Davis v. Nissan N. Am., Inc.

319 Cal.Rptr.3d 517

Damien T. DAVIS et al., Plaintiffs and Respondents,

v.NISSAN NORTH AMERICA, INC., et al., Defendants and Appellants.

D083006

Court of Appeal, Fourth District, Division 1.

Filed March 15, 2024

APPEAL from an order of the Superior Court of Riverside County, Eric A. Keen, Judge. Affirmed. (Super. Ct. No. CVRI2203733)

Shook Hardy & Bacon, Amir M. Nassihi, San Francisco, Nalani L. Crisologo, Los Angeles, and Andrew L. Chang, San Francisco, for Defendants and Appellants.

The Lemon Pros, Arash Khorsandi, Los Angeles, Michael Saeedian and Christopher Urner, Los Angeles, for Plaintiffs and Respondents.

BUCHANAN, J.

Defendants Nissan North America, Inc., a vehicle manufacturer, and Nissan of San Bernardino, an authorized vehicle repair facility (collectively "Nissan" or "Nissan defendants"), challenge an order denying their motion to compel arbitration of claims asserted against them by plaintiffs Damien T. Davis and Johnetta H. Lane, buyers of a new Nissan vehicle with an allegedly defective transmission. The trial court ruled that the Nissan defendants, who were not parties to the sale contract between plaintiffs and the dealership containing the arbitration clause, could not invoke the clause to compel arbitration based on the doctrine of equitable estoppel. In so ruling, the trial court declined to apply the holding of Felisilda. v. FCA US LLC (2020) 53 Cal.App.5th 486, 266 Cal. Rptr.3d 640 (Felisilda). Since the trial court’s ruling, four published Court of Appeal decisions have rejected Felisilda and the Supreme Court has granted review to resolve the conflict. We now join the more recent line of authorities. Accordingly, we affirm the order denying Nissan’s motion to compel arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

A. Sale Contract and, Warranty

Plaintiffs signed a retail installment sale contract to buy a new Nissan Altima from Riverside Nissan, a vehicle dealership not a party to this lawsuit. The contract identified the plaintiffs as "Buyer" and "you" and identified Riverside Nissan as "Seller," "we," and "us." The sale contract was on a standard form created by the Reynolds and Reynolds Company and designated as Form No. 553-CA-ARB. The Nissan defendants were not parties to the sale contract.

The contract contained the following provision about warranties:

"If you do not get a written warranty, and the Seller does not enter into a service contract within 90 days from the date of this contract, the Seller 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.

"This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide. If the Seller has sold you a certified used vehicle, the warranty of merchantability is not disclaimed."

The contract also contained the following arbitration provision:

"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 this dispute), between you and usor 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."

Defendant Nissan North America, Inc. manufactured the car plaintiffs bought and provided a written manufacturer’s warranty.¹ Nissan North America, Inc. authorizes certain facilities, including defendant Nissan of San Bernardino, to repair defects in its vehicles that arise during the warranty period, provides training to such facilities on how to make repairs, and reimburses those facilities for the repair costs.

Plaintiffs’ complaint alleges that Nissan’s warranty was "attached to the vehicle itself … at the time of manufacturing and/or distribution," it did "not arise out of the Purchase of the vehicle," and its benefits apply "to any registered owner of the vehicle regardless of whether the vehicle is purchased, leased, or provided as a gift to the owner and irrespective of any terms of the Purchase contract."

B. Vehicle Defects and Repair Attempts

Plaintiffs repeatedly experienced a lack of power and acceleration while driving their Altima and took it four times to Nissan of San Bernardino for repairs. On the first three occasions, plaintiffs were told no defects were found, but on the last, they were told the transmission was defective and needed to be replaced.

