Judge William A. Crowfoot, Case Number: 22AHCV00459, Date: 2023-08-09 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00459, Date: 2023-08-09 Tentative Ruling

On July 13, 2022, plaintiff Catherine Amores Castillo (“Plaintiff”) filed this action against defendants Nissan North America, Inc. (“Defendant”) and Wish Automotive III, Inc. dba Nissan of Alhambra (“Nissan of Alhambra”). Plaintiff asserts causes of action against Defendant for violation of the Song-Beverly Act and fraudulent inducement relating to an allegedly defective emergency braking system for a 2020 Nissan Pathfinder purchased on March 24, 2021 (the “Vehicle”). Plaintiff asserts a cause of action for negligent repair against Nissan of Alhambra relating to the Vehicle. Nissan of Alhambra has not yet appeared in this action.

On March 6, 2023, this Court issued an order compelling the parties to arbitrate this matter (the “March 6 Order”). In reaching its conclusion, the Court relied on Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (Felisilda).

On June 6, 2023, Plaintiff filed this motion for reconsideration of the March 6 Order. Plaintiff’s motion is based on Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (Ochoa), issued on April 4, 2023, which declined to follow Felisilda. Plaintiff argues she is not limited to the statutory time limitations of Civil Procedure section 1008 because her motion is based on a change in law and the Court can reconsider its rulings on its own motion.

Defendant contends that the motion is untimely because it was made more than 10 days after the Court ordered this matter to arbitration. Defendant also argues that once the Court ordered the matter to arbitration, it lost jurisdiction. Defendant additionally argues that Ochoa is not a material or controlling change in law because it merely disagreed with Felisilda, which it contends is the better-reasoned decision.

On July 28, 2023, due to technical difficulties which prevented defense counsel from appearing at the hearing, the Court continued the hearing on this motion to August 9, 2023. On August 9, 2023, the Court continued the hearing again to allow the parties to submit supplemental briefs.

Defendant filed a supplemental opposition on August 16, 2023, and Plaintiff submitted a reply brief on August 23, 2023.

Defendant argues that the Court lacks jurisdiction to rule on this motion because: (1) the motion was filed more than 10 days after the Court ordered the matter to arbitration, and (2) the action has been submitted to arbitration and the court retains “merely vestigial jurisdiction” limited to confirming, correcting, or vacating an arbitration award. (Opp., pp. 3-4.)

A statutory motion for reconsideration requires that the motion be made 10 days from the date the order at issue is served. (Code Civ. Proc., § 1008.) However, the Court has discretion to reconsider an order on its own motion pursuant to subdivision (c) of section 1008 as well as its “constitutionally derived authority.” (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1096.) Therefore, section 1008 limits the parties' ability to file repetitive motions to reconsider but does not limit the court's ability to reconsider its prior interim orders to correct its own errors. (Id. at p. 1109.)

Furthermore, contrary to Defendant’s argument, the Court does not lose jurisdiction when it orders a matter to arbitration. While true that a case remains “in the twilight zone of abatement” once the matter is referred to arbitration and a stay is issued, the stay does not effect the ouster of the judicial power vested in the trial court. (Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 238 (Pinela).) Instead, a trial court has inherent power to revisit the foundational question of whether the parties are bound by a particular arbitration agreement. (Pinela at p. 238; Phillips v. Sprint PCS (2012) 209 Cal.App.4th 758, 768 [“Even without a change of law, a trial court may exercise its inherent jurisdiction to reconsider an interim ruling.”].)

Defendant’s case authority is distinguishable. In Byerly v. Sale (1988) 204 Cal.App.3d 1312, 1314 (Byerly), the court found that a trial court no longer had any reason to entertain the defendant’s motion to dismiss for exceeding the five-year limitation under Civil Procedure section 583.340 (c) since the action was stayed pending completion of arbitration, and it was impossible for the plaintiffs to bring the action to trial. Under those circumstances, and barring a stipulation not to arbitrate, “the judicial system’s future involvement should have been limited merely to confirming, correcting, or vacating any arbitration award.” (Id. at p. 1315.) Byerly did not consider whether the court’s referral of a matter to arbitration impaired its inherent right to reconsider its own order.

Therefore, based on the Court’s inherent authority, the Court reconsiders its order compelling this matter to arbitration.

“If a court at any time determines that there has been a change of law that warrants it to reconsider a prior order it entered, it may do so on its own motion and enter a different order.” (Code Civ. Proc., § 1008, subd. (c).) As “change of law” is not defined in Code of Civil Procedure section 1008, subdivision (c), the court has “very broad power” to determine if a change of law warrants an exercise of its discretion. (Farmers Ins. Exchange v. Superior Court (2013) 218 Cal.App.4th 96, 106 (Farmers Ins.).) In doing so, courts “may consider a number of factors in determining whether to exercise its discretion, including the importance of the change of law, the timing of the motion, and the circumstances of the case.” (Id., at p. 107.)

At the time Defendant made its motion to compel arbitration, Defendant relied on Felisilda and argued that under the theory of equitable estoppel and as a third-party beneficiary, the arbitration agreement in a retail sales contract between Plaintiff and the nonparty dealer allowed Defendant to force Plaintiff to arbitrate his claims. (Felisilda, supra, 53 Cal.App.5th at p. 495.) On April 4, 2023, however, Division Eight of the Second District Court of Appeal expressly disagreed with Felisilda and held in Ochoa that equitable estoppel did not apply because the sales contract was not the source of the manufacturer warranties at issue in the case. (Ochoa, supra, 89 Cal.App.5th at p. 1335.) Ochoa recognized the distinction between the parties with the power to elect arbitration (“You” and “Us”) as opposed to the scope or subject matter of arbitrable issues (disputes with third parties including non-signatories) and stated that the sales contract “could not be construed to bind the purchaser to arbitrate with the universe of unnamed third parties.” (Id. at p. at 1339 [“Who may enforce an arbitration agreement is a separate matter from the types of disputes the agreement covers.”].)

