Judge: H. Jay Ford, III, Case: 23SMCV05370, Date: 2024-09-03 Tentative Ruling

Case Number: 23SMCV05370    Hearing Date: September 3, 2024    Dept: O

Case Name:  Khodabaksh v. Mercedes-Benz USA, LLC, et al.

SUBJECT:                 MOTION TO COMPEL ARBITRATION

MOVING PARTY:   Defendant Mercedes-Benz USA, LLC

RESP. PARTY:         Plaintiff Afshin Khodabaksh

TENTATIVE RULING

            Defendants Mercedes-Benz USA, LLC and Mercedes-Benz of Beverly Hills Motion to Compel Arbitration is DENIED. Defendants do not meet their burden to prove the existence of a valid arbitration agreement that encompasses Song-Beverly Act Warranty claims.

            Defendant Mercedes-Benz USA, LLC’s RJN is GRANTED as to the existence of articles, court documents, and the administrative ruling documents, but not to the “truth of the hearsay statements in the documents.” (In re Vicks (2013) 56 Cal.4th 274, 314.)

            Defendant Mercedes-Benz of Beverly Hills joined the motion on 5-16-24. (See 5-16-24 Defendant MBBH Joinder.)

REASONING

Under both the Title 9 section 2 of the United States Code (known as the Federal Arbitration Act, hereinafter “FAA”) and the Title 9 of Part III of the California Code of Civil Procedure commencing at section 1281 (known as the California Arbitration Act, hereinafter “CAA”), 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.)

“The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion, to reach a final determination.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.)   “The party opposing arbitration has the burden of demonstrating that an arbitration clause cannot be interpreted to require arbitration of the dispute.” (Rice v. Downs (2016) 247 Cal.App.4th 1213, 1223, citing Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686-87.)   “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, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner…”  (Code Civ. Proc., § 1281.2.)

“A party opposing the petition bears the burden of proving by a preponderance of evidence any fact necessary to its defense.” (Olvera v. El Pollo Loco, Inc. (2009) 173 Cal.App.4th 447, 453.) CCP §1281.2 only allows the Court to deny enforcement of an applicable arbitration agreement where the party resisting arbitration demonstrates (1) waiver; (2) grounds for rescission of the agreement; or (3) subsection (c) grounds involving third parties to the arbitration agreement and potential for inconsistent rulings of fact or law. (See Code Civ. Proc., § 1281.2.)

If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c), the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.

(Code Civ. Proc., § 1281.2.)

I.      Arbitration Agreement

Defendants Mercedes-Benz USA, LLC (“MBUSA”) and Mercedes-Benz of Beverly Hills (“MBBH”) (collectively, “Defendants”) move to compel arbitration based on a Lease Agreement which included an agreement to arbitrate, agreed upon between MBBH and Plaintiff Afshin Khodabaksh (“Plaintiff”) on 5-4-18. (Complaint, ¶ 13; Ameripour Decl., ¶ 4, Ex. 2.) MBUSA initially moved to compel arbitration alone, and attached the purported Lease Agreement to their counsel’s declaration. (Ameripour Decl., ¶ 4, Ex. 2.)  MBBH joined the motion on 5-16-24, filing a declaration providing foundation for the Lease Agreement as it was only MBBH and Plaintiff who signed the agreement. (5-16-24 Tetiva Decl. in MBBH Joinder, ¶¶ 4–5.)  The Agreement to Arbitrate within the Lease Agreement, as well as the warranty exclusion clause, between Plaintiff and MBBH states as follows:

We lease the vehicle to you “AS IS” EXCEPT AS EXPRESSLY PROVIDED UNDER THIS LEASE, AND UNLESS PROHIBITED BY LAW, WE MAKE NO WARRNTIES OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, AS TO THE VEHICLE’S (OR ANY PART OR ACCESSORY THEREOF) CONDITION, MECHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE AND WE NMAKE NO OTHER REPRESENTATION OR WARRANTY WHATSOEVER.

. . . .

IMPORTANT ARBITRATION DISCLOSURES

. . . .

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 . . . .

