Judge: Theresa M. Traber, Case: 21STCV31373, Date: 2022-08-23 Tentative Ruling


Case Number: 21STCV31373    Hearing Date: August 23, 2022    Dept: 47

Tentative Ruling

 

Judge Theresa M. Traber, Department 47

 

 

HEARING DATE:     August 23, 2022                     TRIAL DATE: August 7, 2023

                                                          

CASE:                         Antonio Mondragon Espinoza et al. v. American Honda Motor Co., Inc.

 

CASE NO.:                 21STCV31373           

 

MOTION TO COMPEL ARBITRATION

 

MOVING PARTY:               Defendant American Honda Motor Co., Inc.

 

RESPONDING PARTY(S): Plaintiffs Antonio Mondragon Espinoza and Araceli Garcia Diaz

 

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

           

            This is a lemon law action filed on August 24, 2021. Plaintiffs allege that, on April 11, 2017, Plaintiffs purchased a new 2017 Honda Pilot which developed serious defects, including transmission problems. Plaintiffs have sued American Honda Motor Co., Inc., the manufacturer of the vehicle, under the Song-Beverly Consumer Warranty Act, Civil Code § 1790, et seq.

 

Defendant American Honda Motor Co., Inc. moves to compel arbitration and stay the case pending the outcome of the arbitration.

           

TENTATIVE RULING:

 

Defendant’s Motion to Compel Arbitration is DENIED.

 

DISCUSSION:

 

            Defendant American Honda moves to compel arbitration and to stay the proceedings pending resolution of the arbitration.

 

Applicability of the FAA

 

Defendant argues that the FAA governs the arbitration agreement at issue, and Plaintiff does not appear to argue otherwise.

 

An arbitration clause is governed by the FAA if the agreement is a contract “evidencing a transaction involving commerce.” (9 U.S.C. § 2.) Courts “broadly construe” this phrase, because the FAA “embodies Congress’ intent to provide for the enforcement of arbitration agreements within the full reach of the Commerce Clause.” (Giuliano v. Inland Empire Pers., Inc. (2007) 149 Cal.App.4th 1276, 1286.)

 

Defendant has shown that the FAA governs the agreement. It contains a clause stating that “Any arbitration under this Arbitration Provision shall be governed under the Federal Arbitration Act” (Declaration of Derrick Van Nieulande ISO Mot Exh. A p.7), and automobile sale (or lease) contracts necessarily involve interstate commerce. (United States v. Oliver (9th Cir. 1995) 60 F.3d 547, 550.)

 

Accordingly, Defendant has met its “burden to demonstrate FAA coverage by declarations and other evidence.” (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207.) 

 

Existence of Arbitration Agreement

             

Under California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (Blake v. Ecker (2001) 93 Cal.App.4th 728, 741 (overruled on other grounds by Le Francois v. Goel (2005) 35 Cal.4th 1094).) A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate, and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356-57.)

 

            Defendant seeks to compel arbitration based on an arbitration provision in a retail installment sales contract (“Agreement”), which provides:

 

Any claim or dispute, whether in contract, tort, statute or otherwise (including any dispute over the interpretation, scope, or validity of this lease, arbitration section or the arbitrability of any issue), 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 do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action. If 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. Any claim or dispute is to be arbitrated on an individual basis and not as a class action. You expressly waive any right you may have to arbitrate a class action. You may choose the American Arbitration Association, 1633 Broadway, 10th Floor, New York, New York 10019 (www.adr.org) or any other organization to conduct the arbitration subject to our approval. You may get a copy of the rules of an arbitration organization by contacting the organization or visiting its website.

 

(van Nieuland Decl. Exh. A. p.7.)  The term, “You,” is defined as the Buyer, here Plaintiff Antonio Mondragon Espinoza, who has contracted with Freeway Honda, described as “the Seller – Creditor (sometimes ‘we’ or ‘us’ in this contract)” to buy the subject vehicle with financing according to a payment schedule in the Agreement.  (Id., p. 1.) 

           

            The signature of Plaintiff Espinoza as buyer is not clearly visible on the proffered copy of the Agreement. (Id. p. 4.) However, Plaintiffs do not dispute that Plaintiff Espinoza signed the agreement, and Mr. van Nieulande states under penalty of perjury that the agreement bears Plaintiff Espinoza’s signature. (van Nieuland Decl. ¶ 6.) Above the signature line is a statement, in all capital letters, stating “You agree to the terms of this contract. You confirm that before you signed this contract, we gave it to you, and you were free to take it and review it. You acknowledge that you have read both sides of this contract, including the arbitration provision on the reverse side, before signing below. You confirm that you received a completely filled-in copy when you signed it. (van Nieuland Decl. Exh. A. p. 4.) 

