Judge Upinder S. Kalra, Case 22STCV10690 2022-08-04 Tentative Ruling

Plaintiff Kyunam Shim (“Plaintiff”) filed a complaint against Defendant Hyundai Motor America (“Defendant”) on March 29, 2022. The complaint alleged four violations for breach of an express and an implied warranty under both the Song-Beverly Act and the Magnuson-Moss Warranty Act. Plaintiff alleges that he entered into a warranty contact with Defendant for the Subject Vehicle. During that warranty period, the Subject Vehicle presented nonconformities and defects, which substantially impaired the use of the Vehicle.

Defendant filed this current Motion to Compel on May 3, 2022. The Plaintiff’s Opposition was filed on July 20, 2022. Defendant’s reply was filed on July 28, 2022.

The Court may take judicial notice of the existence of the records, but not the truth of matters asserted in such records. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565). As a result, although the court may take judicial notice that the documents exists, the Court may not take judicial notice of the truth of the facts in the documents.

Additionally, Evidence Code only allows the Court to take judicial notice of certain types of documents. The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).) The Evidence Code does not allow the Court to take judicial notice of discovery responses or parts of cases, such as depositions.

The request for judicial notice is GRANTED, as the document is a court document under Evid. Code § 452(d).

Both the CAA and the FAA “are driven by a strong public policy of enforcing arbitration agreements.” (Weiler v. Marcus & Millichap Real Estate Investment Services, Inc. (2018) 22 Cal.App.5th 970, 979.)

On 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 to arbitrate the controversy exists…

Section 2 of the FAA provides: “A written provision in ... a contract ... to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

“Thus, a court generally must compel arbitration in accordance with the agreement when requested by one of the parties. (Code Civ. Proc., § 1281.2; 9 U.S.C. § 2.)” (Ibid.)

Defendant moves to compel the Plaintiffs to arbitration on the grounds that the agreement is valid, and the theories of equitable estoppel and third-party beneficiary allow arbitration to proceed. Plaintiffs contend that Defendant was a non-signatory to the contract and cannot compel arbitration, equitable estoppel is not a valid theory, the claims are not intertwined with the sale contract, and defendants have failed to demonstrate either a close relationship between them and the dealership, as well as failed to demonstrate that they are third-party beneficiaries. Moreover, Plaintiffs contend that the agreement is both procedurally and substantively unconscionable.

Of note, the Plaintiff states in the opposition that the lease agreement is invalid. As Defendants not in their reply, the motion to compel arbitration is based on the Retail Installment Sale Contract.

In support of its motion, Defendant submits a copy of the Retail Installment Sales Contract (“Contract”) entered by Plaintiffs and Downey Hyundai on May 26, 2020. (Dec. Tahsildoost, Ex. 2). The Contract contains an arbitration provision, which provides in relevant part:

Any claim or dispute, whether in contract, tort or otherwise (including the interpretation, scope, or validity 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 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 parties agree that Defendant is not a signatory 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.5^th at 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. . .” (Dec. Tahsildoost, Ex. 2; Felisilda, supra., 53 Cal.App.5^th at p. 490.). Second, the pleadings that the Court of Appeal 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 Plaintiffs allege “along with th sale of the Vehicle, Plaintiff received written warranties and other express and implied warranties…” (Complaint ¶ 8), the Felisildas’ complaint states “the express warranties accompanied the sale of the vehicle.” (Felisilda, supra., 53 Cal.App.5^th at p. 496.). Moreover, both pleadings allege that the manufacturer failed to make restitution or replace the vehicle (Complaint ¶ 20, 31; Felisilda, supra., 53 Cal.App.5^th at p. 497.). In sum, it appears to the Court that because Plaintiffs 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.

As stated above, Plaintiff contends that the Defendant cannot compel arbitration based on the lease agreement. However, the Defendant is moving to compel based on the RISC, not the lease agreement. Plaintiffs rightly point 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. Even though the Plaintiff argues that the lease agreement does not allow a non-signatory to compel arbitration, the reasoning as to why that fails is the same. 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.5^th 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, Plaintiffs, 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 Plaintiffs are attempting to do what public policy prohibits. Plaintiffs seek to enforce the Contract against Defendants, nonsignatories, on the one hand but does not want to be bound by terms they find adverse to their interests.

Plaintiffs, nevertheless, contend 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 Plaintiffs 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.”].) Stated otherwise, this Court is bound to follow Felisilda.[2]

Next, while the lease agreement is based on the RISC, not the lease agreement, Plaintiff still argues that the agreement is unconscionable. While the agreement is different, the court will still provide an analysis to determine if the RISC, the agreement that Defendant is moving under, is unconscionable. In Armendariz, the California Supreme Court stated that when determining whether an arbitration agreement was unconscionable, there is both a procedural and a substantive element. (Armendariz v. Foundation Health Psychcare Service, Inc. (2000) 24 Cal.4^th 82, 114).

Procedural unconscionability focuses on oppression or surprise due to unequal bargaining power; substantive unconscionability looks at overly harsh or one-sided results. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243; AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 340; Armendariz v. Foundation Health Psychcare Servs. (2000) 24 Cal.4th 83, 114 (Armendariz).) If both elements of unconscionability are present, the Court must decline to enforce the arbitration agreement. (Armendariz, supra, 24 Cal.4th at p. 114.) The Armendariz court also noted that substantive and procedural unconscionability need not be present to the same degree, and that a “sliding scale” is invoked (i.e., the more substantively unconscionable the contract term, the less evidence of procedural unconscionability need be shown, and vice-versa). (Id.)

Plaintiffs contend this is a contract of adhesion because the agreement, as it is “take it over leave it.” There is no opportunity for negotiating the terms of the agreement. Sanchez v. Valencia Holding Co., LLC involved an automobile sales contract. The Court determined that “the adhesive nature of the contract is sufficient to establish some degree of procedural unconscionability. Yet ‘a finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.’” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915). Here, the evidence does not indicate that there was any level of oppression or surprise. Plaintiff was free to purchase a different vehicle.

“Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85). Plaintiffs argue that this agreement is unconscionable for two reasons. One, the provision concerning small claims court is one sided and skews towards the Defendant as well as excludes self-help remedies and two, there is a fee shifting provision.

Plaintiff’s arguments that the provisions in the agreement are unconscionable fail. First, the California Supreme Court has rejected the small claim argument in Sanchez noting the right to go to small claims court “likely favors the car buyer.” (Sanchez, supra, 61 Cal. 4th at p. 922).

Second, Plaintiffs’ argument concerning fee shifting is inaccurate. The explicit language of the agreement indicates that the Defendant will pay the “filing, administration service or case management fee and your arbitrator or hearing fee all up to a maximum of $5,000, unless the law or the rules of the chosen arbitration organization require us to pay more.” (Dec. Tahsildoost, Ex. 2). The agreement also indicates that the arbitrator shall “apply governing substantive law.” This allows for the fee-shifting benefits of the Song-Beverly Act.

Even if the adhesive nature of the contract is sufficient to establish some procedurally unconscionability, the lack of substantive unconscionability is dispositive. Employing the sliding scale that this court must utilize, the minimal amount of procedural unconscionability coupled with the lack of substantive unconscionability, is not sufficient to render the arbitration agreement invalid. In other words, the arbitration agreement is valid and enforceable.

Action is stayed and an OSC Re status of arbitration and/or dismissal is set for February 22, 2023, at 8:30 a.m. in Dept. 51.

[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.4^th 217, 229.)

[2]It should be noted Felisilda explicitly rejected the holdings of Kramer v Toyota Motor Corp (2013) 705 F.3d 1122.