Judge Daniel M. Crowley, Case Number: 22STCV14224, Date: 2023-10-04 Tentative Ruling

The Court, sua sponte, reconsiders its December 20, 2022 order (“12/20/22 Ruling”) granting Defendants Mercedes-Benz USA LLC’s (“MBZ”) and Silver Star A.G. Ltd.’s (“Silver Star”) (collectively, “Defendants”) motion to compel arbitration. (Notice of Motion, pg. 2.)

On April 28, 2022, Plaintiff filed his operative complaint against Defendants alleging five causes of action under the Song-Beverly Consumer Warranty Act, Civil Code §§1790 et seq. (“Song-Beverly”) and in common law tort: (1) violation of Civil Code §1793.2(d) [against MBZ]; (2) violation of Civil Code §1793.2(b) [against MBZ]; (3) violation of Civil Code §1793.2(A)(3) [against MBZ]; (4) breach of the implied warranty of merchantability (Civ. Code §§1791.1, 1794, 1795.5) [against MBZ]; and (5) negligent repair [against Silver Star] arising

from Plaintiff’s March 15, 2020 entry into a warranty contract with MBZ regarding a 2019 Mercedes GLE 63 (“Subject Vehicle”).

On December 20, 2022, this Court granted Defendants’ motion to compel arbitration of Plaintiff’s claims. (12/20/22 Ruling.)

On October 4, 2023, this Court, sua sponte, set a hearing to reconsider Defendant’s motion to compel arbitration, continuing the October 4, 2023, hearing on Plaintiff’s motion for reconsideration. Parties submitted simultaneous briefs on November 20, 2023, addressing the holdings in Yeh v. Superior Court of Contra Costa County (Cal. Ct. App., Sept. 6, 2023, No. A166537) 2023 WL 5741703; Kielar v. Superior Court of Placer County (Cal. Ct. App., Aug. 16, 2023, No. C096773) 2023 WL 5270559; Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958, review filed (Aug. 1, 2023); and Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, review granted (July 19, 2023).

A statutory motion for reconsideration requires that the motion be made 10 days from the date the order at issue is served. (C.C.P. §1008.) However, the Court has discretion to reconsider an order on its own motion pursuant to its “constitutionally derived authority.” (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1096.) Section 1008 limits the parties’ ability to file repetitive motions to reconsider but does not limit the court’s ability to reconsider its prior interim orders to correct its own errors. (Id. at pg. 1109.)

As the Court is not constrained by the limitations or the requirements of C.C.P. §1008 and based on its inherent authority, the Court reconsiders its order compelling this matter to arbitration. (Id. at pg. 1095.)

The distinguishing facts and procedural posture in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, coupled with recent and persuasive case authority warrants revocation of the Court’s prior order.

At the time Defendants made their motion to compel arbitration, Defendants relied on Felisilda as it was the only case from a California appellate court to decide, based on the principles of equitable estoppel and third-party beneficiary that a vehicle manufacturer could force the plaintiff to arbitrate although the manufacturer was not a party to the retail sales contract between Plaintiff and the dealer. (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.) However, Division Eight of the Second District Court of Appeal declined to follow Felisilda and disagreed with its conclusion that the manufacturer had the power to elect arbitration although not a signatory since the sales contract was not the source of the manufacturer warranties at issue in the case, Plaintiff did not agree to arbitrate claims with the manufacturer, and the sales contract “could not be construed to bind the purchaser to arbitrate with the universe of unnamed third parties.” (Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1335.)

Felisilda is distinguishable in that the dealer, who was a party to the sales contract, moved to compel arbitration of all claims including those against the manufacturer, who did not oppose the motion. The trial court found it was the court’s prerogative to send the entire matter to arbitration at the dealer’s request. (Felisilda, 53 Cal.App.5th at pg. 498.) Here, Plaintiff did not sue the dealer, the dealer is not a party to the action, and Defendants are moving to compel.

More recently in Montemayor v. Ford Motor Company (Cal. Ct. App., June 26, 2023, No. B320477) 2023 WL 4181909, Division Seven of the Second Appellate District affirmed the trial court’s order denying Defendant’s motion to compel arbitration as Ford was not a party to the sales contract and could not enforce the arbitration provision under the principles of equitable estoppel or as a third-party beneficiary of the contract. (Montemayor, 2023 WL 4181909, at *1-2.)

Additionally, on August 16, 2023, California’s Third Court of Appeal’s decision in Keilar v. The Superior Court of Placer County (2023) 94 Cal.App.5th 614, issued a holding further bolstering support for the prevailing authority finding that contracts between a Plaintiff and non-signatory selling dealer cannot be relied upon by a vehicle manufacturer to compel arbitration in a breach of warranty case. The Keilar Court underscored that “[t]he doctrine of equitable estoppel is the exception to “‘the general rule that a nonsignatory cannot be compelled to arbitrate and cannot invoke an agreement to arbitrate, without being a party to that arbitration agreement.” (Keilar, 94 Cal.App.5th at pg. 430, quoting JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236-1237.) The Keilar Court further stated that even referencing an agreement within an arbitration clause is not enough to grant a non-signatory Defendant standing to compel arbitration, as the plaintiff’s actual dependance on the underlying contract in making out the claim against the non-signatory is “always the sine qua non of an appropriate situation for applying equitable estoppel.” (Id., citations omitted.)

