Judge Thomas D. Long, Case 21STCV45301 2023-02-02 Tentative Ruling

On December 9, 2021, Plaintiff Leiylah Corado 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 May 6, 2022, Plaintiff filed a first amended complaint (“FAC”).

On October 20, 2022, Defendant filed a motion to compel arbitration and stay the action pending completion of arbitration.

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. (Critchlow Decl., Ex. C [“Arbitration Agreement”].) A section 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.” Plaintiff signed below as Buyer.

A later page 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.”

Plaintiff argues that Defendant, who did not sign the sales contract, cannot compel arbitration based on the contract because it is not a signatory, it is not a third-party beneficiary, and equitable estoppel does not apply. (Opposition at pp. 4-10.)

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 that she received various warranties in connection with the purchase. (E.g., FAC ¶¶ 9, 15.) 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 they allege to have violated warranties they received as a consequence of the sales contract.” (Id. at p. 497.)

Plaintiff argues that Felisilda is distinguishable because the plaintiffs there brought claims against both the dealership and the manufacturer, and the dealership moved to compel arbitration. (Opposition at pp. 10-11.) But in Felisilda, the claims against the dealership were eventually dismissed, leaving only the claims against the manufacturer prior to the plaintiffs’ appeal. (See Felisilda, supra, 53 Cal.App.5th at p. 489.) The Court of Appeal also expressly reviewed the question of “whether a nonsignatory to the agreement has a right to compel arbitration under that agreement.” (Id. at p. 495.)

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.

For an arbitration agreement to be unenforceable as unconscionable, both procedural and substantive unconscionability must be present. (Armendariz, supra, 24 Cal.4th at p. 114.) “[T]he 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.” (Ibid.) “The relevant factors in assessing the level of procedural unconscionability are oppression and surprise.” (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 997.) “‘The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party.’” (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 656.) “The circumstances relevant to establishing oppression include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party's review of the proposed contract was aided by an attorney.” (Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1348, fn. omitted.) “The component of surprise arises when the challenged terms are ‘hidden in a prolix printed form drafted by the party seeking to enforce them.’” (Ibid.)

Plaintiff argues that the Arbitration Agreement is procedurally unconscionable because it was provided on a “take it or leave it” basis with no real opportunity to negotiate the terms. (Opposition at p. 13.) Arbitration agreements that are “take it or leave it” have some degree of procedural unconscionability. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 796.)

The Arbitration Agreement therefore has some degree of unconscionability due to its adhesive nature, but as explained below, not enough.

“‘Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. [Citations.] A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be “so one-sided as to ‘shock the conscience.’”’ [Citation.]’” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85.)

Plaintiff argues that the Arbitration Agreement allows the arbitrator to award costs of the arbitration, in violation of California consumer laws. (Opposition at p. 13.) Plaintiff also argues that the Arbitration Agreement “suggests that the arbitrator has discretion to deny attorney’s fees to a prevailing plaintiff, while the law imposes a mandatory one-sided fee shifting scheme in favor of the consumer.” (Ibid.) However, the Arbitration Agreement provides, “The arbitrator shall apply governing substantive law,” and, “Each party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law.” If the governing applicable law prohibits shifting certain costs to Plaintiff, then Defendant will bear those costs. If the governing applicable law requires a mandatory award of attorney fees to a prevailing plaintiff, then Plaintiff will be awarded those fees.

Because the Court finds a low level of procedural unconscionability and no substantive unconscionability, the arbitration agreement should not be invalidated due to unconscionability.

The motion to compel arbitration is GRANTED. This action is STAYED pending the arbitration. A Status Conference re: Arbitration is scheduled for 08/02/2023 at 8:30 AM in Department 48 at Stanley Mosk Courthouse (August 2, 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