Judge: John J. Kralik, Case: 23GDCV00414, Date: 2023-10-06 Tentative Ruling

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Case Number: 23GDCV00414    Hearing Date: November 9, 2023    Dept: NCB

Superior Court of California

County of Los Angeles

North Central District

Department B

BACKGROUND

A.    Allegations

Plaintiff Christen Zamora (“Plaintiff”) commenced this action against Defendants Mercedes-Benz USA, LLC (“MBUSA”) and Fletcher Jones Motor Cars, Inc. dba Mercedes-Benz of Ontario (“Mercedes-Benz of Ontario”) concerning the lease of a 2020 Mercedes-Benz C300W.  MBUSA is alleged to have warranted the subject vehicle, but Plaintiff alleges that the vehicle was delivered with serious defects and nonconformities, including defects with the engine, emission, transmission, and electrical system. 

MBUSA is alleged to be the manufacturer or distributor of the vehicle pursuant to the Song-Beverly Act.  Plaintiffs allege that they delivered the subject vehicle to Mercedes-Benz of Ontario for repairs on numerous occasions, but it failed to properly store, prepare, and repair the subject vehicle in accordance with industry standards. 

The first amended complaint (“FAC”), filed March 22, 2023, alleges causes of action for: (1) violation of the Song-Beverly Act – breach of express warranty; (2) violation of the Song-Beverly Act – breach of implied warranty; (3) violation of the Song-Beverly Act, § 1793.2; and (4) negligent repair.  The 1^st to 3^rd causes of action are alleged against MBUSA.  The 4^th cause of action is alleged against Mercedes-Benz of Ontario. 

B.     Motion on Calendar

On May 3, 2023, Defendant Mercedes-Benz USA, LLC filed a motion to compel Plaintiff to arbitrate this action and stay the action pending the outcome of the arbitration. 

The matter initially came for hearing on October 6, 2023.  The Court heard oral argument and continued the hearing so that Plaintiff could file an opposition brief by October 16, 2023.  Defendant was to file a reply brief by October 20, 2023. 

On October 16, 2023, Plaintiff filed opposition papers. 

On November 2, 2023, Defendant filed a reply brief.  The reply brief is untimely based on the special briefing schedule set by the Court.  However, the Court will consider the merits of the reply brief in making its ruling.

REQUEST FOR JUDICIAL NOTICE

Defendant Mercedes-Benz USA, LLC (“MBUSA”) requests judicial notice of: (1) Plaintiff’s FAC filed on March 22, 2023. The request is granted.  (Evid. Code, § 452(d).)

Plaintiff requests judicial notice of: (1) Ochoa v. Ford Motor Company (2023) 89 Cal.App.5th 1324; (2) Kielar v. Hyundai Motor America (No. C096773) Superior Court No. S-CV-0048230 certified for publication on August 16, 2023 (2023 WL 5270559, 94 Cal.App.5th 614); and (3) Ngo v. BMW of North America LLC (9^th Cir. 2022) 23 F.4th 942.  The request is granted. 

EVIDENTIARY OBJECTIONS

            Plaintiff submits an evidentiary objection to paragraph 4 and Exhibit 2 of the declaration of Ali Ameripour, which Plaintiff argues includes the “Retail Installment Sales Contract” for the purchase of the vehicle.  However, paragraph 4 reference and Exhibit 2 includes a copy of Plaintiff’s “Motor Vehicle Lease Agreement”—not a sales contract.  Thus, the evidentiary objection will be overruled.

            In addition, to the extent that this was a typographical error and Plaintiff intended to object to the Lease, the Court would still overrule the objection.  While Plaintiff argues that Ali Ameripour lacks foundation and personal knowledge as defense counsel to authenticate the agreement, there is no actual dispute that the attached document is the contract that Plaintiff signed at the time of the lease.  The Court also notes that while Plaintiff does not cite to the agreement, Plaintiff references the agreement by making arguments that Defendant is not a signatory to the Lease or an intended third-party beneficiary.  As such, the Court will allow the document to be considered for the purposes of this motion and the opposition arguments.  The evidentiary objection is overruled on this basis as well.

