Judge Thomas D. Long, Case Number: 22STCV17803, Date: 2023-05-01 Tentative Ruling

On May 31, 2022, Plaintiff Matthew Morgan filed this action against Defendants Ford Motor Company (“FMC”) and Vista Ford dba Vista Ford Lincoln (“Vista Ford”) (collectively, “Defendants”), arising from Plaintiff’s purchase of an allegedly defective vehicle from a non-party dealership.

On January 13, 2023, Defendants filed a motion to compel arbitration and stay the action pending completion of arbitration.

At the April 6, 2023 hearing, the Court ordered supplemental briefing on the effect of Ford Motor Warranty Cases (Cal. Ct. App., Apr. 4, 2023, No. B312261) 2023 WL 2768484 (Ochoa), and continued the hearing.

Plaintiff’s request for judicial notice of a Ninth Circuit case and a California Court of Appeal case is granted. (Evid. Code, § 451, subd. (a) [court shall take judicial notice of the law of this state and of the United States].)

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 Defendants provided the full sales contract containing the arbitration provision. (Keithly Decl., Ex. B [“Arbitration Agreement”].) The front 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 a notice that 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 THE REVERSE SIDE, BEFORE SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY FILLED-IN COPY WHEN YOU SIGNED IT.” Plaintiff signed below as Buyer.

The back 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.”

The non-signatory Defendants’ sole argument for compelling arbitration is based on the doctrine of equitable estoppel. (Motion at pp. 7-10.) Plaintiff argues that only he or the dealership can compel arbitration, and equitable estoppel does not apply. (Opposition at pp. 3-7, 10-15.)

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 a similar 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 he received various warranties in connection with the purchase. (E.g., Complaint ¶¶ 10-11.) 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, the dealership moved to compel arbitration, and the manufacturer filed a notice of non-opposition. (Opposition at pp. 5-6.) 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.)

Two days before the original hearing on this motion, the Court of Appeal issued a published decision in Ochoa that declined to follow Felisilda. This Court can now choose to either continue to follow Felisilda or instead adopt Ochoa’s reasoning. (Sarti v. Salt Creek Ltd. (2008) 167 Cal.App.4th 1187, 1193 [“All trial courts are bound by all published decisions of the Court of Appeal . . . Unlike at least some federal intermediate appellate courts, though, there is no horizontal stare decisis in the California Court of Appeal.”].)

The Ochoa court determined that equitable estoppel did not apply because the plaintiffs failed to show that their claims were founded in or intertwined with the sales contracts. (Ochoa, supra, 2023 WL 2768484, at pp. *3-*6.) The court “disagree[d] with Felisilda that ‘the sales contract was the source of [FCA’s] warranties at the heart of this case.’” (Id. at p. *4.) Like in Ochoa, Plaintiff’s claims here “are based on FMC’s statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty,” not based “on any express contractual language in the sale contracts.” (Id. at p. *5.) Plaintiff’s claims do not arise directly out of the sales contract, even if FMC’s warranties accompanied the sale of the vehicle. “The sale contracts include no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arise. To the contrary, the sale contracts disclaim any warranty on the part of the dealers, while acknowledging no effect on ‘any warranties covering the vehicle that the vehicle manufacturer may provide.’ In short, the substantive terms of the sale contracts relate to sale and financing and nothing more.” (Ibid.)

The Ochoa court also “disagree[d] with the Felisilda court’s interpretation of the sale contract as broadly calling for arbitration of claims ‘against third party nonsignatories.’” (Ibid.) The court instead read the language “including any such relationship with third parties who do not sign this contract” as “a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate.” (Id. at pp. *4-*5.) The parties “agreed to arbitrate disputes ‘between’ themselves—‘you and us’—arising out of or relating to ‘relationship[s],’ including ‘relationship[s] with third parties who [did] not sign th[e] [sale] contract[s],’ resulting from the ‘purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.’” (Id. at p. *5.) Here too the parties agreed to arbitrate any claim or dispute “between you and us or our employees, agents, successors or assigns, which arises out of or relates to . . . [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).”

This Court agrees with Ochoa’s interpretation of this language and rejects Felisilda’s assumption that the parties agreed to arbitrate claims “even against third party nonsignatories to the sales contract” and “disputes that include third parties so long as the dispute pertains to the condition of the vehicle.” (Felisilda, supra, 53 Cal.App.5th at p. 497.) Ochoa clearly distinguishes between (1) the parties to the claims or disputes (here, “you and us or our employees, agents, successors or assigns”), and (2) the subject matters of the claims or disputes (e.g., arising out of or relating to “any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract”). If there was a dispute between Plaintiff and the dealership that arose out of or related to a resulting transaction or relationship with a third party, then Plaintiff and the dealership would arbitrate that dispute. But based on the arbitration provision’s language and Ochoa’s clear interpretation thereof, there is no agreement requiring Plaintiff to arbitrate a claim or dispute between himself and a non-signatory third-party.

Accordingly, the reasoning and holding of Ochoa lead to the conclusion that equitable estoppel does not permit FMC to compel arbitration. The motion is denied as to FMC.

Plaintiff’s sole cause of action against Vista Ford is for negligent repair. Defendants argue that this cause of action falls within the scope of the Arbitration Agreement because the warranty contract allowed Plaintiff to deliver the vehicle for service repairs at Vista Ford. (Motion at p. 3; Reply at p. 7.) However, this cause of action is based on Vista Ford’s independent duty of care, not the warranties or purchase contract. The fifth cause of action alleges only that Vista Ford did not properly store, prepare, and repair the vehicle “in accordance with industry standards.” This is not an allegation related to the condition of the vehicle or its defects under the warranties or purchase contract.

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