Subaru of Am., Inc. v. Putnam Auto., Inc.

60 Cal.App.5th 829

275 Cal.Rptr.3d 120

SUBARU OF AMERICA, INC., Plaintiff and Respondent,

v.PUTNAM AUTOMOTIVE, INC., Defendant and Appellant,

A159686

Court of Appeal, First District, Division 2, California.

Filed February 10, 2021

Law Offices of Gavin M. Hughes, Gavin M. Hughes Robert A. Mayville, Jr., Sacramento, for Appellant.

Nelson Mullins Riley & Scarborough, Lisa M. Gibson, Crispin L. Collins, Torrance, for Respondent.

Kline, P.J. Putnam Automotive Inc., doing business as Putnam Subaru (Putnam), a Subaru dealer, appeals from the trial court's judgment confirming an arbitration award in favor of Subaru of America, Inc. (Subaru), a new motor vehicle distributor. In his final award, the arbitrator found that Subaru had good cause for terminating an agreement with Putnam to operate a satellite service-only facility in San Francisco. On appeal, Putnam contends the judgment should be reversed and the arbitrator's final award vacated because (1) the arbitrator lacked jurisdiction to make a good cause determination under both federal and state law; (2) enforcement of the arbitration provision in the agreement was illegal under the Vehicle Code; (3) the public policy underlying California's New Motor Vehicle Board Act precluded the arbitrator from making a good cause determination; (4) the arbitrator's award cannot be corrected without affecting the merits of the decision; and (5) Putnam's due process rights were violated when Subaru failed to provide it with the required notice of the reasons for terminating the agreement. We shall affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In February 2008, after Putnam purchased a service-only Subaru facility (Satellite Service Facility) in downtown San Francisco from a former Subaru dealer, Subaru and Putnam entered into a temporary Subaru "Dealer Candidate Satellite Service Facility Agreement," which permitted Putnam to provide Subaru warranty repairs at the Satellite Service Facility, pending Subaru's approval of Putnam's application to establish an authorized Subaru dealership at a proposed location in Burlingame. Putnam operated the Satellite Service Facility under the temporary agreement until issues related to the establishment of the Burlingame dealership were resolved in March 2009.

On March 25, 2009, Subaru and Putnam entered into a "Subaru Dealer and Standard Provisions Agreement" (Burlingame Dealer Agreement) for the sale and service of motor vehicles at the Burlingame dealership, as well as the operative Subaru Dealer Satellite Service Facility Agreement (Satellite Service Agreement) for service operations only at the Satellite Service Facility in San Francisco.

The Satellite Service Agreement, which was operative for an initial term of five years, contained an arbitration provision, which stated: "The parties agree that the enforcement, interpretation or any disputes arising out of this Agreement shall be exclusively resolved through arbitration in Camden County, New Jersey, conducted under the Commercial Arbitration Rules of the American Arbitration Association and shall be governed by the laws of the State of New Jersey." (Satellite Service Agreement, § 10.6.)

In a September 23, 2013 letter, Subaru informed Putnam that it was exercising its right to extend the 2009 Satellite Service Agreement for another five-year period, beginning on March 25, 2014, with "[a]ll provisions of that Agreement remain[ing] in full force and effect."

Thereafter, Putnam attempted to engage with Subaru regarding relocating the Satellite Service Facility, but in a November 6, 2017 letter to Putnam, Subaru stated that it would not approve Putnam's proposed relocation of the Satellite Service Facility and would not renew the Satellite Service Agreement when it expired in 2019.

On November 13, 2017, Putnam filed two administrative protests with the New Motor Vehicle Board (Board)—a termination protest under Vehicle Code section 3060, subdivision (a)¹ and a modification protest under section 3060, subdivision (b) —arguing that Subaru did not have good cause for refusing to approve the proposed relocation of the Satellite Service Facility and terminating Putnam's right to continue to operate that facility upon expiration of the Satellite Service Agreement.

On March 14, 2018, Subaru filed a petition to compel arbitration of Putnam's claims, pursuant to the arbitration provision in the Satellite Service Agreement.

On June 22, 2018, the trial court entered an order granting the petition to compel arbitration in part and denying it in part. The court first found that the Satellite Service Agreement did not come within the Motor Vehicle Franchise Contract Arbitration Fairness Act (Fairness Act) ( 15 U.S.C. § 1226 ), a narrow exception to the Federal Arbitration Act (FAA) ( 9 U.S.C. § 1 et seq. ), and Putnam was therefore compelled to arbitrate its claims arising from that agreement. The court, however, denied Subaru's request to compel Putnam to dismiss its Board protests because discontinuing the Satellite Service Agreement might be found to modify the Burlingame Dealer Agreement, an agreement that would come within the Fairness Act's exception to arbitration. The court encouraged the parties to agree to stay either the arbitration or the Board proceedings, and the parties ultimately agreed to stay the Board protests pending completion of the arbitration proceedings.

