Judge Teresa A. Beaudet, Case 22STCV00942 2023-05-16 Tentative Ruling

Plaintiffs Karla Michua and Aaron Torres (jointly, “Plaintiffs”) filed this lemon law action on January 10, 2022 against Defendants American Honda Motor Co., Inc. (“American Honda”) and Car Pros Honda El Monte. The Complaint asserts causes of action for (1) violation of Song-Beverly Act – breach of express warranty, (2) violation of Song-Beverly Act – breach of implied warranty, (3) violation of Song Beverly Act section 1793.2(b), and (4) violation of Consumer Legal Remedies Act.[1]

In the Complaint, Plaintiffs allege that on June 30, 2018, they purchased a new 2018 Honda Civic from Car Pros Honda El Monte (the “Subject Vehicle”). (Compl., ¶ 10.) Plaintiffs allege that “[t]he Subject Vehicle was delivered to Plaintiffs with serious defects and nonconformities to warranty and developed other serious defects and nonconformities to warranty including, but not limited to no start, stalling, and rattling noise problems, and other serious nonconformities to warranty.” (Compl., ¶ 11.)

American Honda now moves for an order to compel arbitration and stay the instant action. No opposition to the motion was filed.

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.)

American Honda submits evidence that Plaintiffs purchased the Subject Vehicle on June 30, 2018, from El Monte Honda pursuant to a written Retail Installment Sale Contract – Simple Finance Charge (With Arbitration Provision) (the “Sale Contract”). (Sarabia Decl., ¶ 2, Ex. A)

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., El Monte Honda] 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.

The disposition of this motion turns on whether American Honda, a nonsignatory to the Sale Contract, may compel Plaintiffs to arbitrate their claims pursuant to this arbitration clause. American Honda asserts that it is entitled to compel arbitration under the Felisilda case. American Honda also asserts that it is a third-party beneficiary of the Sale Contract.

In Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 490, the California Court of Appeal examined an identical arbitration clause to the clause at issue in the Sale Contract here, 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.)

American Honda asserts that “[i]n the instant matter, Plaintiffs read the arbitration provision containing functionally identical language as the Felisilda plaintiffs’ arbitration provision and expressly agreed to arbitrate claims arising out of the sale, purchase, and/or condition of the vehicle, including any claims against third party non-signatories. Pursuant to the express terms of the RISC, which accounts for third parties such as [American Honda], Plaintiffs’ claims against it should be resolved through binding arbitration.” (Mot. at p. 17:20-26, emphasis in original.)

The Court notes that on April 4, 2023, the California Court of Appeal, Second Appellate District, issued an Opinion in the matter Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324. Ford Motor Warranty Cases 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.” (Id. at p. 1329.) 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.” (Ibid.) The Court found that “[e]quitable 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.” (Ibid.)

In Ford Motor Warranty Cases, “[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, supra, 89 Cal.App.5th at p. 1329.) The arbitration clause at issue in Ford Motor Warranty Cases is identical to the provision at issue in this case. The arbitration clause in Ford Motor Warranty Cases 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. 1330 [internal quotations omitted].)

The Court in Ford Motor Warranty Cases “decline[d] to follow Felisilda.” (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1333 [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. 1334 [internal citations omitted].)

The Ford Motor Warranty Cases 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, supra, 89 Cal.App.5th at p. 1334 [emphasis in original].) The Court found that “[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 pp. 1334-1335 [emphasis in original].)

Based on the foregoing, the Court does not find that American Honda has demonstrated that it may compel arbitration here under Felisilda.

American Honda also asserts in the motion that it is a third-party beneficiary of the Sale Contract and the arbitration clause therein.

American Honda cites to Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 838-839, where the Court of Appeal noted that “[t]o invoke the third party beneficiary exception, Tweed and TFI had to show that the arbitration clause of the account agreement was made expressly for [their] benefit. It is not necessary that the beneficiary be named and identified as an individual. A third party may enforce a contract where he shows that he is a member of a class of persons for whose benefit it was made.” (Internal quotations and citations omitted.) American Honda concludes that “is a member of the class of persons for whose benefit [the contract] was made” (Mot. at p. 20:12-13), but does not provide any further analysis or evidence in support of this position.

In addition, the Court notes that in Ford Motor Warranty Cases, the Court of Appeal 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, supra, 89 Cal.App.5th at pp. 1336-1337 [internal quotations and citations omitted, emphasis in original].) The Ford Motor Warranty Cases 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. 1337 [internal quotations omitted, citing Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830].)

In Ford Motor Warranty Cases, 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.” (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1338.) The 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 pp. 1338-1339.) The Ford Motor Warranty Cases 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 p. 1340.)

Based on the foregoing, the Court does not find that American Honda has demonstrated that it may compel Plaintiffs to arbitrate their claims pursuant to the arbitration clause of the subject Sale Contract.

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

[1]On November 15, 2022, Plaintiffs filed a request for dismissal of Car Pros Honda El Monte, and the third and fourth causes of action of the Complaint. Dismissal was entered on December 5, 2022.

KARLA MICHUA, et al., Plaintiffs, vs. AMERICAN HONDA MOTOR CO., INC., et al., Defendants.	Case No.:	22STCV00942
	Hearing Date:	May 16, 2023
	Hearing Time:	10:00 a.m.
	[TENTATIVE] ORDER RE: DEFENDANT AMERICAN HONDA MOTOR CO., INC’S MOTION TO COMPEL ARBITRATION AND STAY ACTION

Superior Court of California

County of Los Angeles

Department 50