Judge Cherol J. Nellon, Case Number: 22STCV38696, Date: 2023-10-24 Tentative Ruling

Defendant Mercedes now moves this court for an order staying this case and compelling Plaintiffs to arbitrate their claims, on the basis that the parties have entered into a binding arbitration agreement.

Defendant Mercedes’ Request for Judicial Notice is DENIED. The court need not take judicial notice of the complaint in this action to decide the pending motion.

Plaintiff’s Evidentiary Objection to the Declaration of Ali Ameripour is OVERRULED. See Condee v. Longwood Management Corp. (2001) 88 Cal.App.4^th 215. Plaintiff does not dispute either the existence or the terms of the agreement.

On December 3, 2020, Plaintiff signed a “California Motor Vehicle Lease Agreement” (“Agreement”) which provides in relevant part as follows:

“The following arbitration provisions significantly affect your rights in any dispute with us. Please read the following disclosures and the arbitration provision that follows carefully before you sign the contract.

1. If either you or we choose, any dispute between you and us will be decided by arbitration and not in court.

2. If such dispute is arbitrated, you and we will give up the right to a trial by a court or a jury trial.

Any claim or dispute, whether in contract, tort, or otherwise (including any dispute over the interpretation, scope, or validity of this lease, arbitration section or the arbitrability of any issue, between you and us or any of our employees, agents, successors, or assigns, which arises out of or relates to a credit application, this lease, or any resulting transaction or relationship arising out of this lease shall, at the election of either you or us, or our successors or assigns, be resolved by a neutral binding arbitration and not by a court action…

…Any arbitration under this lease shall be governed by the Federal Arbitration Act.” (Declaration of Ali Ameripour Exhibit 2) (Emphasis in original).

The parties to the Agreement were Plaintiff and a franchise dealership identified as MB of Los Angeles. The Agreement identifies an anticipated assignee: Daimler Trust. No defendant in this case was a party to the Agreement.

This court has had twelve previous motions in twelve previous cases raise agreements resembling this one, including some agreements crafted by different manufacturers – BMW, Ford, Fiat, Honda, and Nissan.[1] In two cases,[2] this court granted the motion to compel because plaintiffs had sued both the manufacturer and the dealer that was the actual signatory to the contract. In the other ten,[3] this court denied the motion to compel because Plaintiffs had not sued the dealer or any other actual signatory to the contract.

In the BMW cases, the contract at issue had an expansive provision expressly extending the agreement to disputes between the consumer and third parties, if they were asserted “in connection with” a claim brought against the dealer. Thus, in the eyes of this court, the distinguishing factor was whether Plaintiffs had chosen to sue the dealer, the party who had actually signed the contract. The Honda, Fiat, Ford, and Nissan cases have been somewhat different, in that none of their Agreements (which were all identical) contained the extra language included in the BMW contracts. The Agreement in this case is essentially a carbon copy of the Agreement in the Honda, Fiat, Ford and Nissan cases.

The parties to this Agreement are Plaintiff and the leasing dealership. The manufacturer is not a party to the agreement. Defendant Mercedes is not an “employee, agent, successor or assign” of the dealership. Nor is the leasing dealership party to this case; the Dealer that Plaintiffs have sued is the one that did the repairs, not the one that originally delivered the vehicle. The express terms of the provisions cover disputes between Plaintiff and the leasing dealership: “[a]ny claim or dispute…between you and us or our employees, agents, successors or assigns.” Defendant Mercedes is not covered by this Agreement.

The court’s previous orders in other cases have rested on a particular analysis of two relatively recent authorities: Felisilda v. FCA US LLC (2020) 53 Cal.App.5^th 486 (coming out of the Court of Appeal for the Third District) and Ngo v. BMW of North America, LLC (9^th Cir. 2022) 23 F.4^th 942, 950.

A few days before this motion was filed, Division 8 of the Court of Appeal for the Second District decided the consolidated Ford Motor Warranty Cases (2023) 89 Cal.App.5^th 1324, frequently referred to as as “Ochoa” for the name of the plaintiff in the lead case. Plaintiffs addressed the impact of that case in their opposition. Defense addressed it in the reply.

In the ordinary case, an equitable estoppel arises when one party induces another party to do something against her own interest, such as waiting to file a lawsuit until the statute of limitations has run. See Hopkins v. Kedzierski (2014) 225 Cal.App.4^th 736, 756-757.[4] In the context of arbitration agreements, the doctrine frequently becomes more precise. In that context, the issue is whether the signatory has relied on contract terms in suing the non-signatory. JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4^th 1222, 1237. Parties cannot pick and choose which portions of their contracts they wish to enforce, so if a signatory relies on a contract term to sue a non-signatory, she cannot protest when the non-signatory comes back and wishes to enforce the other terms of that same contract (i.e. arbitration). Id. at 1237-38 (citing cases).

