Judge Timothy Patrick Dillon, Case 22STCV00275 2023-01-19 Tentative Ruling

Judge: Timothy Patrick Dillon, Case: 22STCV00275, Date: 2023-01-19 Tentative Ruling

The court grants the motion. The court compels Plaintiffs and Defendant to arbitrate Plaintiffs’ claims. The entire action is ordered stayed pending completion of arbitration.

On or around February 2015, Guadalupe Judith Maciel Ramirez and Marcos Padilla (“Plaintiffs”) purchased a new 2015 Nissan Pathfinder (the “vehicle”).¿ The parties to the sales contract are Plaintiff Marcos Padilla, as Buyer, and Central Valley Nissan, as Seller-Creditor.¿ The sales contract provides “we” or “us” sometimes refer to the Seller-Creditor.¿ The sales contract contains an arbitration provision.¿

On January 4, 2022, Plaintiffs filed a complaint against Defendant Nissan of North America, LLC (“Nissan”) alleging violations of the Song-Beverly Consumer Warranty Act and Fraudulent Inducement-Concealment.¿ Nissan is the manufacturer of Plaintiffs’ vehicle.¿ On September 19, 2022, although not a signatory to the sales contract, Nissan filed a motion to compel arbitration.¿¿ Plaintiffs filed an opposition on January 5, 2023, and Nissan filed a reply on January 11, 2023.

Nissan requests the court take judicial notice of Plaintiffs’ complaint in this action. The unopposed request is granted. (Evid. Code §§ 452 and 453.)

Nissan has adequately shown the existence of the contract containing the arbitration provision. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218.)¿ Plaintiffs argue that Nissan cannot compel arbitration because (1) Nissan has waived its right to arbitrate; (2) no arbitration agreement exists between Plaintiffs and Nissan; (3) Plaintiffs’ claims are not arbitrable under federal decisional law; (4) because this case is distinguishable from Felisilda, the doctrine of equitable estoppel does not apply; and (5) Nissan is not a third-party beneficiary of the sales contract. In reply, Nissan contends (1) it has not waived the right to arbitrate; (2) the Felisilda decision is binding on this court, and (3) Nissan has standing to enforce the Arbitration provision as a third-party beneficiary.

“In general, it is left to an arbitrator to construe the meaning and extent of the arbitration agreement between the parties. However, it is for the courts to decide questions of arbitrability, which include whether the parties are bound by a given arbitration clause, or whether it is unenforceable as unconscionable. (Indep. Ass’n of Mailbox Ctr. Owners, Inc. v. Super. Ct. (2005) 133 Cal.App.4th 396, 406, citations omitted.)

“Although threshold questions of arbitrability are ordinarily for courts to decide in the first instance under the [Federal Arbitration Act (FAA)], the ‘[p]arties to an arbitration agreement may agree to delegate to the arbitrator, instead of a court, questions regarding the enforceability of the agreement.’” (Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 239 (Pinela) quoting Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 241.)

“For a delegation clause to be effective, two prerequisites must be satisfied. First, the language of the clause must be clear and unmistakable. (Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 69, fn. 1 (Rent-A-Center).) The required clear and unmistakable expression is a ‘heightened standard’ …. Thus, ‘[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.’” (Pinela, supra, at pp. 239-40, quoting Rent-A-Center, supra, at p. 69, fn. 1, and quoting AT&T Techs. v. Commc’ns Workers (1986) 475 U.S. 643, 649, other citations omitted.)

“Second, the delegation must not be revocable under state contract defenses to enforcement. Among these defenses is unconscionability.” (Pinela, supra, at p. 240, citation omitted.) “When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally … should apply ordinary state-law principles that govern the formation of contracts.” (Aanderud v. Super. Ct. (2017) 13 Cal.App.5th 880, 890, quoting First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944, internal quotation marks omitted.)

Nissan argues that the question of arbitrability (i.e., whether the arbitration agreement is enforceable) should be delegated to the arbitrator instead of the court. (Mot., pp. 18-19.) Nissan points the court to the alleged arbitration agreement, which, among other things, states: “Any claim or dispute … (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute) … shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.” (Rein Decl., Ex. A.)

Plaintiffs argue: (1) that the issue of arbitrability is left to the court unless the parties clearly and unmistakably provide otherwise; (2) that Nissan is not a party to the sales contract and thus Nissan does not have the clear and unmistakable right to enforce the agreement; and (3) that the issue of arbitrability is properly before this court. (Opp., p. 16.)

