Judge Yolanda Orozco, Case 22STCV28663 2023-01-05 Tentative Ruling

Judge: Yolanda Orozco, Case: 22STCV28663, Date: 2023-01-05 Tentative Ruling

Case Number: 22STCV28663 Hearing Date: January 5, 2023 Dept: 31

MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS IS GRANTED

Background

On September 02, 2022, Plaintiff Mario Sanchez filed a Complaint again Defendant Nissan North America (“Nissan”) for Breach of the Implied Warranty of Merchantability and Breach of Express Warranty under the Song-Beverly Act.

On November 28, 2022, Nissan filed a Motion to Compel Arbitration and Stay Proceedings.

Plaintiff filed opposing papers on December 22, 2022. Nissan filed a reply on September 29, 2022.

Legal Standard

Parties may be compelled to arbitrate a dispute upon the court finding that: (1) there was a valid agreement to arbitrate between the parties; and (2) said agreement covers the controversy or controversies in the parties’ dispute.¿(Code Civ. Proc., § 1281.2; Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.) ¿

A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court¿(1998) 62 Cal.App.4th 348, 356-57.)¿

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.4.)

Request for Judicial Notice

The Court may take judicial notice of records of any court of record of the United States. (Evid. Code, § 452(d)(2).) However, the court may only judicially notice the existence of the record, not that its contents are the truth. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565.)

Defendant Nissan request Judicial Notice of the following:

1. Complaint for Damages, filed in Los Angeles County Superior Court by Plaintiff on September 2, 2022, in the matter of Mario Sanchez v. Nissan North America, Inc. (Case No. 22STCV28663), a true and correct copy of which is attached to this request as EXHIBIT 1.

2. Answer to Plaintiff’s Complaint, filed in Los Angeles County Superior Court by Nissan on October 10, 2022, in the matter of Mario Sanchez v. Nissan North America, Inc. (Case No. 22STCV28663), a true and correct copy of which is attached to this request as EXHIBIT 2.

3. Notice of Entry of Dismissal and Proof of Service, filed in Sacramento County Superior Court by Plaintiffs Dina C. Felisilda and Pastor O. Felisilda on February 11, 2016 in the matter of Dina C. Felisilda, et al, v. FCA US LLC, et al. (34-2015-00183668), a true and correct copy of which is attached to this request as EXHIBIT 3.

Defendant Nissan’s request for Judicial Notice is GRANTED.

Evidentiary Objections (if applicable)

Plaintiff submits Evidentiary Objections to the Declaration of Nicholas S. Maugeri II in Support of Defendant’s Motion to Compel Arbitration and Stay of Proceedings.

Objections Nos. 1 and 2 are SUSTAINED.

Discussion

Defendant Nissan moves for an Order to compel arbitration and stay proceedings based on the “Retail Installment Sale Contract” (“Sales Contract”) Plaintiff signed when he purchased a new 2022 Nissan Altima (the “subject vehicle”) on December 13, 2021.

Nissan asserts that the Sales Contract contained an arbitration provision, which Plaintiff signed, and that Nissan as a non-signatory to the Sales Contract may compel arbitration under the Doctrine of Equitable Estoppel or as a Third-Party Beneficiary under the Sales Contract.

Burdens of the Parties Regarding the Existence of an Arbitration Agreement

To establish a valid agreement to arbitrate disputes, “[t]he petitioner bears the burden of proving the existence of a valid arbitration agreement by [a] preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.)

The initial burden of proving the existence of an arbitration agreement is on Nissan which can meet this initial burden by attaching to the motion or the petition a copy of the arbitration agreement purporting to bear the opposing party’s signature. (Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 541-543 [“The party seeking arbitration can meet its initial burden by attaching to the petition a copy of the arbitration agreement purporting to bear the respondent's signature.”].) Alternatively, the moving party can meet its initial burden by setting forth the agreement’s provisions in the motion. (See Cal. Rules of Court, rule 3.1330; see also Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.)

Nissan has met its initial burden by attaching a copy of the Sales Contract, which includes the arbitration provision and purports to bear Plaintiff’s signature. (Maugeri II. Decl. Ex. 4.)

