Judge Teresa A. Beaudet, Case 21STCV45931 2023-04-24 Tentative Ruling

Plaintiff Adela Cornejo (“Plaintiff”) filed this lemon law action on December 16, 2021, against Defendant Nissan North America, Inc. (“Defendant”). The Complaint alleges 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, (4) breach of the implied warranty of merchantability, and (5) fraudulent inducement-concealment.

In the Complaint, Plaintiff alleges that on or about May 25, 2015, she entered into a warranty contract with Defendant regarding a 2015 Nissan Rogue (the “Subject Vehicle”), which was manufactured and/or distributed by Defendant. (Compl., ¶ 9.) Plaintiff alleges that the warranty contract contained various warranties, including but not limited to a bumper-bumper warranty, powertrain warranty, and emission warranty. (Compl., ¶ 10.) Plaintiff alleges that defects and nonconformities to warranty manifested themselves within the applicable express warranty period, including but not limited to, the electrical, transmission, and engine systems, among other defects and non-conformities. (Compl., ¶ 14.)

Defendant now moves for an order compelling Plaintiff to arbitrate this matter and to stay the proceedings pending completion of arbitration. Plaintiff opposes.

On April 5, 2023, the Court continued the hearing on the instant motion from April 5, 2023 to April 24, 2023. The Court’s April 5, 2023 minute order provides, inter alia, that “[c]ounsel reported a new decision by the Second District Court of Appeals entitled Ochoa v Ford…that conflicts with the Felisilda determination. On or before April 12, 2023, Plaintiff will file and serve a supplemental opposition addressing the Ochoa opinion. On or before April 19, defendant will file a supplemental reply.”

On April 12, 2023, Plaintiff filed a “Notice of Supplemental Authority (Ford Warranty Cases).” On April 28, 2023, Defendant filed a “Supplemental Reply in Support of Motion to Compel Arbitration and Stay Proceedings.”

The Court grants Defendant’s request for judicial notice. The Court grants Plaintiff’s request for judicial notice.

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 California Rules of Court, rule 3.1330 in establishing the existence of the subject arbitration agreement. (Mot at p. 1:18-3:3; Salas Decl., ¶ 5, Ex. 4.) Specifically, Defendant submits evidence that Plaintiff purchased the Subject Vehicle on May 25, 2015, from Nissan of Duarte pursuant to a written Retail Installment Sale Contract – Simple Finance Charge (With Arbitration Provision) (the “Sale Contract”). (Salas Decl., ¶ 5, Ex. 4.)[1]

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., Nissan of Duarte] 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.

(Salas Decl., ¶ 5, Ex. 4, p. 7.) 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”].)[2]

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) equitable estoppel and (2) third party beneficiary.

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 p. 497.)

Defendant contends that it can enforce the subject arbitration provision under the doctrine of equitable estoppel because Plaintiff’s claims arise out of, and are intertwined with, the obligations of the Sale Contract. As Defendant notes, this arbitration agreement is not materially different from the one examined in Felisilda. Defendant asserts that “[a]pplication of equitable estoppel under these circumstances is further required by recent binding authority set forth in Felisilda…” (Mot. at p. 8:15-16.)

Plaintiff notes that on April 4, 2023, the California Court of Appeal, Second Appellate District, issued an Opinion in the matter Ford Motor Warranty Cases (Apr. 4, 2023, No. B312261) 2023 Cal. App. LEXIS 255 (referred to herein as “Ochoa”).[3] Ochoa involved “an appeal of an order denying the motion of defendant Ford Motor Company (FMC) to compel arbitration of plaintiffs’ claims relating to alleged defects in vehicles it manufactured.” (Ford Motor Warranty Cases (Apr. 4, 2023, No. B312261) 2023 Cal. App. LEXIS 255 at p. *1.) The Court of Appeal “agree[d] with the trial court that FMC could not compel arbitration based on plaintiffs’ agreements with the dealers that sold them the vehicles. Equitable estoppel does not apply because, contrary to FMC’s arguments, plaintiffs’ claims against it in no way rely on the agreements. FMC was not a third party beneficiary of those agreements as there is no basis to conclude the plaintiffs and their dealers entered into them with the intention of benefitting FMC. And FMC is not entitled to enforce the agreements as an undisclosed principal because there is no nexus between plaintiffs’ claims, any alleged agency between FMC and the dealers, and the agreements.” (Id. at pp. *1-2.)

