ROSANNA MONTEMAYOR et al. v. FORD MOTOR COMPANY
No. B320477
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN
Filed June 26, 2023
CERTIFIED FOR PUBLICATION; (Lоs Angeles County Super. Ct. No. 19STCV37946)
Shook Hardy & Bacon, Amir Nassihi and Andrew L. Chang for Defendant and Appellant.
Gupta Wessler, Linnet Davis-Stermitz, Jessica Garland, Jennifer Bennett; Strategic Legal Practices and Tionna G. Dolin for Plaintiffs and Respondents.
We disagree with the decision of our colleagues in the Third District in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (Felisilda) that equitable estoppel applies to enable the nonsignatory manufacturer to enforce the arbitration provision in a similar sales contract. We conclude Ford cannot enforce the arbitration provision in the sales contract because the Montemayors’ claims agаinst Ford are founded on Ford‘s express warranty for the vehicle, not any obligation imposed on Ford by the sales contract, and thus, the Montemayors’ claims are not inextricably intertwined with any obligations under the sales contract. Nor was the sales contract between the Montemayors and AutoNation intended to benefit Ford. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Sales Contract and Arbitration Agreement
On June 20, 2012 the Montemayors executed a retail installment sale contract (sales contract) with AutoNation, then
The sales contract included a half-page arbitration clause, which stated in caрital letters, “Either you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.” The provision further stated, in relevant part, “Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Clause 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 cоurt action.”
B. The Complaint
On October 22, 2019 the Montemayors filed this action against Ford and AutoNation. Their complaint asserted six causes of action solely against Ford, including three for violations of the Song-Beverly Act (
During the warranty period numerous defeсts appeared in the vehicle, including problems with the electrical system, various computer and control modules, the back-up camera, transmission and shifting, headlights, wipers, door latches, door-ajar warning lights and sound. Despite “a reasonable number of opportunities,” “[Ford] and its representatives failed to commence the service or repairs within a reasonable time and failed to service or repair the [v]ehicle so as to conform to the applicable express warranties,” and Ford refused to replace the vehicle or make restitution as required under the Song-Beverly Act. (Italics added.) The cause of action against Ford for fraud by omission further alleged Ford was “well aware” that Ford Edges manufactured between 2011 and 2017 frequently experiencеd defects involving the door latches and door-ajar lights and sound, creating a safety hazard, yet Ford failed to inform consumers of these defects or to remedy them.
On November 25, 2019 Ford filed an answer to the complaint with a general denial and 45 affirmative defenses, including that “[t]he purchase or lease agreement for the subject vehicle, signed by [the Montemayors], includes an agreement to arbitrate.” AutoNation also answered. The following day Ford and AutoNation filed a notice of removal to federal court. On April 13, 2020 Ford and the Montemayors filed in federal court a stipulation of dismissal without prejudice of the Montemayors’ cause of action under the Magnuson-Moss Warranty Act, and on April 21 the Montemayors filed a motion to remand the case to
C. Motion To Compel Arbitration
On October 28, 2021 Ford and AutoNation jointly filed a motion to compel arbitration and to stay the action in the trial court.3 They argued the arbitration provision of the sales contract was a valid and enforceable agreement to arbitrate under the Federal Arbitration Act (
Ford and AutoNation also argued Ford was a third party beneficiary of the arbitration provision bеcause the provision
On January 7, 2022 the Montemayors filed their opposition and dismissed AutoNation from the action without prejudice. The Montemayors argued Ford and the Montemayors did not enter into an agreement to arbitrate, and Ford dealerships such as AutoNation are independent sellers, not agents of Ford. Further, the doctrine of equitable estоppel under Felisilda, supra, 53 Cal.App.5th at pages 495 to 496 did not apply to the Montemayors’ claims against Ford because the claims were not “‘intimately founded in and intertwined with‘” the sales contract with AutoNation. To the contrary, the sales contract explicitly acknowledged the separate existence of a manufacturer‘s warranty and disclaimed any such warranties made by the dealership in the “Warranties Seller Disclaims” provision. The Montemayors also argued Ford was not a third party beneficiary to the sales contract because the contract did not evidence an express or implied intent of the parties to benefit Ford. Further, Ford waived any right to compel arbitration by engaging in conduct inconsistent with an intent to arbitrate, including by сonducting discovery in the trial court for more than a year before seeking to compel arbitration.4
In a declaration supporting their opposition, the Montemayors attached Ford‘s 2013 Model Year Warranty Guide (warranty guide) contained in a booklet summarizing the three-year, 36,000-mile “bumper to bumper” warranty and five year, 60,000-mile powertrain warranty for new vehicles. The warranty guide referred to a program for voluntary mediation and nonbinding arbitration of disputes arising from the express warranty.