The title of the Sales Contract is: “Retail Installment Sale Contract Simple Finance Charge (With Arbitration Provision).” (Id. [bold and capitalization in original].) Plaintiff is also purported to have affixed his signature to a separately outlined box titled “Agreement to Arbitrate” alerting to the arbitration provision in the Sales Contract. (Id. [bold in original].) Nissan also states verbatim the provision of the arbitration provision.

The arbitration provision also contains a Delegation Clause that 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.”

(Maugeri II. Decl. Ex. 4.)

The arbitration provision also states that the Federal Arbitration Act (FAA) governs the Sales Contract:

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

(Maugeri II. Decl. Ex. 4.)

“It follows that when an agreement provides that its ‘enforcement’ shall be governed by the FAA, the FAA governs a party's motion to compel arbitration.” (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 346.) Accordingly, the Court agrees that the FAA governs the agreement.

Plaintiff’s initial opposition to this Motion is that the Sales Contract has not been properly authenticated. Although the Court agrees, the authenticity of an arbitration agreement is not an initial consideration of the court for the Court until it is challenged by the opposing party.

“For purposes of a petition to compel arbitration, it is not necessary to follow the normal procedures of document authentication. ‘[T]he court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists....’ (§ 1281.2) The statute does not require the petitioner to introduce the agreement into evidence. A plain reading of the statute indicates that as a preliminary matter the court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity.”

(Condee, supra, 88 Cal.App.4th at 218–219.)

“If the moving party meets its initial prima facie burden and the opposing party disputes the agreement, then in the second step, the opposing party bears the burden of producing evidence to challenge the authenticity of the agreement.” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165.) “If the opposing party meets its burden of producing evidence, then in the third step, the moving party must establish with admissible evidence a valid arbitration agreement between the parties. The burden of proving the agreement by a preponderance of the evidence remains with the moving party. (Id. at 72 Cal.App.5th 158, 165–166.)

Since Nissan has satisfied its initial burden, the burden shifts to Plaintiff to challenge the authenticity of the Sales Contract and its arbitration provision. It is not enough for Plaintiff to raise evidentiary objections to the authenticity of the Sales Contract. The Plaintiff must set forth evidence, such as a declaration, challenging the authenticity of the Sales Contract. Here, Plaintiff has not introduced any evidence challenging the authenticity of the Sales Contract and its arbitration provision or the fact that Plaintiff signed the Sales Contract and agreed to the arbitration provision. Since Plaintiff failed to meet its burden, Nissan need not introduce evidence authenticating the Sales Contract.

Therefore, Nissan has met its burden of showing that a valid and enforceable arbitration agreement exists.

Nissan’s Standing to Enforce the Contract

Before the Court can order the parties to arbitrate, the Court must determine that an agreement to arbitrate exists between Nissan and Plaintiff and that Nissan has standing to compel arbitration under the Sales Contract, including any delegation clause in the arbitration provision. Nissan asserts that it has standing to enforce arbitration under the Doctrine of Equitable Estoppel and as a Third Party Beneficiary.

1. Equitable Estoppel

“A nonsignatory plaintiff can be compelled to arbitrate a claim even against a nonsignatory defendant, when the claim is itself based on, or inextricably intertwined with, the contract containing the arbitration clause.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1241.) 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, 218-19.) A nonsignatory seeking to enforce an arbitration agreement has the burden to establish at least one of these circumstances applies. (Jones v. Jacobson¿(2011) 195 Cal.App.4th 1, 16.)

Plaintiff argues that no agreement to arbitrate exists between Plaintiff and Defendant because Nissan did not sign the Sale Contract and is not a party to the transaction. Moreover, Plaintiff asserts that the Doctrine of Equitable Estoppel does not apply.