In Ochoa, “[e]ach plaintiff bought a Ford vehicle—i.e., one manufactured by FMC—from a motor vehicle dealer in Southern California. In each instance, they signed a preprinted form contract entitled “RETAIL INSTALLMENT SALE CONTRACT—SIMPLE FINANCE CHARGE (WITH ARBITRATION PROVISION).” (Ford Motor Warranty Cases (Apr. 4, 2023, No. B312261) 2023 Cal. App. LEXIS 255 at p. *2, emphasis omitted.) The arbitration clause at issue in Ochoa is identical to the provision at issue in this case. The arbitration clause in Ochoa provided, “[a]ny claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claims or dispute), between you and us 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 did not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.” (Id. at p. *4 [internal quotations omitted].)

The Ochoa Court “decline[d] to follow Felisilda.” (Ford Motor Warranty Cases (Apr. 4, 2023, No. B312261) 2023 Cal. App. LEXIS 255 at p. *10, emphasis omitted.) It noted, “[t]hat the Felisilda plaintiffs and the dealer agreed in their sale contract to arbitrate disputes between them about the condition of the vehicle does not equitably estop the plaintiffs from asserting FCA has no right to demand arbitration. Equitable estoppel would apply if the plaintiffs had sued FCA based on the terms of the sale contract yet denied FCA could enforce the arbitration clause in that contract…That is not what the plaintiffs did in Felisilda. The plaintiffs’ breach of warranty claims against FCA in Felisilda were not based on their sale contracts with the dealers. We disagree with Felisilda that the sales contract was the source of [FCA’s] warranties at the heart of this case…As we discuss further below, manufacturer vehicle warranties that accompany the sale of motor vehicles without regard to the terms of the sale contract between the purchaser and the dealer are independent of the sale contract.” (Id. at p. *11-12 [internal quotations omitted, emphasis in original].)

The Ochoa Court also noted that “[t]he Felisilda court relied on the following italicized language to conclude that third parties could enforce the arbitration provision: ‘Any claim or dispute, whether in contract, tort, statute or otherwise … , between you and us or our employees, agents, successors or assigns, which arises out of or relates to … purchase or condition of this vehicle, the cont[r]act 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 … .’” (Ford Motor Warranty Cases (Apr. 4, 2023, No. B312261) 2023 Cal. App. LEXIS 255 at p. *12 [emphasis in original].) The Ochoa Court found “[w]e do not read this italicized language as consent by the purchaser to arbitrate claims with third party nonsignatories. Rather, we read it as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate. They agreed to arbitrate disputes ‘between’ themselves — ‘you and us’ —arising out of or relating to ‘relationship[s],’ including ‘relationship[s] with third parties who [did] not sign th[e] [sale] contract[s],’ resulting from the ‘purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.’” (Id. at *12-13 [emphasis in original].)

In its supplemental reply, Defendant asserts that the Court here should follow Felisilda instead of Ochoa. Defendant cites to Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, where the California Supreme Court noted that the rule of stare decisis “has no application where there is more than one appellate court decision, and such appellate decisions are in conflict. In such a situation, the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.”