 

This evidence shows that Plaintiff agreed to submit claims falling within the terms of the arbitration provision of the Agreement to binding arbitration. While he does not deny that an arbitration agreement exists between Plaintiff and the dealer from which he purchased the car, Plaintiff argues that (1) Defendant cannot invoke the arbitration clause as a third-party beneficiary, (2) Defendant’s equitable estoppel theory is without merit, and (3) the Agreement is unenforceable because it is unconscionable.

 

Third-Party Beneficiary Status

 

            Defendant argues that it is a third-party beneficiary to the Agreement.

 

“Someone who is not a party to a contractual arbitration provision generally lacks standing to enforce it.” (Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal. App. 5th 840, 856 [Citations omitted].)  A nonsignatory may enforce an arbitration provision “where they are intended third party beneficiaries or are assigned rights under the contract.”  (Ibid. [Citations omitted].)  This enforcement right is “in Civil Code section 1559, which provides: ‘A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.’”  (San Diego Hous. Comm'n v. Indus. Indem. Co. (2002) 95 Cal. App. 4th 669, 685.)  “It is well settled, however, that Civil Code section 1559 excludes enforcement of a contract by persons who are only incidentally or remotely benefited by the agreement. [Citations.] The Supreme Court has held: ‘A third party should not be permitted to enforce covenants made not for his benefit, but rather for others. He is not a contracting party; his right to performance is predicated on the contracting parties' intent to benefit him. [Citations.]’”  (Harper v. Wausau Ins. Co. (1997) 56 Cal. App. 4th 1079, 1087.)

 

 The California Supreme Court addressed the circumstances when a nonsignatory has standing to assert rights under a contract as a third-party beneficiary in Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817.  Under Goonewardene, a non-party to a contract is a third party beneficiary if it demonstrates “not only (1) that it is likely to benefit from the contract, but also (2) that a motivating purpose of the contracting parties is to provide a benefit to the third party, and further (3) that permitting the third party to [assert rights under the contract] against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.”  (Id., at p. 821.)  In arguing that it is a third-party beneficiary, Defendant does not rely on any authorities that apply these standards to a contract with language like the Agreement at issue here.  (Motion, p. 6, citing Cione v. Foresters Equity Servs., Inc. (1997) 58 Cal. App. 4th 625, 630 [securities broker’s employer was third-party beneficiary of registration form that explicitly required arbitration of claims between broker and his employer]; and Geier v. m-Qube Inc. (9th Cir. 2016) 824 F.3d 797, 800 [contract between plaintiff subscriber and company created direct obligation from subscriber to the company’s suppliers, including non-party seeking to enforce contract].)  Applying the Goonewardene factors to the language of the Agreement here, as the Supreme Court has instructed, the Court finds that Defendant has not demonstrated that it is a third-party beneficiary of the Agreement. 

 

Defendant’s primary argument in favor of its status as an intended third-party beneficiary is grounded on its view that it “falls within the class of persons or entities for whom the arbitration clause was intended.”  (Motion, p. 10.)  Putting aside the somewhat circular nature of this contention, the Court concludes that the plain language of the Agreement does not support it.  The arbitration provision does not give any third parties the right to elect arbitration.  Instead, the provision limits such a decision to the buyer, Plaintiff, and the dealer, stating that any covered claims “shall, at your or our election, be resolved by neutral, binding arbitration.”  (van Nieulande Decl. Exh. A p.7.)  As noted above, “your” refers to Plaintiff and “our” describes “the Seller – Creditor,” that is, the dealer, not the manufacturer.  (Id., p. 1.)  Nor is the manufacturer Defendant mentioned in the Agreement as one of the parties whose claims are subject to arbitration.  The arbitration provision dictates that the “claims or disputes” at issue are those “between you and us or our employees, agents, successors or assigns.” (Id.)  Defendant does not claim to be an “employee, agent, successor or assign” of the dealer and has certainly offered no evidence to support this designation. 

 

Defendant emphasizes language in the arbitration provision that describes the covered claims as those “aris[ing] out of or relat[ing] 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).”  This is a very slender reed for a third-party beneficiary claim for several reasons. 

 

First, this clause defines the kind of claims between Plaintiffs and dealer-related parties that can be sent to arbitration only by Plaintiffs or the dealer; it does not sweep Defendant’s separate claims into the arbitration provision. 