Any arbitration under this lease shall be governed by the Federal Arbitration Act (9 USC § 1, et seq.) . . . .

(Ameripour Decl., ¶ 4, Ex. 2 at p. 4.)

            It is undisputed that an agreement to arbitrate exists within the Lease Agreement signed MBBH and Plaintiff in 2018. It is also undisputed that MBUSA is a non-signatory to the Lease Agreement, but MBUSA argues they have standing to compel arbitration as either a third-party beneficiary to the lease agreement or under equitable estoppel.  MBUSA does not provide evidence or any foundation for an agreement to arbitrate other than the conclusory counsel declaration attaching the lease agreement, with arbitration clause, to the declaration. MBUSA does not provide any document authentication in the declaration, nor do they attach or incorporate MBBH’s declaration which does authenticate the agreement. Thus, MBUSA has not provided a valid agreement to arbitrate by a preponderance of evidence. MBBH has provided a valid agreement to arbitrate through their declaration incorporating MBUSA, and thus for argument’s sake the Court will accept this lease agreement, with agreement to arbitrate, as valid. However, both MBUSA and MBBH’s motion fail for separate reasons.

            MBUSA argues the Court should follow the holding of Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 in support of their argument to compel arbitration based on equitable estoppel and as a third-party beneficiary. However, the Court adopts the reasoning of the most recent case law on the matter including Davis v. Nissan North America, Inc. (2024) 100 Cal.App.5th 825, and Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324. (See also Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958, review granted Sept. 20, 2023, S281237; Kielar v. Superior Court (2023) 94 Cal.App.5th 614, review granted Oct. 25, 2023, S281937; Yeh v. Superior Court (2023) 95 Cal.App.5th 264, 313, review granted Nov. 15, 2023, S282228.) Ford Motor Warranty Cases, along with other similar situated cases disagreeing with the holding of Felisilda, are currently under review. “Superior courts may, in the exercise of their discretion, choose to follow a published review-granted Court of Appeal opinion, even if that opinion conflicts with a published, precedential Court of Appeal opinion.” (Cal. Rules of Court, 8.1115, comment to (e)(3).)

            The Ford Motor Warranty, Davis, and other similarly situation courts, held that under nearly identical arbitration provisions and warranty disclaimer as at issue here, alongside Song-Beverly act warranty claims in the complaint, the motions to compel arbitration by the Manufacturer based on and equitable estoppe; and third-party beneficiary status, were denied

[I]t does not “naturally follow” from any contractual character of manufacturer warranty claims that they inhere in a retail sale contract containing no warranty terms . . . .  independent manufacturer warranties are not part of, but are independent from, retail sale contracts . . . . the “ ‘ “fundamental point” ’ ” of using equitable estoppel to compel arbitration is to prevent a party from taking advantage of a contract's substantive terms while avoiding those terms requiring arbitration. [citations] Plaintiffs’ claims in no way rely on the sale contracts. Equitable estoppel does not apply.

(Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1336.)

            “A manufacturer's rebate to the consumer does not, without more, make the manufacturer a third-party beneficiary of the retail sale and financing contract between the dealer and purchaser, nor does it give the manufacturer a right to enforce the arbitration clause.” (Id., at p. 1339 [holding that the Manufacturer does not meet the Goonewardene third-party beneficiary to contract elements].)

a.     MBUSA as Third-Party Beneficiary

            MBUSA argues that from the lease agreement it is clear that MBUSA is the intended third-party beneficiary since the Plaintiff “asserts a claim that arises out of or relates to ‘any resulting transaction or relationship arising out of this lease’”. (Motion, pp. 5:8–28–6:1–7; Ameripour Decl., ¶ 4, Ex. 2 at p. 4.)

            To show that a contract intended to benefit a third party, the “third party must show that, under the express terms of the contract at issue and any other relevant circumstances under which the contract was made, (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 enforce the contract “is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1337; citing Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830, 243 [creating Goonewardene requirements to show third party is an intended beneficiary of a contract].)

