Judge Thomas D. Long, Case 21STCV36830 2022-09-29 Tentative Ruling

On October 6, 2021, Plaintiffs Lizette Rodriguez and Jorge A. Rodriguez (collectively, “Plaintiffs”) filed this action against Defendant Toyota Motor Sales, U.S.A., Inc., arising from Plaintiffs’ purchase of an allegedly defective vehicle from a non-party dealership.

On August 4, 2022, Defendant filed a motion to compel arbitration and stay the action pending completion of arbitration.

On August 30, 2022, the Court granted Defendant’s ex parte application for an order staying proceedings pending Defendant’s motion to compel arbitration, and the Court stayed the case until the hearing on the motion to compel arbitration.

Defendant’s Objection Nos. 1-19 are sustained, as tentative rulings and orders in different courts are 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. (Abraham Decl., Ex. A [“Arbitration Agreement”].) Page 6 of the contract states: “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 ALL PAGES OF THIS CONTRACT, INCLUDING THE ARBITRATION PROVISION ON PAGE 7 OTHER THIS CONTRACT, BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY FILLED-IN COPY WHEN YOU SIGNED IT.” Both Plaintiffs signed below as buyer and co-buyer.

Page 7 of the contract 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.”

Plaintiffs argue 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. 6-14.) Plaintiffs also argue only they 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.)

Plaintiffs allege that they received various warranties in connection with the purchase. (Complaint ¶¶ 8, 17, 32-33, 47.) 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, Plaintiffs’ claims against the manufacturer “directly relate[] to the condition of the vehicle that they allege to have violated warranties [he] received as a consequence of the sales contract.” (Id. at p. 497.) Plaintiffs 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.)

Plaintiffs argue 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 filed a notice of non-opposition. (Opposition at pp. 2, 13-14.) 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.)

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

Plaintiffs also argue because the Arbitration Agreement is governed by federal law, Ngo is binding on this Court. (Opposition at p. 3.) However, “[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.) Additionally, although the Arbitration Agreement states that “[i]f federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute,” it also states that “the arbitrability of the claim or dispute” shall be resolved by arbitration. This is a clear and unmistakable delegation of arbitrability to the arbitrator. (See Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 892.)

Plaintiffs argue that Defendant waived its right to compel arbitration by engaging in conduct inconsistent with an intent to arbitrate. (Opposition at pp. 4-6.) “‘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 November 8, 2021, Defendant filed an answer that did not raise a demand for arbitration as an affirmative defense. On January 19, 2022, Defendant filed a Case Management Statement that indicated it was willing to participate in mediation, a settlement conference, nonbinding judicial arbitration, and binding private arbitration. At the February 3, 2022 case management conference, the parties agreed to conduct private mediation and the Court scheduled a May 30, 2023 jury trial. Defendant propounded discovery on Plaintiffs on December 23, 2021, and Defendant responded to Plaintiffs’ discovery requests on January 21, 2022. (Jacobson Decl. ¶¶ 26-27.)

However, Plaintiffs have not shown prejudice from Defendant’s delay in seeking arbitration. Plaintiffs’ counsel states only that they will be prejudiced “since Plaintiffs will be unable to compel discovery or benefit from discovery it has conducted for over a year.” (Jacobson Decl. ¶ 29.) Without a showing of prejudice, the mere undertaking of motion practice and discovery, including Defendant propounding its own 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 Plaintiffs have 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 09/28/2023 at 8:30 AM in Department 48 at Stanley Mosk Courthouse (September 28, 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