 

Second, given the nature of the Agreement – a financed installment sales contract – the third-party relationship that is likely being referenced is the one between the financing company and either Plaintiff or the dealer, not the manufacturer, who played no role in the sale. 

 

Third, Defendant’s focus on the fact that the clause embraces claims relating to the “condition of this vehicle” is not a persuasive basis for arguing that the parties intended to benefit the Defendant manufacturer in forging this Agreement.  Instead, the parties disclaimed the intent to embrace any manufacturer warranties in the Agreement.  In the section entitled “Warranties Seller Disclaims,” the Agreement states:

 

If you do not get a written warranty, and the Seller does not enter into a service contract within 90 days from the date of this contract, the Seller makes no warranties, express or implied, on the vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose.

 

This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.  If the Seller has sold you a certified used vehicle, the warranty of merchantability is not disclaimed. 

 

(van Nieulande Decl. Exh. A. p.5 [Emphasis in original].)  The Court draws several conclusions from this disclaimer provision.  The claims contemplated by the arbitration provision may include disputes over the condition of the vehicle.  As the disclaimer provision makes clear, claims against the dealer may involve warranties about the condition of the subject vehicle if the first clause is satisfied by a written warranty and service contract or if the vehicle is a certified used vehicle, but the dealer disclaims any other warranties.  Further, the provision does not apply to any separate warranties that “may” be provided by the manufacturer.  That the disclaimer provision disassociates the manufacturer’s warranties from the obligations of the dealer undermines Defendant’s argument that the “condition of the vehicle” language in the arbitration provision or the Agreement itself is intended to benefit Defendant. 

 

What is more, considering the mention of manufacturers’ warranties in the disclaimer provision and the absence of any mention of manufacturer’s rights in the arbitration provision, the Court concludes that Defendant has not established any of the three Goonewardene prerequisites for third-party beneficiary status.  (Ruderman v. Rolls Royce Motor Cars (C.D. Cal. 2021) 511 F.Supp.3d 1055, 1058 [“Courts generally decline to find intended third-party beneficiaries where sophisticated signatories of a contract could have named the party as a beneficiary and did not.”].) The Court finds Defendant has not shown that it secured benefits under the Agreement, that the parties were motivated to benefit Defendant in signing the Agreement, or that permitting Defendant to assert rights under the Agreement is “consistent with the objectives of the contract and the reasonable expectations of the contracting parties.”  (Goonewardene v. ADP, LLC, supra, 6 Cal.5th at p. 821.)  For these reasons, the Court finds that Defendant is not a third-party beneficiary of the Agreement and, thus, is not entitled to invoke its arbitration provision.    

Equitable Estoppel

 

Defendant argues that Plaintiffs should be equitably estopped from denying the arbitrability of the claims against Defendant because Plaintiff Espinoza signed an arbitration provision that expressly mentions third-party claims.  In opposition, Plaintiff contends that equitable estoppel does not apply because Defendant has not proven that it has a close relationship the signatories to the Agreement. A nonsignatory party seeking to enforce an arbitration agreement under the doctrine of equitable estoppel must establish a close relationship between the signatory and nonsignatory parties. (Jarboe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539, 552-53.) Plaintiff contends that his claims against Defendant are independent of any sales contract and that Defendant has not shown that there is any provision in the contract that requires Defendant to issue or comply with a warranty to Plaintiff for the vehicle. Plaintiff also contends that Defendant has not proven a close relationship with the dealer from which Plaintiff purchased the vehicle, such as that of a parent and wholly owned subsidiary or non-signatory successor sharing a common owner.

 

In response, Defendant argues that a warranty is an element of the sale, and as much a part of the sale as any other aspect, (A.A. Baxter Corp. v. Colt Industries, Inc. (1970) 10 Cal.App.3d 144, 153), 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) and that the implied warranty of merchantability has attached under Civil Code section 1792 and is inextricably intertwined with the sales contract as a matter of law.

 

The doctrine of equitable estoppel applies if (1) the plaintiff relies upon the contract’s terms in asserting claims against the non-signatory defendant, or those claims are “intimately founded in or intertwined with” the contract itself, or (2) if the plaintiff alleges “substantially interdependent and concerted misconduct” by the defendant, where such allegations of misconduct are “founded in or intimately connected with” the obligations of the contract. (Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 221.)  The rule allowing a nonsignatory to enforce an arbitration agreement on equitable estoppel grounds is based on the principle that a party should be precluded “‘from asserting rights “he otherwise would have had against another” when his own conduct renders assertion of those rights contrary to equity.’” (Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713 [Citations omitted].)  “So, if a plaintiff relies on the terms of an agreement to assert his or her claims against a nonsignatory defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause of that very agreement. In other words, a signatory to an agreement with an arbitration clause cannot ‘”have it both ways”’; the signatory ‘cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory.’” (Goldman, supra, at p. 220 [Citation omitted].) 

