Judge: Teresa A. Beaudet, Case: 22STCV17224, Date: 2023-01-10 Tentative Ruling

Case Number: 22STCV17224    Hearing Date: January 10, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

Plaintiffs Nichole Gomez and Carmen Reyes (jointly, “Plaintiffs”) filed this lemon law action on May 25, 2022, against Defendant Nissan North America, Inc. (“Defendant”). The Complaint asserts 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 express written warranty, and (5) breach of the implied warranty of merchantability. Plaintiffs allege that they purchased a 2020 Nissan Sentra (the “Subject Vehicle”), and that after Plaintiff took possession of the Subject Vehicle and during the warranty period, the Subject Vehicle contained or developed certain defects. (Compl., ¶¶ 8, 15-16.)

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

Request for Judicial Notice

The Court grants Defendant’s request for judicial notice.

Legal Standard

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.)

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            Discussion

A.    Existence of Arbitration Agreement

Defendant submits evidence that Carmen Reyes[1] leased the Subject Vehicle on July 3, 2020 from Downey Nissan pursuant to a written Motor Vehicle Lease Agreement with Arbitration Clause – California (the “Lease Agreement”). (Tang Decl., ¶ 4, Ex. 3.)

The Lease Agreement contains an arbitration clause which states in pertinent part:

“Except as otherwise stated below, any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this clause and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, lease or condition of this vehicle, this Lease agreement or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”  (Tang Decl., ¶ 4, Ex. 3.)

Plaintiffs’ causes of action fall within the broad scope of this arbitration clause because the causes of action relate to the lease 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 Lease Agreement, 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.

B.    Equitable Estoppel

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 a nearly 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 it may enforce the subject arbitration clause under the doctrine of equitable estoppel because Plaintiffs’ claims arise out of, and are intertwined with, the obligations of the Lease Agreement. The Court agrees. As Defendant notes, this the arbitration clause in the subject Lease 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 [Lease Agreement].” (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 497.) Because Carmen Reyes “expressly agreed to arbitrate claims arising out of the condition of the vehicle — even against third party nonsignatories to the [Lease Agreement] — [she is] estopped from refusing to arbitrate [her] claim against [Defendant].” (Ibid.) As such, the Court must reach the same result here.

In the opposition, Plaintiffs assert that Defendant has no standing to compel arbitration because it is not a signatory to the subject Lease Agreement. But as discussed 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 p. 1237, emphasis added.)

Plaintiffs also assert that Felisilda is distinguishable because “the Felisildas sued both the manufacturer and the dealer.” (Citing to Nation v. BMW of N. Am., LLC (C.D.Cal. Dec. 28, 2020), No. 2:20-cv-02709-JWH (MAAx), 2020 U.S. Dist. LEXIS 246435, at *10-11, emphasis omitted.)[2] 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 as to the subject Lease Agreement. 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.)

Plaintiffs also assert that equitable estoppel does not apply in this case because Plaintiffs’ claims “rely on the warranty contract, not the lease agreement.” (Opp’n at p. 6:15-16.) Plaintiffs contend that “courts have…determined that breach of an express written warranty, and breach of the implied warranty of merchantability, under the Song-Beverly Act, did not rely on a purchase agreement; and therefore a non-signatory manufacturer could not enforce an arbitration clause contained within a purchase agreement between a dealership and buyer.” (Opp’n at p. 9:11-14.) But Plaintiffs again cite to nonbinding federal authority in support of this assertion. In addition, Defendants assert that the protections of the Song-Beverly Act are triggered upon a purchase (or lease) transaction between a consumer and retailer. Defendant notes that under the Song-Beverly Act, “express warranty” means “[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).) Under the Song-Beverly Act, “[c]onsumer goods” means “any new product or part thereof that is used, bought, or leased for use primarily for personal, family, or household purposes, except for clothing and consumables.” (Civ. Code, § 1791, subd. (a).) Defendant also notes that Plaintiffs allege that “[i]n connection with the purchase of the Vehicle[3], Plaintiff received an express written warranty in which Defendant undertook to preserve or maintain the utility or performance of the Vehicle or to provide compensation if there is a failure in utility or performance for a specified period of time.” (Compl., ¶ 12, emphasis added.)

As 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…lease or condition of this vehicle, this Lease Agreement or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease)…” (Tang Decl., ¶ 4, Ex. 3, emphasis added.) Here, Plaintiffs acknowledge that “[t]he condition of the Vehicle is the substance of all of Plaintiff’s claims against NISSAN.” (Opp’n at p. 9:4-5.) 

