Judge: Daniel S. Murphy, Case: 25STCV01867, Date: 2025-05-19 Tentative Ruling

Case Number: 25STCV01867    Hearing Date: May 19, 2025    Dept: 32

BACKGROUND

            On January 23, 2025, Plaintiff Armenuhi Nikoghosyan filed this “lemon law” action against Defendant Mercedes-Benz USA, LLC, alleging violations of the Song-Beverly Act.

            On February 28, 2025, Defendant filed the instant motion to compel arbitration. Plaintiff filed an opposition on May 5, 2025. Defendant filed its reply on May 12, 2025.

LEGAL STANDARD

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists….” (Code Civ. Proc, § 1281.2.) “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.)

Furthermore, the Federal Arbitration Act (FAA) states that “[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) The FAA governs contracts “involving commerce,” which has been interpreted to mean simply “affecting commerce” to give the FAA the broadest reach possible, and does not require a transaction that is actually “within the flow of interstate commerce.” (See Allied-Bruce Terminix Co. v. Dobson (1995) 513 U.S. 265, 273-74; Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.) Moreover, parties may agree to apply the FAA notwithstanding any effect on interstate commerce. (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355.)

DISCUSSION

I. Proof of Agreement

“The moving party ‘can meet its initial burden by attaching to the motion or petition a copy of the arbitration agreement purporting to bear the opposing party's signature.’” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165.)

            On August 15, 2023, Plaintiff signed a Motor Vehicle Lease Agreement containing an arbitration clause. The arbitration clause provides that:

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, assigns, or the vehicle distributor, including Mercedes-Benz USA LLC (each a “Third Party Beneficiary”), which arises out of or relates to a credit application, this lease, or any resulting transaction or relationship arising out of this lease (including any such relationship with third parties who do not sign this contract) shall, at the election of either you, us, or a Third Party Beneficiary, be resolved by a neutral, binding arbitration and not by a court action.

(Ameripour Decl., Ex. 2 at p. 4.)   

            Plaintiff does not dispute the existence of the agreement or the signature on it. Thus, Defendant has satisfied its burden of proving the existence of an arbitration agreement.

II. Third-Party Beneficiary

            “The general rule is that only a party to an arbitration agreement may enforce it.” (Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 837.) However, one exception is that “a third party beneficiary of an arbitration agreement may enforce it.” (Id. at p. 838.) “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.) This requires a showing that: (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 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.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.) 

            Here, the arbitration clause expressly names Defendant Mercedes-Benz USA, LLC as a third-party beneficiary. (Ameripour Decl., Ex. 2 at p. 4.) Thus, the three requirements are met: (1) the agreement benefits Defendant by allowing it to pursue arbitration; (2) the express naming of Defendant as a third-party beneficiary demonstrates that the parties intended to provide a benefit to Defendant; and (3) permitting Defendant to enforce the agreement would be consistent with the objectives of the contract and the reasonable expectations of the parties.

            Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (Ochoa), cited by Plaintiff, actually demonstrates that Defendant is a valid third-party beneficiary in this case. The court in Ochoa rejected Ford’s third-party beneficiary claim, but in so doing, distinguished the case from one in which a manufacturer is expressly named as a third-party beneficiary: “If the signatories had intended to benefit FMC, such a purpose would have been easy to articulate. They could have simply named FMC—directly or by class as the vehicle's manufacturer—as a person entitled to compel arbitration.” (Id. at p. 1339.)

            Here, the agreement does exactly that: it expressly names Defendant as a third-party beneficiary entitled to enforce arbitration. Plaintiff’s argument—that Defendant cannot enforce arbitration as a third-party beneficiary despite being expressly named as a third-party beneficiary—would contravene the plain terms of the agreement and the parties’ intent. The intent of an agreement is ascertained solely from its words, if possible; the language of the contract controls if it is clear and explicit. (See Martinez v. BaronHR, Inc. (2020) 51 Cal.App.5th 962, 967.) The language in the arbitration clause here is clear and explicit in naming Defendant as a third-party beneficiary.

            Therefore, Defendant has standing to enforce the arbitration agreement as a third-party beneficiary.

III. Unconscionability

Unconscionability has both a procedural and a substantive element. (Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 808.) Both elements must be present for a court to invalidate a contract or clause. (Ibid.) However, the two elements need not be present in the same degree; courts use a sliding scale approach in assessing the two elements. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 242.)

a. Procedural Unconscionability

Procedural unconscionability “focuses on two factors: ‘oppression’ and ‘surprise.’ ‘Oppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’ ‘Surprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484, internal citations omitted.)