 

In this case, the signatory Plaintiff has sued nonsignatory Defendant American Honda for warranty claims based on a written warranty and the protections of the Song-Beverly Act.  Plaintiffs attached the relevant warranty to the complaint and specifically alleges that the claims against Defendant “arise out of the warranty obligations of AMERICAN HONDA in connection with a motor vehicle for which AMERICAN HONDA issued a written warranty.” (Complaint ¶ 4.) The warranty relied on is not the sales Agreement with the dealer that contains the arbitration provision but rather the owner’s manual for Plaintiff’s vehicle which was issued by the defendant manufacturer.  (Id., Exh. 1.)  Although the sales Agreement reflects Plaintiffs’ acquisition of the vehicle as to which Defendant has provided warranties, Plaintiffs’ claims against Defendant do not “rely or depend on the terms of [that Agreement] in asserting their claims against [Defendant], and . . . none of the allegations against [Defendant] are in any way found in or bound up with the terms of the [Agreement].”  (Goldman, supra, at p. 230.) 

 

Under Goldman, the fact that Plaintiff obtained the vehicle that is under warranty via an installment sales contract is insufficient to advance an equitable estoppel contention.  (See also Ngo v. BMW of North America, LLC (9th Cir. 2022) LLC, 23 F.4th 942, 949 [mere ownership through the purchase agreement does not reflect an intention to enforce any obligations of that agreement against the manufacturer]; Ruderman v. Rolls Royce Motor Cars (C.D. Cal. 2021) 511 F.Supp.3d 1055, 1059-1060 [arbitration will not be compelled where the plaintiff’s claims do not seek enforcement of sales contract, only the fact that he purchased the vehicle]; Goldman, supra, 173 Cal. App. 4th at p. 219 [because the sales contracts involve interstate commerce, as defined in the Federal Arbitration Act, federal law governs interpretation so federal court decisions are persuasive authority].)   

 

Defendant contends that the language in the arbitration clause that describes the covered claims as including those regarding “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” is a proper basis for equitable estoppel.  Defendant’s reliance of the language of the arbitration agreement is misplaced.  As the Court of Appeal for the Second Appellate District made clear in Goldman, equitable estoppel applies where a plaintiff is “relying on an agreement for one purpose while disavowing the arbitration clause of the agreement.”  (Id., at p. 230.)  But Plaintiff does not rely on the arbitration provision or any other term of the Agreement to assert claims against Defendant. Where, as here, the plaintiff’s “allegations reveal no claim of any violation of any duty, obligation, term or condition imposed by the [relevant] agreements” and there is no “claim founded in or even tangentially related to any duty, obligation, term or condition imposed by the operating agreements ... the claims are fully viable without reference to the terms of those agreements” and equitable estoppel does not apply.  (Id.)  Thus, under controlling law from our Court of Appeal, the focus of equitable estoppel analysis is whether the plaintiff affirmatively asserts rights under or alleges breaches of the relevant contract, not whether plaintiff’s claims merely “’touch matters’ relating to the arbitration agreement.”  (Id.)  Defendant points to no actual connection between Plaintiff’s claims and any duty, obligation, term, or condition imposed by the Agreement, nor any alleged violation of that Agreement asserted in Plaintiff’s Complaint, so it cannot compel arbitration on an equitable estoppel theory.   

 

Defendant urges the Court to adopt a contrary conclusion by applying the holding in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.  In that case, the Court of Appeal for the Third Appellate District concluded that the plaintiff car buyers were equitably estopped from objecting to an order compelling the non-signatory manufac-turer’s claims to arbitration based on the arbitration provision in a sales contract with language that is very similar, if not identical, to the language in the Agreement here.  The Court finds Felisilda to be both unpersuasive and distinguishable. 

 

It is unpersuasive because, although it quotes language from Goldman, the Felisilda court deviates from the proper equitable estoppel standard.  The appellate court’s analysis in Felisilda focuses on the language of the arbitration clause as the basis for estoppel and identifies no other contract provision that, according to the plaintiff’s complaint, the defendant manufacturer had allegedly breached.  This Court concludes, therefore, that it should follow the directives of our Court of Appeal in Goldman, rather than using Felisilda’s unusual approach. 