Plaintiff relies on Ngo v. BMW of North America, LLC¿(9th Cir. 2022) for the proposition that Plaintiff’s claims under the Song-Beverly Act are not inextricably intertwined with the terms of the Sales Contract. (See Ngo v. BMW of North America, LLC¿(9th Cir. 2022) 23 F.4th 942.) The Ninth Circuit Court reasoned that BMW’s obligations under the Song-Beverly Act arose independently from the purchase agreement.) (Id. at 949 [“BMW is mistaken that, under the Song-Beverley and the Magnuson-Moss Warranty Acts, Ngo's claims are inextricably intertwined with terms of the purchase agreement.]”.) Although Ngo is persuasive, it is not binding on this Court.

The Court of Appeal reached a different conclusion in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486.

In Felisilda, the plaintiffs purchased a car from a dealership and signed a purchase agreement containing an arbitration provision, and unlike the plaintiff in Ngo, the Felisilda plaintiffs later sued both the dealership and the manufacturer for violations of the Song-Beverly Act; the latter of which had not signed the purchase agreement. (Felisilda, supra, (2020) 53 Cal.App.5th 486, 490.) The dealership moved to compel arbitration, and the trial court ordered the plaintiffs to arbitrate their claims with both the dealer and the manufacturer. (Id. at 491.) The plaintiffs subsequently dismissed the dealership from the action. (Id.)

In determining that the manufacturer as a nonsignatory of the arbitration agreement could enforce arbitration under the theory of equitable estoppel, the court looked to the facts of the operative complaint. (Felisilda, supra, 53 Cal.App.5th at 496; see also Goldman, supra, 173 Cal.App.4th at 219.) The Appeal Court found the plaintiffs’ complaint demonstrated that the sales contract was the source of the warranties that gave rise to the plaintiffs’ claims against the manufacturer and that the warranties related to the condition of the vehicle. (Id. at 496-497.) Ultimately, the Appeal Court held that “[b]ecause the [plaintiffs] expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party non-signatories to the sales contract – they are estopped from refusing to arbitrate their claim against [the defendant]. Consequently, the trial court properly ordered the [plaintiffs] to arbitrate their claim against [the defendant].” (Id. at p. 497.)

The Ninth Circuit distinguished the outcome in Felisilda on procedural grounds because in Felisilda, “it was the dealership—a signatory to the purchase agreement—that moved to compel arbitration rather than the non-signatory manufacturer.” (Ngo, supra, 23 F.4th at 950.) “Furthermore, the Felisildas dismissed the dealership only after the court granted the motion to compel arbitration. Accordingly, Felisilda does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own. We therefore decline to affirm on the ground of equitable estoppel.” (Id. [italics original].)

It is irrelevant to the equitable doctrine inquiry whether Plaintiff includes a signatory to the Sales Contract in the lawsuit. (See e.g., Franklin v. Cmty. Reg’l Med. Ctr. (9th Cir. 2021) 998 F.3d 867, 875.) “In matters of equity, such as the application of equitable estoppel, it is the substance of the plaintiff’s claim that counts, not the form of its pleading.” (Id.) In other words, it makes no difference that Plaintiff did not also sue the dealership from whom he purchased the subject vehicle.

Courts examine the facts alleged in the operative complaint to determine whether equitable estoppel applies. (Goldman, supra, 173 Cal.App.4th at 229–30.) The Court will examine the operative Complaint to determine if Plaintiff’s claims are “based on, or inextricably intertwined with, the contract containing the arbitration clause.” (JSM Tuscany, LLC, supra, 193 Cal.App.4th 1222, 1241.) Plaintiff Complaint alleges that its claims against Nissan arose due to the written, express, and implied warranties that came with the new purchase of the subject vehicle including the New Vehicle Limited Warranty. (Compl. ¶¶ 6-8.) Furthermore, Plaintiff’s Complaint for Breach of Express Warranty and the Implied Warranty of Merchantability under the Song-Beverly Act pertain to the “purchase or condition of the vehicle,” and are therefore claims that fall under the purview the arbitration provision in the Sales Contract. (See Maugeri II. Decl. Ex. 4.)