DISCUSSION

MBUSA moves to compel Plaintiff to arbitrate her claims based on the Motor Vehicle Lease Agreement (“Lease”). 

1.      Terms of the Agreement to Arbitration

In support of the motion, MBUSA provides the declaration of defense counsel Ali Ameripour, which attaches a copy of the Lease.  (Ameripour Decl., ¶4, Ex. 2 [Lease].) 

The Lease is entered between Lessor/Dealer Mercedes Benz of Encino and Lessee Plaintiff Christen Zamora.  The Lease includes a section entitled “Important Arbitration Disclosures,” which states in relevant part:

The following arbitration provisions significantly affect your rights in any dispute with us. Please read the following disclosures and the arbitration provision that follows carefully before you sign the contract. 

1. If either you or we choose, any dispute between you and us will be decided by arbitration and not in court.

2. If such dispute is arbitrated, you and we will give up the right to trial by a court or a jury trial.

…

4. The information that can be obtained in discovery from each other or from third parties in arbitration is generally more limited than in a lawsuit.

5. Other rights that you and/or we would have in court may not be available in arbitration.

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 toa  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. Whoever first demands arbitration may choose to proceed under the applicable rules of, and be administered by, the American Arbitration Association (www.adr.org) or any other organization that you may choose subject to our approval. 

(Lease at p.4.)  The arbitration provision states the required qualifications of the arbitrator, the applicable law, the payment of arbitration fees, and that the arbitration shall be governed by the FAA.  (Id.) 

2.      Is there an enforceable agreement to arbitrate? Is MBUSA the intended third-party beneficiary to the Lease?

MBUSA argues it has standing to compel arbitration under the Lease because it is a third-party beneficiary and through the principle of equitable estoppel. 

Here, the Lease at issue was entered between Plaintiff and Mercedes Benz of Encino.  While there appears to be a valid agreement to arbitrate, the issue before the Court is whether MBUSA can rely on the arbitration provision to compel arbitration.

MBUSA is not a signatory to the Lease.  This presents a problem for its election to enforce.  For example, the Central District Court in the case In re Toyota Motor Corp. Hybrid Brake Marketing, Sales, Practices and Products Liability Litigation (C.D. Cal. 2011) 828 F.Supp.2d 1150, 1159 stated:

Toyota argues that Plaintiffs must arbitrate their claims against Toyota because all of their claims fall within the scope of the broadly-worded arbitration provision. (Defs.' Mem. in Supp. Mot. to Compel, at 8–9.) Toyota ignores the plain and clear wording of the arbitration provision in the Purchase Agreements. The arbitration provision states:

Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this clause, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successor or assigns, which arise out of or relate 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.

(Nash Agrmt., at 6; Ramirez Agrmt, at 6 (emphasis added).) Here, the plain language of the provision is clear that the signatories—the Nash and Ramirez Plaintiffs and the Toyota dealerships—may invoke their right to arbitrate any claims arising under the Purchase Agreements. But the provision does not state that nonsignatory third parties, such as Toyota, may arbitrate claims under the Purchase Agreements. The Toyota dealerships have never been parties to this action. Thus, Toyota cannot compel arbitration of Plaintiffs' claims under the arbitration provision in the Purchase Agreements.

(In re Toyota Motor Corp., supra, 828 F.Supp.2d at 1159 [underline added].) 

Similar to the Toyota case, the Lease’s arbitration provision states that “If either you [Plaintiff] or we [Mercedes-Benz of Encino] choose, any dispute between you and us will be decided by arbitration and not in court.”  (Lease at p.4.)  The clause does not provide for any other non-signatory third parties with the right to enforce the clause. 

            MBUSA also argues that it is entitled to invoke the arbitration provision because the provision states: “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.”  (Lease at p.4.)  Even in the face of such language, however, California state and federal courts have refused to allow the manufacturer to invoke arbitration.  For example, in Nation v. BMW of North America, LLC (C.D. Cal., Dec. 28, 2020) 2020 WL 7868103[1] the District Court stated:

As excerpted more fully above, the contract provides that “you or I” (Nation or the seller) may compel arbitration of any claim “between me and you or your employees, officers, directors, affiliates, successors or assigns.” BMW NA alleges that because it is an “assign” or “affiliate” of the auto seller, it is a third-party beneficiary of this contract and can compel arbitration. Nation counters that there is no evidence that either she or the auto seller intended BMW NA as a third-party beneficiary.

