Judge: Teresa A. Beaudet, Case: 22STCV45931, Date: 2023-04-05 Tentative Ruling

Case Number: 22STCV45931    Hearing Date: April 5, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

            Background

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.

Requests for Judicial Notice

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

“[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.)

            Discussion

A.    Existence of Arbitration Agreement

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) 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 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 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. 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].” (Felisilda v. FCA US LLC, supra, 53 Cal.App.5th at p. 497.) 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, 198 Cal.App.4th 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 and rescission. (Compl, Prayer, p. 11:4-7.) 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.)

Plaintiff also notes that the arbitration provision in the Sale Contract provides, “[i]f federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration

Provision shall not apply to such claim or dispute.” (Salas Decl., ¶ 5, Ex. 4, p. 7.) Plaintiff asserts that “[b]y inserting the choice-of-law phrase into the arbitration agreement, the parties meant for federal law to control the application of the contract. And federal decisional authority on this arbitration provision is clear in holding that the manufacturer cannot use equitable estoppel to compel arbitration. (See, e.g., Ngo v. BMW, supra, 23 F.4th 942, 948.).” (Opp’n at p. 11:20-23.) But as Defendant notes, the Ngo Court found that “[s]tate law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration.” (Ngo v. BMW of N. Am., LLC, supra, 23 F.4th 942, 946.)

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

C.    Grounds to Deny Arbitration: Waiver

Plaintiff contends that Defendant has waived any alleged right to arbitration by taking steps inconsistent with an intent to invoke 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 January 3, 2022, she filed a proof of service indicating that Defendant was served with the Complaint on December 29, 2021. Plaintiff contends that Defendant knew “about the arbitration provision in a form contract used by car dealerships across this state,” but continued to pursue the instant action in this Court rather than promptly filing a motion to compel arbitration. (Opp’n at p. 3:24-25.) In support of this assertion, Plaintiff references the affirmative defense of “Right to Arbitrate” alleged in Defendant’s answer. (See Defendant’s January 28, 2022 Answer to Plaintiff’s Complaint, p. 10:6-11.) Plaintiff also notes that on April 1, 2022, Defendant filed a Case Management Statement in which it requested a nonjury trial. (Defendant’s April 1, 2022 Case Management Statement, § 5.) Plaintiff asserts that these actions are not consistent with an intent to arbitrate.

Defendant counters that these actions occurred before Defendant actually obtained the Sale Contract containing the subject arbitration provision. Defendant indicates that on October 25, 2022, Plaintiff produced a copy of her sales contract for the Subject Vehicle. (Salas Decl.,     ¶ 5.) Defendant also indicates that its “request for production of Plaintiff’s Sales Contract (which contains the relevant arbitration agreement) is the only discovery that has been propounded in this matter. There has otherwise been no substantive motion practice, no depositions, and no vehicle inspection in this matter.” (Salas Decl., ¶ 6.) The Court thus agrees with Defendant that Plaintiff has not shown that the “litigation machinery has been substantially invoked.” In addition, as Plaintiff acknowledges, Defendant’s Case Management Statement indicates that Defendant agrees to participate in binding private arbitration. (Defendant’s April 1, 2022 Case Management Statement, § 10.)

Plaintiff also asserts that Defendant’s “decision to schedule its arbitration motion after the trial date, set to begin on June 7, 2023, is an intentional act inconsistent with any alleged right to arbitrate.” (Opp’n at p. 4:20-21.) Defendant counters that it has no control over the Court’s calendar. As Plaintiff acknowledges, Defendant filed an ex parte application on February 17, 2023 to advance the hearing on Defendant’s Motion to Compel Arbitration and Stay Proceedings (“Arbitration Motion”), or, in the alternative, (2) to continue the trial until after resolution of the Arbitration Motion. Defendant’s ex parte application indicates, inter alia, that “[o]n January 26, 2023, [Defendant] filed its Arbitration Motion, and the motion is set for hearing before this Court on August 23, 2023—the soonest available date in the Court’s online reservation calendaring system. However, trial is set to begin on June 7, 2023, a month and a half before the Arbitration Motion is set to be heard.” (Defendant’s February 17, 2023 Notice of Ex Parte Application at     p. 2:10-13.) Defendant’s ex parte application was granted on February 21, 2023.

Based on the foregoing, the Court does not find that Plaintiff has met her burden of demonstrating that Defendant waived its right to arbitration.

Conclusion

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 April 5, 2024, 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.

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Defendant is ordered to provide notice of this Order.

DATED:  April 5, 2023                                 

________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court