In practical terms, the doctrine of equitable estoppel is usually applied where a signatory has sued both another signatory and certain non-signatories on identical claims. See e.g. Garcia v. Pexco, LLC (2017) 11 Cal.App.5^th 782; Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4^th 1705. But what happens if the other party to the contract is not also a party to the case, and never was? “Equitable estoppel applies only if the plaintiffs' claims against the nonsignatory are dependent upon, or inextricably bound up with, the obligations imposed by the contract plaintiff has signed with the signatory defendant.” JSM Tuscany, supra, 193 Cal.App.4^th at 1239.

Defendant Mercedes argues that a lemon law plaintiff cannot make a lemon law claim without having entered into a purchase contract. Therefore, it says, lemon law plaintiffs rely on the terms of those contracts when bringing their claims, and may be compelled into arbitration. Defendant Mercedes chiefly relies on Felisilda, supra, to support its position.

Previously, this court’s practice was to distinguish Felisilda based on its facts and procedural posture. However, Ochoa, supra, 89 Cal.App.5^th at 1333-35 expressly declines to follow Felisilda. Defense argues that the court should follow Felisilda. It should not.

In Felisilda, the plaintiffs bought a Dodge Grand Caravan (a minivan) from a dealership in Elk Grove. Felisilda, supra, 53 Cal.App.5^th at 489. It had problems, and plaintiffs opted to sue both the dealer and Fiat. Id. The dealer moved to compel arbitration and the trial court granted the motion, sending the whole case to arbitration. Id. Afterwards, with the case in arbitration, plaintiffs dismissed the dealer. Id. The arbitrator ruled in favor of Fiat, and the trial court confirmed the award. Id. Plaintiffs appealed, on the ground that the trial court had never had the power to send their claims against Fiat to arbitration. Id. The Court of Appeal disagreed, holding that the doctrine of equitable estoppel justified the trial court’s decision to send both parties to arbitration was justified. Id. at 495-496.

The factual and procedural background of Ochoa is much less clear from the text of the decision. There is no indication that the plaintiffs in Ochoa ever sued the selling dealerships or that the selling dealerships participated in the motions, as was the case in Felisilda. Thus, it is not presently clear that Felisilda and Ochoa present a true split of authority. What appears from the text in Ochoa, supra, 89 Cal.App.5^th at 1333-35 is that the Court of Appeal agreed with the analysis undertaken by this court in its handling of prior cases: (a) that lemon law claims are statutory creations, not contract causes of action, and (b) that the agreements contemplate arbitration only where the selling dealership has also been sued.

In Felisilda, when the court made its ruling, the dealer was still in the case. In fact, it was the dealer who made the motion to compel, not Fiat. The panel could easily find, as it did, that the claims against the dealer and the manufacturer were “inextricably bound up with” one another and it wouldn’t be fair to either party to engage in parallel proceedings. That is not the case here. The dealer has never been a party to this action, and there is no prospect that it will be anything more than a witness. Nor do Plaintiffs’ claims against Mercedes properly arise from any term of the lease contract with the dealer. They arise from the lemon law statutes.

As other courts have noted, there is a distinction between a claim that relies on the mere fact of a purchase, and a claim that relies upon the actual contents of a contract.[5] Lemon law claims are statutory creations, not contract causes of action; Plaintiffs are not suing Defendant because they breached a particular provision or section of the Agreement. Plaintiffs are suing Defendant because they bought (as opposed to stealing) a vehicle from a retail dealership (as opposed to a private third party), and the vehicle doesn’t work. Dagher v. Ford Motor Co. (2015) 238 Cal.App.4^th 905, 926. The claim arises out of the act of purchase, not the signature of any particular form or purchase contract.[6] See Soto v. American Honda Motor Co., Inc. (N.D. Cal. 2012) 2012 WL 5877476 at *2-3 (“[Plaintiff’s] claims against AHM for defects in his Honda Accord are not intertwined with the mere fact that [Plaintiff] purchased his vehicle with an installment sales contract”). Therefore, equitable estoppel does not apply here.

Recent federal authority is in accord. Ngo v. BMW of North America, LLC (9^th Cir. 2022) 23 F.4^th 942, 950 makes the same observation that this court has made in its prior cases: the “critical” fact is whether the Plaintiff “sued the dealership in addition to the manufacturer.” Id. at 950. In Ngo, the Plaintiff had not sued the dealer, so the Ninth Circuit held that arbitration could not be compelled. Id.