In its reply Ford argued the dismissal of AutoNation without prejudice did not render Felisilda, supra, 53 Cal.App.5th 486 inapplicable or prevent Ford‘s enforcement of the arbitration provision under the doctrine of equitable estoppel. Ford noted that аlthough Felisilda involved a Song-Beverly Act claim against both the dealership and manufacturer, and the dealership alone filed the motion to compel arbitration, the Felisilda plaintiffs, like the Montemayors, later dismissed the dealership (albeit after the motion to compel was granted but prior to the appeal). (Id. at 489.) The dealership‘s ultimate absence as a party did not affect the Court of Appeal‘s conclusion that the purchasers’ warranty claims arose from the sales contract. (Id. at pp. 496-499.)
D. The Trial Court‘s Ruling
After a hearing, on February 7, 2022 the trial court granted Ford‘s motion to compel arbitration of the Montemayors’ cause of action for breach of the implied warranty of merchantability and
The trial court also found Ford could not enforce the arbitration provision as a third party beneficiary because the
Ford timely appealed.
DISCUSSION
A. Governing Law and Standard of Review
Under state and federal state law, there is a public policy in favor of arbitration. (Morgan v. Sundance, Inc. (2022) 596 U.S. 411, 142 S. Ct. 1708, 1713;
Where, as here, the facts are undisputed, we review the denial of a motion to compel arbitration de novo. (OTO, L.L.C. v. Kho, supra, 8 Cal.5th at p. 126; Ford Warranty, supra, 89 Cal.App.5th at p. 1331.) Likewise, “[i]n the absence of conflicting extrinsic evidence, ‘[w]hether and to what extent [nonsignatories] can also enforce the arbitration clause is a question of law, which we review de novo.‘” (Jensen, supra, 18 Cal.App.5th at p. 300; accord, Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4th 1, 8 [“Our de novo review includes the legal determination whether and to what extent nonsignatories to an arbitration agreement can enforce the arbitration clause“]; DMS Services, supra, 205 Cal.App.4th at p. 1352 [same].)
Ford сontends it had a right to compel arbitration based on the sales contract between the Montemayors and AutoNation under the doctrine of equitable estoppel, and the trial erred in distinguishing this case from Felisilda, supra, 53 Cal.App.5th at page 495. In Ford Warranty, our colleagues in Division Eight of this district recently considered Ford‘s equitable estoppel argument in the context of dealership sales contracts that had identical arbitration provisions to the ones in Felisilda and here.6 (Ford Warranty, supra, 89 Cal.App.5th at pp. 1333-1335.) The court declined to follow Felisilda and concluded Ford could not invoke equitable estoppel to compel arbitration of the plaintiffs’ Song-Beverly Act and related claims asserted only against Ford to address defects in the purchasers’ vehicles. (Ford Warranty, at p. 1334.) We too decline to follow Felisilda and adopt the reasoning in Ford Warranty.
In Ford Warranty, supra, 89 Cal.App.5th at page 1329, each plaintiff purchased a vehicle manufactured by Ford from a deаlership in Southern California. The purchasers signed a form retail installment sale contract with the dealerships to finance their vehicle purchases; Ford was not a party to the contracts or named in the contracts. (Ibid.) In each contract, as here, the dealership expressly disclaimed any warranties but stated the disclaimer did “not affect any warranties covering the vehicle
Affirming the trial court‘s order denying Ford‘s motion to compel arbitration, the court in Ford Warranty rejected Ford‘s argument that the purchasers’ claims were intimately founded in and intertwined with the obligations imposed on Ford under the sales contracts, as the court held in Felisilda in concluding equitable estoppel applied. (Ford Warranty, supra, 89 Cal.App.5th at p. 1333.) The Ford Warranty court explained, “That the Felisilda plaintiffs and the dealer agreed in their sale contract to arbitrate disputes between them about the condition of the vehicle does not equitably estop the plaintiffs from asserting [the manufacturer] has no right to demand arbitration.” (Ford Warranty, at p. 1334, italics omitted.)
