Judge: Frank M. Tavelman, Case: 24BBCV00242, Date: 2024-06-21 Tentative Ruling

Case Number: 24BBCV00242    Hearing Date: June 21, 2024    Dept: A

LOS ANGELES SUPERIOR COURT

NORTH CENTRAL DISTRICT - BURBANK

DEPARTMENT A

MOTION TO COMPEL ARBITRATION

NOTICE:

The Court is not requesting oral argument on this matter.  The Court is guided by California Rules of Court, Rule 3.1308(a)(1) whereby notice of intent to appear is requested.  Unless the Court directs argument in the Tentative Ruling, no argument is requested and any party seeking argument should notify all other parties and the court by 4:00 p.m. on the court day before the hearing of the party’s intention to appear and argue.  The tentative ruling will become the ruling of the court if no argument is received.  

Notice may be given either by email at BurDeptA@LACourt.org or by telephone at (818) 260-8412.

ALLEGATIONS: 

Leonard Zora (Plaintiff) brings this action against Mercedes Benz USA, LLC. (Mercedes) for claims arising out of the purchase of 2021 Mercedes-Benz GLC300W. The Complaint alleges several causes of action for violation of the Song-Beverly Consumer Warranty Act. Plaintiff has dismissed Defendant Calstar Motors, Inc.(Calstar), the dealership which sold him the vehicle, from this action.

Before the Court is a joint motion by Mercedes to compel arbitration of Plaintiff’s claims against them. Plaintiff opposes and Mercedes replies.

ANALYSIS: 

I.                    LEGAL STANDARD 

C.C.P. § 1281.2 states: “[o]n 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 arbitrate the controversy exists.”

A party seeking to compel arbitration has the initial burden to prove, by a preponderance of the evidence, the existence of a valid and enforceable arbitration agreement. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) If the moving party has met its initial burden, then the burden shifts to respondents to prove the falsity or unenforceability of the arbitration agreement. (Id.) 

“In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.”¿¿(Weeks v. Crow¿(1980) 113 Cal.App.3d 350, 353.)¿

II.                 MERITS

RJN

Mercedes requests the Court take judicial notice of the Complaint filed in this matter. The Court possesses a true and correct copy of the Complaint, it is not reasonably subject to dispute, and it is capable of immediate and accurate determination. Therefore, the Court may take judicial notice of the complaint; however, generally the truth of the contents may not be judicially noticed. (Evid. Code §§ 452 (d) and (h).)  

Plaintiff requests the Court take judicial notice of the following:

·         Ford Motor Warranty Cases (Cal. Ct. App. Apr. 4, 2023) 89 Cal.App.5th 1324, review granted.

·         Rosanna Montemayor et al. v. Ford Motor Company, 92 Cal.App.5th 958 (Cal. Ct. App. June 26, 2023) (“Montemayor”), review granted.  

·         Kielar v. The Superior Court of Placer County, 94 Cal.App. 5th 614 (Cal. Ct. App. August 16, 2023).  

·         California Court of Appeal, Third Appellate District’s August 28, 2023 Response to Petition for Writ of Mandate in Campos et al. v. The Superior Court of Butte County, No. C098848.

·         California Court of Appeal, Third Appellate District’s August 28, 2023 Response to Petition for Writ of Mandate in Ortiz et al. v. The Superior Court of Sacramento County, No. C099135.

·         Yeh v. Superior Ct. of Contra Costa Cnty., 95 Cal.App.5th 264 (Cal. Ct. App. Sept. 6, 2023), review granted.

It is the view of the Court that there is no need to request judicial notice of published appellate decisions when the purpose is to present the decision as persuasive legal authority. The Court does not consider unpublished cases nor superior court trial court orders as neither is citable authority pursuant to the California Rules of Court.  The Court declines to endorse the overused practice of filing requests for judicial notice simply to cite published decisions.