The Court also agrees that the warranties that give rise to Plaintiff’s claims against Nissan arise from the Sales Contract. Standing under the Song-Beverly Act is limited to a “buyer of consumer goods” (Civ. Code § 1794(a)), which the Song-Beverly Act defines as “any individual who buys consumer goods from a person engaged in the business of manufacturing, distributing, or selling consumer goods at retail.” (Civ. Code § 1791(b).) Without a sales contract, a plaintiff cannot meet the standing requirements for a warranty claim. (See Jones v. ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 2001.)

“A warranty is a contractual term concerning some aspect of the sale, such as title to the goods, or their quality or quantity.” (Jones, supra, 198 Cal.App.4th at 1200 [emphasis added].) “A warranty is as much one of the elements of sale and as much a part of the contract of sale as any other portion of the contract and is not a mere collateral undertaking.” (A.A. Baxter Corp. v. Colt Industries, Inc. (1970) 10 Cal.App.3d 144, 153.) To this point, in reviewing the Song-Beverly Act’s legislative history, the California Supreme Court has noted that “the Legislature apparently conceived of an express warranty as being part of the purchase of a consumer product.” (Gavaldon v. DaimlerChrysler Corp. (2004) 32 Cal.4th 1246, 1258)

Moreover, the Sales Contract is governed by California’s Uniform Commercial Code, which treats warranties as contractual terms. (See Cal. U. Com. Code, § 2314, subd. (1) [“a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind”]; C9 Ventures v. SVC-West, L.P. (2012) 202 Cal.App.4th 1483, 1493 [sales of goods, such as automobiles, are governed by California’s Uniform Commercial Code]; Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 642 [applying California Uniform Commercial Code section 2725 as a statute of limitations for Song-Beverly warranty claims because it “governs breach of warranty claims arising from the sale of goods”]. Moreover, Plaintiff’s remedies are also related to and intertwined with the Sales Contract because Plaintiff seeks to cancel the sale and reimbursement of the total amount paid. (Compl. ¶¶ 20, 32.)

For this reason, the Court finds that Plaintiff’s claims against Nissan are “intimately founded in and intertwined” with the Sales Contract. Without the warranties that accompanied the Sales Contract, Plaintiff could not bring a cause of action against Nissan because Nissan would not have made any warranties to Plaintiff. “[T]he lynchpin for equitable estoppel is equity-fairness.” (Goldman, supra, 173 Cal.App.4th at 218–19.) Both precedent and equity require that Plaintiff be estopped from refusing to arbitrate his claims against Nissan.

Accordingly, Nissan has standing under the Doctrine of Equitable Estoppel to enforce the arbitration provision in the Sales Contract.

2. Third-Party Beneficiary

Nissan may also enforce the Arbitration Provision as a third-party beneficiary. (See Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 839 [holding that an arbitration provision can be enforced by a third-party beneficiary even when its name does not appear in the agreement].) To permit a third-party action to go forward, three factors must be established: (1) the third party would in fact benefit from the contract; (2) a motivating purpose of the contracting parties was to provide a benefit to the third party; and (3) permitting the third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and reasonable expectations of the third parties. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.) The third element “calls for a judgment regarding the potential effect that permitting third party enforcement would have on the parties’ contracting goals, rather than a determination whether the parties actually anticipated third party enforcement at the time the contract was entered into.” (Id. at 831.)

The purpose of the arbitration provision as outlined in the Sales Contract is that:

“Any claim or dispute, whether in contract, tort or statute . . . between you and us or our employees, agents, successor or assigns, which arise or relate to . . . 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 . . . be resolved by neutral binding arbitration and not by a court action.”

(Maugeri II. Decl. Ex. 4.)

Defendant Nissan would in fact benefit from the Sales Contract because it will allow it to adjudicate Plaintiff’s claims in a more expedient and less expensive forum. Because the Arbitration Provision explicitly embraces the type of claim Plaintiff asserts against Nissan—which encompass claims arising out of relationships with third parties who do not sign the Sales Contract— Plaintiff’s warranty claims necessarily require Plaintiff to contend that Nissan benefitted from the Sales Contract. Permitting Nissan to enforce the arbitration provision is consistent with the objectives and reasonable expectations of the contracting parties.

