Judge William A. Crowfoot, Case 22AHCV00499 2023-03-02 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00499, Date: 2023-03-02 Tentative Ruling

On July 22, 2022, plaintiff Antonio Cruz (“Plaintiff”) filed this action against defendants Nissan North America, Inc. (“NNA”) and Martin Motors of El Monte, Inc. dba El Monte Nissan for (“El Monte Nissan”) (collectively, “Defendants”). Plaintiff alleges that on September 9, 2020, he purchased a new 2020 Nissan Kicks (the “Vehicle”) with a defective continuously variable transmission (“CVT”). Plaintiff asserts causes of action for violations of the Song-Beverly Act, intentional misrepresentation, and fraudulent concealment against NNA. Plaintiff asserts a cause of action for negligent repair against El Monte Nissan.

On August 29, 2022, NNA filed an answer to Plaintiff’s complaint. On September 12, 2022, El Monte Nissan filed an answer to Plaintiff’s complaint.

On January 26, 2023, Defendants filed a joint motion for an order compelling arbitration and staying proceedings. On February 16, 2023, Plaintiff filed an opposition brief, declaration, and evidentiary objections on February 14, 2023. On February 23, 2023, Defendants filed a reply brief.

Defendants move for an order compelling Plaintiff to arbitrate his claims related to his Vehicle pursuant to the Retail Installment Sale Contract (“RISC”) that Plaintiff entered into on September 9, 2020 with non-party Nissan of Duarte when he purchased the Vehicle. Defendants argue that the RISC contains a valid and enforceable arbitration provision and that Plaintiff is obligated to arbitrate his claims which arise out of and relate to the RISC. Defendants also argue that they may enforce the provision pursuant to the doctrine of equitable estoppel and as a third-party beneficiary.

When seeking to compel arbitration, the initial burden lies with the moving party to demonstrate the existence of a valid arbitration agreement by a preponderance of evidence.¿ (Ruiz v. Moss Bros. Auto Group (2014) 232 Cal.App.4th 836, 841-42; Gamboa v. Northeast Community Clinic (2021), 72 Cal.App.5th 158, 164-65.)¿ It is sufficient for the moving party to produce a copy of the arbitration agreement or set forth the agreement’s provisions.¿ (Gamboa, 72 Cal.App.5th at p. 165.)¿ The burden then shifts to the opposing party to prove by a preponderance of evidence any defense to enforcement of the contract or the arbitration clause.¿ (Ruiz, 232 Cal.App.4th at p. 842; Gamboa, 72 Cal.App.5th at p. 165.) The trial court then weighs all the evidence submitted and uses its discretion to make a final determination.¿ (Ibid.)¿ “California law, like [federal law], reflects a strong policy favoring arbitration agreements[.]”¿ (Wagner Const. Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 31 (internal quotations omitted).)

If the court orders arbitration, then the court shall stay the action until arbitration is completed.¿ (See Code Civ. Proc., § 1281.4.)

Defendants allege that the RISC, attached as Exhibit 1 to the Declaration of David Polyakov, contains an enforceable arbitration agreement. The relevant text states:

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.

...Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not any state law concerning arbitration....

The Court notes that Plaintiff objects to Exhibit 1 on the grounds of hearsay, authentication, foundation, and speculation. However, once Defendants allege that an arbitration agreement exists, the burden shifts to Plaintiff to prove the falsity of the purported agreement, and no evidence or authentication is required to find the arbitration agreement exists. (See Condee v. Longwood Mgt. Corp. (2001) 88 Cal.App.4th 215, 219.)

Defendants allege that an arbitration agreement exists within the RISC. Plaintiff does not dispute that the RISC and arbitration agreement exists but argues that Defendants cannot enforce the arbitration agreement because they are not signatories to the agreement and the doctrine of equitable estoppel does not apply.

Citing to Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 496-499, Defendants invoke the doctrine of equitable estoppel by contending that Plaintiff’s claims arise from the RISC and are inextricably entwined with his purchase of the Vehicle. (Mot., pp.6-7.) The Court agrees. In Felisilda, the Court of Appeal examined an identical arbitration clause which stated in pertinent part: “[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, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall … be resolved by neutral, binding arbitration and not by a court action.” The appellate court found that the equitable estoppel doctrine applied: “The [buyers’] claim against [the manufacturer] 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 [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 [the manufacturer].” (Felisilda, 53 Cal.App.5th. at pp. 496-497.)

Here, Plaintiff claims his causes of action “arise from warranty obligations of [NNA] in connection with a vehicle Plaintiff purchased by [Plaintiff] and for which [NNA] issued written warranties” and that there was a
“transaction which resulted from misinterpretations and concealment of material facts [that] occurred in Duarte, County of Los Angeles, California.” (RJN, Ex. 1, ¶¶ 4-5; see Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189 (noting that “arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question”).) Although Plaintiff claims the warranty was not issued by the selling dealership, this does not change the fact that Plaintiff’s claims relate to the purchase and condition of the Vehicle.

