Judge Upinder S. Kalra, Case 20STCV48557 2023-02-14 Tentative Ruling

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On December 18, 2020, Plaintiff Marlon Gallo (“Plaintiff”) filed a complaint against Defendant Nissan North America, Inc. America (“Defendant.”) The complaint alleged two violations under the Song-Beverly Act. The complaint alleges that when Plaintiff purchased the Vehicle, it came with various written warranties. During that warranty period, the Subject Vehicle presented nonconformities and defects, which substantially impaired the use of the Vehicle.

On November 14, 2022, Defendant filed the current Motion to Compel Arbitration. Plaintiff’s Opposition was filed on January 31, 2023. Defendant’s Reply was filed on February 7, 2023.

Motion to Compel Arbitration – Under California law, the trial court has authority to compel arbitration pursuant to Code Civ. Proc. §1281.2 where a written agreement for such arbitration exists and one of the parties refuses to arbitrate. Specifically, the statute provides that, “[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement arbitrate the controversy exists.” The statute further sets forth four grounds upon which the trial court may refuse to compel arbitration: (a) the right to compel arbitration was waived, (b) recission of the agreement, (c) there is a pending action or special proceeding with a third party, arising out of the same transaction; and (d) petitioner is a state or federally chartered depository institution.

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .” Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284. “In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.” Weeks v. Crow (1980) 113 Cal.App.3d 350, 353. “To determine whether a contractual arbitration clause requires arbitration of a particular controversy, the controversy is first identified and the issue is whether that controversy is within the scope of the contractual arbitration clause.” Titolo v. Cano (2007) 157 Cal.App.4th 310, 316. “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.” California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205.

“[A] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. [Citation.] In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion, to reach a final determination.” Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.

As the moving party, Defendant bears the initial burden of establishing the existence of a valid arbitration agreement. Id. Upon establishing the existence of such an agreement, the burden shifts to the Plaintiff to prove that there are valid grounds for contesting arbitration by a preponderance of the evidence. Id.

In determining the enforceability of an arbitration agreement, the court considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue.” (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961 (Omar).)

“Arbitration is a product of contract. Parties are not required to arbitrate their disagreements unless they have agreed to do so. [Citation.] A contract to arbitrate will not be inferred absent a ‘clear agreement.’ [Citation.] When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation. [Citation.] In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact. [Citation.]” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1092-1093 (Davis).)

In support of its motion, Defendant submits a copy of the Retail Installment Sale Contract, attached to the Declaration of Nicholas S. Maugeri II, as Exhibit 3. Plaintiff contends that Nissan has failed to submit admissible evidence, arguing that alleged agreement is attached to counsel’s declaration and lacks foundation, has not been properly authenticated, and is hearsay.

The Court of Appeal in Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 845–846, discussed authentication requirements of arbitration agreements. Preliminarily, the court discussed Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215 (Condee). “The trial court in Condee denied the petition to compel arbitration because the petitioner did not authenticate the opposing party's signature on the proffered arbitration agreement. [citation.] Significantly, however, the opposing party did not challenge the authenticity of its signature on the agreement. (Ibid.) Thus, the appellate court in Condee held it was error to deny the petition because the petitioner was not required to ‘follow the normal procedures of document authentication’ in petitioning for arbitration. [citation.].” (Id. at p. 845.) Then, it explained that Condee only held that authentication is not required only if it is not challenged. “Properly understood, Condee holds that a petitioner is not required to authenticate an opposing party's signature on an arbitration agreement as a preliminary matter in moving for arbitration or in the event the authenticity of the signature is not challenged.” (Id. at p. 846.) Ultimately, since the Plaintiff in Ruiz did challenge the authenticity of the arbitration agreement, the defendant was obligated to prove authenticate the agreement by a preponderance of the evidence. (Ibid.)

Here, the Court does find that Plaintiff has failed to properly authenticate Exhibit 3. However, assuming that if the matter was continued, Defendant could authenticate the agreement set forth in Exhibit 3, the Court will analyze the merits of the argument.

As stated above, in determining the enforceability of an arbitration agreement, the court considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue.” (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961 (Omar).)

Defendant argues that it is a party to the contract pursuant to the theory of equitable estoppel and as a third-party beneficiary.

The parties agree that Defendants are not signatories to the Contract. Generally, only parties to a contract containing an arbitration agreement may enforce that arbitration clause. (Thomas v. Westlake (2012) 204 Cal.App.4^th 605, 613.) There are exceptions to the general rule. Under one such exception, the doctrine of equitable estoppel, a nonsignatory defendant may move to enforce an arbitration clause. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236.) “ ‘In any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.’ ” (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 498 (Felisilda).) Defendant here argues that they may enforce the arbitration agreement through equitable estoppel