The Ford Warranty court agreed with Felisilda that “[e]quitable estoppel would apply if the plaintiffs had sued [the manufacturer] based on the terms of the sale contract yet denied [the manufacturer] could enforce the arbitration clause in that
“[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.” (DMS Services, supra, 205 Cal.App.4th at p. 1354; accord, Ford Warranty, supra, 89 Cal.App.5th at pp. 1332-1333.) As we explained in DMS Services, “The reason for this equitable rule is plain: One should not be permitted to rely on an agreement containing an arbitration clause for its claims, while at the same time repudiating the arbitration provision contained in the same contract.” (DMS Services, at p. 1354; see Jensen, supra, 18 Cal.App.5th at p. 306 [“The fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] hеr dispute . . . should be resolved.“]; Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 220 [“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
We look to the facts alleged in the complaint to determine whether the Montemayors’ claims against Ford are dependent on and inextricаbly intertwined with the obligations imposed by the sales contract. (Ford Warranty, supra, 89 Cal.App.5th at p. 1333; DMS Services, supra, 205 Cal.App.4th at p. 1354; Goldman v. KPMG, LLP, supra, 173 Cal.App.4th at pp. 229-230.) They are not. As discussed, the Montemayors allege as part of each cause of action against Ford at issue on appeal that Ford‘s obligations arose out of its express written warranty, not the sales contract. As the Ford Warranty court explained with respect to similar allegations, “[P]laintiffs’ claims are based on [Ford‘s] statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty.... Not one of the plaintiffs sued on any express contractual language in the sale contracts.” (Ford Warranty, at p. 1335.) Moreover, the “sale contracts include no warranty, nor any assurance regarding the quality of thе vehicle sold, nor any promise of repairs or other remedies in the event problems arise. To the contrary, the sale contracts disclaim any warranty on the part of the dealers, while acknowledging no effect on ‘any warranties covering the vehicle that the vehicle manufacturer may provide.” (Ibid.) “In short, the substantive terms of the sale contracts relate to sale and financing and nothing more.” (Ibid.)
Ford contends the Montemayors’ claims are inextricably intertwined with the sales contract because the claims concern
In DMS Services, supra, 205 Cal.App.4th at pages 1356 to 1357, we rejected a similar argument made with respect to a cause of action asserted by plaintiff DMS against the third-party administrator of DMS‘s workers’ compensation claims (ZSC) for mishandling claims. The trial court granted ZSC‘s motion to compel arbitration based on the arbitration provision in a separate insurance agreement between DMS and its insurer (to which ZSC was a nonsignatory), finding DMS‘s claims against ZSC were inextricably intertwined with the separate insurance agreements. We issued a writ of mandate directing the superior
The same analysis applies here—the fact the Montemayors purchased the defective vehicle from AutoNation pursuant to the sales contract, and as a result of their purchase they received separate express warranties from Ford, does not mean their causes of action against Ford based on those express warranties are founded in the sales contract. Ford‘s but-for argument that “[w]ithout a purchase, the Montemayors would lack any basis for their frаud claims” based on Ford‘s knowledge of the defects similarly fails.
Further, we disagree with Felisilda that the language in the arbitration provision referencing “third parties who do not sign this contract” provides a basis for nonsignatory manufacturers to compel arbitration of claims brought by vehicle purchasers. (See Felisilda, supra, 53 Cal.App.5th at p. 498.) We agree with Ford Warranty, supra, 89 Cal.App.5th at page 1334 that this language refers to the subject matter of covered claims, not the scope of who may enforce the arbitration provision. As discussed, the arbitration provisions in Ford Warranty and Felisilda (and here) required arbitration of claims and disputes arising from the sales contract and “any resulting transaction or
The Montemayors’ causes of action against Ford are explicitly based on allegations of “an express written warrаnty, including a 3-year/36,000[-]mile express bumper to bumper warranty” that the Montemayors alleged they received “[i]n connection with the purchase” of the vehicle. The trial court found the Montemayors provided evidence (which is undisputed) of Ford‘s express warranty in the warranty booklet attached to their opposition to the motion to compel arbitration. And the sales contract disclaimed any warranties while recognizing there could be a separate manufacturer‘s warranty. Because “manufacturer vehicle warranties that accompany the sale of motor vehicles without regard to the terms of the sale contract between the purchaser and the dealer are independent of the sale contract,” equitable estoppel does not apply. (Ford Warranty, supra, 89 Cal.App.5th at p. 1334.)