On the issue of arbitrability, the court concludes that the court must decide arbitrability, although not for the reasons Plaintiffs argue. The court finds that the language in the alleged contract is in fact clear and unmistakable: “Any claim or dispute … (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute) … shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.” (Rein Decl., Ex. A.) The phrase “your or our election” only refers to two parties: Plaintiff Marcos Padilla and non-party Central Valley Nissan . Defendant Nissan is not a signatory to the alleged arbitration agreement. Thus, as to the narrow issue of arbitrability, the alleged contract clearly and unmistakably does not bind the parties to arbitration in this situation. The court concludes as a matter of law that this contract language does not meet the heightened pleading standard for arbitrability by an arbitrator, and thus the court continues to assess the arbitrability of this matter.

Plaintiffs argue that Nissan waived its right to arbitrate by failing to indicate an intention to compel arbitration and by utilizing the acts of litigation.¿ Furthermore, under the recent decision in Morgan v. Sundance (2022) 142 S.Ct. 1708 (Morgan), prejudice is no longer a factor in determining whether a party waived the right to arbitrate.

Nissan contends Morgan is not controlling. Further, Nissan has not participated in the litigation process in a manner giving rise to waiver, nor is there evidence Nissan has unreasonably delayed.¿

Contrary to Nissan’s assertion, Morgan is controlling. (See Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 967 (Shiekh Shoes) [recognizing that a finding of waiver on a showing of prejudice is unauthorized under the FAA, as articulated in Morgan].)

Notwithstanding Nissan’s incorrect contention, the court finds that Nissan has not waived its right to arbitrate. “To decide whether a waiver has occurred, the court focuses on the actions of the person who held the right; the court seldom considers the effects of those actions on the opposing party.” (Morgan, supra, at p. 1713.) “Courts have recognized that where the FAA applies, whether a party has waived a right to arbitrate is a matter of federal, not state, law. [Citation.]” (Shiekh Shoes, supra, 84 Cal.App.5th at p. 963.) In St. Agnes v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 (St. Agnes), the California Supreme Court adopted a multi-factor test from the Tenth Circuit opinion in Peterson v. Shearson/American Express, Inc. (10th Cir. 1988) 849 F.2d 464 (Peterson) wherein a court may 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.¿ (Peterson, supra, 849 F.2d at pp. 467-68; St. Agnes, at p. 1196.)¿ However, following the U.S. Supreme Court’s decision in Morgan, courts may no longer condition a determination of waiver on prejudice. (See Morgan, supra, at p. 1713.) The remaining Peterson factors are proper considerations in the waiver inquiry. (Shiekh Shoes, supra, at p. 963.)

Here, the arbitration agreement states: “Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et. Seq.) and not by any state law concerning arbitration.” (Rein Decl., Ex. A.) Accordingly, federal law supplies the law on waiver in this case. (See Shiekh Shoes, supra, at p. 963.)

Plaintiffs do not cite any federal cases discussing waiver of the right to arbitration. Instead, Plaintiffs cite five state law cases. (See Opp., p. 5:15-20.) Each are inapplicable. In Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, Lewis v. Fletcher Jones Motor Cars, Inc. (2018) 205 Cal.App.4th 436, Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, Zamora v. Lehman (2010) 186 Cal.App.4th 1, and Robert v. El Cajon Motors, Inc. (2011) 200 Cal.App.4th 832, the respective courts considered prejudice as a factor which, following Morgan, is improper since no single Peterson factor is dispositive and the totality of the circumstances must be considered in each case.

Each case is also distinguishable. In Guess? Inc., the court found waiver where the defendant substantially participated in the litigation process by serving document demands and interrogatories, responding to discovery, scheduling more than ten third-party depositions, and taking at least four third-party depositions. (Guess? Inc., supra, at p. 556.) In Lewis, the court found waiver where the defendant filed multiple demurrers and motions to strike and participated in discovery. (Lewis, supra, at p. 446.) In Adolph, the court found waiver where defendant filed two demurrers, accepted discovery requests, and engaged in efforts to schedule discovery. (Adolph, supra, at p. 1451.) In Roberts, the court found waiver where defendant conducted substantial written discovery regarding plaintiff’s class action allegations that would have been useless if arbitration was ordered. (Roberts, supra, at p. 845.) In Shiekh Shoes, the defendant delayed 17 months and actively participated in the litigation and court appearances. (Shiekh Shoes, supra, at p. 967-68.)

Here, Nissan has not participated in the litigation process to the extent of each defendant in the cases cited by Plaintiffs. Nissan has filed an answer, which sets forth an affirmative defense for arbitration (Answer, p. 10), a case management statement, and an ex parte application seeking an order to stay the action pending resolution of Nissan’s instant motion to compel arbitration. Nissan has not filed any demurrers, motions to strike, or otherwise engaged in the merits of Plaintiffs’ claims. With regards to discovery, Nissan has responded to one set of form interrogatories, Special Interrogatories, Requests for Admissions, and Requests for Production of Documents. (Rein Decl., ¶ 3.) Nissan, however, has not propounded any discovery of its own. (Rein Decl., ¶ 4.) Moreover, Nissan moved to compel arbitration just over six months after filing its answer.

