Judge Teresa A. Beaudet, Case 21STCV45553 2022-10-26 Tentative Ruling

Plaintiff Deanna Clark (“Plaintiff”) filed this lemon law action on December 14, 2021, against Defendant Hyundai Motor America (“Defendant”). The operative First Amended Complaint (“FAC”) was filed on July 14, 2022, asserting causes of action for (1) violation of subdivision (d) of Civil Code section 1793.2, (2) violation of subdivision (b) of Civil Code section 1793.2, (3) violation of subdivision (a)(3) of Civil Code section 1793.2, and (4) breach of the implied warranty of merchantability.

In the FAC, Plaintiff alleges that on or about December 24, 2016, she entered into a warranty contract with Defendant regarding a 2017 Hyundai Elantra (the “Subject Vehicle”), which was manufactured and/or distributed by Defendant. (FAC, ¶ 9.) Plaintiff alleges that the warranty contract contained various warranties, including but not limited to a bumper-bumper warranty, powertrain warranty, and emission warranty. (FAC, ¶ 10.) Plaintiff alleges that defects and nonconformities to warranty manifested themselves within the applicable express warranty period, including but not limited to, the electrical system and the engine, among other defects and nonconformities. (FAC, ¶ 14.)

Defendant moves for an order (1) compelling Plaintiff to arbitrate her claims in accordance with her arbitration agreement; and (2) staying this action pending the outcome of arbitration. Plaintiff opposes.

The Court grants Defendant’s request for judicial notice filed in support of the motion. The Court denies Defendant’s request for judicial notice filed in support of the reply.

The Court grants Plaintiff’s request for judicial notice as to Exhibits H and I and denies the request as to the remaining Exhibits.

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. section 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 v. Southern California Permanente Medical Group, supra, 246 Cal.App.4th at p. 1058.)

Defendant complies with the requirements of Espejo, supra, and Cal. Rules of Court, rule 3.1330 in establishing the existence of the subject arbitration agreement. (Mot at p. 3:26-4:28; Tahsildoost Decl., ¶ 4, Ex. 2.) Specifically, Defendant submits evidence that Plaintiff purchased the Subject Vehicle on December 24, 2016, from Win Hyundai Carson pursuant to a written Retail Installment Sale Contract – Simple Finance Charge (With Arbitration Provision) (the “Sale Contract”). (Tahsildoost Decl., ¶ 4, Ex. 2.)

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., Plaintiff] and us [i.e., Win Hyundai Carson] 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.

Plaintiff’s 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 Plaintiff to arbitrate her 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 Plaintiff has sued a nonsignatory for claims founded in and intertwined with the obligations in and arising from 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, Plaintiff’s claims against Defendant “directly relate[] to the condition of the vehicle that [allegedly] violated warranties [Plaintiff] received as a consequence of the sales contract.” Because Plaintiff “expressly agreed to arbitrate claims arising out of the condition of the vehicle — even against third party nonsignatories to the sales contract — [Plaintiff is] estopped from refusing to arbitrate [her] 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.

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, Plaintiff would have no implied warranties to invoke.

Remedies: According to the FAC, Plaintiff seeks restitution and rescission. (FAC, Prayer, p. 10:18-20.) These remedies require examination and presentation of the Sale Contract.

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

In the opposition, Plaintiff 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, Plaintiff makes 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.

Plaintiff also argues that Defendant does not have standing to enforce the arbitration provision because it was not a signatory to the Sale Contract. But as set forth above, 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, supra, 193 Cal.App.4th at page 1237, emphasis added.) As also discussed, 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. Here too, the subject arbitration provision covers “[a]ny claim or dispute…which arises out of or relates to your…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)…” (Tahsildoost Decl., ¶ 4, Ex. 2.)

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

Plaintiff contends that Defendant has waived any alleged right to arbitration by certain acts inconsistent with an intent to 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.)

Plaintiff notes that on May 18, 2022, Defendant filed a Case Management Statement indicating that “HMA is propounding discovery to obtain a copy of the sales contract. Once received, if it has an arbitration clause, HMA will move to compel binding arbitration.” (Defendant’s May 18, 2022 Case Management Statement, § 18.) The Court does not see how this supports Plaintiff’s position, as it appears to be an action by Defendant consistent with the right to arbitrate.

Plaintiff also notes that Defendant’s May 18, 2022 Case Management Statement requests a nonjury trial and indicates that it will complete certain discovery “prior to cutoff” and expert discovery “per code.” (Defendant’s May 18, 2022 Case Management Statement, §§ 5, 16.) The Court notes that Plaintiff cites to nonbinding federal authority in support of her contention that this constitutes an act inconsistent with the right to arbitrate. (Opp’n at p. 5:12-16.)

Next, Plaintiff argues that Defendant waited nearly six months after being served with the Complaint before taking any meaningful action towards arbitration.[1] In the reply, Defendant notes that in Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 654, the Court of Appeal concluded that “defendants did not waive their right to arbitration even though they waited 14 months after the complaint was filed to move to compel arbitration. Plaintiff cannot demonstrate prejudice from the delay, which is determinative.” Plaintiff does not argue here that she has suffered any prejudice from the delay.

Plaintiff also notes that Defendant filed a demurrer and motion to strike the original Complaint on March 2, 2022. Defendant counters that in Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1191, the Court of Appeal found that the defendants’ “participation in litigation by way of demurrers did not, in the absence of prejudice to [plaintiff], waive [defendants’] right to enforce the arbitration agreement between the parties.” The Groom Court noted that “[c]ertainly filing a demurrer does not constitute a waiver of the right to seek affirmative relief by answer or cross-complaint after the demurrer is overruled, and neither should filing a demurrer waive the right to petition for arbitration.” ((Id. at p. 1198, citing Gear v. Webster (1968) 258 Cal.App.2d 57, 64 [internal quotations omitted].)

Lastly, Plaintiff argues that under Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708, Defendant waived any alleged right to arbitration. In Morgan, the United States Supreme Court noted that “[u]sually, a federal court deciding whether a litigant has waived a right does not ask if its actions caused harm. But when the right concerns arbitration, courts have held, a finding of harm is essential: A party can waive its arbitration right by litigating only when its conduct has prejudiced the other side. That special rule, the courts say, derives from the FAA’s ‘policy favoring arbitration.’” The Morgan Court “granted certiorari to decide whether the FAA authorizes federal courts to create such an arbitration-specific procedural rule,” and held that “it does not.” ((Ibid. .) The Court found that “the Eighth Circuit was wrong to condition a waiver of the right to arbitrate on a showing of prejudice.” ((Id. at pp. 1712-1713.) The Court does not see how Morgan demonstrates that Defendant waived its right to arbitration here, as Plaintiff suggests.

Based on the foregoing, the Court does not find that Plaintiff has demonstrated 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 Plaintiff’s arbitrable claims.

The Court sets an arbitration completion status conference on October 26, 2023, 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]The Court notes that Plaintiff filed a proof of service on January 3, 2022 indicating that Defendant was served with the Complaint on December 23, 2021. The instant motion to compel arbitration was filed on June 2, 2022.

DEANNA CLARK, Plaintiff, vs. HYUNDAI MOTOR AMERICA, et al., Defendants.	Case No.:	21STCV45553
	Hearing Date:	October 26, 2022
	Hearing Time:	10:00 a.m.
	[TENTATIVE] ORDER RE: DEFENDANT’S MOTION TO COMPEL BINDING ARBITRATION

Superior Court of California

County of Los Angeles

Department 50