Judge Teresa A. Beaudet, Case 22STCV09573 2022-08-16 Tentative Ruling

Plaintiff Fidel Olmos filed this lemon law action on March 18, 2022, against Defendant Nissan North America, Inc. (“Defendant”). The Complaint asserts two causes of action against Defendant for (1) breach of implied warranty of merchantability under the Song-Beverly Act, and (2) breach of express warranty under the Song-Beverly Act, arising out of the purchase of a 2021 Nissan Sentra, VIN 3N1AB8CVXMY241115 (the “Subject Vehicle”). (Compl., ¶ 5.)

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

The Court grants Defendant’s request for judicial notice as to Exhibits 1 and 2. The Court denies Defendant’s supplemental 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. § 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. (2001) 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. 1:27-3:21; Lecky Decl., ¶ 4, Ex. 3.) Specifically, Defendant submits evidence that Plaintiff purchased the Subject Vehicle on May 22, 2021, from Downey Nissan pursuant to a written Retail Installment Sale Contract – Simple Finance Charge (With Arbitration Provision) (the “Sale Contract”). (Lecky Decl., ¶ 4, Ex. 3.)[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., Downey 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.

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 his 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 the Sale Contract underlies Plaintiff’s claims in this action. 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 [his] 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, Plaintiff would have no implied warranties to invoke.

Remedies: According to the Complaint, Plaintiff seeks restitution. (Complaint, Prayer, p. 10:4.) 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 argues that Felisilda “was incorrectly decided” and that the Felisilda Court’s reasoning was faulty. (Opp’n at p. 2:3; 3:7-9.) Regardless of whether Plaintiff contends Felisilda was incorrectly decided, Felisilda is binding case law. In addition, 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’s opposition also discusses “four Ninth Circuit cases, two Northern District cases, one Southern District case, and one Central District case” in support of Plaintiff’s assertion that the equitable estoppel doctrine does not confer upon Defendant a right to arbitrate this case. (See Opp’n at pp. 9:3-12:10.) These federal cases are also nonbinding.

Plaintiff also argues that Defendant does not have standing to enforce the arbitration clause 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 1222, 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)…” (Lecky Decl., ¶ 4, Ex. 3, emphasis added.)

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

Plaintiff contends that the subject arbitration clause is procedurally and substantively unconscionable, and therefore cannot be enforced against him.

Procedural unconscionability concerns the manner in which the contract was negotiated and the parties’ circumstances at that time. It focuses on the factors of oppression or surprise. (Kinney v. United Healthcare Servs. (1999) 70 Cal.App.4th 1322, 1329.) “Oppression generally takes the form of a contract of adhesion, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 [quotations and citations omitted].) Surprise occurs “where the allegedly unconscionable provision is hidden within a prolix printed form.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development, LLC (2012) 55 Cal.4th 223, 247.)

Plaintiff contends that the subject arbitration clause was imposed on Plaintiff by the selling dealership that held superior bargaining power, and that Plaintiff did not have any opportunity to negotiate the terms of arbitration provision. As Defendant notes, Plaintiff does not provide any evidence in support of the assertion that he did not have an opportunity to negotiate. In addition, while it is true that “the existence of contract of adhesion supports a finding of procedural conscionability,” a court must still weigh the level of procedural unconscionability against any substantive unconscionability to determine whether the agreement can be enforced. (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 723.) “When … there is no other indication of oppression or surprise, ‘the degree of procedural unconscionability of an adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive unconscionability is high.’” (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.)

“Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be so one-sided as to shock the conscience.” (Carmona v. Lincoln Millennium Car Wash, Inc., supra, 226 Cal.App.4th at p. 85 [quotation and citation omitted].)

