Judge: Elaine Lu, Case: 23STCV09524, Date: 2024-01-08 Tentative Ruling

Case Number: 23STCV09524    Hearing Date: January 8, 2024    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

            On April 28, 2023, Plaintiff Ronny Guerra Aldana (“Plaintiff”) filed the instant action against Defendant Mercedes-Benz U.S.A. (“Defendant”) arising from the purchase of a 2018 Mercedes-Benz C300W4.  The complaint asserts five causes of action for (1) Violation of Civil Code § 1793.2(d), (2) Violation of Civil Code § 1793.2(b), (3) Violation of Civil Code § 1793.2(a)(3), (4) Breach of Express Written Warranty, and (5) Breach of the Implied Warranty of Merchantability.

            On July 11, 2023, Defendant filed the instant motion to compel arbitration.  On December 26, 2023, Plaintiff filed an opposition.  On December 29, 2023, Defendant filed a reply.

Allegations of the Operative Complaint

The Complaint alleges that:

            On January 21, 2022, Plaintiff purchased a 2018 Mercedes-Benz C300W4 (“Subject Vehicle”) which was manufactured or distributed by Defendant.  (Complaint ¶ 5.)  The Subject Vehicle has an express written warranty and had nonconformities that arose during the warranty period.  (Id. ¶ 9.)  Specifically, the Subject Vehicle had defects including but not limited to issues with the body system, powertrain system, safety system, electrical system, braking system, and noise system. (Id. ¶ 11.)  “Said defects substantially impair the safety, use and/or value of the [Subject] Vehicle.”  (Id. ¶ 15.)  Defendant has been unable to repair the Subject Vehicle to conform to the applicable warranties after a reasonable number of attempts and has failed to promptly replace the Subject Vehicle or make restitution.  (Id. ¶¶ 14, 20.) 

Request for Judicial Notice

            In conjunction with the moving papers, Defendant requests that the Court take judicial notice of:

1.     The Complaint in the Instant Action

As the court may take judicial notice of court and state records, (See Evid. Code, § 452(c),(d)), Defendant’s unopposed requests for judicial notice is granted. However, the Court does not take judicial notice of the truth of assertions within. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

Legal Standard

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability.  (See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) Under CCP § 1281, a “written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such 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, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for the revocation of the agreement.

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . .”  (CCP §1281.2.)

The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract.  (Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co. (1998) 68 Cal.App.4th 83, 88.)  When presented with a petition to compel arbitration, the trial court's first task is to determine whether the parties have in fact agreed to arbitrate the dispute.  (Id.) 

“Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394] explained: ‘[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists 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 petitioner 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 §1281.2(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, supra, at 413.)  According to Rosenthal, facts relevant to enforcement of the arbitration agreement must be determined ‘in the manner . . . provided by law for the . . . hearing of motions.’ (Rosenthal, supra, at 413, quoting §1290.2.)  This ‘ordinarily mean[s] the facts are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court’s discretion.’ (Rosenthal, supra, at 413–414; . . .).”  (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761-62.)

Discussion

Existence of an Agreement to Arbitrate

Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract.  (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.)  In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination.  (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.)  “With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court.”  (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Defendant asserts that Plaintiff executed a valid pre-dispute arbitration agreement on January 21, 2022 when Plaintiff purchased the Subject Vehicle.  Defendant asserts that when Plaintiff purchased the Subject Vehicle, Plaintiff entered into a written contract, the Retail Installment Sale Contract – Simple Finance Charge (“the Sales Agreement”), that contained an arbitration agreement.  (Ameripour Decl. ¶ 4, Exh. 2.)  The arbitration provision of the Sales Agreement provides, in relevant part, that:

ARBITRATION PROVISION

PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS

1.     EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

2.     IF ANY DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST USE INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.

3.     DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.

Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), 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 (including any such relationship 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.

…

(Ameripour Decl. ¶ 4, Exh. 2 [italics added].)

The Sales Agreement appears to be signed by Plaintiff.  (Ameripour Decl. ¶ 4, Exh. 2.)  In opposition, Plaintiff does not dispute the existence of this arbitration agreement or that Plaintiff signed this agreement.  Rather, Plaintiffs assert that (1) Defendant lacks standing to compel arbitration and (2) Plaintiff’s Song-Beverly Act Claims are independent of the Sales Contract.

