Santillan v. Hyundai Motor America

Case Number

23CV00183

Case Type

Hearing Date / Time

Tue, 09/26/2023 - 08:30

Nature of Proceedings

Motion to Compel Arbitration

Tentative Ruling

Plaintiffs Sarah Reed and Robert Santillan (collectively plaintiffs) filed a complaint against defendant Hyundai Motor America (defendant or Hyundai), for three cause of action based on violations of the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790, et seq) (hereafter, Song Beverly Act), commonly known as the “lemon law.”  Briefly (based on allegations in the operative pleading), on September 1, 2022, plaintiffs purchased a 2023 Hyundai Kona (hereafter, the vehicle). In connection with the purchase of the Vehicle, Plaintiffs received an express written warranty in which defendant undertook to preserve or maintain the utility of performance of the Vehicle or to provide compensation if there is a failure in utility or performance for a specified period of time. The warranty provided, in relevant part, that in the event a defect developed with the Vehicle during the warranty period, Plaintiffs could deliver the Vehicle for repair services to Defendant's representative and the Vehicle would be repaired. Defects and nonconformities to the warranty manifested themselves within the express warranty period, including but not limited to, defective ignition system. Plaintiff took the vehicle to defendant for repair on at least one occasion and the defect was not repaired. Plaintiffs have not named the dealer from whom they purchased the car; nor have they named as a defendant the repair facility that performed the repairs. The only defendant is Hyundai as the manufacturer of the vehicle.   

            Hyundai has filed a motion to compel arbitration. Plaintiff filed opposition on September 12, 2023; a reply was filed on September 18, 2023. All briefing has been reviewed.

Arbitration Agreement

Hyundai seeks to compel arbitration under two alternative provisions: (1) the arbitration provision in the Warranty, and (2) the arbitration provision in the Retail Installment Sales Agreement, to which it is not a signatory.

The court rejects the second argument. The court recognizes that the issue at the heart of the that inquiry is currently being reviewed by our high court (Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, petition for review granted on July 18, 2023), meaning the legal issues are not yet settled.  Nevertheless, after examining Felisilda v. FCA U.S., LLC (2020) 53 Cal.App.5th 486, on the one hand, and Ford Motor Warranty Cases, Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958, petition for review filed on August 1, 2023, Kielar v. Superior Court (2023) 92 Cal.App.5th 614, and Yeh v. Superior Court (2023) ___ Cal.App.5th ___ (20923 WL 5741703) on the other, the court finds the analysis in the latter cases more persuasive than the reasoning and standards articulated in Felisilda.  The court therefore rejects Hyundai’s contention that it can enforce the sales contract as a nonsignatory under an equitable estoppel and/or third-party beneficiary rationale. 

The remaining basis for the motion to compel is an arbitration provision contained in the 2023 Owner’s Handbook & Warranty Information and it reads as follows:

BINDING ARBITRATION FOR CALIFORNIA VEHICLES ONLY

PLEASE READ THIS SECTION IN ITS ENTIRETY AS IT AFFECTS YOUR RIGHTS. THIS SECTION DOES NOT PRECLUDE YOU FROM FIRST PURSUING ALTERNATIVE DISPUTE RESOLUTION THROUGH BBB AUTO LINE AS DESCRIBED IN THE “ALTERNATIVE DISPUTE

RESOLUTION” PROVISION IN SECTION 3 OF THIS HANDBOOK.

If you purchased or leased your Hyundai vehicle in the State of California, you and we, Hyundai Motor America, each agree that any claim or disputes between us (including between you and any of our affiliated companies) related to or arising out of your vehicle purchase, advertising for the vehicle, use of your vehicle, the performance of the vehicle, any service relating to the vehicle, the vehicle warranty, representations in the warranty, or the duties contemplated under the warranty, including without limitation claims related to false or misleading advertising, unfair competition, breach of contract or warranty, the failure to conform a vehicle to warranty, failure to repurchase or replace your vehicle, or claims for a refund or partial refund of your vehicle's purchase price (excluding personal injury claims), but excluding claims brought under the Magnuson-Moss Warranty Act, shall be resolved by binding arbitration at either your or our election, even if the claim is initially filed in a court of law. If either you or we elect to resolve our dispute via arbitration (as opposed to in a court of law), such binding arbitration shall be administered by and through the American Arbitration Association (AAA) under its Consumer Arbitration Rules.

(Ameripour Decl., Ex. 3, p. 13.)

