Judge: John J. Kralik, Case: 23GDCV01039, Date: 2023-12-08 Tentative Ruling
Case Number: 23GDCV01039 Hearing Date: December 8, 2023 Dept: NCB
North
Central District
|
sem
gulinyan, et al., Plaintiffs, v. mercedes-benz
usa, llc, et al., Defendants. |
Case No.:
23GDCV01039 Hearing
Date: December 8, 2023 [TENTATIVE]
order RE: motion to compel arbitration |
BACKGROUND
A.
Allegations
Plaintiffs Sem Gulinyan and Fyodor Gulinyan (“Plaintiffs”) commenced
this action against Defendants Mercedes-Benz USA, LLC (“MBUSA”) and Calstar
Motors, Inc. (“Calstar”) concerning a 2022 Mercedes-Benz E 350W. Plaintiffs allege that they entered into a
warranty contract with MBUSA on December 24, 2021. MBUSA is alleged to have warranted the
subject vehicle, including a bumper-to-bumper warranty, powertrain warranty,
emission warranty, etc. Plaintiffs
allege that the vehicle came with infotainment defects, transmission defects,
and electrical defects.
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 Calstar for
repairs on numerous occasions, but it failed to properly store, prepare, and
repair the subject vehicle in accordance with industry standards.
The complaint, filed May 18, 2023, alleges 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 the implied warranty of
merchantability (Civ. Code, §§ 1791.1, 1794, 1795.5); and (5) negligent repair.
The 1st to 4th
causes of action are alleged against MBUSA.
The 5th cause of action is alleged against Calstar.
B.
Motion on Calendar
On June 21, 2023, MBUSA filed a motion to compel arbitration and
staying the action pending the outcome of the arbitration.
On November 27, 2023, Plaintiffs filed an opposition brief.
On December 1, 2023, MBUSA filed a reply brief.
REQUEST FOR JUDICIAL NOTICE
MBUSA requests judicial notice of: (1) Plaintiffs’ complaint filed on May
18, 2023. The request is granted. (Evid.
Code, § 452(d).)
Plaintiff requests judicial notice of: (A) Ochoa v. Ford Motor
Company (2023) 89 Cal.App.5th 1324; (B) Montemayor et al. v. Ford Motor
Company (2023) 92 Cal.App.5th 958; (C) Kielar v. Hyundai Motor America
(2023) 94 Cal.App.5th 614; (D) the Court of Appeal, Third
Appellate District’s August 28, 2023 Response to Petition for Writ of Mandate
in Campos v. Superior Court of Butte County (No. C098848); (E) the Court
of Appeal, Third Appellate District’s August 28, 2023 Response to Petition for
Writ of Mandate in Ortiz v. Superior Court of Sacramento County (No.
C099135); and (F) Yeh v. Superior Court of Contra Costa County (2023) 95
Cal.App.5th 264. The request is
granted.
DISCUSSION
MBUSA moves to compel Plaintiffs to arbitrate their
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 Calabasas and Lessee Fyodor Gulinyan and Co-Lessee Sem
Gulinyan. 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 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. 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 pp.4-5.) 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?
The Lease at issue was entered between Plaintiffs and Mercedes Benz of
Calabasas. 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. Nevertheless, it argues that it has standing
to compel arbitration under the Lease because it is a third-party beneficiary
and through the principle of equitable estoppel. MBUSA 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.)
In arguing that it is an intended
third-party beneficiary to the Lease, MBUSA relies in part on Felisilda v.
FCA US LLC (2020) 53 Cal.App.5th 486.
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 stated 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.)
The Supreme Court has granted a review of the Ochoa
case, limiting its review to the issue: “Do 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?” (Ford Motor Warranty Cases
(Cal. 2023) 310 Cal.Rptr.3d 440.) The
Supreme Court further stated:
Pending
review, the opinion of the Court of Appeal, which is currently published at 89
Cal.App.5th 1324, 306 Cal.Rptr.3d 611, may be cited, not only for its
persuasive value, but also for the limited purpose of establishing the
existence of a conflict in authority that would in turn allow trial courts to
exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57
Cal.2d 450, 456, 20 Cal.Rptr. 321, 369 P.2d 937, to choose between sides of any
such conflict. (See Standing Order Exercising Authority Under California Rules
of Court, Rule 8.1115(e)(3), Upon Grant of Review or Transfer of a Matter with
an Underlying Published Court of Appeal Opinion, Administrative Order
2021-04-21; Cal. Rules of Court, rule 8.1115(e)(3) and corresponding Comment,
par. 2.)
(Id.)
