Judge William A. Crowfoot, Case 22AHCV00653 2023-05-05 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00653, Date: 2023-05-05 Tentative Ruling

On September 7, 2022, plaintiff Rebeca Perez (“Plaintiff”) filed this action against defendant Nissan North America, Inc. (“Defendant”) for violations of the Song-Beverly Consumer Warranty Act (“SBA”) and fraudulent concealment. Plaintiff alleges that on November 5, 2021, she purchased a 2020 Nissan Sentra (the “Vehicle”) and that these causes of action arise out of Defendant’s warranty and repair obligations and failure to disclose a defect with the Forward Emergency Braking (“FEB”) system.

On October 11, 2022, Defendant filed an Answer. On March 28, 2023, Defendant filed this motion to compel arbitration and stay proceedings. Defendant argues that Plaintiff’s claims related to the Vehicle must be arbitrated pursuant to the Retail Installment Sale Contract (“RISC”) that she entered into when she purchased the Vehicle. Defendant argues it can compel this action into arbitration because: (1) the RISC contains a valid and enforceable arbitration provision (“Arbitration Provision”), (2) Defendant may enforce the Arbitration Provision pursuant to the doctrine of equitable estoppel, and (3) Defendant may enforce the Arbitration Provision as a third-party beneficiary.

Plaintiff filed an opposition brief on April 24, 2023 arguing that: (1) Defendant waived any right to compel arbitration, (2) Defendant is not a third-party beneficiary, and (3) Defendant may not rely on equitable estoppel.

On April 28, 2023, Defendant filed a document captioned “Defendant Nissan North America, Inc.’s Opposition to Plaintiff’s Motion to Compel the Deposition of Defendant’s Person Most Knowledgeable and Production of Documents.” The body of the brief contained Defendant’s reply arguments, although the erroneous title (which was repeated in the footer and recorded on the docket) almost caused the Court to overlook the document. The reply brief also violates CRC Rule 3.1113 because it exceeds the 10-page limit and Defendant failed to obtain leave of court through an ex parte application showing why a longer memorandum is needed. The Court exercises its discretion to consider these additional pages this time, but warns Defendant that in the future, the Court may refuse to consider any arguments made in pages that exceed the page limit without leave.

Plaintiff requests the Court judicially notice the opinions issued in Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (Ochoa) and Ngo v. BMW of North America, LLC et al. (9th Cir. 2022) 23 F.4th 942. Plaintiff’s request for judicial notice is GRANTED. (Evid. Code, § 451, subd. (a) [court shall take judicial notice of the law of this state and of the United States].)

Plaintiff objects on multiple grounds to the copy of the RISC attached to the declaration of Anora Abramova. The objection is OVERRULED.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.) The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.)

Defendant argues that the RISC has an arbitration provision and is governed by the FAA. The RISC identifies Plaintiff as the buyer (“Buyer”) and refers to Plaintiff as “You” while identifying non-party Nissan of Duarte as “Seller-Creditor” and referring to it as “we” or “us.” (Abramova Decl., Ex. B, p. 1.) A box in the lower right hand corner of the RISC states:

Agreement to Arbitrate: By signing below, you agree that, pursuant to the Arbitration Provision on page 7 of this contract, you or we may elect to resolve any dispute by neutral, binding arbitration and not by a coutaction. See the Arbitration provision for additional information concerning the agreement to arbitrate.

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

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. 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.”

Plaintiff does not dispute that the RISC contains an Arbitration Provision or that the FAA applies to the RISC. Instead, the parties disagree on whether federal court cases are controlling authority. Defendant argues that this court should disregard federal court cases because state law is used to determine whether a valid agreement exists. (Motion, 17:9-19; Reply, 6:26-7:13.) In contrast, Plaintiff argues that the Arbitration Provision renders federal court cases binding because it states: “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.” (Opp., 2:167-3:5.)

The Court does not adopt either party’s position. In response to Plaintiff, the Arbitration Provision’s language does not preclude the Court from considering California state court decisions. Further, the federal cases cited by Plaintiff still apply California law. As for Defendant, even if federal cases were not binding, the Court may still rely on them as persuasive authority. (McCann v. Lucky Money, Inc. (2005) 129 Cal.App.4th 1382, 1396 [federal opinion interpreting state law is not binding; rather the court may rely upon federal court opinions "for their cogent reasoning and persuasive value.”]. Accordingly, this Court takes both California and federal cases into consideration to deny this motion as more fully explained below.

One of Defendant’s arguments for compelling arbitration is based on the doctrine of equitable estoppel. (Motion at pp. 12-17.) Defendant primarily relies on Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 496-499 (Felisilda) and argues that this Court is obligated to follow Felisilda as the “better-reasoned decision.”

