Judge: Theresa M. Traber, Case: 22STCV15612, Date: 2023-02-02 Tentative Ruling

Case Number: 22STCV15612    Hearing Date: February 2, 2023    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     February 2, 2023                   TRIAL DATE: NOT SET

CASE:                         Rachel Salazar and Alvaro Salazar v. Nissan North America Inc.

CASE NO.:                 22STCV05077           

MOTION TO COMPEL ARBITRATION

MOVING PARTY:               Defendant Nissan North America, Inc.

RESPONDING PARTY(S): Plaintiffs Rachele and Alvaro Salazar

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

            This is a lemon law action filed on May 10, 2022. Plaintiffs signed a Retail Installment Sales Contract for a 2015 Nissan Rogue which developed transmission, electrical, and engine defects. Plaintiffs sued the manufacturer, Nissan North America, Inc., for breach of warranty under the Song Beverly Act.

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

TENTATIVE RULING:

Defendant’s Motion to Compel Arbitration is DENIED.

DISCUSSION:

Request for Judicial Notice

            Defendants request that the Court take judicial notice of (1) the Complaint and (2) the Answer in this action, as well as (3) the Notice of Entry of Dismissal and Proof of Service filed by plaintiffs in the matter of Dina C. Felisilda, et al. v. FCA US LLC, et al. (34-2015-00183668) in the Superior Court of California, County of Sacramento. Defendant’s requests are GRANTED pursuant to Evidence Code section 452(d) (court records).

            Plaintiffs request that the Court take judicial notice of the published opinions Ngo v. BMW of N. Am., LLC (9th Cir. 2022) 23 F.4th 942 and Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956. Plaintiffs’ requests are GRANTED pursuant to Evidence Code section 452(d) (court records).

Motion to Compel Arbitration

            Defendant Nissan North America, Inc. 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 Plaintiffs do 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 Catherine K. Tang 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 the interpretation and scope of this Arbitration Provision, 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, 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.

(Tang Decl. Exh. 4. p.7.)  The term, “You,” is defined as the Buyer, here Plaintiffs, who have contracted with Premier Nissan, 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 signatures of both Plaintiffs are clearly visible on the proffered copy of the Agreement. (Id. p. 6.) Further, Plaintiffs do not dispute that they signed the agreement. 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.”

(Tang Decl. Exh. 4. p. 6.) 

This evidence shows that Plaintiffs agreed to submit claims falling within the terms of the arbitration provision of the Agreement to binding arbitration. While Plaintiffs do not deny that an arbitration agreement exists between Plaintiffs and the dealer from the car was purchased, Plaintiffs argue that (1) Defendant NNA cannot invoke the arbitration clause as a third-party beneficiary, (2) Defendant NNA’s equitable estoppel theory is without merit, and (3) Defendants have waived the right to compel arbitration.

Third-Party Beneficiary Status

            Defendant NNA 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 NNA does not rely on any authorities that apply these standards to a contract with language like the Agreement at issue here. 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 NNA’s primary argument in favor of its status as an intended third-party beneficiary is grounded on its interpretation of the language of the Agreement’s provision that the agreement applies to any dispute arising out of “any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract).” (Tang Decl. Exh. 4. p. 7.) The Court disagrees with NNA’s interpretation. 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.”  (Tang Decl. Exh. 4 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 NNA does not claim to be an “employee, agent, successor or assign” of the dealer and has certainly offered no evidence to support this designation. 

Furthermore, the language upon which Defendant NNA relies regarding the covered claims 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 NNA’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 NNA’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. 

(Tang Decl. Exh. 4. 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 NNA’s argument that the “condition of the vehicle” language in the arbitration provision or the Agreement itself is intended to benefit Defendant NNA. 

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 NNA 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 NNA has not shown that it secured benefits under the Agreement, that the parties were motivated to benefit Defendant NNA in signing the Agreement, or that permitting Defendant NNA 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 NNA is not a third-party beneficiary of the Agreement and, thus, is not entitled to invoke its arbitration provision.  

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Equitable Estoppel

Defendant NNA argues that Plaintiffs should be equitably estopped from denying the arbitrability of the claims against Defendant NNA because Plaintiffs signed an arbitration provision that expressly mentions third-party claims.  In opposition, Plaintiffs contends that equitable estoppel does not apply because Defendant NNA 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 NNA are independent of any sales contract and that Defendant has not shown that there is any provision in the contract that requires Defendant NNA to issue or comply with a warranty to Plaintiff for the vehicle. Plaintiff also contends that the dealer from which Plaintiff purchased the vehicle and Defendant NNA do not have a proven close relationship of a parent and wholly owned subsidiary or non-signatory successor sharing a common owner.

In response, Defendant NNA 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 Plaintiffs have sued nonsignatory Defendant NNA 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 allege that the claims against Defendant NNA “arise out of the warranty obligations of NNA in connection with a vehicle purchased by Plaintiffs and for which NNA issued a written warranty.” (Complaint ¶ 10.) The warranty relied on is not the sales Agreement with the dealer that contains the arbitration provision but rather the owner’s manual for Plaintiffs’ vehicle which was issued by the defendant manufacturer.  (Id., Exh. A.)  Although the sales Agreement reflects Plaintiffs’ acquisition of the vehicle as to which Defendant NNA has provided warranties, Plaintiffs’ claims against Defendant NNA do not “rely or depend on the terms of [that Agreement] in asserting their claims against [Defendant NNA], and . . . none of the allegations against [Defendant NNA] 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 Plaintiffs 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 (9^th 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. 4^th 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 NNA 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 Plaintiffs do not rely on the arbitration provision or any other term of the Agreement to assert claims against Defendant NNA. 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 NNA points to no actual connection between Plaintiffs’ claims and any duty, obligation, term, or condition imposed by the Agreement, nor any alleged violation of that Agreement asserted in Plaintiffs’ Complaint, so it cannot compel arbitration on an equitable estoppel theory.   

Defendant NNA 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 manufacturer’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 because of 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 NNA’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. 

As stated above, the Court conclude that Plaintiffs are not equitably estopped from challenging Defendant’s right to compel arbitration.

As the Court has concluded that Defendant is not entitled to compel arbitration in this matter, the Court does not address Plaintiffs’ arguments that Defendant waived any right to compel arbitration.

CONCLUSION:

            Accordingly, Defendant’s Motion to Compel Arbitration is DENIED.

            Moving Party to give notice.

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IT IS SO ORDERED.

Dated: February 2, 2023                                 ___________________________________

                                                                                    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.