Additionally, on June 26, 2023, another division of the Second District Court of Appeal, Division Seven, rejected Felisilda in Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958. The appellate court affirmed the trial court’s order denying the defendant car manufacturer’s motion to compel arbitration of the plaintiffs’ express manufacturer’s warranty claims. The trial court judge granted the motion to compel arbitration only as to the implied warranty cause of action, severed the cause of action, and ordered the arbitration stayed pending resolution of the court action. (Montemayor, supra, 82 Cal.App.5th at p. 88, n. 5.) As in Felisilda, the car manufacturer argued that it was entitled to compel arbitration under the theory of equitable estoppel or as a third-party beneficiary because the plaintiffs’ claims “concern the condition of the vehicle” and the arbitration agreement referenced nonsignatory third parties. (Montemayor, supra, 92 Cal.App.5th at p. 92.) The Montemayor court cited Ochoa to differentiate between the subject matter of arbitrable claims and the parties entitled to elect arbitration. (Id. at p. 93.) The Montemayor court also rejected the manufacturer’s argument that the plaintiff’s claims were closely intertwined with the sales contract because without the sales contract, no warranty would have issued. (Ibid.) Instead, the Montemayor court stated that this argument “conflates the concept of ‘but-for’ causation with a determination whether the [plaintiffs]’ claims are founded on obligations imposed on [the manufacturer] under the sales contract.” (Ibid.)

Additionally, in Plaintiff’s supplemental reply brief, Plaintiff cites to another ruling issued by the Third Appellate District on August 16, 2023, in Kielar v. Superior Court (2023) 94 Cal.App.5th 614, which joined the Second Appellate District’s rejection of Felisilda and issued a preemptory writ of mandate compelling the trial court to vacate its order to arbitrate. The Kielar court found that the trial court incorrectly held that equitable estoppel allowed the car manufacturer to compel arbitration based on the buyer’s sales contract with the dealership.

Here, reconsideration is warranted based on these three recent appellate decisions. Also, although Defendant claims that “arbitration proceedings (though in an early stage) have commenced,” no evidence or description of those proceedings has been provided. (Opp., . 5.) Plaintiff’s counsel admits that on March 14, 2023, they sent a letter to defense counsel demanding that Defendant submit the matter for arbitration immediately, but Defense counsel only declares that on May 8, 2022, two months after the Court’s initial order granting its motion to compel arbitration, Defendant paid $621 to initiate a demand for arbitration to the American Arbitration Association, (Do Decl., ¶ 4.) This correspondence is insufficient to establish Plaintiff’s intent to proceed in an arbitral forum and only shows an intent to resolve any dispute without delay. (Supp. Reply, p. 3.)

Considering the lack of evidence concerning the progress of any arbitration proceedings, the recent significant changes to existing case law, and no showing of significant prejudice, the Court exercises its discretion to reconsider its March 6 Order.

C. Defendant may not compel arbitration under the theory of equitable estoppel or as a third-party beneficiary.

The Court considers the analyses in Ochoa, Montemayor, and Kielar more persuasive than Felisilda because they address the issues presented in the underlying motion to compel arbitration more succinctly and within the same context. As in these three cases, Defendant’s motion relied on a sales contract provision that identifies the scope of arbitrable matters including claims arising from any resulting relationship with third parties. (Memo. filed 11/2/22, 12:11-16:11.) And, like in these three cases, the sales contract also specifically disclaims any warranty on the part of the dealer while acknowledging no effect on any warranties covering the vehicle that the vehicle manufacturer may provide, instead, the substantive terms of the sale contracts relate to sale and financing. (Do Decl. filed 11/2/2022, Ex. A, p. 4.) Therefore, equitable estoppel does not apply.

In addition, Defendant has not established that it can enforce the contract as a third-party beneficiary. A contract made expressly for the benefit of a third person, “may be enforced by him at any time before the parties thereto rescind it.” (Civ. Code, § 1559). Persons who are “only incidentally or remotely benefited by it" are excluded. (Lake Almanor Associates L.P. v. Huffman-Broadway Group, Inc. (2009) 178 Cal.App.4th 1194, 1199.) In considering whether a person is an intended third-party beneficiary of a contract, the court must consider: (1) whether they would in fact benefit from the contract, (2) whether a motivating purpose of the contracting parties was to provide a benefit to them, and (3) whether permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

The mere mention of third parties in the provision governing scope does not establish that the sales contract’s motivating purpose or intent was to benefit Defendant. (Ochoa, supra, 89 Cal.App.5th at pp. 1338-1339.) Instead, the “motivating purpose” of the contract was to finance the vehicle with the dealer; it was not made expressly for the benefit of a third person. (Do Decl, Ex. A, p. 1 [“By signing this contract, you choose to buy the vehicle on credit under the agreements on the front and back of this contract.”]) Therefore, Defendant has not established that it can invoke the arbitration provision as a third-party beneficiary.

Based on the foregoing, Plaintiff’s motion for reconsideration is GRANTED. The Court vacates its order issued on March 6, 2023, granting Defendant’s motion to compel arbitration and issues an order DENYING Defendant’s motion instead. The Court also schedules a trial setting conference for _______ at 8:30 a.m. in Department 3 of the Alhambra Courthouse.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.