In sum, the Court finds that the the equitable estoppel doctrine applies and enables Defendant to compel arbitration here.

C.    Effective Vindication Doctrine

Next, 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.) Plaintiffs argue that compelling arbitration here “would strip Plaintiff of statutorily guaranteed rights and remedies, in violation of the effective vindication doctrine.” (Opp’n at p. 11:4-5.)

More specifically, Plaintiffs note that the Lease Agreement provides, “[w]e will pay your filing, administration, service and case management fee; your arbitrator and hearing fee and any arbitration appeal fees you incur all up to a maximum of $5,000, unless the law requires us to pay more…” (Tang Decl., ¶ 4, Ex. 3.) Plaintiffs contend that “the arrangement listed in the lease agreement appears to limit the total fees, contrary to the specific remedies listed in the Song-Beverly Act” such that the foregoing provision would restrict the substantive rights available to Plaintiffs under the Song-Beverly Act. (Opp’n at p. 12:3-4.) But Plaintiffs do not address the subsequent provision in the Lease Agreement that “[e]ach party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law.” (Tang Decl., ¶ 4, Ex. 3.) Plaintiffs also note that the Lease Agreement provides, “DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.” (Tang Decl., ¶ 4, Ex. 3.) Plaintiffs assert that this provision conflicts with the effective vindication doctrine. 

The Court notes that 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, Plaintiffs do not demonstrate that the subject arbitration provision expressly 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.

D.    Waiver

Lastly, Plaintiffs assert that Defendant waived their right to arbitration because they delayed filing the motion until five months after the Complaint was filed.[4] Plaintiffs cite to Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331, 338, where the Court of Appeal noted that “[a] petition to compel arbitration should be brought within a reasonable time.” (Internal quotations omitted.) The Court of Appeal in Augusta found that “[w]e cannot fault the court’s finding of unreasonable delay. Augusta knew about the arbitration clause when he filed his original complaint, and yet he delayed in petitioning to compel arbitration for six and a half months. When the court asked Augusta’s counsel at the hearing about the delay, he had no reasonable explanation.” (Ibid.) Here, however, Plaintiffs do not provide evidence that Defendant knew about the arbitration clause when Plaintiffs filed the Complaint. 

Plaintiffs also note that they served discovery on Defendant on June 7, 2022, Defendant served responses on August 22, 2022, and the parties met and conferred regarding the responses. (Campbell Decl., ¶¶ 10-13.) Plaintiffs assert that they have already spent time litigating this case and that they will be “irreparably harmed if Nissan is allowed to compel arbitration this far into the litigation…” (Campbell Decl., ¶ 15.)

            Defendant asserts that it has not waived its right to arbitrate Plaintiffs’ claims. Defendant cites to Quach v. California Commerce Club, Inc. (2022) 78 Cal.App.5th 470, 478, where “Quach contended Commerce Club had acted inconsistently with an intent to arbitrate by propounding and responding to discovery, engaging in the meet and confer process regarding those responses, posting jury fees, and taking [Quach’s] deposition. He claimed he had been prejudiced by expending time and money on the litigation in this case.” (Internal quotations omitted.) The Court of Appeal found that:

“Quach’s showing was insufficient as a matter of law to establish waiver. In St. Agnes, our Supreme Court held that [w]aiver does not occur by mere participation in litigation if there has been no judicial litigation of the merits of arbitrable issues…In the instant case, there has been no judicial litigation of the merits of arbitrable issues, and therefore no waiver on that basis.

Further, although waiver could occur prior to a judgment on the merits if prejudice could be demonstrated, the Supreme Court has made clear that litigation expenses alone cannot support a claim of prejudice: 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.

Rather, continued the court, courts assess prejudice with the recognition that California’s arbitration statutes reflect a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution and are intended to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing. Prejudice typically is found only where the petitioning party’s conduct has substantially undermined this important public policy or substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration. For example, courts 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.” (Quach v. California Commerce Club, Inc., supra, 78 Cal.App.5th at pp. 478-479 [internal quotations, citations, emphasis, and reference to [citation(s)] omitted.)

Here, Plaintiffs have not shown that there has yet been judicial litigation of the merits of arbitrable issues. In addition, Defendant has not waited until the eve of trial to seek arbitration. 

“In light of the policy in favor of arbitration, waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof.” (Quach v. California Commerce Club, Inc., supra, 78 Cal.App.5th 470, 477 [internal quotations omitted].) The Court does not find that Plaintiffs have met the heavy burden to establish waiver here. 

Conclusion

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 _______________ 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.

Defendant is ordered to provide notice of this Order.

DATED:  January 10, 2023                           

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Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court