This is not the first time that BMW NA has sought to compel arbitration as a third-party beneficiary based upon this exact contractual language. Federal district courts in California have decided the issue both ways. Compare Tseng v. BMW of N. Am., LLC, No. 2:20-cv-00256-VAP-AFMx,  2020 WL 4032305, at *4 (C.D. Cal. Apr. 15, 2020) (BMW was an affiliate and therefore an intended beneficiary); Phillips-Harris v. BMW of N. Am., LLC, No. CV 20-2466-MWF (AGRx),  2020 WL 2556346, at *10 (C.D. Cal. May 20, 2020) (BMW's provision of the warranty makes it an intended third-party beneficiary) with Schulz v. BMW of N. Am., LLC, No. 5:20-CV-01697-NC, 2020 WL 4012745, at *5 (N.D. Cal. July 15, 2020) (BMW NA was not a third-party beneficiary because the clause at issue “refers to the subject matter of the dispute, not to the parties involved in the dispute”).

The Court finds the reasoning of Nation and the Schulz court more persuasive. The reference to “assigns” upon which BMW NA hangs its hat is in the definition of Claim: “ ‘Claim’ broadly means any claim, dispute, or controversy ... between me and you or your employees, officers, directors, affiliates, successors or assigns.” So far, so good, for BMW NA; the drafter of the contract evidently intended to include BMW NA in identifying which claims could be arbitrated. But BMW NA is not included in the class of litigants who may compel arbitration: “Either you or I may choose to have any dispute between us decided by arbitration and not in a court or by jury trial” (emphasis added). BMW NA proffers no evidence to suggest that the signatories of the contract intended to include BMW NA in the “you or I” who may compel arbitration. As the Schulz court found, BMW NA is therefore not an intended beneficiary of the contract, and it may not compel arbitration on this argument.

(Nation, supra, 2020 WL 7868103 at *2–*3.) 

MBUSA is not a party defined within the “you or we” or “you or us” statements in the arbitration provision, as that referred to Mercedes Benz of Encino and Plaintiff.

Further, MBUSA has not shown that it is the intended third-party beneficiary to the Lease.  The Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 case and the cases after Felisilda are instructive to consider. 

In Felisilda, plaintiffs purchased a vehicle from Elk Grove Auto Group, Inc. dba Elk Grove Dodge Chrysler Jeep (“Elk Grove Dodge”), encountered problems with the vehicle, and sued Elk Grove Dodge and manufacturer FCA US LLC (“FCA”) for violating the Song-Beverly Act.  (Felisilda, supra, 53 Cal.App.5th at 489.)  Elk Grove Dodge moved to compel arbitration based on the agreement signed by plaintiffs, and FCA filed a notice of non-opposition.  The trial court ordered arbitration and plaintiffs dismissed Elk Grove Dodge.  (Id.)  The Court of Appeal affirmed the arbitration between plaintiffs and FCA, finding that plaintiffs’ claim against FCA was encompassed in the arbitration provision.  The arbitration provision stated that any claim or dispute between plaintiffs and Elk Grove Dodge (its employees, agents, successors, or assigns) “which arises out of or relates to … 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 be subject to arbitration at a party’s election.  (Id. at 490.)  The Court of Appeal found that the agreement signed by plaintiffs included the arbitration of matters directly related to the condition of the vehicle as the complaint alleged claims for violation of express warranties, “the sales contract was the source of the warranties at the hearing of this case,” and plaintiffs expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the sales contract.  (Id. at 496.)  Thus, the Court of Appeal found that arbitration was proper.