Felisilda is particularly instructive. The Felisildas brought a Song-Beverly cause of action against a local automobile dealership, Elk Grove Dodge Chrysler Jeep (“Elk Grove”), and the manufacturer, FCA US LLC (“FCA”). The Felisildas and the local dealer were parties to an installment sales contract that contained an arbitration clause. FCA was not a signatory to the agreement. Elk Grove moved to compel arbitration. The lower court granted the motion and ordered all the parties, including FCA to arbitration, whereupon the Felisildas dismissed Elk Grove. The action, nevertheless, proceeded to arbitration solely between the Felisildas and FCA. After the arbitrator found for FCA and the trial court confirmed the award, the Felisildas appealed the judgment of the court. Among the contentions on appeal was whether the trial court had authority to “order the Felisildas to arbitrate their claim against FCA because FCA was a nonsignatory to the sales contract.” (Felisilda, supra., 53 Cal.App.5th at p. 489.) The Felisilda panel affirmed the trial court’s order. The Court found that by signing the sales contract, “the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the sales contract—[and] they are estopped from refusing to arbitrate their claim against FCA.” (Id. at p. 497.)

The holding in Felisilda was grounded on the express provisions of the sales contract and the Felisildas’ causes of action. First, upon examining the terms of the sale contract, the Court noted that the Felisildas agreed to arbitrate “[a]ny 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 … [the] condition of this vehicle.” (Id. at p. 490.) Second, after reviewing the Felisildas’ complaint where they alleged violations of warranties they received because of the purchase contract, the Court of Appeal found the Felisildas’ claim “directly relates to the condition of the vehicle” (Id. at p. 497.)

Turning to this case, this Court sees no discernable difference between the facts here and Felisilda. First, the arbitration clause provided for in the Contract here and in Felisilda are word for word exact copies. To be sure both agreements mandate arbitration whenever a claim “arises out of or relates to . . .[the] condition of this vehicle. . .” (Maugeri Dec., Ex. 3, pg. 10; Felisilda, supra., 53 Cal.App.5^th at p. 490.) Second, the pleadings that the Felisilda Court found demonstrated that the Felisildas’ claim was based upon the vehicle’s condition, are similar to the language in the operative complaint. For example, whereas Plaintiff here allege that “Along with the Purchase of the Vehicle, Plaintiff received written warranties and other express and implied warranties” and “the distrubtion and sale of the Vehicle was accompanied by the Manufacturer implied warranty” (Comp. ¶ 7, 15), the Felisildas’ complaint states “the express warranties accompanied the sale of the vehicle.” (Felisilda, supra., 53 Cal.App.5th at p. 496.) Third, both pleadings allege that the manufacturer “failed and refused to make restitution ro replacement pursuant to Song-Beverly.” (Complaint ¶ 20, 31; Felisilda, supra., 53 Cal.App.5th at p. 497.) Fourth, in order to maintain a Song-Beverly claim, one must be a buyer. Without the purchase agreement, Plaintiff cannot meet this standing requirement. In sum, it appears to the Court that because Plaintiff explicitly agreed to arbitrate claims arising from the condition of the vehicle, including with third parties who did not sign the contract, and “the sales contract [here] was the source of the warranties at the heart of the case” (Id. at p. 496), the holding of Felisilda is controlling.

Plaintiff rightly points to one factual difference from Felisilda. In Felisilda, the actual moving party for the motion to compel arbitration was a signatory, the selling dealership. Only after the trial court granted the motion was the signatory dismissed. Here, by contrast, only non-signatories are attempting to compel arbitration. This Court is not persuaded that such a fine parsing of the Felisilda decision is significant to the holding.^{^[1]} To be sure, the Court of Appeal in Felisilda expressly rebuffed the argument that identity of the moving party has significance. “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.” (Felisilda, supra., 53 Cal.App.5th at p. 498.) Stated otherwise, it was the identity of the signatories, the Plaintiffs, and the terms of the agreement that they assented that was critical to the Court of Appeal’s equitable estoppel analysis. Thus, here, as in Felisilda, Plaintiff, as a signatory to the Contract, is equitably estopped from distancing herself from the arbitration agreement she voluntarily entered.

The public policy supporting equitable estoppel further supports such a finding. “[I]f a plaintiff relies on the terms of an agreement to assert his or her claims against a nonsignatory defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause of that very agreement. In other words, a signatory to an agreement with an arbitration clause cannot ‘ “ ‘have it both ways’ ” ’; the signatory ‘cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory.’ ” (Goldman v. KPMG, LLP (2009) 173 Cal. App. 4th 209, 220.) Here, it appears that Plaintiff is attempting to do what public policy prohibits. Plaintiff seeks to enforce the Contract against Defendants, nonsignatories, on the one hand but does not want to be bound by terms she finds adverse to her interests.

Plaintiff, nevertheless, contends that this Court reject the holding of Felisilda and, instead, adopt the reasoning and analysis of federal courts that have distinguished Felisilda. Whether this Court finds the dearth of federal court opinions Plaintiff has cited to be more persuasive than Felisilda is not the issue. This Court would be acting in excess of its jurisdiction if the Court ignored Felisilda. (Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 455.[“[A]ll tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction.”].)