C. Complaint

Based on the Altima’s defective transmission, plaintiffs sued the Nissan defendants, but not the dealership. They asserted the following three claims against Nissan North America, Inc. for violations of the Song-Beverly Consumer Warranty Act (Song-Beverly Act or Act; Civ. Code, § 1790 et seq.): (1) breach of express warranty; (2) breach of implied warranty; and (3) breach of duty to provide service or repair to conform the vehicle to manufacturer warranties (Civ. Code, § 1793.2, subd. (b)). Plaintiffs also asserted a claim of negligent repair against both Nissan defendants. They prayed for damages, rescission of the sale contract, restitution, civil penalty, interest, costs, and attorney fees.

D. Motion to Compel Arbitration

The Nissan defendants moved to compel arbitration and stay the action. (Code Civ. Proc., §§ 1281.2, 1281.4.) Relying on Felisilda, supra, 53 Cal.App.5th 486, 266 Cal. Rptr.3d 640, they argued that even though they were not parties to the sale contract containing the arbitration clause, they could compel arbitration under the doctrine of equitable estoppel because plaintiffs’ claims were based on warranties they received as part of the sale. They also argued that they could enforce the arbitration clause as third-party beneficiaries of the sale contract.

Plaintiffs opposed the motion. In relevant part, they argued that the doctrine of equitable estoppel did not apply because their claims did not arise out of or depend on the sale contract, and the Nissan defendants were not third-party beneficiaries entitled to enforce the arbitration clause of the sale contract.

The trial court denied the motion to compel arbitration. Relying on the Ninth Circuit’s decision in Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4h 942 (Ngo), the court ruled that Felisilda did not apply "where the dealership is not a party to the action." The court also found Ngo "to be the better reasoned opinion based on the fact that the manufacturer’s duty relating to the warranty is independent to the sales contract." The court further noted that the sale contract expressly disclaimed any seller warranties, while also stating that the disclaimer did not affect any warranties " ‘the vehicle manufacturer may provide.’ " The court concluded that the sale contract thus "treats warranties as a separate provision." The court also ruled that the Nissan defendants were not third-party beneficiaries of the sale contract.

DISCUSSION

Nissan has expressly abandoned its third-party beneficiary theory on appeal, but argues that the trial court erred by declining to apply Felisilda and refusing to compel arbitration based on equitable estoppel. Plaintiffs contend that the trial court’s equitable estoppel ruling was correct and urge us to follow more recent caselaw rejecting Felisilda. Recognizing that this issue is currently pending before the Supreme Court, we agree with the more recent authorities.²

A. Standard of Review

[1] Because the material facts are undisputed, we review de novo whether the trial court correctly applied the doctrine of equitable estoppel in denying Nissan’s motion to compel arbitration. (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 226, fn. 9, 92 Cal.Rptr.3d 534 (Goldman).)

B. Governing Law on Equitable Estoppel

[2–4] Although there is a strong public policy in favor of arbitration, there is no policy compelling anyone to accept arbitration of controversies which they have not agreed to arbitrate. (Victoria v. Superior Court (1985) 40 Cal.3d 734, 744, 222 Cal.Rptr. 1, 710 P.2d 833.) Because arbitration is a matter of contract, the basic rule is that one must be a party to an arbitration agreement to be bound by it or invoke it—with limited exceptions. (DMS Services, LLC v. Superior Court (2012) 205 Cal. App.4th 1346, 1352, 140 Cal.Rptr.3d 896.)

[5, 6] One such exception is the doctrine of equitable estoppel. Equitable estoppel precludes a party from asserting rights they otherwise would have had against another when their own conduct renders assertion of those rights inequitable. (Goldman, supra, 173 Cal.App.4th at p. 220, 92 Cal.Rptr.3d 534.) As applied in the arbitration context, "if 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.’ " (Ibid., internal quotation marks omitted.)

[7, 8] "[T]he sine qua non for application of equitable estoppel as the basis for allowing a nonsignatory to enforce an arbitration clause is that the claims the plaintiff asserts against the nonsignatory must be dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause." (Goldman, sup...