In view of the Supreme Court’s
statement that it is free to do so, the Court has reviewed the pertinent cases and finds that the reasoning in Felisilda to be more
persuasive than the successive holdings in Ochoa, Montemayor v. Ford Motor Company (2023)
92 Cal.App.5th 958, and Kielar. While
Ochoa and the later cases have become the trend in discussing motions to
compel arbitration in a Song-Beverly Act setting, the Supreme Court’s language
leaves this Court free while review of Ochoa is pending to follow analysis
in Felisilda if it finds it more persuasive. The Court finds that it is more persuasive
and will follow it here as Ochoa and the cases that follow it seem to
abandon any traditional concept of third-party beneficiary.
As summarized above, in Felisilda,
the sales contract was the source of the warranties that made up the heart of
the case and the plaintiff had agreed to arbitrate all claims arising out of
the condition of the vehicle—even against non-signatories to the contract. Here, similarly, Plaintiffs signed the Lease
and expressly agreed to arbitrate any claim or dispute arising out of the lease
or any resulting transaction or relationship arising out of the lease,
including disputes between Plaintiffs and the dealer or any of its employees,
agents, successors, or assigns. Even if
not directly named in the agreement, MBUSA is obviously an intended third-party
beneficiary of the contract to arbitrate a vehicle warranty claim. Indeed, it
would be hard to imagine a clearer case of a third-party beneficiary. The manufacturer
made the vehicle, sold it to the dealer and provided the warranty, which
constitutes practically the entire consideration of the contract. The law has
long allowed the consumer to pursue the manufacturer based on a contractual
relationship with the seller despite any of the notions of privity of contract
that were once considered necessary. Any reasonable consumer signing the
arbitration agreement would understand that it included claims that could be
brought jointly against the dealer and manufacturer. It is likely that MBUSA itself
drafted and printed the warranty, purchase/lease agreement and arbitration
clause for use in the transaction. The manufacturer’s brand, the manufacturer’s
automobile, and the warranty that accompanied it, together constitute the sine
qua non of the transaction. The
warranty is thus inextricably intertwined with the sale contract of the dealer
that contains the arbitration clause (which will be discussed further below). These
recent cases do not purport to overrule all third-party beneficiary law, yet if
MBUSA cannot be considered a third-party beneficiary of this contract, then the
doctrine has no further application in California.
Thus, relying on Felisilda, the Court finds that MBUSA may
invoke the arbitration provision in the Lease agreement as the intended
third-party beneficiary.
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 Plaintiffs to arbitrate their claims.
The complaint alleges that MBUSA provided express
warranties regarding defects and implied warranties of merchantability. Plaintiffs argue that the causes of action
alleged against MBUSA are based on the warranties provided by MBUSA and are not
alleged as breaches of the Lease. (See Compl.,
¶¶27, 33, 40, 42; Opp. at pp.11-12.) An
increasing number of Courts of Appeal have argued that alleged breaches of the
warranty received under the lease are in fact 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.”].) This Court finds that sort of argument to be
difficult to repeat with conviction. Here, Plaintiffs’ right to assert warranty
claims against the manufacturer would not exist but for the agreement
containing the arbitration clause.
Plaintiff attempts to skirt the issue (and
existence) of the Lease by way of its artful pleading. However, as discussed above, the
relationships between the parties arose as a result of the existence of the
Lease agreement. The Lease terms and the
manufacturer’s warranty that accompanied it are inextricably intertwined. (See e.g., Mance v. Mercedes-Benz USA
(N.D. Cal. 2012) 901 F.Supp.2d 1147, 1157 [“And, upon
examination, Mercedes–Benz should be allowed to compel Mr. Mance to arbitrate
his claim because his claim ‘makes reference to or presumes the existence of’
the underlying contract. Mercedes–Benz's duty to comply with its warranty arose
only when Mr. Mance bought the car. Had he not signed the contract, he would
not have received the warranty from Mercedes-Benz. In other words, his claim
for breach of warranty is premised on, and arises out of, the
contract.”].) As discussed above,
Plaintiffs’ claims against MBUSA based on the warranties are intimately founded
in and intertwined with the underlying Lease agreement. Without the Lease, Plaintiff would not have
been able to lease the vehicle or obtain the benefits under a manufacturer’s
warranty.
Again, to find there was no equitable estoppel
here would mean that the entire doctrine was being abandoned with respect to
contract claims generally, not just disfavored arbitration contracts. By making
claims that Plaintiffs received under the lease agreement, Plaintiffs are equitably
estopped from contesting the application of the arbitration agreement to such
claims. Thus, the Court finds that equitable estoppel also supports enforcement
of the arbitration provision.
For the reasons discussed above, the motion is granted.
CONCLUSION AND
ORDER
Defendant Mercedes-Benz USA, LLC’s motion to
compel Plaintiffs to arbitration and stay the action is granted. The Court orders the 1st to 4th
causes of action alleged against MBUSA to be compelled to arbitration. The action will be stayed as to the 5th
cause of action for negligent repair that was alleged against Defendant Calstar
Motors, Inc. only.
The Court sets a Status Conference re Status of
Arbitration for June 4, 2024 at 8:30 a.m.
Defendant shall provide notice of this order.
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