suggests that each dealership maintained separate relationships with that dealership’s employees. For example, before Jarboe began working for Leehan of Davis he needed to be moved from DKD of Davis. Following this move, Jarboe’s payroll records reflect Leehan of Davis as his only employer.” (Id. at p. 554 [internal quotations omitted].)

The Court finds that Jarboe, a wage and hour action, is distinguishable from the facts here. This case does not concern an arbitration provision in an employment agreement. As set forth above, the Felisilda Court clearly found that “[b]ecause 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 v. FCA US LLC, supra, 53 Cal.App.5th at p. 497.) As discussed, the Court must reach the same result here.

In sum, the equitable estoppel doctrine applies and enables Defendant to compel Plaintiffs to arbitrate their claims against Defendant.

Plaintiffs contend that Defendant has waived its right to compel arbitration. “In determining waiver, a court can consider (1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 [internal quotations omitted].) “State law, like the FAA, reflects a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims…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.” (Id. at p. 1195.)

Plaintiffs assert that waiver has occurred here. Plaintiffs note that the instant action was filed on September 8, 2021, approximately seventeen months ago. Plaintiffs also note that Defendant filed an answer to the Complaint in this matter on October 15, 2021 but did not raise arbitration as an affirmative defense in the answer.

Plaintiffs also indicate that on October 29, 2021, Defendant served a Case Management Statement (“CMS”) in advance of the Case Management Conference (“CMC”) set for November 15, 2021. Defendant’s CMS indicates, inter alia, that Defendant requests a nonjury trial and that Defendant estimates the trial will take 5-7 days. The CMS listed dates on which Defendant’s counsel would not be available for trial. In addition, Defendant’s CMS does not check private or judicial arbitration as an ADR process that Defendant is willing to participate in. Defendant’s CMS indicates that written discovery would be completed within 120 days, that Plaintiffs’ deposition would be completed within 120 days, that a vehicle inspection would be completed within 120 days, that percipient witness depositions would be completed within 150 days, and that expert witness depositions would be completed per Code. Plaintiff notes that Defendant’s CMS does not raise arbitration as a potential issue in this matter.

Plaintiffs note that on November 15, 2021, the Court held the CMC and set a Final Status Conference for January 27, 2023 and a Jury Trial for February 8, 2023. (See November 15, 2021 Case Management Order.)

Plaintiffs indicate that on December 6, 2021 and April 5, 2022, the parties mediated this matter with Ron Akasaka, Esq., but the parties were not able to resolve the matter. (Mukai Decl., ¶¶ 9, 11.)[1]

Plaintiffs also indicate that on March 21, 2022, Plaintiffs propounded written discovery on Defendant which included a Request for Production of Documents, Form Interrogatories, Special Interrogatories, and Request for Admissions. (Mukai Decl., ¶ 10.) Plaintiffs state that on May 6, 2022, Defendant responded to Plaintiffs’ Request for Production of Documents and produced the warranty booklet and the same sales contract that Defendant contends contains the arbitration clause that is the subject of the instant motion. (Mukai Decl., ¶ 12.)

Plaintiffs also assert that “Defendant is fully aware of the concept of arbitration, but yet waited until the eve of trial to seek any type of relief.” (Opp’n at p. 4:18-19.) Plaintiffs note that on November 14, 2022, Defendant filed an ex parte application to shorten time to hear the instant motion to compel arbitration, or in the alternative, continue the trial date because this motion was set to be heard after the February 8, 2023 trial date. (Mukai Decl., ¶ 14.) On November 15, 2022, the Court granted the ex parte application and continued the trial date to August 9, 2023. (Mukai Decl., ¶ 15.) Plaintiffs assert that Defendant’s “last minute attempt to compel Plaintiffs’ claims into arbitration is extremely prejudicial at this late hour as it will result in additional costs, further delay in the resolution of Plaintiffs’ claims, and will result in them having to continue to drive a defective vehicle.” (Opp’n at p. 5:11-14.)

Defendant asserts that Plaintiffs have failed to satisfy their heavy burden of proving waiver. Defendants indicate it has not conducted any discovery in this case, written or otherwise. (Silverman Decl., ¶ 10.) Defendant also asserts that Plaintiffs fail to submit any evidence showing they suffered any prejudice due to Defendant’s conduct. In St. Agnes, the Court of Appeal noted that “[i]n California, whether or not litigation results in prejudice also is critical in waiver determinations. That is, while [w]aiver does not occur by mere participation in litigation if there has been no judicial litigation of the merits of arbitrable issues, waiver could occur prior to a judgment on the merits if prejudice could be demonstrated. Because merely participating in litigation, by itself, does not result in a waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses.” (St. Agnes Medical Center v. PacifiCare of California, supra, 31 Cal.4th at p. 1203 [internal quotations and citations omitted].) “[C]ourts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other side’s case that could not have been gained in arbitration; where a party unduly delayed and waited until the eve of trial to seek arbitration; or where the lengthy nature of the delays associated with the petitioning party’s attempts to litigate resulted in lost evidence.” (Id. at p. 1204 [internal citations omitted].)

As set forth above, Defendant indicates that it has not conducted any discovery, written or otherwise (Silverman Decl., ¶ 10), and Plaintiffs do not assert that any delay resulted in lost evidence. Plaintiffs do assert that Defendant waited until the eve of trial to compel arbitration. But the trial date has now been continued to August 9, 2023.

Based on a consideration of the pertinent factors, the Court does not find that Plaintiffs have met their heavy burden of demonstrating that Defendant waived its right to arbitration.

For the foregoing reasons, Defendant’s motion to compel arbitration is granted. The entire action is stayed pending completion of arbitration of Plaintiffs’ arbitrable claims.

The Court sets an arbitration completion status conference on February 24, 2024 at 10:00 a.m. in Dept. 50. The parties are ordered to file a joint report regarding the status of the arbitration five court days prior to the status conference, with a courtesy copy delivered directly to Department 50.

[1]Defendant asserts in the reply that the mediations included hundreds of similar cases between Plaintiffs’ counsel’s office and Defendant’s counsel’s office.

JESUS MARQUEZ, et al., Plaintiffs, vs. NISSAN NORTH AMERICA, INC., et al., Defendants.	Case No.:	21STCV33044
	Hearing Date:	February 28, 2023
	Hearing Time:	10:00 a.m.
	[TENTATIVE] ORDER RE: DEFENDANT NISSAN NORTH AMERICA, INC.’S MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS

Superior Court of California

County of Los Angeles

Department 50