Judge Thomas D. Long, Case 21STCV28209 2022-07-26 Tentative Ruling

On July 30, 2021, Plaintiff Breon N. Reed filed this action against Defendant Nissan North America, Inc. arising from Plaintiff’s purchase of an allegedly defective vehicle from a non-party dealership.

On June 9, 2022, Defendant filed a motion to compel arbitration and stay the action pending completion of arbitration. Defendant also filed a motion for stay of proceedings pending the resolution of the motion to compel arbitration.

Defendant moves to stay all proceedings, including all discovery, until its motion to compel arbitration is heard and decided. Defendant reserved a hearing date of July 26, 2022—the same day as the hearing on the motion to compel arbitration.

Because the Court concurrently decides the motion to compel arbitration, the motion for a stay prior to a decision on the motion to compel arbitration is denied as moot.

Plaintiff’s request for judicial notice of Exhibit 1 is granted. The request for judicial notice of Exhibit 2 is denied, as a tentative ruling in a different county’s superior court is not binding, persuasive, or relevant.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.) The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.)

The parties do not dispute the existence of an arbitration agreement between Plaintiff and the non-party dealership, and Defendant provided the full sales contract containing the arbitration provision. (Chung Decl., Ex. 3 [“Arbitration Agreement”].) The front side of the contract states in a box: “Agreement to Arbitrate. By signing below, you agree that, pursuant to the Arbitration Provision on the reverse side of this contract, you or we may elect to resolve any dispute by neutral, binding arbitration and not by a court action. See the Arbitration Provision for additional information concerning the agreement to arbitrate.” Plaintiff signed immediately under this language. Plaintiff also signed under another note: “YOU ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES OF THIS CONTRACT, INCLUDING THE ARBITRATION PROVISION ON THE REVERSE SIDE, BEFORE SIGNING BELOW.” The back of the agreement contains the Arbitration 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.”

Plaintiff argues that Defendant, who did not sign the sales contract, cannot compel arbitration based on the contract because the FAA and federal law, particularly Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942 (Ngo), apply. (See Opposition at pp. 5-14.) Plaintiff also argues only he or the dealership can compel arbitration. (Id. at pp. 7-8.)

Generally, only a party to an arbitration agreement may enforce the agreement, but the doctrine of equitable estoppel is an exception that allows a non-signatory to enforce an agreement. (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (Felisilda).) 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.)

The court in Felisilda examined an identical arbitration clause contained in a dealer’s sales contract: “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 . . . 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. . . .” (Felisilda, supra, 53 Cal.App.5th at p. 490.) The court concluded that the equitable estoppel doctrine applied: “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 FCA.” (Id. at p. 497.)

Plaintiff alleges he received various warranties in connection with the purchase. (Complaint ¶¶ 4, 16, 31, 46.) The court in Felisilda held that a similar allegation established that “the sales contract was the source of the warranties at the heart of this case.” (Felisilda, supra, 53 Cal.App.5th at p. 496.) As in Felisilda, Plaintiff’s claims against the manufacturer “directly relate[] to the condition of the vehicle that [he] allege[s] to have violated warranties [he] received as a consequence of the sales contract.” (Id. at p. 497.) Plaintiff did not cite any law that Defendant must demonstrate agency or that this impacts the equitable estoppel doctrine. The basis for the doctrine is not agency law; rather the “fundamental point is that a party is not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute . . . should be resolved.” (Id. at p. 496, quotation marks omitted, alterations in original.)

Plaintiff argues that Felisilda is distinguishable because the plaintiffs there brought claims against both the dealership and the manufacturer, the dealership moved to compel arbitration, and the manufacturer field a notice of non-opposition. (Opposition at p. 8.) But in Felisilda, the claims against the dealership were eventually dismissed, leaving only the claims against the manufacturer before the plaintiffs’ appeal. (See Felisilda, supra, 53 Cal.App.5th at p. 489.) The Court of Appeal also expressly framed the issue as “whether a nonsignatory to the agreement has a right to compel arbitration under that agreement.” (Felisilda, supra, 53 Cal.App.5th at p. 495.)

Plaintiff also argues because the Arbitration Agreement is governed by the FAA, Ngo is binding on this Court. (Opposition at p. 10.) Ngo is not part of the FAA. Moreover, “[s]tate law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration.” (Ngo, supra, 23 F.4th at p. 946, citing Arthur Andersen LLP v. Carlisle (2009) 556 U.S. 624, 631-632.)

The reasoning and holding of Felisilda lead to the conclusion that equitable estoppel doctrine permits Defendant to compel arbitration of Plaintiff’s claims against it.

Plaintiff argues Defendant waived its right to compel arbitration by engaging in conduct inconsistent with an intent to arbitrate. (Opposition at pp. 14-15.) “‘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.” ’ [Citation.]” (St. Agnes Med. Ctr. v. PacifiCare of Cal. (2003) 31 Cal.4th 1187, 1196.) Under the FAA, a party claiming waiver “must show: ‘(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.” (United States v. Park Place Assoc., Ltd. (9th Cir. 2009) 563 F.3d 907, 921.) Waiver of arbitration “is not to be lightly inferred and the party seeking to establish it bears a ‘heavy burden of proof,’ with all doubts resolved in favor of arbitration.” (Burton v. Cruise (2010) 190 Cal.App.4th 939, 945.) “Ordinarily, a delay is found unreasonable only when it is combined with the attempt by the party asserting a right to arbitrate to obtain an advantageous litigation position during the delay,” such as filing motions and propounding discovery. (Gloster v. Sonic Automotive, Inc. (2014) 226 Cal.App.4th 438, 449.) “Because merely participating in litigation, by itself, does not result in a waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1203.)

The conduct by Defendant is somewhat consistent with an intention to arbitrate. On September 3, 2021, Defendant filed an answer that raised a demand for arbitration as an affirmative defense. On November 12, 2021, Defendant filed a Case Management Statement that indicated it was willing to participate in mediation or a settlement conference. It did not indicate that it was willing to participate in arbitration. At the December 9, 2021 case management conference, the parties agreed to conduct private mediation and the Court scheduled an April 3, 2023 jury trial. Defendant responded to Plaintiff’s discovery requests on December 15, 2021. (Amarkian Decl. ¶ 24.) On May 11, 2022, the parties participated in mediation. (Id. at ¶ 25.)

However, Plaintiff has not shown prejudice from Defendant’s delay in seeking arbitration. Without a showing of prejudice, the mere undertaking of motion practice and discovery does not give rise to waiver. (Cox v. Bonni (2018) 30 Cal.App.5th 287, 304-305.)

Because Defendant has shown the existence of an applicable arbitration agreement and Plaintiff has not shown waiver or grounds for rescission, the motion to compel arbitration is GRANTED. (Code Civ. Proc., § 1281.2.)

The entire action is STAYED pending the arbitration. A Status Conference re: Arbitration is scheduled for 01/26/2023 at 8:30 AM in Department 48 at Stanley Mosk Courthouse (January 26, 2023). Five court days before, the parties are to file a joint report stating the name of their retained arbitrator and the status of arbitration.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court