Furthermore, the arbitration provision in question is not materially different from the one examined in Felisilda. In this case, like the buyers’ claims in Felisilda, Plaintiff’s claims against Defendants “directly relate[] to the condition of the vehicle that [allegedly] violated warranties [Plaintiff] received as a consequence of the sales contract.” (Felisilda, supra, at p. 497.) Because Plaintiff “expressly agreed to arbitrate claims arising out of the condition of the vehicle — even against third party nonsignatories to the sales contract — [Plaintiff is] estopped from refusing to arbitrate their claim against [Defendants].” (Ibid.)

In addition, the Court finds Plaintiff’s reliance on federal authorities that reach a contrary conclusion unpersuasive. (See, e.g., Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942.) Plaintiff argues that Felisilda is distinguishable because the buyers in that case brought claims against both the dealership and manufacturer whereas here the claims are brought solely against the manufacturer. This is a distinction without a meaningful difference. The reasoning in Felisilda for upholding the equitable estoppel finding was that the buyers’ claims related to the condition of the subject vehicle and the buyers expressly agreed to arbitrate their claims arising out of the condition of the subject vehicle, including those against third party nonsignatories to the sales contract. This same finding has been made here.

An agreement to arbitrate may be stricken on the same grounds as exist for the revocation of any contract. (Code of Civil Procedure § 1281.) “[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.) The more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa. (Id. at p. 114.) The plaintiff bears the burden of proving that the provision at issue is both procedurally and substantively unconscionable.

“Procedural unconscionability focuses on the elements of oppression and surprise. [Citations] ‘Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice . . . Surprise involves the extent to which the terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.’ [Citations]” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.)

Plaintiff argues that the arbitration agreement is procedurally unconscionable because: (1) it was presented on a “take it or leave it” basis; and (2) Plaintiff had no meaningful bargaining power and was essentially forced to waive their statutory rights under the Song-Beverly Act. Plaintiff submitted no evidence relating to the specific circumstances surrounding the signing of the arbitration agreement; however, based upon a review of the RISC, the evidence suggests the arbitration agreement is an ordinary contract of adhesion in the context of Plaintiff’s purchase of the subject vehicle that does not involve any surprises or sharp practices, and as such contains, at most, a degree of procedural unconscionability. (See Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1244 [“[T]here are degrees of procedural unconscionability. At one end of the spectrum are contracts that have been freely negotiated by roughly equal parties, in which there is no procedural unconscionability. . . . Contracts of adhesion that involve surprise or other sharp practices lie on the other end of the spectrum. [Citation.] Ordinary contracts of adhesion, although they are indispensable facts of modern life that are generally enforced, contain a degree of procedural unconscionability even without any notable surprises, and ‘bear within them the clear danger of oppression and overreaching.’”].)

Based on the foregoing, the Court finds the arbitration agreement is at most minimally procedurally unconscionable. Furthermore, as discussed below, the Court finds the arbitration agreement is not substantively unconscionable.

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results’ [Citations] that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation] Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided’ in favor of the employer without sufficient justification, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.’ [Citations]” (Roman, supra, 172 Cal.App.4th at pp. 1469-1470.)

Plaintiff argues that the agreement is substantively unconscionable because it includes provisions that directly contradict with the Song-Beverly Act, and as such, are unenforceable. (Opp., p. 17.) Specifically, Plaintiff takes issue with provisions that provide that: (1) the agreement allows for a choice of arbitrator but only so long as the selling dealer or creditor approves the choice, (2) the agreement deprives Plaintiffs of their fundamental and constitutional right to a jury trial, and (3) the agreement contains a fee-shifting provision onto Plaintiff that is incompatible with the Song-Beverly Act as it requires the dealer to only pay up to a maximum of $5,000, which is routinely exceeded in private arbitrations. (Opp., p. 17.) Plaintiff cites to the Song-Beverly provision that, “any waiver by the buyer of consumer goods of the provisions of this chapter . . . shall be deemed contrary to public policy and shall be unenforceable and void.” (Civil Code §1790.1.) However, the RISC states the parties shall be responsible for their own attorneys’ fees and costs “unless awarded by the arbitrator under applicable law,” which is inclusive of Plaintiff’s rights under the Song-Beverly Act. (Polyakov Decl., Exh. 1. at p. 7.) Based on the evidence before the Court, the terms of the arbitration agreement do not create overly harsh or one-sided results, satisfying the requirements for a substantively conscionable agreement. (Armendariz, supra, 24 Cal.4th at pgs. 101-113.)

The motion to compel arbitration and stay action is GRANTED. The case is ordered stayed pending binding arbitration as to the entire action.

A Post-Arbitration Status Conference is scheduled for _______ at 08:30 AM in Department 3 at Alhambra Courthouse.

The parties are ordered to file a joint report regarding the status of the arbitration by _________.

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.

William A. Crowfoot

Judge of the Superior Court