Generally, only a party to an arbitration agreement may enforce the agreement, but the doctrine of equitable estoppel is an exception that allows a non-signatory to enforce an agreement. (Felisilda, supra, 53 Cal.App.5th at p. 495.) Under the doctrine of equitable estoppel, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.)

The court in Felisilda examined a similar arbitration clause contained in a dealer’s sales contract: “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. . . .” (Felisilda, supra, 53 Cal.App.5th at p. 490.) The Felisilda court concluded that the equitable estoppel doctrine applied: “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].” (Id. at p. 497.)

Here, Plaintiff alleges that she received various warranties in connection with the purchase. (E.g., Complaint ¶ 7.) The court in Felisilda held that a similar allegation established that “the sales contract was the source of the warranties at the heart of this case.” (Felisilda, supra, 53 Cal.App.5th at p. 496.) However, on April 4, 2023, the Second Appellate District of the Court of Appeal issued a published decision in Ochoa that declined to follow Felisilda and instead determined that equitable estoppel did not apply because the defendants failed to show that the plaintiffs’ claims were founded in or intertwined with the sales contracts. The Ochoa court specifically relied upon Ngo v. BMW of North America (9th Cir. 2022) 23 F.4th 943 (Ngo) which involved the same arbitration provision upon similar circumstances and is applicable to this case as the FAA also governs the Arbitration Provision. (Ochoa, supra, 89 Cal.App.5th at pp. 1137-1140.)

This Court is inclined to follow the Ochoa court’s ruling. Like in Ochoa, Plaintiff’s claims here are “based on Defendant’s statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty, not on any express contractual language in the sale contracts.” (Ochoa, supra, 89 Cal.App.5th at p. 1335.) Defendant’s warranties are also not “founded in or intimately connected with the obligations of the [RISC].” (Goldman, supra, 173 Cal.App.4th at pp. 218-219.) Defendant would still be held to its express warranties if Plaintiff had paid in cash for her Vehicle instead of choosing to finance the transaction with the dealership. Additionally, the RISC does not have any effect on Defendant’s warranties and the dealership “makes no warranties, express or implied, on the vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose.” (Abramova Decl., Ex. B, p. 5, § 4 [“This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.”])

The Ochoa court also disagreed with the Felisilda court’s interpretation of the sale contract as broadly calling for arbitration of claims against third party nonsignatories. (Ochoa, supra, 89 Cal.App.5th at pp. 1333-1335.) Instead, Ochoa clearly distinguishes between (1) the parties to the claims or disputes (here, “you and us or our employees, agents, successors or assigns”), and (2) the subject matters of the claims or disputes (e.g., arising out of or relating to “any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract”). (See id. at pp. 1134-1135.) Thus, if there was a dispute between Plaintiff and the dealership that arose out of or related to a resulting transaction or relationship with a third party, then Plaintiff and the dealership would arbitrate that dispute. But based on the Arbitration Provision’s language and Ochoa’s clear interpretation thereof, there is no agreement requiring Plaintiff to arbitrate a claim or dispute between himself and a non-signatory third-party such as Defendant.

Defendant argues in its reply brief that Felisilda is the “better-reasoned decision” because Ochoa is based on “brief out-of-context statements in 1963 opinions by the California Supreme Court in Greenman v. Yuba Power Products (1963) 59 Cal.2d 57 (Greenman) and by the Court of Appeal in Corporation of Presiding Bishop of Church of Jesus Christ of Latter Day Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514 (Cavanaugh). (Reply, p. 11.) Defendant complains that Greenman and Cavanaugh are inapposite because the warranty at issue in Greenman “was not one governed by the law of contract, but one governed ‘by the law of strict liability in tort’, and Cavanaugh involved an express warranty arising out of the sale by the manufacturer to the installer of a heating system rather than to the plaintiff who contracted for the installation. (Reply, 13:6-23.) Additionally, Defendant argues that several cases published after the SBA was enacted in 1970 “consistently make clear that warranties are part of sales contracts.” (Reply, 13:2-5.) After reviewing them, the Court concludes that even if they are more recent, they are not more persuasive than Greenman or Cavanaugh. An appellate decision is not authority for everything said in the court's opinion but only "for the points actually involved and actually decided." (Santisas v. Goodin (1998) 17 Cal.4th 599, 620 [citing Childers v. Childers (1946) 74 Cal.App.2d 56, 61]; Wilshire Ins. Co. v. Tuff Boy Holding, Inc. (2001) 86 Cal.App.4th 627, 639 [“Cases are not authority for propositions not considered or decided [citing Santisas].”)