Third Party Standing

            It is undisputed that the agreement containing the arbitration provision, the Sales Agreement, was between Plaintiff and the third-party dealership WI Simonson – not Defendant.  (Ameripour Decl. ¶ 4, Exh. 2.)  Plaintiff asserts that as a nonsignatory, Defendant lacks standing to enforce the arbitration provision. 

“[W]ith limited exceptions only parties to an arbitration agreement can enforce it or be required to arbitrate.”  (Jones v. Jacobson (2011) 195 Cal.App.4th 1, 17.)  A nonsignatory seeking to enforce an arbitration agreement has the burden to establish at least one of these exceptions applies. (Id. at p.16.)

One such exception is the doctrine of equitable estoppel.  Under the doctrine of equitable estoppel, “under 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.”  (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271.)  “‘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.’ [Citations.]”  (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.)  “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.”  (Ibid., Fn. 18.)  “ ‘The fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute ... should be resolved.’ ” (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 306 [quoting NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 84].)  “‘In any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.’ [Citation.].”  (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 496.)  In determining whether a plaintiff’s claim is founded on or intimately connected with the sales contract, the Court examines the facts of the operative complaint.  (Felisilda, 53 Cal.App.5th at 496.) 

In Felisilda, the Court of Appeal addressed an arbitration clause identical to the one in the instant action and found that the plaintiff’s claims against nonsignatory FCA – nearly identical to those asserted in the complaint here – were inextricably intertwined with the obligations imposed by the sales contract containing the arbitration clause.   (Felisilda, supra, 53 Cal.App.5th at p. 496-497.)  The dealership filed a motion to compel arbitration on behalf of itself and the nonsignatory manufacturer, FCA.  The trial court granted the motion to compel arbitration as to the entirety of the action.  (Id. at p.491.)  After the trial court ordered the matter to arbitration, the buyers dismissed the dealership from the action.  (Ibid.) 

The Third District Court of Appeal affirmed.  First, the Court noted the broad language of the arbitration clause within the sales contract, which encompassed “[a]ny 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.”  (Id. at p.496.)  Turning to the allegations of the complaint regarding express warranties accompanying the sale of the vehicle and FCA’s failure to repair the nonconformities or to replace the vehicle or make restitution, the Court found that “the sales contract was the source of the warranties at the heart of this case.”  (Ibid.)  “The [buyers’] claim against FCA directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract. Because the [buyers] 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 FCA.”  (Id. at p.496.)  Thus, the Court concluded that “[b]ased on language in the sales contract and the nature of the [buyers] claim against FCA, the trial court correctly ordered that the entire matter be submitted to arbitration.”  (Id. at p.495.) 

In a recent case – the Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (“Ochoa”) – the Second District Court of Appeal disagreed with the Third District Court of Appeal’s conclusion in Felisilda.  In Ochoa, the defendant manufacturer Ford Motor Company (“FMC”) moved to compel arbitration of the plaintiffs’ claims relating to alleged defects in vehicles manufactured by FMC under a preprinted sales contract form that contained an arbitration provision with identical language to the arbitration agreement in Felisilda.  (Ochoa, supra, 89 Cal.App.5th at p. 1329.)  The trial court denied the motion, and the Court of Appeal affirmed.  (Ibid.)  In declining to follow Felisilda, the Court of Appeal reasoned that the plaintiffs’ warranty claims did not arise from the sales contract.  Instead, the Court of Appeal found 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” and noted that “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.”  (Id. at pp.1334, 1335.)  Hence, the Court of Appeal concluded that “plaintiffs’ claims are based on FMC's statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty.”  (Id. at p.1335.)

The Ochoa Court deemed FMC not to be a third-party beneficiary because “the sale contracts reflect no intention to benefit a vehicle manufacturer under [the Goonewardene standard].”  (Id. at p.1338.)  Finally, the Court of Appeal concluded that the plaintiffs’ agency allegations were insufficient to confer standing to FMC to compel arbitration;  “even if plaintiffs did adequately allege that the dealers acted as FMC's agents in misrepresenting the qualities of the vehicles prior to sale, any nexus with the sale contracts, and thus the right to compel arbitration, is lacking [as] [t]here [we]re no allegations to support the conclusion that the dealers acted as FMC's agent in executing the sale contracts.”  (Id. at p.1342.) 