It is clear from the complaint that the causes of action alleged against Ford for breach of express warranty and violations of the Song-Beverly Act are predicated on Ford‘s express warranty, not any alleged wrongdoing by AutoNation. The cause of action for fraudulent omission similarly arises from Ford‘s alleged knowledge and failure to disclose or remedy the defective door system, not any obligation imposed on Ford under the sales contract.
C. Ford Was Not a Third Party Beneficiary of the Sales Contract
Ford contends the trial court erred in finding it could not enforce the sales contract‘s arbitration provision because it was not an employee, agent, successor, or assign of AutoNation—the only third parties referenced in the arbitration provision. Ford argues the universe of third party beneficiaries who may enforce a contract is broader than the parties listed in the arbitration provision, and the trial court failed to apply the multifactor test
“‘A third party beneficiary is someone who may enforce a contract because the contract is made expressly for his benefit.‘” (Ford Warranty, supra, 89 Cal.App.5th at p. 1336; accord, Pillar Project AG v. Payward Ventures, Inc. (2021) 64 Cal.App.5th 671, 677; see
In Goonewardene, the Supreme Court held that in considering third party beneficiary contract claims, a court should “carefully examine[] the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whеther permitting a third party 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
In Ford Warranty, supra, 89 Cal.App.5th at page 1338, the Court of Appeal analyzed the plaintiffs’ sales contracts with the dealerships, and, focusing on the first and second Goonewardene elements, the court concluded the contracts “reflect no intention to benefit a vehicle manufacturer under Goonewardene.” Further, “nothing in the sale contracts or their arbitration provision offers any direct ‘benefit’ to [Ford].” (Ford Warranty, at p. 1338Ford Warranty. Apart from a single reference in the sales contract identifying the make and model of the vehicle to be purchased and financed as a Ford Edge (and identification of the seller as Power Ford Valencia), the form sales contract is generic, without any reference to Ford, and there is nothing in the contract language that supports an inference Ford had an interest in the contract.
Ford argues, as it did in Ford Warranty, that it “benefits from arbitration as an efficient means of dispute resolution,” and “the arbitration provision‘s broad language expressly encompassing claims arising out of relationships or transaction ‘with third parties who do not sign this contract‘” shows the agreement was intended to benefit Ford. We again agree with Ford Warranty, which rejected this argument, observing that Ford failed to address how it specifically benefited from the arbitration provision where the “direct benefits are expressly limited to those persons who might rely on it to avoid proceeding
Moreover, there is “no indication that a benefit to [Ford] was the signatories’ ‘motivating purpose’ . . . in contracting for the sale and purchase of a Ford vehicle.” (Ford Warranty, supra, 89 Cal.App.5th at pp. 1338-1339, citing Goonewardene, supra, 6 Cal.5th at p. 830.) “The manifest intent of the parties was to buy, sell and finance a car, and to allow either the purchaser or the dealer to compel arbitration of the specified categories of disputes between them, or between the purchaser and any of the deаler‘s ‘employees, agents, successors or assigns.‘” (Ford Warranty, at p. 1339; see Ngo v. BMW of N. Am., LLC (9th Cir. 2022) 23 F.4th 942, 947 [“[T]he vehicle purchase agreement in question was drafted with the primary purpose of securing benefits for the contracting parties themselves. In such an agreement, the purchaser seeks to buy a car, and the dealership and assignees seek to profit by selling and financing the car.
The Montemayors and AutoNation agreed in the sales contract on terms for the financing and purchase of the vehicle from AutoNation, and they agreed to arbitrate disputes between them arising out of the credit application, purchase, or condition of the purchased vehicle. In no way was the sales contract “made expressly for the benefit of a third person.” (
DISPOSITION
The order denying Ford‘s petition to compel arbitration is affirmed. The Montemayors are entitled to recover their costs on appeal.
FEUER, J.
We concur:
PERLUSS, P. J.
ESCALANTE, J.*
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.