Once it is determined that a valid arbitration agreement exists, the burden shifts to the opposing party to “prove by a preponderance of the evidence any defense to the petition.” (Lacayo v. Catalina Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257, review denied (Nov. 13, 2019)). Here, Plaintiff argues in opposition to enforcement is that Defendant has waived its right to arbitrate.

Plaintiff argues that Defendant has waived arbitration because of Defendant’s conduct, which is inconsistent with an intent to arbitrate. Defendant waited 22 months to file the current motion and has engaged in discovery. Defendant produced its corporate witness for deposition, took Plaintiff’s deposition, demanded inspection of the vehicle, and appeared at the Final Status Conference in July 2022. Additionally, Defendant’s Case Management Statement indicated that it would file motions in limine and a motion for summary judgment, conduct discovery, and stated the matter would be ready for trial in 12 months, estimating a 3- day jury trial. (Opp. 5: 4-27.)

In reply, Defendant argues that the conduct did not indicate waiver. Defendant cites to Quach arguing that “waiver does not occur by mere participation in litigation if there has been no judicial litigation of the merits of arbitrate issues.” (Quach v. California Commerce Club (2022) 78 Cal.App.5th 470, 484.) Defendant also argues that Plaintiff cannot point to conduct of Nissan that would constitute that “litigation machinery” was invoked. (Reply 11: 20-22.)

“California courts may refuse to enforce an arbitration agreement “upon such grounds as exist at law or in equity for the revocation of any contract,” including waiver. (Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 444.) Further, “a party may be said to have ‘waived’ its right to arbitrate by an untimely demand, even without intending to give up the remedy.” (Id.)

“Specifically, the St. Agnes court identified the following as “factors [that] are relevant and properly considered in assessing waiver claims”: “(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.” ' [Citations.]” (St. Agnes, supra, 31 Cal.4th at p. 1196, 8 Cal.Rptr.3d 517, 82 P.3d 727.) No one of these factors predominates and each case must be examined in context.

In Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, the Court of Appeal affirmed the trial court’s finding of waiver. The Court found that Shiekh’s lengthy delay in moving to compel arbitration, coupled with its request for trial, active participation in discovery, acquiescence to the trial and discovery schedule, and court appearances, the trial court had ample evidence from which to conclude Shiek’s actions were inconsistent with an intent to arbitrate.” (Id. at p. 970.)

Similarly here, Defendant’s conduct cannot be squared with an intent to arbitrate. There was a lengthy delay between the filing of the complaint and the filing of this motion—22 months. Defendant’s conduct during this lengthy delay was also inconsistent with an intent to arbitrate. Defendant filed a Case Management Statement on March 31, 2021, and requested a trial, gave its own estimate of the time of trial, indicated that Motions in Limine and a Motion for Summary Judgment were expected to be filed before trial, provided a discovery plan and, notably, did not indicate in the appropriate boxes that they were willing to participate or demanded arbitration. At the Case Management Conference on April 22, 2021, which Defendant did not appear, the Court set a trial date for August 16, 2022. On June 1, 2022, the parties participated in an Informal Discovery Conference. On June 24, 2022, Defendant noticed Plaintiff’s Deposition. (Dec. Galaviz, Ex. 3.) On July 28, 2022, days before the scheduled trial, the parties participated in a Final Status Conference where, among other things, Defendant litigated trial Motions in Limine. The Court, thereafter, ruled on the motions in limine, but because the parties had not fully complied with Local Rule 3.25, the Court found that the parties were not ready for trial and set a new trial date for March 7, 2023. (Minute Order for July 28, 2022.) Even then, Defendant waited an additional four months after the Final Status Conference to file the current motion. Defendant has offered no explanation, reasoned or otherwise, to justify or even explain this delay. The Court notes that Defendant raised the issue in their Answer filed on January 29, 2021, in their 21^st affirmative defense. However, Defendant’s subsequent conduct, as outlined above, demonstrates that they had abandoned this possible approach. Thus, from this conduct —a 22-month delay in filing the motion, a demand for trial, engaging in the discovery process, litigating trial motions in limine at the Final Status Conference and unjustified silence in explaining this conduct —Defendant has engaged in conduct evincing waiver of the right to arbitrate.

Motion to Compel Arbitration is DENIED. Motion for a Stay of the Proceedings is DENIED.

[1]The Court is aware that recently, a panel of the 9^th Circuit Court of Appeal in Ngo v. BMW of N. Am., LLC., (2022) 23 F.4th 942, opined that this distinction was critical to the holding of Felisilda. For the reasons outlined above, this Court respectively disagrees and notes that while “the decisions of federal district and circuit courts, although entitled to great weight, [such decisions] are not binding on state courts even as to issues of federal law.” (Alan v. Superior Court (2003) 111 Cal.App.4th 217, 229.)

[2]It should be noted Felisilda explicitly rejected the holdings of Kramer v Toyota Motor Corp (2013) 705 F.3d 1122 and Jurosky v. BMW of North America, LLC. (2020) 441 F.Supp.3d 963.