Legal Standards

A motion to compel arbitration must “alleg[e] the existence of a written agreement to arbitrate a controversy.”  (CCP § 1281(a).)  It must state the provisions of the written agreement and the paragraph that provides for arbitration (either verbatim or by copy of the agreement attached to the petition).  (CRC, rule 3.1330.) When a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court must determine whether the agreement exists by a preponderance of evidence, and if any defense to its enforcement is raised, whether it is enforceable.  Because the existence of the agreement is a statutory prerequisite to granting the petition, the moving party bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation (see [CCP] § 1281.2, subds. (a), (b))—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413; see also Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.)

 

Arbitration may be refused where grounds exist for revocation or rescission of the agreement to arbitrate under state law. (9 USC § 2—“grounds as exist at law or in equity for the revocation of any contract;” Code Civ. Pro. § 1281—“grounds as exist for rescission of any contract.”) The grounds for rescission or revocation in California include mistake, lack of capacity, undue influence, material failure of consideration, duress, illegality, and fraud. (See Civ. C. §§ 1689, 1566, 39; see also AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.)

 

Whether the FAA or the CAA applies, courts “apply general California contract law to determine whether the parties formed a valid agreement to arbitrate their dispute.” (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59-60.) “General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] ... “The words of a contract are to be understood in their ordinary and popular sense.” ’ [Citation.] Furthermore, ‘ “[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” ’ ” (Franco v. Greystone Ridge Condominium (2019) 39 Cal.App.5th 221, 227.)

Existence of Agreement

 The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.) When considering a motion to compel arbitration, the court must initially determine whether the parties agreed to arbitrate the dispute in question. This determination involves two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement. (Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1283.) As noted, the basis for the motion to compel is an arbitration provision contained in the 2023 Owner’s Handbook & Warranty Information. Hyundai must demonstrate whether that provision forms a valid agreement to arbitrate.

“An essential element of any contract is the consent of the parties, or mutual assent.” [Citation.] [Citation.] Further, the consent of the parties to a contract must be communicated by each party to the other. [Citation.] “Mutual assent is determined under an objective standard applied to the outward manifestations or expressions of the parties, i.e., the reasonable meaning of their words and acts, and not their unexpressed intentions or understandings.” ’ ” (Esparza v. Sand & Sea, Inc. (2016) 2 Cal.App.5th 781, 788.) The manifestation of mutual consent is usually accomplished through the medium of an offer communicated to the offeree and an acceptance communicated to the offeror. (Witkin, Summary of Cal. Law (11th ed. 2023) Contracts, § 117.)

As a general rule, “silence or inaction does not constitute acceptance of an offer.” (Golden Eagle Ins. Co. v. Foremost Ins. Co. (1993 20 Cal.App.4th 1372, 1385; see also Sorg v. Fred Weisz & Assocs. (1970) 14 Cal.App.3d 78, 81.) California courts have long held that “[a]n offer made to another, either orally or in writing, cannot be turned into an agreement because the person to whom it is made or sent makes no reply, even though the offer states that silence will be taken as consent, for the offerer cannot prescribe conditions of rejection so as to turn silence on the part of the offeree into acceptance.” (Leslie v. Brown Bros. Inc. (1929) 208 Cal. 606, 621; see also Witkin (11th ed. 2023) Summary of California Law, Contracts § 193 [collecting California cases].)

There are exceptions to this rule, however. An offeree's silence may be deemed to be consent to a contract when the offeree has a duty to respond to an offer and fails to act in the face of this duty. (Golden Eagle, supra, 20 Cal.App.4th at 1386.)  An offeree's silence may also be treated as consent to a contract when the party retains the benefit offered. (See Golden Eagle, supra, 20 Cal.App.4th at 1386; see also Cal. Civ. Code § 1589 [“A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting.”].)

“Courts must determine whether the outward manifestations of consent would lead a reasonable person to believe the offeree has assented to the agreement.” (Meyer v. Benko (1976) 55 Cal.App.3d 937, 942–43.) Before a party's acceptance of contract to arbitrate will be implied in fact, that party must have notice of the arbitration clause. “[A]n offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious. [Citations.] [¶] This principle of knowing consent applies with particular force to provisions for arbitration.” (Windsor Mills, Inc. v. Collins & Aikman Corp. (1972) 25 Cal.App.3d 987, 993; accord, Norcia v. Samsung Telecommunications America, LLC (9th Cir. 2017) 845 F.3d 1279.)