To the extent that this court is required by Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 456 to make a choice between Ochoa and Felisilda, Ochoa is the better reasoned decision. However, as already explained, it is not clear that such a choice is required. Ochoa simply supports the analysis that this court was already using to explain Felisilda – if the plaintiffs sue the selling dealership along with the manufacturer, they can be compelled to arbitration. If they don’t, they can’t.

Defendant Mercedes contends that it is a third-party beneficiary to the Agreement. It is not.

The Agreement expressly covers disputes between the buyer and the “employees, agents, successors or assigns” of the leasing dealer.[7] Defendant Mercedes makes no attempt to argue that it is any of those things, and indeed it hardly could be.[8] Instead, it relies on language in the provision which permits arbitration of disputes “arising out of” among other things, a “resulting transaction or relationship” with some third party. But as already explained, this language does not make beneficiaries out of all subsequent third parties. It merely secures the dealer’s right to arbitration (so far as is possible) where other parties are also involved in the dispute. Here, the dealer is not involved in the dispute. So the provision simply does not apply and Defendant Mercedes has failed to carry its burden of proving that it is an intended third-party beneficiary. See Jones v. Jacobsen (2011) 195 Cal.App.4^th 1, 15.[9]

Defendant Mercedes is not a signatory to the Agreement it seeks to enforce, though Plaintiff is. The doctrine of equitable estoppel will not permit Defendant Mercedes to enforce the Agreement against Plaintiff. Nor can it do so as a third-party beneficiary. Defendant Mercedes has offered no other claim of entitlement to enforce the Agreement, which is its burden as a non-signatory. Therefore, this motion is DENIED.

[1] These are standard form agreements apparently prepared by the legal department of the automaker.

[2] June Again, Inc., et al. v. BMW of North America LLC, et al. (LASC Case No. BC 720 854) and Nestor, et al. v. FCA US LLC, et al. (LASC Case No. 22 STCV 00220).

[3] Khanian v. BMW of North America LLC, et al. (LASC Case No. 19 STCV 29575), Chun v. BMW of North America, LLC et al. (LASC Case No. 21 STCV 16369), Arce v. American Honda Motor Co., Inc. (LASC Case No. 21 STCV 47403), Hermosillo, et al. v. Ford Motor Company, et al. (LASC Case No. 22 STCV 01246), Sanchez, et al. v. Nissan North America, Inc., et al. (LASC Case No. 21 STCV 18887), Rincon, et al. v. American Honda Motor Co., Inc., et al. (LASC Case No. 22 STCV 11179), Norato, et al. v. Nissan North America, et al. (LASC Case No. 21 STCV 27410), Morua, et al. v, Nissan North America, et al. (LASC Case No. 21 STCV 41604), Valencia v. Nissan North America, Inc., et al. (LASC Case No. 22 STCV 03084), and Cruz, et al. v. Nissan North America, Inc., et al. (LASC Case No. 22 STCV 10359).

[4] “Four elements must ordinarily be proved to establish an equitable estoppel: (1) The party to be estopped must know the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had the right to believe that it was so intended; (3) the party asserting the estoppel must be ignorant of the true state of facts; and, (4) he must rely upon the conduct to his injury.” (Quoting Ashou v. Liberty Mutual Fire Ins. Co. (2006) 138 Cal.App.4th 748, 766–767).

[5] See Hawkins v. KPMG LLP (N.D. Cal. 2006) 423 F.Supp.2d 1038, 1051 (plaintiff’s claims “depend only on the sale of the tax shelter as a whole. The complex innards of the shelter are for all relevant purposes a black box”).

[6] It is worth noting also that recent appellate authority has expressed a reluctance to find equitable estoppel in contract cases where the result would be the loss of a party’s constitutional right to a jury trial. See Pillar Project AG v. Payward Ventures, Inc. (2021) 64 Cal.App.5^th 671, 680-681.

[7] In the BMW cases, the agreement contained a provision including “affiliates” of the dealer as well. BMW routinely argues that it is an “affiliate” of the dealer, which made it a third-party beneficiary by the strict definition of the terms of the Agreement. This court had other issues with the use of terms in those agreements which do not apply here.

[8] In nearly every other lemon law case this court has handled, the auto manufacturer has taken the position that it has no agency relationship with its dealers. In all of those discussions, the manufacturer was the putative principal and the dealer the supposed agent. No manufacturer, or consumer either for that matter, has argued that in fact the dealer is the principal and the manufacturer the agent. It is always hard to evaluate a position no one has taken, but it appears facially absurd to suppose that a local dealer is the principal of a global manufacturer.

[9] Because Defendant Mercedes is not a party to the agreement and therefore is not entitled to enforce it at all, this analysis does not and need not consider Plaintiff’s argument that the Agreement is unconscionable.