In Hauter v. Zogarts (1975) 14 Cal.3d 104, 114-115, the California Supreme Court analyzed warranties in the context of whether a defendant could escape liability by “impliedly limiting the scope of their promise.” The Hauter court quoted a comment from the UCC to acknowledge that a change in the law of warranties because a plaintiff was no longer required to prove that they relied on a seller’s statements. (Id. at p. 115.) But the court also stated that it was “not called upon in this case to resolve the reliance issue.” (Ibid.) Instead, the Hauter court ultimately concluded that the “defendants' liability for an implied warranty does not depend upon any specific conduct or promise on their part, but instead turns upon whether their product is merchantable under the [Uniform Commercial Code].”

- In Gavaldon v. DaimlerChrysler Corp. (2004) 32 Cal. 4th 1246, the California Supreme Court was deciding whether a service contract was distinct from an express warranty for purposes of determining a plaintiff’s remedies under the SBA. It considered the SBA’s usage of the terms “express warranty” and “service contract” to conclude that they are “distinct entities” and intended to be mutually exclusive (Id. at p. 1256.)

- In Windham at Carmel Mountain Ranch Assn v. Superior Ct. (2003) 109 Cal.App.4th 1162, the court only held that the plaintiff had the requisite privity of contract with the defendant construction companies to bring an action for breach of implied warranty.

- In Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1200 held that an employee adequately stated a claim for breach of implied warranty by being employed by companies that were in privity with the defendant chemical manufacturers.

- In A.A. Baxter Corp. v. Colt Industries, Inc. (1970) 10 Cal.App.3d 144, 153, the issue before the appellate court was one of whether the theory of warranty as to the time of delivery gave rise to a theory of negligent misrepresentation.¿¿

Therefore, Defendant’s attempt to discredit the Ochoa court’s analysis is not well-taken.

There is no horizontal stare decisis in the California Court of Appeal and this Court can choose to either continue to follow Felisilda or instead adopt Ochoa’s reasoning. (Sarti v. Salt Creek Ltd. (2008) 167 Cal.App.4th 1187, 1193.) This court chooses to adopt Ochoa based on the Ochoa court’s detailed examination of an identical arbitration provision. Furthermore, “as a practical matter, a superior court ordinarily will follow an appellate opinion emanating from its own district even though it is not bound to do so. Superior courts in other appellate districts may pick and choose between conflicting lines of authority. This dilemma will endure until the Supreme Court resolves the conflict, or the Legislature clears up the uncertainty by legislation.” (McCallum v. McCallum (1987) 190 Cal.3d 309, 315, n. 4.) Ochoa was decided by the Court of Appeal of California, Second Appellate District and Felisilda was decided by the Court of Appeal of California, Third Appellate District. This court belongs to the Second Appellate District. Therefore, for practical reasons, as well as the extensive substantive reasons articulated above, this Court decides to follow Ochoa instead of Felisilda.

The doctrine of equitable estoppel does not permit Defendant to compel arbitration.

Next, Defendant argues that it is entitled to enforce the Arbitration Provision as a third-party beneficiary. (Motion, 17:24-18:19.) A contract that is 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.) To establish that it is an intended, third-party beneficiary of the contract, Defendant must show "(1) whether [it] would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to [it], and (3) whether permitting [it] 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. All three elements must be satisfied to permit the third-party action to go forward." (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830 (Goonewardene). The effect of Civil Code section 1559 is "to exclude enforcement by persons who are only incidentally or remotely benefited.” (Goonewardene, supra, at p. 828.) There must be an intent or motivating purpose to benefit a third party “and not simply acknowledge that a benefit to the third party may follow from the contract.” (Id. at p. 830.)

Defendant fails to submit any evidence to demonstrate that it fufills the requirements set forth in Goonewardene and simply relies on Felisilda. However, as stated above, this Court declines to follow Felisilda. The Arbitration Provision includes language about third-parties which requires Plaintiff to to arbitrate “[a]ny claim or dispute, . . . 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). (Abramova Decl., Ex. B, p. 7.) As the Ochoa and Ngo courts concluded, this language does not indicate that Plaintiff and the dealership intended to benefit Defendant or grant Defendant the right to compel arbitration; it only identifies the types of disputes covered by the Arbitration Agreement. (Ochoa, supra, 89 Cal.App.5th at pp. 1334-1335.)

Therefore, Defendant has not shown that it is entitled to enforce the Arbitration Provision as a third-party beneficiary.

Because Defendant has not established that it has a right to compel Plaintiff to submit her claims to arbitration, Plaintiff’s argument based on waiver is moot.

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.