Thereafter, the Ford Motor Warranty Cases, Ochoa v. Ford Motor Company (2023) 89 Cal.App.5th 1324 (“Ochoa”) was decided.  There, the Court of Appeal held that Ford could not compel arbitration based on the plaintiffs’ agreements with the dealers that sold them the vehicles.  (Ochoa, supra, 89 Cal.App.5th at 1329.)  The Court held that equitable estoppel did not apply because the plaintiffs’ claims were in no way related to the agreements and Ford was not a third-party beneficiary of the agreements as there was no basis to conclude that the plaintiffs and their dealers entered into the agreements with the intent of benefitting Ford.  (Id.)  The sales contracts at issue identified the parties as the buyer/“you” and the selling dealer as “Creditor-Seller,” “we,” or “us,” and Ford was not a party to nor named in the sales contract.  (Id.)  Ford argued that equitable estoppel applied because the plaintiffs’ claims were intimately founded in and intertwined with the underlying obligations of the sales contracts and the sales contracts between the plaintiffs and dealers gave plaintiffs contractual rights they now sue on—warranty claims against the manufacturer.  (Id. at 1333.)  The Court of Appeal disagreed and declined to follow Felisilda because the fact that the plaintiffs and dealer agreed to arbitrate disputes did not include Ford and the plaintiffs’ breach of warranty claims against Ford were not based on their sales contracts as warranties accompany the sale of vehicles without regard to the sales contract’s terms.  (Id. at 1334.)  In addressing the contract language in Felisilda, the Court of Appeal stated:

We do not read this italicized language as consent by the purchaser to arbitrate claims with third party nonsignatories. Rather, we read it as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate. They agreed to arbitrate disputes “between” themselves—“you and us”—arising out of or relating to “relationship[s],” including “relationship[s] with third parties who [did] not sign th[e] [sale] contract[s],” resulting from the “purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.”

…

The “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.

(Id. at 1334-35.)  The Court of Appeal further found that equitable estoppel did not apply because the plaintiffs’ claims were not founded in the sales contract, but were instead based on the manufacturer’s warranties.  (Id. at 1335.) 

            Finally, most recently, the Court of Appeal decided Kielar v. Superior Court of Placer County (2023) 94 Cal.App.5th 614.  In this action, Kielar challenged the superior court’s decision to grant Hyundai Motor America’s motion to compel arbitration of his causes of action for violation of the Song-Beverly Consumer Warranty Act.  (Kielar, supra, 94 Cal.App.5th at 616.)  The superior court had relied on Felisilda and concluded that Hyundai, as a nonsignatory manufacturer, could enforce the arbitration provision in the sales contract between Kielar and his local car dealership under the doctrine of equitable estoppel.  (Id.)  The Court of Appeal joined the recent decisions disagreeing with Felisilda (Montemayor v. Ford Motor Co. (2023 92 Cal.App.5th 958 and Ochoa, supra) and issued a preemptory writ of mandate compelling the superior court to vacate its prior order and enter a new order denying Hyundai’s motion.  (Id.)  In arriving at its decision, the Court of Appeal recognized that Plaintiff’s claims did not rely on any terms of the sales contract with the dealership.  (Id. at 430-431.)  The Court of Appeal instead found:

Kielar's complaint alleges “Hyundai issued a written warranty.” This warranty was not part of his sales contract with the dealership. Indeed, the sales contract acknowledges this separate warranty and disclaims any implied warranties by the dealership: “If you do not get a written warranty, and the Seller does not enter into a service contract within 90 days from the date of this contract, the Seller makes no warranties, express or implied, on the vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose. [¶] This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.” [Footnote omitted] In Ford Motor and Montemayor, Ford Motor Company moved to compel arbitration of the same type of claims at issue in this proceeding based on “the same form arbitration provision” in the plaintiffs’ sales contract with dealerships. (Ford Motor, supra, 89 Cal.App.5th at p. 1333, 306 Cal.Rptr.3d 611, rev. granted; see also Montemayor, supra, 92 Cal.App.5th at p. 968, 310 Cal.Rptr.3d 82.) These sales contracts also included the same disclaimer regarding warranties. (Montemayor, supra, at p. 962, 310 Cal.Rptr.3d 82; Ford Motor, supra, at p. 1335, 306 Cal.Rptr.3d 611.) These authorities explained Felisilda’s statement that “the sales contract was the source of the warranties” was flawed because “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, supra, at p. 1334, 306 Cal.Rptr.3d 611; accord Montemayor, supra, at p. 969, 310 Cal.Rptr.3d 82; 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’ ”].) Whether a manufacturers’ express or implied warranties that accompany a vehicle at the time of sale constitute obligations arising from the sale contract, permitting manufacturers to enforce an arbitration agreement in the contract pursuant to equitable estoppel is a question now pending before our Supreme Court. In the meantime, we agree with Montemayor and Ford Motor that they do not.