Plaintiff argues that the agreement is procedurally unconscionable because it was adhesive, i.e., Plaintiff could not negotiate the agreement and had to sign it in order to purchase the subject vehicle. However, Plaintiff includes no evidence as part of his opposition and thus fails to show that the agreement was actually adhesive or otherwise oppressive. (See Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1165-66 [“Plaintiff did not introduce or rely on any evidence of the circumstances surrounding the execution of the agreement, so he could not show inequality of bargaining power, lack of negotiation, or lack of meaningful choice based on those circumstances . . . In general, nothing prevents purchasers of . . . vehicles from bargaining with dealers, even though dealers use form contracts, and nothing in the record shows that plaintiff could not bargain in this case”].)

Thus, the Court finds no procedural unconscionability.

b. Substantive Unconscionability

Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results as to shock the conscience. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1515.)

            1. Distribution of Fees

The arbitration clause contains the following provision on fees: “We will pay the arbitration costs and fees for the first day of arbitration, up to a maximum of eight hours. The arbitrator shall decide who shall pay any additional costs and fees.” (Ameripour Decl., Ex. 2 at p. 4.) Plaintiff argues that this is unconscionable, citing to Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 and Code of Civil Procedure section 1284.3.

The court in Armendariz held that “when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.” (Armendariz, supra, 24 Cal.4th at p. 110-11.) However, the instant case involves a consumer arbitration. “In the area of consumer arbitration, the Legislature has addressed costs in a different way” by enacting Code of Civil Procedure section 1284.3. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 918.) Thus, Code of Civil Procedure section 1284.3 is the applicable law on costs here, not Armendariz.

Section 1284.3 provides as follows: “No neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses.” (Code Civ. Proc., § 1284.3(a).)

Plaintiff argues that the clause at issue—requiring Defendant to pay for only the first 8 hours of arbitration and leaving the rest up to the arbitrator—violates Section 1284.3 by making it possible for Plaintiff to bear the costs. However, as mentioned above, Section 1284.3 departs from the categorical approach of Armendariz. Section 1284.3 does not categorically preclude a consumer from paying the costs of arbitration. Rather, “[i]n enacting Code of Civil Procedure section 1284.3, the Legislature concluded that an ability-to-pay approach is appropriate in the context of consumer arbitration agreements.” (Sanchez, supra, 61 Cal.4th at p. 920.) Courts may use the “unconscionability doctrine on a case-by-case basis to protect nonindigent consumers against fees that unreasonably limit access to arbitration.” (Ibid.)

Here, Plaintiff offers no evidence that the agreement imposes unconscionable fees that have the effect of limiting access to arbitration. The agreement does not violate Section 1284.3(a) by requiring Plaintiff to pay Defendant’s costs if Plaintiff does not prevail. The agreement does not require Plaintiff to pay anything at all; it requires Defendant to pay for the first 8 hours and leaves the remaining fees in the arbitrator’s discretion. Plaintiff cites no authority suggesting that this is unconscionable.

                        2. Mutuality

Plaintiff argues that the agreement lacks mutuality under Cook v. University of Southern California (2024) 102 Cal.App.5th 312. The court in that case found an arbitration agreement lacking in mutuality for the following reason: “The agreement requires Cook to arbitrate any and all claims she may have against USC ‘or any of its related entities, including but not limited to faculty practice plans, or its or their officers, trustees, administrators, employees or agents, in their capacity as such or otherwise.’ However, the agreement does not require USC's ‘related entities’ to arbitrate their claims against Cook.” (Id. at p. 326.) “This confers a benefit on USC and its broadly defined ‘related entities’ that is not mutually afforded to Cook.” (Id. at p. 327.)

Plaintiff argues that the agreement here similarly requires Plaintiff to arbitrate her claims against Defendant while Defendant has no corresponding obligation to arbitrate its claims against Plaintiff. This argument is contradicted by the terms of the agreement. The agreement provides that “any claim or dispute . . . between you and us . . . or the vehicle distributor, including Mercedes-Benz USA LLC . . . shall, at the election of either you, us, or a Third Party Beneficiary, . . . be resolved by a neutral, binding arbitration.” (Ameripour Decl., Ex. 2 at p. 4.) The agreement covers “any” claim brought by “either” Plaintiff or a third-party beneficiary, not just claims brought by Plaintiff. The agreement also allows “either” Plaintiff or a third-party beneficiary to elect arbitration. Thus, Defendant is not the only one who can enforce arbitration against Plaintiff. Plaintiff may also enforce arbitration against Defendant. This is distinguishable from Cook. Therefore, the agreement is sufficiently mutual.

In sum, the Court finds no procedural or substantive unconscionability. As a result, the arbitration agreement remains enforceable.

CONCLUSION

            Defendant’s motion to compel arbitration is GRANTED. The case is stayed in its entirety.