            The Court notes that MBUSA does not attempt to argue the satisfaction of the Goonewardene requirements within the motion or their reply. The lease agreement does not show an intention to “benefit the vehicle manufacture,” since the direct benefits within the lease agreement “are expressly limited to those persons who might rely on it to avoid proceeding in court—the purchaser, the dealer, and the dealer's employees, agents, successors or assigns.” (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1338; see Ameripour Decl., ¶ 4, Ex. 2 at p. 4 [“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”].)

            Additionally, there is no showing by MBUSA or MBBH that benefitting MBUSA was Plaintiff’s and MBBH’s motivating purpose for signing the lease agreement. “The 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.” (Id., at p. 1339.)

            Finally, MBUSA provides no argument or evidence to show that allowing MBUSA to enforce the arbitration provision as a third party beneficiary would be consistent with the “reasonable expectations of the contracting parties” (Goonewardene, supra, 6 Cal.5th at p. 830.). The arbitration agreement specifically vests the right to enforce the agreement with the purchaser and dealer only, with no express mention of MBUSA as having a right to enforce arbitration. MBUSA seems to argue that the language within the arbitration clause stating “Any claim or dispute, . . . between you and us or any of our employees, agents , successors or assigns . . . which arises out of or relates to . . .this lease” shows they are intended third party beneficiaries however this language does not concern who may arbitrate, but instead it speaks to what may be arbitrated. (See Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1339 [“this reference concerns what may be arbitrated, not who may arbitrate. Who may enforce an arbitration agreement is a separate matter from the types of disputes the agreement covers”].)

            Thus, MBUSA is not a third-party beneficiary to the lease agreement.

b.     MBUSA’s equitable estoppel argument

The doctrine of equitable estoppel is an exception to “ ‘the general rule that a nonsignatory to an agreement cannot be compelled to arbitrate and cannot invoke an agreement to arbitrate, without being a party to the arbitration agreement.’ [Citations.] [¶] ... Under that doctrine, 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.’ [Citations.] ‘The rule applies to prevent parties from trifling with their contractual obligations.’

(Kielar, supra, 94 Cal.App.5th at p. 619.)

            “[M]erely “mak[ing] reference to” an agreement with an arbitration clause is not enough.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218.) “[E]ven if a plaintiff's claims ‘touch matters’ relating to the arbitration agreement, ‘the claims are not arbitrable unless the plaintiff relies on the agreement to establish its cause of action.” (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 306.)

            MBUSA argues that under Felisilda MBUSA can enforce the arbitration clause through equitable estoppel because a breach of warranty under the Song-Beverly Consumer Warranty Act arises out of, and is premised on, the lease agreement and the “resultant warranty obligations that followed.” (Motion, p. 8:5–19.) As stated above, the Court follows the more recent case law that has rejected the holding of Felisilda. The complaint does not rely on the terms of the lease agreement to establish any of the causes of action, and “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.” (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1334; accord Montemayor, supra, 92 Cal.App.5th at p. 969; see also Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, 949 [“the express and implied warranties arise ‘independently of a contract of sale’ ”].)

            Plaintiff did not base the claim on the terms of the lease, and warranty breaches are considered separate to a lease agreement, thus MBUSA has no claim for compelling arbitration via equitable estoppel.               

c.      MBBH claims do not arise out of the lease agreement

            MBBH joins the motion to compel arbitration as to the 3^rd and 4^th causes of action in the Complaint. MBBH is the signatory to the lease agreement, and argues the allegations Plaintiff’s complaint arise out of and relate to the transaction and relationship created by the Lease Agreement. (MBBH Reply., p. 3:12–16.) However, as analyzed above, the lease agreement is separate and “independent of the [lease] contract” (Ford Motor Warranty Cases, supra, 89 Cal.App.5th at p. 1334; accord Montemayor, supra, 92 Cal.App.5th at p. 969.) It makes no difference if MBBH is a signatory to the lease agreement, since the arbitration clause within the lease agreement does relate to the breach of warranty within the Plaintiff’s complaint

            Thus, the Court finds that Defendants have not met their burden to show a valid arbitration agreement which covers the Plaintiff’s Song-Beverly Warranty Claims in the Complaint. Defendants Motion to Compel Arbitration is DENIED.