Additionally, we agree 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.’ ” (Montemayor, supra, 92 Cal.App.5th at p. 971, 310 Cal.Rptr.3d 82, quoting Ford Motor, supra, 89 Cal.App.5th at p. 1335, 306 Cal.Rptr.3d 611, rev. granted.)

(Kielar, supra, 94 Cal.App.5th at 431.) 

Although this Court does not find Ochoa’s reasoning persuasive, it is bound by the holdings of the Court of Appeal in Ochoa, Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958, and most recently in Kielar.  If ever there were an intended third-party beneficiary of a contract to arbitrate a vehicle warranty claim, it would be the manufacturer who made the vehicle, sold it to the dealer and who backs the dealer financially with respect to the contract.  Likely, MBUSA itself drafted and printed the warranty, purchase agreement and arbitration clause and mailed it to the dealer for use in the transaction.  However, as the cases cited show, California courts remain hostile to arbitration clauses and give them only the narrowest possible meaning, especially in consumer transactions. While not intending to adopt the pretzel logic of these cases as its own, the Court recognizes that it is a mere lower court, and that as such it must follow the authority of the Courts of Appeal, or it would needlessly delay the resolution of matters with pointless intermediate appeals and accompanying expense and delay.

Based on the evidence provided by MBUSA, the Court finds that there does not exist a valid agreement to arbitrate between Plaintiff and MBUSA.  In addition, the motion to compel arbitration will not be granted based on the third-party beneficiary agreement.  As such, the motion will not be granted on this basis.

3.      Equitable Estoppel

“[I]f a plaintiff relies on the terms of an agreement to assert his or her claims against a nonsignatory defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause of that very agreement. In other words, a signatory to an agreement with an arbitration clause cannot ‘have it both ways'; the signatory ‘cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory.’”  (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 220.)  “Under the doctrine of equitable estoppel, 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.”  (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.)

MBUSA argues that equitable estoppel applies such that it can compel Plaintiff to arbitrate her claims.

The FAC alleges that MBUSA provided express warranties that vehicle would be free of defects and implied warranties that the vehicle was merchantable.  (FAC, ¶¶10, 18, 33.)  The three causes of action alleged against MBUSA are based solely on the warranties provided by MBUSA and are not based on breaches of the Lease.  (See FAC, ¶¶18-19, 34-37, 46-49.)  These alleged breaches are separate from the Lease.  (See Ochoa, supra, 89 Cal.App.5th at 1334 [“[M]anufacturer 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.”], 1335 [“California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.”]; see also Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1132 [finding that equitable estoppel did not apply, in part, because the claims did not rely on the existence of the purchase agreement with the arbitration agreement, but were rather the claims arose based on the manufacturer’s independent duties owed to consumers]; see also Kielar, supra, 94 Cal.App.5th at 430-431.)  Plaintiff argues that the causes of action arise from the warranty and the repair obligations of MBUSA and not from any warranty issued by the selling dealership. 

Again, while the warranty claims were undoubtedly intended to be included in a clause regarding claims arising out of the sale of an automobile, California appellate courts refuse to discern such an intent.  To hold otherwise, would only necessitate a pointless and expensive appeal and reversal. 

For the reasons discussed above, the motion is denied.

CONCLUSION AND ORDER

Defendant Mercedes-Benz USA, LLC’s motion to compel Plaintiff to arbitration and stay the action is denied.  

A Case Management Conference is scheduled for January 4, 2024, at 8:30 a.m.

Defendant shall provide notice of this order.

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