Where appellate decisions are in conflict, the Court exercising inferior jurisdiction can and must make a choice between the conflicting decisions. (Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 456.) The Court considers the analyses in Ford Motor Warranty Cases, Montemayor, Keilar, and Yeh more persuasive as they address the issues more succinctly and within the same context.

The Lease (“Lease”) at issue is made between Plaintiff and Keyes European. (Decl. of Ameripour ¶4, Exh. 2.) Defendants are not parties to the Lease. (See Decl. of Ameripour ¶4, Exh. 2.) The Lease defines “we,” “us,” and “our” as the “Lessor.” (Decl. of Ameripour ¶4, Exh. 2. at pg. 1.) Here, MBZ and Silver Star moved to compel arbitration; Plaintiff did not sue the Lessor. This is a critical difference as Ford Motor Warranty Cases recognized the distinction between who had the power to elect arbitration (“You” and “Us”) as opposed to the scope or subject matter of arbitrable issues (disputes with third parties including non-signatories). (Ford Motor Warranty Cases, 89 Cal.App.5th at pg. 1339 [“Who may enforce an arbitration agreement is a separate matter from the types of disputes the agreement covers.”].) Defendants improperly conflate both issues.

Any claim or dispute, whether in contract, tort, statute or otherwise . . . between you and us . . . which arises out of or relates to . . . [the] condition of this vehicle, this contract or any resulting transaction or relationship (including any such relation 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 court action.

Any claim or dispute, whether in contract, tort, statute or otherwise, . . . 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 arising out of this lease shall, at the election of either you or us, or our successors or assigns, be resolved by neutral, binding arbitration and not by a court action.

Based on the lease’s express provisions, MBZ and Silver Star do not have the power to elect arbitration of issues covered by the lease based on the arbitration provision’s scope that included resulting relationships with third parties. (Decl. of Ameripour ¶4, Exh. 2 at pg. 2.)

Therefore, Plaintiff’s claims are founded on the Lease with the Lessor, precluding application of equitable estoppel. Under California law, the general rule is that “only a party to an arbitration agreement is bound by or may enforce the agreement.” (C.C.P. §1281.2.) However, one exception is the principle of equitable estoppel which applies “when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations . . ..” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 272.) Under those circumstances, where a plaintiff “relies on contract terms in a claim against a non-signatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” (Id.)

In applying equitable estoppel, the Court examines Plaintiff’s claims to determine if they are “intertwined” with the Plaintiff’s obligations imposed by the Lease. (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218.) Defendants contend that Plaintiff’s claims under Song-Beverly against Defendants fundamentally results from and are inseparable from the Lease and the alleged obligations of MBZ that flow from the relationship that was created by and

through the Lease. (Motion to Compel, pg. 7.) Defendants conclude that Plaintiff is equitably estopped from repudiating the arbitration provision, which is part of the Lease.

The Lease obligated Plaintiff to pay Keyes European the monthly payments for the vehicle according to the stated terms and conditions. The complaint does not assert any claim founded upon Plaintiff’s payment obligations to MBZ or Silver Star. Rather, Plaintiff’s claims are based on MBZ’s statutory obligations to reimburse consumers or replace the vehicles when unable to repair in accordance with its warranty. (Complaint ¶¶26-28.)

Ford Motor Warranty Cases observed that warranties from a non-party manufacturer are not part of the sales contract. (Ford Motor Warranty Cases, 89 Cal.App.5th at pg. 621, citing Corporation of Presiding Bishop of Church of Jesus Christ of Latter-Day Saints v. Cavanaugh (1963) 217 Cal.App.2d 492, 514, and Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57.) Here, Keyes European expressly disclaimed any warranties, express or implied on the vehicle including for warranties of merchantability or of fitness. (Decl. of Ameripour ¶4, Exh. 2 at pg. 2 §15.) The Montemayor court adopted the same reasoning as Ford Motor Warranty Cases. (Montemayor, 2023 WL 4181909, at *5.)

Defendants have also not established that it can enforce the contract as a third-party beneficiary. A contract made expressly for the benefit of a third person, “may be enforced by him at any time before the parties thereto rescind it.” (Civ. Code §1559). Persons who are “only incidentally or remotely benefited by it” are excluded. (Lake Almanor Associates L.P. v. Huffman-Broadway Group, Inc. (2009) 178 Cal.App.4th 1194, 1199.) To establish that it is an intended, third-party beneficiary of the contract, Defendant must show “(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 not simply acknowledge that a benefit to the third party may follow from the contract”), and (3) whether 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 contracting parties. All three elements must be satisfied to permit the third-party action to go forward.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

Defendants’ motion relied on the Lease provision that identifies the scope of arbitrable matters including claims arising from any resulting relationship with third parties. (Motion Compel Arb, pgs. 5-6.) However, the mere mention of third parties in the provision governing scope does not establish that the Lease’s motivating purpose or intent was to benefit Defendants. (Ford Motor Warranty Cases, 89 Cal.App.5th at pg. 621.) The “motivating purpose” of the Lease was to finance the vehicle with the Lessor; it was not made expressly for the benefit of a third person. (Montemayor, 2023 WL 4181909, at *10.) Therefore, Defendants have not established that they can invoke the arbitration provision as third-party beneficiaries.

A moving party’s burden is to establish that a valid arbitration agreement exists between the parties. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 705.) Defendants have not met their initial burden. Accordingly, the Court, sua sponte, vacates its December 20, 2022, ruling that granted Defendants’ motion to compel arbitration and issues this order, denying Defendants’ motion to compel arbitration.

Hon. Daniel M. Crowley

Judge of the Superior Court