On April 25, 2019, following a preliminary arbitration proceeding on choice of law, the arbitrator found that the Satellite Service Agreement was a franchise under section 331, that California law applied to the dispute, and that Subaru would be required to show good cause for termination of the agreement, pursuant to sections 3060 and 3061, in a subsequent arbitration proceeding.

Putnam then unsuccessfully sought summary judgment based on Subaru's alleged failure to provide notice of its reasons for terminating the Satellite Service Agreement, as required under the Vehicle Code.²

On October 1, 2019, following the second arbitration proceeding on the question of good cause, the arbitrator issued his final award, in which he found that Subaru had carried its burden to show good cause for terminating the Satellite Service Agreement.

Subaru subsequently filed a petition to confirm the arbitrator's final award, and Putnam filed an opposition and a request for the trial court to vacate the award.

On November 15, 2019, the court entered an order granting Subaru's petition to confirm the arbitration award, and on December 18, the court entered a judgment confirming the award.

On January 8, 2020, Putnam filed a notice of appeal from the judgment confirming the arbitration award and denying Putnam's request to vacate the award.

DISCUSSION

In Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 6, 10 Cal.Rptr.2d 183, 832 P.2d 899, the California Supreme Court discussed the appropriate standard for judicial review of arbitration awards, explaining that with limited exceptions, "an arbitrator's decision is not generally reviewable for errors of fact or law, whether or not such error appears on the face of the award and causes substantial injustice to the parties." The merits of the controversy are not subject to judicial review, including the validity of the arbitrator's reasoning and the sufficiency of the evidence supporting the award. ( Id. at p. 11, 10 Cal.Rptr.2d 183, 832 P.2d 899.) Instead, the grounds for vacating an arbitration award are generally limited to those set forth in Code of Civil Procedure section 1286.2. ( Moncharsh , at p. 28, 10 Cal.Rptr.2d 183, 832 P.2d 899.)

Here, Putnam states that its challenge to the arbitrator's final award was permissible because its arguments are based on two of the grounds for vacating an arbitration award in Code of Civil Procedure section 1286.2. Specifically, Putnam asserts that the award must be vacated because the arbitrator "exceeded [his] powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted" ( Code Civ. Proc., § 1286.2, subd. (a)(4) ) and because its rights "were substantially prejudiced ... by other conduct of the arbitrator[ ] contrary to the provisions of this title." ( Code Civ. Proc., § 1286.2, subd. (a)(5).)

Most of Putnam's contentions require interpretation of state and federal statutes. Such questions of statutory interpretation are subject to our independent review. ( Lopez v. Sony Electronics, Inc . (2018) 5 Cal.5th 627, 633, 234 Cal.Rptr.3d 856, 420 P.3d 767.) In interpreting a statute, " ‘[o]ur fundamental task is to determine the Legislature's intent and give effect to the law's purpose. [Citation.] We begin by examining the statute's words " ‘because they generally provide the most reliable indicator of legislative intent.’ [Citation.] If the statutory language is clear and unambiguous our inquiry ends." ’ [Citation.] In that case, the plain meaning of the statute is controlling, and ‘ "resort to extrinsic sources to determine the Legislature's intent is unnecessary." ’ [Citation.]" ( Id. at pp. 633–634, 234 Cal.Rptr.3d 856, 420 P.3d 767.)

I. The Arbitrator's Jurisdiction to Make a Good Cause Determination

"The United States Supreme Court has recognized that the ‘disparity in bargaining power between automobile manufacturers and their dealers prompted Congress and some 25 States to enact legislation to protect retail car dealers from perceived abusive and oppressive acts by the manufacturers.’ [Citation.]" ( Powerhouse Motorsports Group, Inc. v. Yamaha Motor Corp. (2013) 221 Cal.App.4th 867, 877–878, 164 Cal.Rptr.3d 811, quoting New Motor Vehicle Bd. v. Orrin W. Fox Co. (1978) 439 U.S. 96, 100–101, 99 S.Ct. 403, 58 L.Ed.2d 361.)

Putnam first contends the judgment must be reversed and the arbitrator's final award vacated because the arbitrator exceeded his powers under Code of Civil Procedure section 1286.2, subdivision (a)(4), in that he lacked subject matter jurisdiction to make a good cause determination under both...