Here, the 2023 Owner’s Handbook & Warranty Information was provided after purchase. (Reed Decl., ¶6; Santillan Decl. ¶6.) It does not contain signatures. (Reed Decl. ¶4; Santillan Decl. ¶4.) There is no dispute that plaintiffs did not expressly assent to any agreement in the brochure. Hyundai does not require any affirmative acknowledgement of receipt of the 2023 Owner’s Handbook & Warranty Information, nor does it require the buyer’s written consent to the terms contained therein.

Hyundai argues plaintiffs are equitably estopped from denying the formation of a contract. “[A] party may be estopped from asserting that the lack of his signature on a written contract precludes enforcement of the contract's arbitration clause when he has consistently maintained that other provisions of the same contract should be enforced to benefit him” as “a nonsignatory is estopped from refusing to comply with an arbitration clause ‘when it receives a ‘direct benefit’ from a contract containing an arbitration clause.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 269.) Hyundai’s fundamental point is that a party is not entitled to make use of a contract containing an arbitration clause to his or her advantage, while attempting to avoid the arbitration clause. It argues: “Accordingly, it would be manifestly unjust to allow Plaintiffs to rely on the Warranty as a basis for this action, but then avoid the binding arbitration provision in the Warranty.” (Motion, p. 13, ll. 18-20.)

The court is not convinced that equitable estoppel applies here. California warranty law and contract law are governed by different sets of rules. (Compare Com. Code §§ 2201–2210 (governing contract formation), with Cal. Com. Code §§ 2313–2317 and Cal. Civ. Code §§ 1790–1795.8 (governing the formation of express and implied warranties).) A seller is bound by any express warranties given to the buyer, including statements in written warranty agreements, advertisements, oral representations, or presentations of samples or models. (See Keith v. Buchanan (1985) 173 Cal.App.3d 13, 20; see also Witkin, Summary of California Law (11th ed. 2023) Sales §§ 56–62). Language in a written warranty agreement is “contractual” in the sense that it creates binding, legal obligations on the seller (see Daugherty v. Am. Honda Motor Co. (2006) 144 Cal.App.4th 824, 830) but a warranty does not impose binding obligations on the buyer. Rather, warranty law focuses on the seller's behavior and obligation—his or her affirmations, promises, and descriptions of the goods—all of which help define what the seller in essence agreed to sell. (Norcia v. Samsung Telecommunications America, LLC (9th Cir. 2017) 845 F.3d 1279; see also Cal. Com. Code § 2313.) A warranty generally does not impose any independent obligation on the buyer outside of the context of enforcing the seller's promises. (Weinstat v. Dentsply International Inc. (2010) 180 Cal.App.4th 1213, 1228--“[T]he whole purpose of warranty law is to determine what it is that the seller has in essence agreed to sell....” (internal quotation marks omitted)); Cal. Com. Code § 2313(1)(a) (stating that an express warranty is a “promise made by the seller to the buyer which relates to the goods”). In other words, there is no mutuality of obligation under warranty law as there is in contract law. The court thus finds no inherent unfairness in plaintiffs’ reliance on an express warranty from the seller while resisting efforts to enforce the arbitration provision contained therein.

Moreover, the Boucher case (and other cases invoking equitable estoppel examined by this court) is factually inapposite. In Boucher, the arbitration clause was contained in an employment agreement executed by plaintiff and a co-defendant, Financial Title Company (Financial). Defendant Alliance Title Company (Alliance), an entity to which Financial subsequently transferred all its assets, sought to compel plaintiff to arbitrate his claims against it. The court found that plaintiff was equitably estopped from avoiding arbitration of his causes of action against Alliance. (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 273.) Thus, in Boucher, unlike here, the plaintiff had executed a contract that contained an agreement to arbitrate. The court was confronted with whether the plaintiff should be required to arbitrate a claim he asserted against a nonsignatory to an arbitration clause to which he had already manifested his consent. Hyundai has not supplied the court with a case in which this theory was used to substitute for consent in the formation of a binding contract in the first instance.