Motion to Compel

The basis of Merecedes’ motion is the Lease Agreement (“Lease”) signed by Plaintiff on June 6, 2021. (Ameripour Decl. Exh. 2.) The Lease is Plaintiff and Calstar. (Id.) The Lease contained an arbitration clause (“Arbitration Agreement”) that reads, in relevant part, as follows:

1. If either you or we choose, any dispute between you and us will be decided by arbitration and not in court. […] 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 claim or dispute is to be arbitrated on an individual basis and not as a class action.

(Ameripour Decl. Exh. 2, p. 7.)

The Court notes that “You” is defined in the Lease as the lessee/co-lessee and “We” or “Us” is defined as the lessor. (Id., p.1.)

Although they are not a party to the Lease, Mercedes argues that it can enforce the arbitration agreement between Plaintiff and Calstar because it is a contemplated third party within the meaning of the Arbitration Agreement. Mercedes’ primary authority for this argument is the Fourth District Appellate Court decision in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486. Felisilda concerned arbitration clauses in dealership contracts which are nearly identical to those used by various dealerships, including the one in this case. For some time, Felisilda was the only on-point precedent in these matters, and many courts employed its holding to compel arbitration of automobile manufacturer claims based on dealership contracts.

However, on July 19, 2023, the Second District Appellate Court rendered an opposite decision in Ochoa v. Ford Motor Company (2023) 89 Cal.App.5th 1324.  Ochoa disagreed with Felisilda and found manufacturers could not compel arbitration under equitable estoppel or as third party nonsignatories.

On July 19, 2023, the California Supreme Court granted review of the ruling in Ochoa. In granting review, the Supreme Court held that the decision in Ochoa may be cited for its persuasive value and to show a conflict in authority which would allow trial courts to exercise discretion in ruling on such motions. (Ochoa v. Ford Motor Co. (In re Ford Motor Warranty Cases) (July 19, 2023, No. S279969) [2023 Cal. LEXIS 4235].) “Where there is more than one appellate court decision, and such appellate decisions are in conflict the superior court can and must make a choice between the conflicting decisions” (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, citations and quotation marks omitted.)

The Court notes the arbitration clauses in Felisilda, Ochoa, and this case are virtually identical.

The rulings in Felisilda and Ochoa present conflicting opinions from the Fourth and Second Appellate districts respectively. Ultimately, the Court finds the reasoning in Ochoa to be more persuasive in deciding whether to compel arbitration.

Mercedes’ argument in support of its right to compel arbitration asserts the right under both equitable estoppel and their status as a third-party nonsignatory. The Court will address both of these in turn.

Equitable Estoppel

Under both California and federal case law, “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.” (Felisilda supra, 53 Cal.App.5th 486, 495.) “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.” (Id. at 496.)

The Felisilda court found equitable estoppel applied because the plaintiff’s claims were intimately founded in and intertwined with the dealership contract. The Felisilda court explained, “[t]he Felisildas’ 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 Felisildas 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 497.)

The Ochoa court disagreed with  Felisilda’s finding that the plaintiff’s claims were “founded in or intertwined with” the dealership sales contracts. The court “disagree[d] with Felisilda that ‘the sales contract was the source of [FCA’s] warranties at the heart of this case.’” (Ochoa supra, 89 Cal.App.5th at 1334.) Instead, the Ochoa court held plaintiff’s claims were “…based on FMC’s statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty,” and not “on any express contractual language in the sale contracts.” (Id. at 1335.) The Ochoa court further reasoned “The sale contracts include no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arise.  To the contrary, the sale contracts disclaim any warranty on the part of the dealers, while acknowledging no effect on ‘any warranties covering the vehicle that the vehicle manufacturer may provide.’  In short, the substantive terms of the sale contracts relate to sale and financing and nothing more.” (Id.)   

The Court is of the same opinion as Ochoa that Plaintiff’s claims are not “intimately founded in and intertwined” with the substantive terms of the lease contract. Here, as in Ochoa, the dealership sales contract contains no aversion to a manufacturer warranty and in fact disclaims any warranty explicitly. (Ameripour Decl. Exh. 2, pg. 4.) The Court further agrees Plaintiff’s claims are based on statutory obligations under Song-Beverly, rather than the contractual relationship between Plaintiff and Calstar. No language in the contract serves as the source Plaintiff’s claims against Calstar, absent extrapolation from the third-party non-signatory language. As will now be discussed, the Court feels this language is not intended to allow third parties to compel arbitration.