Based upon the above, unquestionably Nissan has participated in the litigation. However, mere participation in the litigation is insufficient, standing alone, to establish waiver. (St. Agnes, supra, 31 Cal.4th at p. 1203.) There must also be some judicial litigation of the merits of arbitrable issues. (Ibid.) Here, Plaintiffs make no showing that there has been judicial litigation of the merits of arbitrable issues. The waiver argument is not well taken.

Plaintiff’s reliance on Soriano v Experian Information Solutions, Inc. (2022 M. D. Fl.) 22WL17551786 is unavailing. In Soriano, the defendant did not mention arbitration for the first five or six months of the lawsuit. The defendant also failed to raise arbitration as an affirmative defense in its answer and an amended answer. The court found that the defendant also substantially participated in the lawsuit through various actions. Here, in contrast, Nissan was not silent. Nissan raised arbitration as an affirmative defense in its answer, and preserved the issue in its case management statement. Unlike Soriano, the court also cannot find that Nissan substantially participated in this action.

In sum, given the relatively short period of time between filing an answer and moving to compel arbitration, as well as Nissan’s relatively minimal participation in the litigation process, the court finds that Nissan has not waived its right to compel arbitration.

The Third Appellate District’s decision in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (Felisilda) is dispositive to this case. In Felisilda, under an equitable estoppel theory, the court enforced an arbitration clause in favor of a non-signatory car manufacturer.¿ The arbitration clause provided:¿

“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.¿ 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 by a single arbitrator on an individual basis and not as a class action.”¿

In compelling arbitration, the court in Felisilda relied on the language in the arbitration clause:¿ “which arises out of or relates to . . . condition of this vehicle” and “(including any such relationship with third parties who do not sign this contract).”¿ Here, the arbitration clause contains the critical language relied on by the court in Felisilda.¿ The clause contains the language “arises out of or relates to . . . condition of this vehicle” and “(including any such relationship with third parties who do not sign this contract).”¿ The arbitration provision in this action 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 sight this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”¿

... [¶] Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”) and not by any state law concerning arbitration.”¿¿¿

Emphasizing the importance of the precise arbitration language at issue, in Felisilda, the court pointed out:¿ “In signing the sales contract, the Felisildas agreed that ‘[a]ny claim or dispute, whether in contract, tort, statute or otherwise . . . between you and us . . . which arises out of or relates to . . . [the] condition of this vehicle . . . shall . . . be resolved by neutral, binding arbitration and not by a court action.’¿ (Italics added.) Here, the Felisildas’ claim against FCA relates directly to the condition of the vehicle.”¿ (Id. at p. 496.)¿ The court held:¿ “The Felisildas’ claim against FCA directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract.¿ Because the Felisildas 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 FCA.¿ Consequently, the trial court properly ordered the Felisildas to arbitrate their claim against FCA.”¿ (Id. at p. 497.)¿ Likewise, Nissan is entitled to arbitration in this case.

Plaintiffs assert that the court should follow recent federal authority in Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942 (Ngo), and prior authority in Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122 (Kramer) to find that Defendant is not entitled to enforce the arbitration provision. However, as noted by the United States Court of Appeals in Ngo, “[s]tate law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration” and the Court of Appeals thus applied state law to resolve the issue before the court. (See Ngo, supra, at p. 946.) The FAA does not “alter background principles of state contract law regarding the scope of agreements (including the question of who is bound by them).” (Arthur Andersen LLP v. Carlisle (2009) 556 U.S. 624, 630.) As opposed to the California Court of Appeal ruling in Felisilda, Ngo is not binding on this court and provides persuasive authority only. (See Felisilda, supra, at p. 497.) The court does not find Ngo more persuasive than binding authority in Felisilda. Because state law determines whether a nonsignatory party may compel arbitration, the court rejects Plaintiffs’ argument that the choice-of-law provision in the arbitration agreement here precludes the applicability of Felisilda.

Insofar as Plaintiffs rely on Kramer, the court disagrees. The court in Felisilda distinguished Kramer because the language of the arbitration clause in Kramer did not contain a reference to “third parties.”¿ The Felisilda court reasoned:¿ “In Kramer, purchasers of Toyota vehicles agreed to arbitrate between themselves and dealerships.¿ [Citation.]¿ The retail sales contracts in Kramer did not contain any language that could be construed as extending the scope of arbitration to third parties.¿ [Citation.]¿ By contrast, the arbitration provision in this case provides for arbitration of disputes that include third parties so long as the dispute pertains to the condition of the vehicle.¿ As the operative complaint makes clear, the Felisildas’ claim arises out of the condition of the vehicle.”¿ (Felisilda, supra, 53 Cal.App.5th at p. 497.)¿¿ The arbitration provision here at issue includes the same provision as in Felisilda contemplating relationships with nonsignatory parties, and this distinction in Felisilda thus applies. (Rein Decl., Ex. A.)