 

Felisilda is also factually distinguishable from this case in two significant ways.  First, in Felisilda, the plaintiff car buyer asserted claims against both the dealer and the manufacturer.  The dealer moved to compel arbitration under the sales contract between the plaintiff and the dealer, seeking an order sending the entire matter to arbitration, including the claims against the manufacturer, which filed a notice of non-opposition to the motion.  Thus, in Felisilda, one party to the sales contract -- the plaintiff -- asserted claims against the other party to the contract – the dealer -- regarding the “condition of the vehicle” at issue.  In doing so, the plaintiff in Felisilda brought claims that fell squarely within the scope of the relevant arbitration provision.  Under these circumstances, the Felisilda court confronted a situation where the plaintiff’s claims against the dealer necessarily invoked the sales contract, so it would be inequitable for it to raise such claims, while at the same time denying the dealer’s right to seek an arbitration referral for the related claims against the manufacturer.  (Id., at pp. 498-499; see also Ngo v. BMW of North America, LLC, supra, 23 F.4th at p. 950 [distinguishing Felisilda because it did not “address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own.”)  Here, Plaintiff pleads no causes of action against the dealer so there are no claims or disputes arising directly under the Agreement. Since Plaintiff has not invoked the Agreement, the equitable estoppel goal of a balanced enforcement of that Agreement is simply not in play.  

 

The second distinguishing factor is the absence of any discussion in Felisilda of a warranty disclaimer provision that disassociates the manufacturer’s warranty from any warranties that may have been given by the dealer.  As the Court has explained above, this provision should be construed as an effective restriction on the arbitration language referring to third parties.  This Court has held above that the disclaimer provision undermines any argument that the manufacturer should be considered a third party entitled to invoke the arbitration provision.  The Court also finds that the disclaimer provision reinforces the idea that Plaintiffs have not invoked the Agreement’s arbitration provision by bringing claims to enforce the manufacturer Defendant’s warranties on the subject vehicle.  The Felisilda court simply did not address these issues, and it is unclear from the opinion whether the underlying sales contract included such a warranty disclaimer. 

 

            Because Defendant has not established the predicate facts necessary to prove equitable estoppel or to show it is a third-party beneficiary of the Agreement, the Court denies Defendant’s motion to compel arbitration and to stay this action, in its entirety.

 

Unconscionability

 

            While not necessary given the Court’s rulings above, the Court addresses Plaintiff’s additional argument that the Agreement is unenforceable because it is unconscionable.

 

1.      Procedural Unconscionability

 

“‘To briefly recapitulate the principles of unconscionability, the doctrine has “‘both a “procedural” and a “substantive” element,’ the former focusing on ‘“oppression”’ or ‘“surprise”’ due to unequal bargaining ¿power, the latter on ‘“overly harsh”’ … or ‘“one-sided”’ results.” [Citation.] The procedural element of an unconscionable contract 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.’” … [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.’ [Citation.]” (Citation omitted.) 

 

“Under this approach, both the procedural and substantive elements must be met before a contract or term will be deemed unconscionable. Both, however, need not be present to the same degree. A sliding scale is applied so that ‘the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’ (Citations omitted.) 

 

(Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 645 (bold emphasis added).) 

 

Plaintiffs argue that the Agreement is procedurally unconscionable because it is a contract of adhesion, and they were not given an opportunity to negotiate its terms. This presents a minimal degree of procedural unconscionability: 

 

“The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] The element focuses on oppression or surprise. [Citation.] ‘Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.’ [Citation.] Surprise is defined as ‘“the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.”’ [Citation.]” (Citation omitted.) 
 
Plaintiffs claim the Agreement is procedurally unconscionable because it is an adhesion contract. An adhesion contract is “a standardized contract … imposed upon the subscribing party without an opportunity to negotiate the terms.” (Citation omitted.) “The term signifies a standardized contract, 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. [Citation.]” (Citation omitted.) 
 
The California Supreme Court has consistently stated that “‘[t]he procedural element of an unconscionable contract generally takes the form of a contract of adhesion … .’ ” (Citations omitted.) 
 
“Whether the challenged provision is within a contract of adhesion pertains to the oppression aspect of procedural unconscionability. A contract of adhesion is “imposed and drafted by the party of superior bargaining strength” and “relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Citations omitted.) “[A]bsent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives.” (Citation omitted.) 