Defendant asserts that Ochoa relies on outdated and inapposite authorities. More specifically, Defendant argues that “Ochoa bases its conclusion that ‘manufacturer warranties are not part of, but are independent from, retail sale contracts’ on cases decided before the Song-Beverly Act was passed and before California’s Uniform Commercial Code (UCC) was enacted. Specifically, Ochoa relies on 1963 opinions by the California Supreme Court in Greenman and by the Court of Appeal in Cavanaugh (with Cavanaugh relying on Greenman).” (Suppl. Reply at p. 2:13-17, emphasis omitted.)[4]

In its supplemental reply, Defendant contends that post-UCC and post-Song-Beverly Act authorities make it clear that warranties are elements of sales and part of sales contracts. Defendant notes that the Song-Beverly Consumer Warranty Act defines “[e]xpress warranty” to mean “[a] written statement arising out of a sale to the consumer of a consumer good pursuant to which the manufacturer, distributor, or retailer undertakes to preserve or maintain the utility or performance of the consumer good or provide compensation if there is a failure in utility or performance…” (Civ. Code § 1791.2, subd. (a)(1).) Defendant also cites to Hauter v. Zogarts (1975) 14 Cal.3d 104, 117, where the California Supreme Court noted that “[u]nlike express warranties, which are basically contractual in nature (see California Uniform Commercial Code section 2313, com. 1), the implied warranty of merchantability arises by operation of law. Into every mercantile contract of sale the law inserts a warranty that the goods sold are merchantable, the assumption being that the parties themselves, had they thought of it, would specifically have so agreed.” (Internal quotations and citations omitted.) In addition, Defendant cites to Gavaldon v. DaimlerChrysler Corp. (2004) 32 Cal.4th 1246, 1258, where the California Supreme Court noted that “[i]t is true that, functionally speaking, warranties and service contracts appear to have the same purpose—to guarantee the repair or replacement of certain products or parts of products for a specified period of time. But…the Legislature apparently conceived of an express warranty as being part of the purchase of a consumer product, and a representation of the fitness of that product that has particular meaning for consumers. In contrast, it apparently thought of the purchase of a service contract as distinct from the purchase of the product, and not as a representation of fitness but only an agreement to provide repair services, a kind of insurance.”

Defendant also asserts that “even if the authorities Ochoa relies upon—Greenman and Cavanaugh—were not outdated, their holdings do not support Ochoa’s conclusion that manufacturers’ express warranties are always independent of a sales contract.” (Opp’n at p. 4:6-8.) The Court does not find that the holdings of Greenman and Cavanaugh do not support the Ochoa Court’s conclusion. The Court in Corporation of Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514 found as follows:

“[t]he defendant manufacturer contends that, in any event, the plaintiff cannot recover

for breach of warranty because timely notice of such breach was not given. But the express warranty herein involved was not part of a contract of sale between the manufacturer and the plaintiff. The actual sale was by Plastic Process Company to Cavanaugh. Apropos is the statement of the Supreme Court in Greenman v. Yuba Power Products, Inc., supra, 59 Cal.2d 57, at pages 60-61: “Like other provisions of the Uniform Sales Act (Civ. Code, §§ 1721- 1800), section 1769 deals with the rights of the parties to a contract of sale or a sale. It does not provide that notice must be given of the breach of a warranty that arises independently of a contract of sale between the parties. Such warranties are not imposed by the sales act, but are the product of common-law decisions that have recognized them in a variety of situations. [Citations.] It is true that in many of these situations the court has invoked the sales act definitions of warranties (Civ. Code, §§ 1732, 1735) in defining the defendant’s liability, but it has done so, not because the statute so required, but because they provided appropriate standards for the court to adopt under the circumstances presented. . . . The notice requirement of section 1769, however, is not an appropriate one for the court to adopt in actions by injured consumers against manufacturers with whom they have not dealt…”

In light of the Second Appellate District’s recent decision in Ochoa, the Court does not find that Defendant has demonstrated that the equitable estoppel doctrine applies here.

Defendant also contends in the motion that it may enforce the subject arbitration provision as a third-party beneficiary.

