Judge: Daniel S. Murphy, Case: 23STCV05223, Date: 2023-08-28 Tentative Ruling

Case Number: 23STCV05223    Hearing Date: August 28, 2023    Dept: 32

Background

Plaintiff Jintao yang (Plaintiff) commenced this lemon law action against Defendant MERCEDES BENZ USA, LLC (Mercedes) on March 9, 2023. The Complaint asserts causes of action for violation of the Song-Beverly Act.  The causes of action arise from Plaintiff’s purchase of a 2022 Mercedes Benz C300W (Vehicle).  

Discussion

Defendant Mercedes moves to compel Plaintiffs to submit this action to binding arbitration. 

Merecedes presents a copy of the Vehicle’s Retail Installment Sale Contract (Sale Contract) entered into by Plaintiff and Fletcher Jones Motorcars of Fremont.  (Ameripour Decl. Ex. 2.) 

Plaintiff’s causes of action fall within the broad scope of this arbitration clause because the causes of action relate to the purchase and condition of the Vehicle.  (See Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189 (noting that “arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question”).)

The disposition of this motion turns on whether Mercedes, a nonsignatory to the Sales Contract, may compel Plaintiff to arbitrate his claims pursuant to this arbitration clause.

This court begins its analysis with a discussion of the relevant California and federal authorities addressing Song-Beverly motions to compel arbitration by nonsignatories.

First, in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 489, the plaintiffs sued a car manufacturer and car dealer for violations of Song-Beverly.  The dealer moved to compel arbitration of the claims based on an arbitration provision.  (Id.)  The trial court ordered arbitration of the claims against both the dealer and manufacturer.  The plaintiffs then dismissed the dealer, and arbitrated their claims with the manufacturer.  (Id.)  After the trial court confirmed the arbitrator’s decision, the plaintiffs appealed, arguing that the trial court could not order plaintiffs to arbitrate the claim with the manufacturer because it was a nonsignatory to the sales contract.  (Id.)

The Court of Appeal rejected this argument.  The Court explained that the express warranties allegedly breached by the manufacturer arose from the sales contract.  (Id. at 496-97).  “Because the [plaintiffs] expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party nonsignatories to the sales contract – they are estopped from refusing to arbitrate their claim against [the manufacturer].”  (Id. at 497).

Then, in Ngo v. BMW of America, 23 F.4th 942, 950 (9th Cir. 2022), the plaintiff sued BMW, who manufactured the car, but did not include the dealer.  Notably, the arbitration provision was nearly identical to the one in Felisilda. The manufacturer then attempted to compel arbitration based on the provision.  The Court rejected this attempt, finding equitable estoppel theory inapplicable to the manufacturer.  As the court explained:

It makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer. In Felisilda, it was the dealership—a signatory to the purchase agreement—that moved to compel arbitration rather than the non-signatory manufacturer. [Citation]…Furthermore, the Felisildas dismissed the dealership only after the court granted the motion to compel arbitration. Accordingly, Felisilda does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own.

(Id. at 950).

Ngo also went on to hold that the manufacturer was not a third-party beneficiary of the agreement.  (Id. at 946.)

Most recently, the California Court of Appeal addressed the issues in Ford Motor Warranty Cases, (“Ochoa”) (2023) 89 Cal. App.5^th 1324.  In relevant part, the Ochoa Court converged from Felisilda’s position that “the sales contract was the source” of the warranties at issue. (Felisilda, supra, 53 Cal.App.5th at p. 496.) Instead, the Ochoa court concluded that “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.” (Ochoa, supra, 89 Cal.App.5^th at 621.) Thus, the court found equitable estoppel to be inapplicable because the plaintiffs’ claims “in no way rel[ied] on the sale contracts.” (Id.) Therefore, the Plaintiffs were not attempting “to prevent a party from taking advantage of a contract's substantive terms while avoiding those terms requiring arbitration,” which is the “’fundamental point’ of using equitable estoppel to compel arbitration.” (Id.)

Ochoa also disagreed with Felisilda’s holding that a manufacturer could compel arbitration as a third-party beneficiary of the sales contract.  Instead, it found Ngo “persuasive,” agreeing that “the sale contracts reflect no intention to benefit a vehicle manufacturer.” (Id. at 622.)

Most recently, the California Court of Appeal addressed the issues in Montemayor v. Ford Motor Co., No. B320477, 2023 WL 4181909 (Cal. Ct. App. June 26, 2023) (“Montemayor”), a case certified for publication.  The Montemayor court concurred with the Ochoa and Ngo decisions. 

A.    Equitable Estoppel

Defendant first argues that it has standing to compel arbitration under the doctrine of equitable estoppel.

“As a general rule, only a party to an arbitration agreement may enforce the agreement. [Citation.] However, there are several exceptions that allow a nonsignatory to invoke an agreement to arbitrate. [Citation.] The doctrine of equitable estoppel is one of the exceptions. (Ibid.)”  (Felisilda v. FCA US LLC, (2020) 53 Cal. App. 5th 486, 495, review denied (Nov. 24, 2020)).  Under equitable estoppel, “as applied in ‘both federal and California decisional authority, 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.’ [Citations.] ‘By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.’ [Citation.] (Id.)

Defendant contends that Felisilda controls and demands a finding of arbitrability here. (Felisilda, supra, 53 Cal. App. 5th.) Defendant recognizes that Ngo and Ochoa and Motemayor  conflict with Felisilda.

“[W]here there is more than one appellate court decision, and such appellate decisions are in conflict…. the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.” (See Auto Equity Sales, Inc. v. Superior Ct. of Santa Clara Cnty. (1962) 57 Cal. 2d 450, 456.)

It is apparent that the facts of the instant case are indistinguishable from Ngo, Ochoa and Motemayor.  The court finds the reasoning in Ngo, Ochoa and Montemayor more persuasive than Felisilda. 

B.     Third Party Beneficiary

Defendant also argues it can compel arbitration as a third-party beneficiary of the RISC. To permit a third-party action to go forward, three factors must be established: (1) the third party would in fact benefit from the contract; (2) a motivating purpose of the contracting parties was to provide a benefit to the third party; and (3) permitting the third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and reasonable expectations of the third parties. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.) 

Ngo also directly addressed the third-party beneficiary theory and applied the Goonewardene factors.  There, the Court found that BMW could not show it would benefit from the arbitration agreement (prong 1) because “only three parties—Ngo, the dealership, and the assignee—may compel arbitration.” (Ngo, supra, 23 F.4th at 946.) The court recognized that the contract “defines ‘you’ as Ngo and ‘we’ as the dealership and its assignee,” and specified that “[e]ither you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial.” (Id.) The court found any benefit to BMW was “peripheral and indirect.”  (Id.)

Applying the second prong, the Court found for similar reasons that it was not a “motivating purpose” of the contracting parties to confer a benefit on BMW.  And applying the third prong, the court found extending coverage to BMW was not consistent with “the objective of the contract.”  The Court reasoned that “[n]othing in the contract here evinces any intention that the arbitration clause should apply to BMW. The arbitration clause's enforcement provisions are limited to the dealership, the assignee, and Ngo. The compelling inference from this arrangement is that the parties knew how to give enforcement powers to non-signatories when they wished to do so but gave none to BMW.” (Id. at 948.)

Thus, applying Ngo—which controls and to which the facts here are nearly identical—Defendant is not a third-party beneficiary of the RISC. The result is the same under Ochoa and Montemayor.

Conclusion

Mercedes’s motion to compel arbitration is DENIED.