In an even more recent case – Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958 (“Montemayor”) – the Second District Court of Appeal again affirmed the denial of an auto manufacturer’s motion to compel arbitration.  In Montemayor, defendant FMC (which was not a signatory to the sales agreement) jointly filed a motion to compel arbitration with the dealership defendant, asserting that it had standing to enforce the arbitration provision of the sale agreement under equitable estoppel and as a third party beneficiary.  In relevant part, the trial court concluded that the claims did not arise from the sales contract and that FMC was not a third-party beneficiary.  (Id. at p.966.)   The Court of Appeal affirmed, adopting the reasoning of Ochoa and concluding that FMC could not enforce the arbitration agreement through equitable estoppel or as a third-party beneficiary.  (Id. at pp.968-974.)

Similarly, on August 16, 2023, the Third District Court of Appeal issued its opinion in Kielar v. Superior Court (2023) 94 Cal.App.5th 614, (Kielar), joining the recent decisions that have disagreed with Felisilda.  The Kielar Court issued a peremptory writ of mandate compelling the Superior Court to vacate its order granting the manufacturer’s motion to compel arbitration and enter a new order denying the motion to compel arbitration.  In doing so, the Kielar Court expressly adopted the reasoning of Ochoa, Ngo,  and Montemayor and agreed with these cases that the reasoning of Felisilda was flawed.  (Keilar at p.617.)  The Kielar Court further agreed “with Montemayor and Ford Motor that the parenthetical language in the arbitration provision referring to nonsignatory third parties “was a ‘delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate’ ” and does not bind the purchaser “ ‘to arbitrate with the universe of unnamed third parties.’ ”  (Keilar at p.621.)

Finally, on September 6, 2023, the First District Court of Appeal issued its opinion in Yeh v. Superior Court of Contra Costa County (2023) 95 Cal.App.5th 264 (Yeh), joining the chorus of recent decisions that have disagreed with Felisilda.  The Yeh Court issued a peremptory writ of mandate directing the Superior Court to vacate its order compelling arbitration and enter a new order denying the manufacturer Mercedes-Benz’s motion to compel arbitration.  Adopting the reasoning of Ochoa and Montemayor, the Yeh Court rejected the manufacturer’s contention that the warranty claims against it were intimately founded in or intertwined with the underlying contact obligations set forth in the purchase agreement between the plaintiffs and the dealership.  The Yeh Court noted that the complaint did not reference the purchase agreements and did not allege that the manufacturer breached obligations based on the purchase agreements.  (Yeh at p.278.)  Further, the Yeh Court agreed with Ochoa that the language of the arbitration provision stating that it applied to any claim “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 relationship with third parties who do not sign this contract)” delineated the subject matter of claims that the plaintiff (purchasers) and dealer agreed to arbitrate and did not reflect the plaintiffs’ consent to arbitrate claims with third party nonsignatories.

In light of these recent rulings in Ochoa, Montemayor, Kielar, and Yeh expressly disagreeing with Felisilda, there is a clear split of authority as to whether a non-signatory automobile manufacturer can compel arbitration of warranty claims based on a sales contract with a third-party dealership containing an arbitration clause.  When presented with conflicting Court of Appeal authority, “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.)  Here, the Court finds the reasoning in Ochoa, Montemayor, Kielar, and Yeh to be more compelling. 

As noted above, “a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.’ [Citation.].”  (Felisilda, supra, 53 Cal.App.5th at p.496.)  In Felisilda, the Third District interpreted the parenthetical language “(including any such relationship with third parties who do not sign this contract)” in the arbitration clause of the Sales Agreement to mean that the arbitration clause included arbitration of claims against third parties.  (Felisilda, supra, 53 Cal.App.5th at p. 497 [“[T]he arbitration provision in this case provides for arbitration of disputes that include third parties so long as the dispute pertains to the condition of the vehicle.”].)  However, the Court finds this reading of the arbitration clause within the Sales Agreement to be less persuasive than the interpretation set forth in Keilar and Yeh.

“When interpreting contracts, the language used controls if it is clear and explicit. We must view the language of a contract as a whole, avoiding a piecemeal, strict construction approach. If possible, we should give effect to every provision and avoid rendering any part of an agreement surplusage.”  (Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.)  To find that the parenthetical phrase “(including any such relationship with third parties who do not sign this contract)” provides a basis for any nonsignatory to compel arbitration of claims brought by vehicle purchasers completely ignores and disregards the preceding qualifying language “between you and us or our employees, agents, successors or assigns.”