Hyundai has not asserted any other theory of acceptance. (Quantum Cooking Concepts, Inc. v. LV Associates, Inc. (2011) 197 Cal.App.4th 927, 934—"Rule 3.1113 rests on a policy-based allocations of resources, preventing the trial court from being cast as a tacit advocate for the moving party’s theories by freeing it from any obligation to comb the record and the law for factual and legal support that a party has failed to identify or provide.”) For the sake of completeness, the court nevertheless considers whether plaintiffs’ had sufficient notice of the arbitration provision to allow the court to imply their consent by their conduct. The 2023 Owner’s Handbook & Warranty Information provides:

IF YOU PURCHASED OR LEASED YOUR VEHICLE IN CALIFORNIA, YOUR WARRANTY IS MADE SUBJECT TO THE TERMS OF THIS BINDING ARBITRATION PROVISION. BY USING THE VEHICLE, OR REQUESTING OR ACCEPTING BENEFITS UNDER THIS WARRANTY, INCLUDING HAVING ANY REPAIRS PERFORMED UNDER WARRANTY, YOU AGREE TO BE BOUND BY THESE TERMS. IF YOU DO NOT AGREE WITH THESE TERMS, PLEASE CONTACT US AT OPT-OUT@HMAUSA.COM WITHIN THIRTY (30) DAYS OF YOUR PURCHASE OR LEASE TO OPT-OUT OF THIS ARBITRATION PROVISION.

(Ameripour Decl., Ex. 3, p. 14.)

Norcia v. Samsung Telecommunications America, LLC (9th Cir. 2017) 845 F.3d 1279, is useful. In that case, plaintiff purchased a Samsung Galaxy S4 from Verizon Wireless. After purchasing the telephone, plaintiff and a Verizon Wireless employee took the Galaxy S4 phone, still in its sealed Samsung box, to a table. The front of the product box stated “Samsung Galaxy S4.” The back of the box stated: “Package Contains ... Product Safety & Warranty Brochure.” The Verizon Wireless employee opened the box, unpacked the phone and materials, and helped Norcia transfer his contacts from his old phone to the new phone. Norcia took the phone, the phone charger, and the headphones with him as he left the store, but he declined the offer by the Verizon Wireless employee to take the box and the rest of its contents. The Samsung Galaxy S4 box contained, among other things, a “Product Safety & Warranty Information” brochure. The Standard Limited Warranty section explained the scope of Samsung's express warranty. In addition to explaining Samsung's obligations, the procedure for obtaining warranty service, and the limits of Samsung's liability, the warranty section contained a clause requiring arbitration of all disputes arising from the limited warranty or the sale. Norcia subsequently filed a class action complaint against Samsung, alleging that Samsung misrepresented the Galaxy S4's storage capacity. Samsung moved to compel arbitration. The district court held that receipt of the brochure did not form an agreement to arbitrate the claims and the appellate court upheld the ruling.

The court appreciates that the Norcia case is distinguishable, as the arbitration provision in that case did not prescribe conduct that would be construed as acceptance, as the instant provision does. The case nevertheless provides useful guidance in framing the analysis through the prism of warranty law. 

Here, there is no evidence plaintiffs knew that Hyundai would infer from their exercise of their warranty benefits that they consented to arbitration of their claims. (See Reed Decl., ¶¶ 6-7; Santillan Decl., ¶¶ 6-7.) As previously noted, a warranty does not require mutual obligations, therefore, there is no available inference that plaintiffs should have known that Hyundai may infer their consent under the premise that they were required to read their contracts. “ ‘ “Reasonable diligence requires the reading of a contract before signing it. A party cannot use his own lack of diligence to avoid an arbitration agreement.” ’ ” (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1215 & fn. 1, italics added.) Lack of diligence is inapposite where the plaintiffs signed no written document containing an arbitration provision. Stated another way, there was no reason for plaintiffs to expect the 2023 Owner’s Handbook & Warranty Information to contain a contractual offer, much less designate the exercise of warranty benefits as consent.

Conclusion

The court appreciates the strong policy in favor of arbitration. But the policy is inapposite when the question is “whether a particular party is bound by the arbitration agreement. (Norcia, supra, 845 F3d at 1291.) Because Hyundai failed to carry its burden of proving the existence of a contract with plaintiffs to arbitrate as a matter of California law, the petition is denied. The court grants the request for judicial notice filed September 18, 2023 of three trial court rulings that have reached the opposite conclusion as this court does here. (RJN filed September 18, 2023.) This court respectfully disagrees with those courts. In any event, those opinions have no precedential value. (Bolanos v. Superior Court (2008) 169 Cal.App.4th 744, 761—“a written trial court ruling has no precedential value.”; Wood v. Kaiser Foundation Hospitals (2023) 88 Cal.App.5th 742, 763; see Cal. Rules of Court, rule 8.1115.)

The court need not reach the other issues raised by the parties.