In Ochoa, the Court noted that “[a] third party beneficiary is someone who may enforce a contract because the contract is made expressly for his benefit. A person only incidentally or remotely benefited from a contract is not a third party beneficiary. Thus, the mere fact that a contract results in benefits to a third party does not render that party a third party beneficiary. Nor does knowledge that the third party may benefit from the contract suffice. Rather, the parties to the contract must have intended the third party to benefit.” (Ford Motor Warranty Cases (Apr. 4, 2023, No. B312261) 2023 Cal. App. LEXIS 255 at p. *16 [internal quotations and citations omitted, emphasis in original].) The Ochoa Court further noted that “[t]o show the contracting parties intended to benefit it, a third party must show that, under the express terms of the contract at issue and any other relevant circumstances under which the contract was made, (1) the third party would in fact benefit from the contract; (2) a motivating purpose of the contracting parties was to provide a benefit to the third party; and (3) permitting the third party to enforce the contract is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” (Id. at p. *17 [internal quotations omitted, citing Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830].)

In Ochoa, the Court of Appeal “agree[d] with Ngo that the sale contracts reflect no intention to benefit a vehicle manufacturer under Goonewardene. First, nothing in the sale contracts or their arbitration provision offers any direct ‘benefit’ to FMC (Goonewardene, supra, 6 Cal.5th at p. 830).” (Ford Motor Warranty Cases (Apr. 4, 2023, No. B312261) 2023 Cal. App. LEXIS 255 at p. *20].) The Ochoa Court found that “[s]econd, there is no indication that a benefit to FMC was the signatories’ ‘motivating purpose’ (Goonewardene, supra, 6 Cal.5th at p. 830) in contracting for the sale and purchase of a Ford vehicle. The manifest intent of the parties was to buy, sell and finance a car, and to allow either the purchaser or the dealer to compel arbitration of the specified categories of disputes between them, or between the purchaser and any of the dealer’s ‘employees, agents, successors or assigns.’” (Id. at p. *21.) The Ochoa Court also found that “[f]inally, allowing FMC to enforce the arbitration provision as a third party beneficiary would be inconsistent with the ‘reasonable expectations of the contracting parties’ (Goonewardene, supra, 6 Cal.5th at p. 830) where they twice specifically vested the right of enforcement in the purchaser and the dealer only.” (Id. at *23.)

In its supplemental reply, Defendant indicates that it “concedes…that Ochoa controls the disposition of Nissan’s alternative request to compel arbitration on a third party beneficiary theory (which was an issue not addressed in Felisilda). The effect of Ochoa’s holding on this issue is that Nissan is not a third party beneficiary of the Arbitration Provision in Plaintiff’s Sales Contract in the instant case.” (Suppl. Reply at p. 1, fn. 3.)

Based on the foregoing, the Court does not find that Defendant has demonstrated that it may compel Plaintiff to arbitrate her claims pursuant to the arbitration clause of the subject Sale Contract. In addition, because the Court concludes that Defendant is not entitled to compel arbitration, the Court need not and does not consider whether Defendant waived any right to so do.

For the foregoing reasons, Defendant’s motion to compel arbitration is denied.

[1]Plaintiff notes that her first name is misspelled as “Adele” in the Sale Contract. (Opp’n at p. 7:9-11; Salas Decl., ¶ 5, Ex. 4.)

[2]The Court agrees with Defendant that the fifth cause of action for fraudulent inducement – concealment also arises out of and relates to Plaintiff’s purchase and condition of the Subject Vehicle. In support of this cause of action, Plaintiff alleges that “Defendant committed fraud by allowing to be sold to Plaintiff the Vehicle without disclosing that the Vehicle and its CVT transmission was defective and susceptible to sudden and premature failure.” (Compl., ¶ 45.)

[3]Martha Ochoa was a Plaintiff and Respondent in Ford Motor Warranty Cases (Apr. 4, 2023, No. B312261) 2023 Cal. App. LEXIS 255.

[4]The Court notes that the Song-Beverly Consumer Warranty Act was “[e]nacted in 1970…” (Joyce v. Ford Motor Co. (2011) 198 Cal.App.4th 1478, 1486.)

ADELA CORNEJO, Plaintiff, vs. NISSAN NORTH AMERICA, INC., et al., Defendants.	Case No.:	21STCV45931
	Hearing Date:	April 24, 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