Therefore, the Court finds that the more reasonable interpretation – as set forth in Ochoa, Montemayor, and Yeh – is that “the parenthetical language referring to third-party nonsignatories was a ‘delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate,’ but the purchasers clearly agreed only to arbitrate disputes between ‘ “you and us,” ’ that is, with the dealership. [Citation.] In other words, ‘[t]he “third party” language in the arbitration clause means that if a purchaser asserts a claim against the dealer (or its employees, agents, successors or assigns) that relates to one of these third party transactions, the dealer can elect to arbitrate that claim. It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.’ [Citation.]”  (Montemayor, supra, 92 Cal.App.5th at p.971 [quoting Ochoa]; Yeh at pp.277-278.)

The Court adopts this interpretation of the arbitration clause as more reasonable.  Accordingly, the Court finds that the manufacturer/distributor – Defendant – was not an intended party nor intended to benefit from the arbitration agreement between Plaintiff and WI Simonson.  Further, the allegations in the complaint are not inextricably intertwined with the obligations imposed by the Sales Agreement.

The first cause of action and fourth causes of action are for breach of the express warranties.  (Complaint ¶¶ 18-23, 32-35.)  The second cause of action is for not timely completing repairs to comply with applicable warranties.  (Id. ¶¶ 24-28.)  The third cause of action is for not having sufficient literature and repair parts at authorized repair facilities to effect repairs during the express warranty period.  (Id. ¶¶ 29-31.)  The fifth cause of action is for breach of the implied warranty of merchantability.  (Id. ¶¶ 36-40.)  These are all statutory claims.  As the Ochoa court explained with respect to near identical allegations, “[P]laintiffs’ claims are based on [Defendant’s] statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty.... Not one of the plaintiffs sued on any express contractual language in the sale contracts.”  (Ochoa, supra, 89 Cal.App.5th at p.1335.)   “To be sure, [Plaintiff] would not have sued [Defendant] for the defective condition of the vehicle but for the sale of the vehicle by [WI Simonson] pursuant to the [Sales Agreement]. And [Defendant] provided an express warranty to the [Plaintiff] as a result of the sale. But that does not mean [Defendant]'s obligation to provide a non-defective vehicle under its separate express warranty is in any way founded on an obligation imposed by the sales contract or is intertwined with those obligations.”  (Montemayor, supra, 92 Cal.App.5th at 970.)  “‘This argument confuses the concept of “claims founded in and intertwined with the agreement containing the arbitration clause” with but-for causation.’ [Citations.]”  (Ibid.)  Rather, as Plaintiff did not allege a breach of the Sales Agreement, Plaintiff’s claims are not found in or intertwined with the Sales Agreement.  (Id. at p.971.)  Therefore, Defendant cannot enforce the arbitration clause in the Sales Agreement through equitable estoppel.

Nor is Defendant a third-party beneficiary under the Sales Agreement.  (See Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 821, [discussing third party beneficiaries and noting that “a third party — that is, an individual or entity that is not a party to a contract — may bring a breach of contract action against a party to a contract only if the third party establishes not only (1) that it is likely to benefit from the contract, but also (2) that a motivating purpose of the contracting parties is to provide a benefit to the third party, and further (3) that 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 the reasonable expectations of the contracting parties.”].)  Here, there is “‘no indication that a benefit to [Defendant] was the signatories’ “motivating purpose” ... in contracting for the sale and purchase of a [Defendant] vehicle.’ [Citation.]”  (Montemayor, supra, 92 Cal.App.5th at p.974.)  Rather, the clear and “manifest intent of the parties was to buy, sell and finance a car, and to allow either the purchaser or the dealer to compel arbitration of the specified categories of disputes between them, or between the purchaser and any of the dealer's ‘employees, agents, successors or assigns.’ [Citation.]”  (Ochoa, supra, 89 Cal.App.5th at p.1339.)  Thus, Defendant is not a third-party beneficiary entitled to enforce the arbitration clause in the Sales Agreement. 

Accordingly, as Defendant lacks standing to enforce the arbitration provision, Defendant’s motion to compel arbitration is DENIED.

CONCLUSION AND ORDER

Based on the foregoing, Defendant Mercedes-Benz USA, LLC’s motion to compel arbitration is DENIED. 

Defendant is to file and serve a responsive pleading within 30 days.

The case management conference is continued to February 22, 2024 at 8:30 am.

            Moving Party is to give notice and file proof of service of such.

DATED: January 8, 2024                                                       ___________________________

                                                                                                Elaine Lu

                                                                                                Judge of the Superior Court