Judge: Jon R. Takasugi, Case: 24STCV16412, Date: 2025-02-11 Tentative Ruling

Case Number: 24STCV16412    Hearing Date: February 11, 2025    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Defendant’s motion to compel arbitration is DENIED. 

            On 7/2/2024, Plaintiff James Escamilla (Plaintiff) filed suit against Mercedes-Benz USA, LLC (Defendant), alleging: (1) breach of express warranty; (2) breach of implied warranty; and (3) negligent repair.

            On 12/6/2024, Defendant moved to compel arbitration of Plaintiff’s Complaint, and stay proceedings pending the completion of arbitration.

Legal Standard

Where the Court has determined that an agreement to arbitrate a controversy exists, the Court shall order the petitioner and the respondent to arbitrate the controversy …unless it determines that…  grounds exist for rescission of the agreement.” (Code Civ. Proc., § 1281.2.) Among the grounds which can support rescission are fraud, duress, and unconscionability. (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.) The Court may also decline to compel arbitration wherein there is possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2 (c).)

Discussion

The party moving to compel arbitration “bears the burden of proving [the] existence [of an arbitration agreement] by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) The moving party also bears the burden of demonstrating that the claims fall within the scope of the arbitration agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)

A.    Existing Agreement

Defendant submitted evidence that on 2/28/2023, Plaintiffs entered into a lease agreement (Lease Agreement) for a 2023 Mercedes-Benz EQS 580 (Subject Vehicle). The Lease Agreement has a provision titled “Important Arbitration Disclosures” which states, in part, that: 

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 a trial by a court or a jury trial.

3. You agree to give up any right you may have to bring a class action lawsuit or class arbitration, or to participate in either as a claimant, and you agree to give up any right you may have to consolidate your arbitration with the arbitration of others.

4. The information that can be obtained in discovery from each other or from third persons 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.

(Id.)

The arbitration provision also states that:

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 this 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 ... 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 court action. Any claim or dispute is to be arbitrated on an individual basis and not by class action. The arbitration shall be administered by the American Arbitration Association, or by any other organization that you may choose, subject to our or a Third Party Beneficiary’s approval.

(Id., emphasis added.)

In opposition, Plaintiff argues that Defendant has no standing as a non-signatory to invoke arbitration because there is no principal-agent relationship, no third-party beneficiary relationship, and because the doctrine of equitable estoppel does not apply. In particular, Plaintiff alleges that the agreement was purely between Plaintiff and the non-party selling dealership, and that his claims against Defendant in no way reference the underlying Lease Agreement.

The Court agrees.

As for Defendant’s contention that it has standing as a third party beneficiary, the relevant provision expressly defines the scope of the claims as those which “arises out of or relates to ... 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)….” Thus, to apply, Plaintiff’s claims must arise out of or relate to 1) a credit application, 2) this lease, 3) a resulting transaction, or 4) a resulting relationship arising out of the lease. While Defendant argues that Plaintiff’s claims are related to the Lease Agreement because Song Beverly “creates statutory claims arising out of retail purchases and leases made by consumers of vehicles,” California Courts have recently rejected this but-for causation argument.

For example, in Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958, the Court wrote: “[t]o be sure, the Montemayors would not have sued Ford for the defective condition of the vehicle but for the sale of the vehicle by AutoNation pursuant to the sales contract. And Ford provided an express warranty to the Montemayors as a result of the sale. But that does not mean Ford's obligation to provide a nondefective vehicle under its separate express warranty is in any way founded on an obligation imposed by the sales contract or is intertwined with those obligations.”

In other words, the fact that the lease of the Subject Vehicle is a condition precedent to the statutory claim, does not mean that the claim arises out of the lease of the Subject Vehicle. Given the prevailing legal authority, the Court’s concludes that Plaintiff’s claims do not fall within the scope of claims for which Defendant has third-party beneficiary standing to compel arbitration.

In the past, this Court has concluded that Defendant could enforce the arbitration agreement under a theory of equitable estoppel. This was based on a conclusion that Song-Beverly claims: (1) necessarily rely on the underlying contract, given that if a plaintiff did not enter into the RISC or Lease Agreement, he or she would not have received the Subject Vehicle or the corresponding warranties and certifications from the defendant; and (2) all directly relate to the condition of the vehicle and thus are intimately founded in and intertwined with the underlying contract and the condition of the vehicle bought subject to that contract.

            However, the Court of Appeal directly addressed the manufacturer’s standing vis-à-vis the Sales Contract and equitable estoppel in the newly published Martha Ochoa v. Ford Motor Company (2023) Cal.Ct.App. In rejecting the car manufacturer’s right to enforce the Sales Contract’s arbitration agreement under a theory of third-party beneficiary or equitable estoppel, the Court wrote:

We agree with the trial court that FMC [Ford] could not compel arbitration based on plaintiffs’ agreements with the dealers that sold them the vehicles. Equitable estoppel does not apply because, contrary to FMC’s arguments, plaintiffs’ claims against it in no way rely on the agreements. FMC was not a third party beneficiary of those agreements as there is no basis to conclude the plaintiffs and their dealers entered into them with the intention of benefitting FMC.

            Moreover, as noted by Plaintiff in opposition, Felisilda, the authority relied upon to allow manufacturers to enforce arbitration, dealt with a dealership’s motion under its own contract. As such, Ochoa is more directly analogous to the facts here, and the Court declines to follow Felisilda over Ochoa.

            Based on the foregoing, Defendant’s motion to compel arbitration is denied.

It is so ordered.

Dated:  February    , 2025

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.