Third-Party Nonsignatories

The Court similarly agrees with Ochoa’s interpretation of the “third-party nonsignatory” language employed in the dealership contract.

At issue in Felisilda an Ochoa was the contract language “between you and us or our employees, agents, successors or assigns, which arises out of or relates to your… 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 [Plaintiff’s] or [Dealer’s] election be resolved by neutral, binding arbitration and not by a court action…”

The court in Felisilda read the above language to mean that third parties could compel arbitration in disputes relating to the purchased vehicle. (Felisilda supra, at 498.) The Ochoa court instead read the language as “a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate.”  (Ochoa supra, at 1335.) 

Ochoa clearly distinguishes between (1) the parties to the claims or disputes and (2) the subject matters of the claims or disputes. Here, the parties are defined as “…you and us or our employees, agents, successors or assigns”. The subject matter of the claim is “…any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract.)”. If there was a dispute between Plaintiff and the dealership that arose out of or related to a resulting transaction or relationship with a third party, then Plaintiff and the dealership could arbitrate that dispute.  However, based on the arbitration provision’s language and Ochoa’s clear interpretation thereof, there is no agreement requiring Plaintiff to arbitrate a claim or dispute between himself and a non-signatory third-party. 

The Court notes that the reasoning in Ochoa was echoed by Division Seven of the Second Appellate District in Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958. Review in Montemayor was granted and is also pending. The same can be said for the decision in Yeh v. Superior Court (2023) 95 Cal.App.5th 264 by Division Four of the Fourth Appellate District. Both of these cases ultimately denied the manufacturer’s motion to compel arbitration.

The Court finds Ochoa’s interpretation of the arbitration language to be the most logical. The language indicates the clause intends to allow arbitration of claims arising out of interaction with third party non-signatories by either Plaintiff or the dealership. The clause simply does not contemplate manufacturers, or any third party for that matter, as having the right to compel arbitration under the terms of the agreement.

Accordingly, Merecedes’ motion to compel arbitration is DENIED.

Arbitration Stay 

Once arbitration has been compelled, in whole or in part, a stay of proceedings is mandatory if the issues in the arbitration and the pending action overlap. (C.C.P. § 1281.4 (if a court “has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.”)) 

“The purpose of the statutory stay [under section 1281.4] is to protect the jurisdiction of the arbitrator by preserving the status quo until arbitration is resolved. In the absence of a stay, the continuation of the proceedings in the trial court disrupts the arbitration proceedings and can render them ineffective.” (Federal Ins. Co. v. Superior Court (1998) 60 Cal.App.4th 1370, 1374-1375 (citations omitted).) 

As the Court denies the motion to compel arbitration in its entirety, its motion to stay proceedings is moot.  

--- 

RULING:

In the event the parties submit on this tentative ruling, or a party requests a signed order or the court in its discretion elects to sign a formal order, the following form will be either electronically signed or signed in hard copy and entered into the court’s records. 

ORDER 

Mercedes Benz USA, LLC.’s Motion to Compel Arbitration came on regularly for hearing on June 21, 2024, with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows: 

THE MOTION TO COMPEL ARBITRATION IS DENIED AND THE MOTION TO STAY PROCEEDINGS AGAINST IT IS MOOT.

THE CASE MANAGEMENT CONFERENCE SCHEDULED FOR JUNE 26, 2024 IS ADVANCED AND CONTINUED TO OCTOBER 21, 2022 AT 9:00 A.M.

UNLESS ALL PARTIES WAIVE NOTICE, MERCEDES TO GIVE NOTICE.

IT IS SO ORDERED. 

DATE:  June 21, 2024                            _______________________________ 

                                                                        F.M. TAVELMAN, Judge 

Superior Court of California 

County of Los Angeles