 

(Walnut Producers of California, supra, 187 Cal.App.4th at 645-46 [bold emphasis added].) 

 

In response, Defendant contends that the contract at issue is a form contract, and not a contract of adhesion. The use of a form contract in a transaction between a vehicle dealer and a vehicle purchaser is not sufficient to permit the court to infer unequal bargaining power. (See Sanchez v. Valencia Holding Co. LLC (2015) 61 Cal.4th 899, 931. [“In general, nothing prevents purchasers of . . . vehicles from bargaining with dealers, even though dealers use form contracts . . .”] Here, as in Sanchez, there is nothing to suggest that Plaintiff had unequal bargaining power with the dealer from whom he purchased the vehicle. Even if there were a showing of inequality, such a showing would still only establish a minimal degree of procedural unconscionability.

 

//

 

2.      Substantive Unconscionability

 

Where the plaintiff has not shown procedural unconscionability, the Court need not address whether the plaintiff has established any substantive unconscionability. Nevertheless, the Court will examine the issue of substantive unconscionability on its merits.

 

“A provision is substantively unconscionable if it ‘involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ [Citation.] The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis. ¿‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]”  

 

(Walnut Producers of California v. Diamond Foods, Inc. supra, 187 Cal.App.4th at 647-48.)

 

            Plaintiff alleges three reasons why the arbitration clause is substantively unconscionable.

 

First, Plaintiff argues that the arbitration clause favors Defendant because Plaintiff’s choice of arbitrator is subject to Defendant’s approval, which Plaintiff contends is unconscionable as a matter of law according to Chavarria v. Ralph’s Grocery Co. (9th.Cir. 2013) 733 F.3d 916. Defendant argues that this provision is not unconscionable because Plaintiff misconstrues Chavarria, which held that the agreement at issue was unconscionable because it did not allow for a neutral selection process as to the arbitrator, not that it selected a particular arbitration organization. (Chavarria v. Ralph’s Grocery Co. (9th Cir. 2013) 733 F.3d 916, 923.) Here, the agreement specifically allows for Plaintiff to choose AAA, a reputable arbitration organization which, as stated in Chavarria, has “established rules and procedures to select a neutral arbiter.” (Id.)  Thus, the choice of arbitrator provision does not render the arbitration agreement substantively unconscionable.

 

            Second, Plaintiff contends that the agreement is substantively unconscionable because it deprives Plaintiff of his right to a jury trial. Plaintiff contends that the right to a jury trial may only be waived pursuant to Code of Civil Procedure section 631, and Plaintiff has not done so. Plaintiff’s arguments are not well taken. It is well settled that Song-Beverly actions are subject to arbitration. (See, e.g, Sanchez, supra, 61 Cal.4th at 909-10; Felisilda v. FCA US LLC, supra.) Plaintiff has not established that the contract is substantively unconscionable because it deprives Plaintiff of his right to a jury trial.

 

            Finally, Plaintiff contends that the arbitration clause is unconscionable because it contains an attorney’s fees provision that applies a $5,000 limit on the amount of fees Defendant will pay on Plaintiff’s behalf, which is an amount that Plaintiff contends is routinely exceeded in private arbitration.  Plaintiff argues this is not only incompatible with the Song-Beverly Act (see Civ. Code § 1793.2(d)), but also inconsistent with the California Arbitration Act’s ban on shifting arbitral expenses to a consumer (Code Civ. Proc. § 1284.3(a).) In reply, Defendant argues that the agreement plainly states that Defendants may be required to pay more than $5,000 if “the law or the rules of the chosen arbitration organization require us to pay more” (van Nieulande Decl. Exh. A p. 7), and further that “[t]he arbitrator shall apply governing substantive law” and may award attorney, expert, and other fees available under applicable law. (Id.) The fee shifting limit of the arbitration clause expressly permits any conflicting law to override it in this respect. Therefore, the arbitration clause cannot be unconscionable because of its fee shifting limit.

 

The Court finds Plaintiff has not shown that the arbitration clause is substantively unconscionable. Therefore, the arbitration clause is neither unconscionable nor unenforceable on that basis. However, as stated above, the Court finds that Defendant is not entitled to enforce the arbitration clause, the lack of unconscionability notwithstanding.

 

CONCLUSION:

 

            Accordingly, the Motion to Compel Arbitration is DENIED.

 

            Moving Party to give notice.

 

IT IS SO ORDERED.

 

Dated:  August 23, 2022                                 ___________________________________

                                                                                    Theresa M. Traber

                                                                                    Judge of the Superior Court

 


            Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.