Judge: Theresa M. Traber, Case: 22STCV19890, Date: 2023-03-09 Tentative Ruling
Case Number: 22STCV19890 Hearing Date: March 9, 2023 Dept: 47
Tentative Ruling
Judge Theresa M. Traber, Department 47
HEARING DATE: March 9, 2023 TRIAL
DATE: NOT SET
CASE: Jason Bowen, et al. v. FCA US, LLC et
al.
CASE NO.: 22STCV19890 
MOTION
TO COMPEL ARBITRATION x 2
MOVING PARTY: (1) FCA US, LLC; (2) Glenn E. Thomas Co. d/b/a Glenn
E. Thomas Chrysler Jeep Dodge
RESPONDING PARTY(S): Plaintiffs Jason
and Kelly Bowen
STATEMENT
OF MATERIAL FACTS AND/OR PROCEEDINGS:
This is a lemon law action filed on June 14, 2022. Plaintiffs allege
that, on September 4, 2017, Plaintiffs purchased a 2017 Chrysler Pacifica which
had transmission, engine, and electrical defects.
Defendants move to compel this
matter to binding arbitration and stay proceedings pending resolution of the
arbitration.
TENTATIVE RULING:
Defendant FCA US, LLC’s Motion to Compel Arbitration is DENIED.
Defendant Glenn E. Thomas Co’s
Motion to Compel Arbitration is MOOT.
DISCUSSION:
FCA US, LLC’s Motion to Compel Arbitration
Defendant
FCA US, LLC moves to compel this matter to binding arbitration.
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.
(Declaration of Ali Azemoon ISO Mot. Exh. A. p.3.) The term, “You,” is defined as the Buyer,
here Plaintiff Jason D. Bowen, who has contracted with Glenn E. Thomas Co.,
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 as buyer is not clearly visible on the proffered copy of
the Agreement. (Id. p. 4.) However, Plaintiffs do not dispute that Mr.
Bowen signed the agreement, and Mr. Azemoon states under penalty of perjury
that the agreement bears Plaintiff Espinoza’s signature. (Azemoon Decl. ¶ 2.)
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. (Azemoon
Decl. Exh. A. p. 2.)
This evidence shows that Plaintiffs agreed to submit claims falling
within the terms of the arbitration provision of the Agreement to binding
arbitration. While they do not deny that an arbitration agreement exists
between Plaintiff and the dealer from which he purchased the car, Plaintiffs
argue that (1) Defendant cannot invoke the arbitration clause as a third-party
beneficiary, and (2) Defendant’s equitable estoppel theory is without merit.
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 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 there “was clear intent
to ‘include any third-party’ who may benefit from or be obligated under the
contract. (Motion, p. 7 fn. 3.) 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, Plaintiffs, and the dealer, stating that any covered claims
“shall, at your or our election, be resolved by neutral, binding
arbitration.” (Azemoon Decl. Exh. A p.3.) As noted above, “your” refers to Plaintiffs
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 at the election of
Plaintiffs or the dealer; it does not sweep Defendant’s separate claims into
the arbitration provision or give Defendant a right to invoke that 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 Plaintiffs 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.
(Azemoon Decl. Exh.
A. p.3 [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 Mr. Bowen signed
an arbitration provision that expressly mentions third-party claims. In opposition, Plaintiffs contend that
equitable estoppel does not apply because Defendant has not proven that it has
a close relationship with 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.) Plaintiffs contend that their 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 Plaintiffs for the vehicle. Plaintiffs also
contend that the dealer from which Plaintiffs purchased the vehicle and
Defendant have not a proven close relationship 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 Plaintiffs have sued nonsignatory Defendant FCA
US LLC 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 “arise out of the warranty obligations of FCA in
connection with a motor vehicle for which FCA issued a written warranty.”
(Complaint ¶ 14.) 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. 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 Plaintiffs do not rely on the arbitration
provision or any other term of the Agreement to assert claims against
Defendant. Where, as here, the plaintiffs’ “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 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 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 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, Defendant correctly observes that, at the time this motion was
filed, both the manufacturer and the dealer were named defendants
simultaneously seeking to compel this matter to arbitration, mirroring the
procedural history of Felisilda. (53 Cal.App.4th at 489.) However, in
this matter, Plaintiffs dismissed the dealer Defendant before the Court
could rule on the merits of the motion, unlike in Felisilda, where the
dealer Defendant was the party compelling arbitration and it remained a party
until after arbitration had commenced. (Id.) As Plaintiffs here have
dismissed the dealer Defendant, there are currently 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.
Conclusion
Accordingly, Defendant FCA US, LLC’s
Motion to Compel Arbitration is DENIED.
Glenn E. Thomas
Co.’s Motion to Compel Arbitration
At the time this motion was filed,
Glenn E. Thomas Co. was a named Defendant in this action. However, on February
24, 2023, Plaintiffs requested dismissal of this Defendant entirely from the
action. This motion is therefore MOOT.
CONCLUSION:
Accordingly, Defendant FCA US,
LLC’s Motion to Compel
Arbitration is DENIED.
Defendant Glenn E. Thomas Co’s
Motion to Compel Arbitration is MOOT.
Defendant
FCA US, LLC to give notice, unless waived.
IT IS SO ORDERED.
Dated: March 9, 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.