Because Plaintiff seeks to hold Nissan liable based on the warranty relationships between him and Nissan, Nissan is an intended third-party beneficiary under the Sales Contract and is one of the classes of entities (i.e., vehicle manufacturers) for whom the arbitration provision was intended to benefit. (See Ronay, supra, 216 Cal.App.4th 830, 839.)

Accordingly, Nissan has standing to enforce the arbitration provision and compel Plaintiff to arbitrate his claims.

Delegation Clause

The parties do not dispute that the arbitration provision contains a Delegation Clause that leaves questions of arbitrability to the arbitrator rather than the court to decide. (See Maugeri II. Decl. Ex. 4 [“Any claim or dispute, . . . (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute) . . . shall . . . be resolved by neutral, binding arbitration and not by a court action.”].)

Plaintiff also does not challenge the Delegation Clause in his opposing papers. Accordingly, the Court finds the parties “clearly and unmistakably” delegated gateway arbitrability issues to the arbitrator. (See New Prime Inc. v. Oliveira (2019) 139 S.Ct. 532, 538.)

“It has long been settled that when parties have agreed to arbitration, challenges to the validity of the underlying contract, including contract defenses such as fraud in the inducement or illegality, are for the arbitrator to decide. (Citations.) This is because the arbitration clause is viewed as separate from the underlying contract. (Citation.).” (Nielsen Contracting, Inc. v. Applied Underwriters, Inc. (2018) 22 Cal.App.5th 1096, 1107-1108.)“In contrast, if the party is making a specific challenge to the delegation clause, the court must determine whether the delegation clause itself may be enforced (and can only delegate the general issue of enforceability to the arbitrator if it first determines the delegation clause is enforceable).”(Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1559–1560; see also Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 70 (Rent-A-Center).)

The United States Supreme Court explained in Rent-A-Center, that any claim of unconscionability must be specific to the delegation clause. (Rent–A–Center, supra, 561 U.S. at 73.) The plaintiff in Rent-A-Car failed to direct his challenge of unconscionability specifically to the delegation clause, thus delegation clause was upheld, and the issue of unconscionability was left to the arbitrator to decide. (Id. 72-73 [“Accordingly, unless [plaintiff] challenged the delegation provision specifically, we must treat it as valid under § 2 [of the FAA], and must enforce it under §§ 3 and 4 [of the FAA], leaving any challenge to the validity of the Agreement as a whole for the arbitrator.”].)

Like the plaintiff in Rent-A-Center, Plaintiff in this instant action has failed to challenge the Delegation Clause itself as being unconscionable and instead has challenged the arbitration provision in the Sales Contract as unconscionable. “If the party's challenge is directed to the agreement as a whole--even if it applies equally to the delegation clause--the delegation clause is severed out and enforced; thus, the arbitrator, not the court, will determine whether the agreement is enforceable.” (Malone, supra, (2014) 226 Cal.App.4th 1551, 1559–1560.)

Since the Delegation Clause is valid, the parties have agreed to leave the issue unconscionability regarding the arbitration provision for the arbitrator to decide. (See Rent–A–Center, supra, 561 U.S. at 73 [“But we need not consider that claim because none of [plaintiff]’s substantive unconscionability challenges was specific to the delegation provision.”].

Stay Proceedings

Section 1281.4 is “clear and unambiguous: it requires that the trial court stay an action pending before it while an application to arbitrate the subject matter of the action is pending in a court of competent jurisdiction.” (Twentieth Century Fox Film Corp. v. Sup. Court (2000) 79 Cal.App.4th 188, 191.) Further, the FAA requires that Plaintiff’s claims be stayed pending arbitration. (9 U.S.C. § 3.)

Thus, Nissan requests that this Court order a stay of this action pending the completion of arbitration is GRANTED.

Conclusion

Defendant Nissan’s Motion to Compel Arbitration and Stay Proceedings is GRANTED.

The Court expects the parties to act expeditiously in scheduling and completing the arbitration. A Status Conference will be held on October 10, 2023, at which time the parties are to report on their progress.

Moving party to give notice.