Judge Holly J. Fujie, Case Number: 24STCV09691, Date: 2024-08-28 Tentative Ruling

This case arises from Plaintiff’s lease of a vehicle manufactured by Defendant. Plaintiff filed a complaint on April 17, 2024, alleging violations of the Song-Beverly Act.

On July 9, 2024, Defendant filed the instant Motion to Compel Arbitration. Plaintiff filed an opposition on July 18, 2024, and Defendant filed a reply on August 21, 2024.

Defendant requests that this Court take judicial notice of the Complaint. The Complaint is already in the record in the instant action, and therefore, this Court does not need to take judicial notice of it. Accordingly, this court DENIES Defendant’s request for judicial notice.

“California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967; Code Civ. Proc., § 1281.2.) Similarly, “under the FAA, the strong federal policy favoring arbitration agreements requires courts to resolve any doubts concerning arbitrability in favor of arbitration.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 176 (internal quotations omitted).)

In deciding a petition to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The opposing party has the burden to establish any defense to enforcement. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 [“The petitioner, T–Mobile here, bears the burden of proving the existence of a valid arbitration agreement and the opposing party, plaintiffs here, bears the burden of proving any fact necessary to its defense.”].)

Procedurally, a petition to compel arbitration or stay proceedings must state verbatim the provisions providing for arbitration, or must have a copy of them attached. (Cal. R. Ct., rule 3.1330.)

“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.)

Here, Defendant has met the initial burden of showing that an arbitration agreement exists. Defendant submits in evidence a copy of Plaintiff’s signed Motor Vehicle Lease Agreement (“Agreement”) for the lease of the subject vehicle. (Declaration of Ali Ameripour, ¶ 4; Exh. 2.)

The Agreement contained an agreement to arbitrate (“Arbitration Clause”) which states in pertinent part:

Any claim or dispute, whether in contract, tort or otherwise (including 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.

This lease evidences a transaction involving interstate commerce. Any arbitration under this lease shall be governed by the Federal Arbitration Act (9 USC 1, et seq)… (Id.) (Emphasis added.)

Because Defendant established the existence of a valid and binding arbitration agreement, the burden shifts to Plaintiff to show why the Arbitration Clause should not be enforced.

In opposition, Plaintiff does not dispute that he affirmatively consented to the Arbitration Clause or that the Arbitration Clause covers the claims asserted in the Complaint. Rather, Plaintiff mainly argues that Defendant cannot compel arbitration because it is not a party to the Agreement.

“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, “the law recognizes exceptions to the general rule and allows a nonparty to enforce an arbitration agreement provided the nonparty has a sufficient ‘identity of interest’ with a party to the agreement.” (Id. at 838.)

“A third party beneficiary is someone who may enforce a contract because the contract is made expressly for his benefit. The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract. The mere fact that a contract results in benefits to a third party does not render that party a ‘third party beneficiary.’” (Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958, 973, internal citations omitted.) “[I]n considering third party beneficiary contract claims, a court should carefully examine the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether 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. All three elements must be satisfied to permit the third party action to go forward.” (Ibid.)

Defendant is expressly named in the Arbitration Clause as a third-party beneficiary who may elect to have controversies arising out of the Agreement resolved by arbitration and not by court action. Defendant may therefore enforce the Arbitration Clause because the Agreement was made expressly for its benefit. The Court considers that (1) Defendant indeed benefits from the Arbitration Clause by being given the option to elect to have controversies involving it resolved by arbitration; (2) per the text of the Arbitration Clause and the context in which Plaintiff was entering the Agreement to lease the Vehicle, which was manufactured by Defendant and which made Defendant therefore a likely third party to be involved in any controversies arising out of the Agreement, Plaintiff and the dealer/lessor intended for Defendant to benefit from the Arbitration Clause and this benefit to Defendant motivated them to enter into the Arbitration Clause; and (3) permitting Defendant to enforce the Arbitration Clause against Plaintiff is consistent with the objectives of the Agreement and the reasonable expectations of Plaintiff and the dealer/lessor. Because all three elements of this test are satisfied, the Court finds that Defendant may enforce the Arbitration Clause.

Plaintiff, in passing, also raises the argument that the agreement to arbitrate is procedurally and substantively unconscionable.

Regardless of the claim asserted, arbitration agreements are only enforceable if they are not unconscionable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113; Baxter v. Genworth N. Am. Corp., (2017) 16 Cal.App.5th 713, 721.) “Both procedural and substantive unconscionability must be present for a court to refuse to enforce a contract, although they need not be present in the same degree.” (Baxter, supra, 16 Cal.App.5th at 721 (citing Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243.) Procedural unconscionability focuses on (1) “oppression” resulting from unequal bargaining power that adheres the weaker party to nonnegotiable terms and (2) “surprise” involving “the extent to which the supposedly agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to enforce them.” (Flores v. Transamerica HomeFirst, Inc., (2001) 93 Cal.App.4th 846, 853.) Substantive unconscionability “focuses on overly harsh or one-sided results [that lack substantial justification].” (Baxter, supra, 16 Cal.App.5th at 724; Armendariz, supra, 24 Cal.4th at 117-18.)

Plaintiff argues that the Arbitration Agreement is procedurally unconscionable because it was presented on a “take-it-or-leave-it” basis without the option of negotiation. Plaintiff asserts that he was not given a reasonable opportunity or time to review the terms of the arbitration provision. The Court is not persuaded by Plaintiff’s assertion.

Existing case law holds that a mandatory arbitration agreement only establishes a small degree of procedural unconscionability. (Armendariz, supra, 24 Cal.4th at 113 (“The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.”); Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704 (“It is well settled that adhesion contracts in the employment context, that is, those contracts offered to employees on a take-it-or-leave-it basis, typically contain some aspects of procedural unconscionability.)

Here, the Arbitration Clause is presented to Plaintiff not in the context of employment, but as a customer whose decision to lease the vehicle was entirely willful. Plaintiff was not forced to lease the subject vehicle and could have decided to lease another vehicle elsewhere. The risk of coercion in this context is minimal, and Plaintiff has not presented evidence to suggest otherwise. Plaintiff’s opposition does not establish any other basis for finding the arbitration agreement procedurally unconscionable.

Plaintiff has failed to point to any provision of the agreement to arbitrate that is “so one-sided as to shock the conscience.” Rather, Plaintiff argues in general terms that “[u]nder Song-Beverly, Plaintiff may not be forced into binding arbitration, may elect to be a class member if such circumstance arises, and is entitled to have all fees, costs, and expenses (including attorney and expert fees). paid by the Defendant manufacturer. Therefore, the arbitration provision is in direct contradiction to Song-Beverly and, as such, is substantively unconscionable.” (Opposition, p. 5.)

Case law is clear, however, that arbitration provision is valid and enforceable with respect to Song-Beverly claims such as the present case. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 909-910; Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486.)

Thus, the Court finds that Plaintiff failed to meet his burden of establishing that the Arbitration Agreement is unconscionable.

Accordingly, the Motion is GRANTED. Plaintiff’s claims are stayed pending completion of arbitration. The Court sets a Status Conference for February 24, 2025, regarding the status of arbitration.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

Hon. Holly J. Fujie

Judge of the Superior Court