The court in Felisilda further criticized another federal decision which Plaintiffs cite that involved the same language as in this case: “condition of this vehicle” and “third parties.”¿ The court held:¿ “We decline to follow the Jurosky court’s glossing over language in an arbitration clause that expressly includes third party nonsignatories.”¿ (Id. at p. 498.)¿ Finally, the court in Felisilda again emphasized the importance of the contractual language:¿ “We also reject the Felisildas’ contention that the rule requiring mutual consent to arbitrate is violated for lack of the Felisildas’ consent to arbitrate their claim against FCA.¿ As explained above, the Felisildas’ agreement to the sales contract constituted express consent to arbitrate their claims regarding vehicle condition even against third parties.¿ Their consent preceded the motion to compel filed in this case.”¿ (Ibid.)¿

Like in Felisilda, the arbitration provision in this case also contains language pertaining to third parties and the condition of the vehicle. (Rein Decl., Ex. A, [“Any claim or dispute, whether in contract, tort, statute or otherwise … 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 sight this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”]. The arbitration provision in Felisilda contains language identical to the arbitration provision in this case.¿ The arbitration provision features the language repeatedly relied on by the court in Felisilda.¿ Here, there is the language: “which arises out of or relates to . . . [the] condition of this vehicle” and “(including any such relationship with third parties who do not sign this contract).”

Plaintiffs assert that Plaintiffs’ claims are not intimately founded in the sales contract, which has mainly to do with the financing Plaintiffs obtained to purchase their vehicle. However, the sales contract goes far beyond simply arranging financing for the vehicle, integrating numerous provisions related to Plaintiffs’ rights regarding the purchase of the vehicle. There is no evidence that a sales contract, if Plaintiffs had paid by cash, would not likewise include an arbitration provision. Under Felisilda, Plaintiffs’ claims are intimately connected with the sales contract. The sales contract is “the source of the warranties at the heart of this case” because Plaintiffs expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the contract. (Felisilda, supra, 53 Cal.App.5th at pp. 496, 497, 499.) Thus, Nissan more than merely references an agreement containing an arbitration provision. (See Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218.) Given the material similarities in language, the equitable estoppel doctrine applies.^{^[1]}

Plaintiffs further argue that Felisilda is distinguishable from this case because the Felisildas brought an action against FCA US LLC, the nonsignatory, and the signatory dealership whereas Plaintiffs, here, have brought an action against a nonsignatory party in Nissan only.

The court is not persuaded. First, Plaintiffs overlook that even after the Felisildas dismissed the signatory dealership, the court of appeal held that it was still proper for the Felisildas and FCA to arbitrate Felisildas’ claims. Second, in signing the contract containing the arbitration provision, Plaintiffs have agreed to arbitrate such claims even against third party nonsignatories. Plaintiffs cite several federal district court cases concluding otherwise. (Opp., p. 11, fn. 5.) However, those cases are not controlling. As stated above, Felisilda is binding upon this court.

In sum, the court finds that the equitable estoppel doctrine applies. Finding Nissan entitled to arbitration, the court does not address Nissan’s alternative argument that Nissan is entitled as well to enforce the arbitration provision as a third-party beneficiary.

The motion to compel arbitration is granted.¿ All proceedings in this action are stayed pending completion of arbitration.

^{^[1]} In its reply, Nissan further argues Plaintiffs’ fraudulent inducement-concealment claim also relates to the purchase and condition of the vehicle. Allegations of fraudulent inducement are often founded in and intertwined with a contract. (See Orozco v. WPV San Jose LLC (2019) 36 Cal.App5th 375, 411; EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1325-26; Metalclad Corp. v. Ventana Env’t Organizational P’ship (2003) 109 Cal.App.4th 1705, 1718.) In the complaint, Plaintiffs allege: “In failing to disclose the defects in the Vehicle’s CVT transmission, Defendant has knowingly and intentionally concealed material facts and breached its duty not to do so. [¶] The facts concealed or not disclosed by Defendant to Plaintiffs are material in that a reasonable person would have considered them to be important in deciding whether or not to purchase/lease the Vehicle. Had Plaintiffs known that the Vehicle and its transmission were defective at the time of sale, Plaintiffs would not have purchased/leased the Vehicle.” (Complaint ¶¶ 52-53.) Allegations that Nissan concealed a defect at the time of sale and which impacted Plaintiffs’ decision to purchase the vehicle make clear that Plaintiffs’ claims are intimately founded in the sales contract. The equitable doctrine applies for this additional reason.