Plaintiff contends that the subject arbitration provision is substantively unconscionable because it “strips Plaintiff of critical discovery rights that only a Court action would protect.” (Opp’n at p. 4:11-12.) Plaintiff contends the “arbitration provision in the Agreement reveals that there are essentially no rights of discovery,” and that he “would be precluded from deposing technicians who performed repairs on the Vehicle…” (Opp’n at p. 4:12-13; 4:18-19.) But as Defendant notes, Plaintiff does not cite to any language in the subject arbitration provision or the Sale Contract to support these assertions. Defendant notes that pursuant to Code of Civil Procedure section 1282.6, subdivision (a), “[a] subpoena requiring the attendance of witnesses, and a subpoena duces tecum for the production of books, records, documents and other evidence, at an arbitration proceeding or a deposition…for the purposes of discovery, shall be issued as provided in this section. In addition, the neutral arbitrator upon his own determination may issue subpoenas for the attendance of witnesses and subpoenas duces tecum for the production of books, records, documents and other evidence.” Section 1282.6 is contained in a Chapter entitled “Conduct of Arbitration Proceedings.”

Based on the foregoing, the Court finds that Plaintiff has not demonstrated a high level of substantive unconscionability. In light of the finding of only a low level of procedural unconscionability, the Court finds that Plaintiff has not met his burden of demonstrating that the arbitration agreement is unconscionable.

Lastly, Plaintiff cites to Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 636-637, where the United States Supreme Court noted that “[w]here the parties have agreed that the arbitral body is to decide a defined set of claims which includes, as in these cases, those arising from the application of American antitrust law, the tribunal therefore should be bound to decide that dispute in accord with the national law giving rise to the claim. And so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.” (Internal citations omitted.)

Plaintiff argues that enforcing the subject arbitration provision here will “contradict and even strip substantive statutory rights and remedies available to Plaintiff under the [Song-Beverly Consumer Warranty Act].” (Opp’n at p. 14:5-6.) But as Defendant notes, Plaintiff does not articulate how the arbitration provision would prevent him from “vindicating” his statutory rights under Song-Beverly Consumer Warranty Act.

In addition, under Am. Express Co. v. Italian Colors Rest. (2013) 570 U.S. 228, 235-236, the United States Supreme Court noted that “[t]he ‘effective vindication’ exception to which respondents allude originated as dictum in Mitsubishi Motors, where we expressed a willingness to invalidate, on public policy grounds, arbitration agreements that operat[e] . . . as a prospective waiver of a party’s right to pursue statutory remedies. Dismissing concerns that the arbitral forum was inadequate, we said that so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function. Subsequent cases have similarly asserted the existence of an effective vindication exception…but have similarly declined to apply it to invalidate the arbitration agreement at issue. And we do so again here. As we have described, the exception finds its origin in the desire to prevent prospective waiver of a party’s right to pursue statutory remedies…That would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable. But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” (Internal quotations, citations, and emphasis omitted.) Here, Plaintiff does not assert that the subject arbitration provision forbids the assertion of certain statutory rights, or that there are filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable here.

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 _______________ 2022, 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 the Sale Contract lists “Fidel Olivos” as the Buyer’s name, while the Plaintiff in the instant action is named “Fidel Olmos.” However, the Vehicle Identification Number (“VIN”) listed on the first page of the Sale Contract is the same as the VIN set forth in paragraph 5 of the Complaint:

“3N1AB8CVXMY241115.” The Complaint also alleges a purchase date of May 22, 2021 (Compl., ¶ 5), which matches the date listed in the Sale Contract. (Lecky Decl., ¶ 4, Ex. 3, p. 3.) Plaintiff does not object to the Sale Contract on the grounds that it lists the buyer as “Fidel Olivos.” Plaintiff also does not assert that the signature appearing on the Sale Contract is not his signature or otherwise invalid, as Defendant notes.

FIDEL OLMOS, Plaintiff, vs. NISSAN NORTH AMERICA, INC., et al., Defendants.	Case No.:	22STCV09573
	Hearing Date:	August 16, 2022
	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