Sheets v. Lippert Components, Inc.

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Kristie Sheets et al., Plaintiffs, v. Lippert Components, Inc., et al., Defendants.

No. 2:20-cv-01683-KJM-JDP

United States District Court, E.D. California

October 22, 2021

ORDER

Defendants Lippert Components, Inc. (“LCI”) and Forest River, Inc. (“Forest River”) move to compel arbitration or, in the alternative, to dismiss the complaint and to strike nationwide class allegations. For the following reasons, the court denies the motion to compel arbitration and grants the motion to dismiss with leave to amend. The court need not reach defendants' motion to strike class allegations.

I. BACKGROUND

On June 29, 2017, plaintiff Kristie Sheets purchased a new 2018 Forest River Surveyor towable recreational vehicle (“the TRV” or “the vehicle”) from DeMartini RV Sales in Grass Valley, California. First Am Compl. (“FAC”) ¶ 13, ECF No. 8. At the time of purchase, Sheets and DeMartini RV Sales signed the Retail Sales Installment Contract containing an arbitration clause. Retail Installment Sales Contract at 7, Cheryl Heward Decl. Ex. 1 (“Purchase Agreement”), ECF No. 13-1. The arbitration provision states in part, in a paragraph titled “Please review - Important - Affects your Legal Rights”:

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

2. IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST U.S. INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS [. . .]

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 court action . . .

Id.; Cheryl Heward Decl. ¶ 4, ECF No. 13. Approximately two years after purchasing the vehicle, plaintiff was driving when an odd smell began to emanate from her car. FAC ¶ 15. By the time she arrived at her destination, she discovered the “shackle^[1] had broken off the frame.” Id. Sheets called an emergency welder who informed her the car's “frame” was “irreparably damaged” and he could not recommend a permanent repair. Id. ¶ 17. Sheets made subsequent calls to additional repair shops through which she learned the same information. Id. ¶ 18. She contacted both defendants “on three to four occasions to complain” of the defect and request compensation for her car's lost value. Id. ¶ 19. Defendants repeatedly denied the existence of the defect and informed her there was no warranty for her damages. Id. Sheets alleges the axle failure is the result of a product defect in the design and manufacture of LCI axles (“axle defect”) installed in recreational vehicles nationwide, including the 2018 Forest River Surveyor TRV. Id. ¶ 2. Sheets alleges LCI and Forest River engaged in material misrepresentations regarding the quality, functionality, and advertising of axle components. Id. ¶¶ 66-70. In addition, Sheets alleges LCI and Forest River failed to disclose and intentionally concealed the axle defect from consumers. Id. ¶ 79.

On July 10, 2020, Sheets filed a putative class action in Nevada County Superior Court against DeMartini RV Sales, LCI and Forest River alleging violations of California's Consumer Legal Remedies Act (“CLRA”) and California's Unfair Competition Law (“UCL”). Not. Removal ¶¶ 1-2, ECF No. 1. In addition, Sheets alleged a breach of implied warranty of merchantability against DeMartini RV Sales only. See Id. ¶ 2. On August 21, 2020, LCI removed the action to this court. Id. at 1. Forest River and DeMartini RV Sales joined the removal on September 1, 2020. Joinder, ECF No. 4.

On September 25, 2020, Sheets filed the operative complaint and voluntarily dismissed all claims and causes of action against DeMartini RV Sales without prejudice. Not. Vol. Dismissal at 1-2, ECF No. 9.^[2] In the operative complaint, Sheets brings two class claims against defendants for violating the CLRA and UCL. See FAC ¶¶ 60-90. She seeks to represent a nationwide class of “[a]ll persons in the United States who purchased a Forest River TRV equipped with an LCI Axle” or alternatively a California class comprised of the same individuals who live in California. Id. ¶¶ 51-52.

In response, LCI and Forest River each filed motions to compel arbitration or, in the alternative, to dismiss the complaint and strike nationwide class allegations. Mem. Supp. Mot. to Dismiss (LCI Mem.), ECF No. 16; Amended Mot. Compel (Forest River Mot.), ECF No. 15.^[3] After the matter was fully briefed, the court submitted the matter without oral argument. See Min. Order (Dec. 18, 2020), ECF No. 28.

II. LEGAL STANDARD

A. Motion to Compel Arbitration

Congress passed the Federal Arbitration Act (FAA) “in response to widespread judicial hostility to arbitration agreements.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). Section 2 of the FAA, its “primary substantive provision, ” id. (citation omitted), provides that “[a] written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

The Arbitration Act also allows district courts to hear motions to compel arbitration. 9 U.S.C. § 4. A court must normally answer two questions in response to a motion to compel arbitration: (1) whether the parties agreed to arbitrate; and (2) whether their agreement covers the dispute the plaintiff brought before the court. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). The party moving to compel arbitration bears the burden to prove these elements by a preponderance of evidence. Ashbey v. Archstone Prop. Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015).

“When considering a motion to compel arbitration, a court applies a standard similar to the summary judgment standard” of Federal Rule of Civil Procedure 56. Concat LP v. Unilever, PLC, 350 F.Supp.2d 796, 804 (N.D. Cal. 2004) (citation omitted); see also Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (“[D]enial of a motion to compel arbitration has the same effect as a grant of partial summary judgment denying arbitration . . . .”); Greystone Nevada, LLC v. Anthem Highlands Cmty. Ass'n, 549 Fed.Appx. 621, 623 (9th Cir. 2013) (reversing an order compelling arbitration where opposing party had been afforded no opportunity to present evidence and argument). The party opposing arbitration receives the benefit of any reasonable doubts and the court draws reasonable inferences in that party's favor, and only when no genuine disputes of material fact surround the arbitration agreement's existence and applicability may the court compel arbitration. See Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1141 (9th Cir. 1991) (quoting Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)); Concat, 350 F.Supp.2d at 804. Nevertheless, the decision to compel arbitration is mandatory, not discretionary, if the requirements are met. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).

B. Motion to Dismiss

A party may move to dismiss for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). The motion may be granted only if the complaint lacks a “cognizable legal theory” or if its factual allegations do not support a cognizable legal theory. Hartmann v. Cal. Dep't of Corr. & Rehab., 707 F.3d 1114, 1122 (9th Cir. 2013). The court assumes all factual allegations are true and construes “them in the light most favorable to the nonmoving party.” Steinle v. City & County of San Francisco, 919 F.3d 1154, 1160 (9th Cir. 2019). If the complaint's allegations do not “plausibly give rise to an entitlement to relief, ” the motion must be granted. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

A complaint need contain only a “short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), not “detailed factual allegations, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). But this rule demands more than unadorned accusations; “sufficient factual matter” must make the claim at least plausible. Iqbal, 556 U.S. at 678. In the same vein, conclusory or formulaic recitations of elements do not alone suffice. Id. (quoting Twombly, 550 U.S. at 555). This evaluation of plausibility is a context-specific task drawing on “judicial experience and common sense.” Id. at 679.

When alleging fraud, this standard is heightened. Fed.R.Civ.P 9(b) (“[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake”). The allegations must be sufficiently specific “to give defendants notice of the particular misconduct which is alleged to constitute the fraud . . . so that they can defend against the charge and not just deny that they have done anything wrong.” Alton v. Medtronic, Inc., 970 F.Supp.2d 1069, 1105 (D. Or. 2013) (quoting Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985)). Rule 9(b) generally requires the plaintiff identify “the who, what, when, where, and how” of the misconduct charged. Vess v. Ciba-Geigy Corp....