Judge: Joseph Lipner, Case: 23STCV00661, Date: 2023-10-12 Tentative Ruling

Case Number: 23STCV00661    Hearing Date: October 12, 2023    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendant Mercedes-Benz USA, LLC moves to compel Plaintiff Balbir Dogra submit his claims raised in the complaint into arbitration and to stay this action pending the outcome of arbitration.

Defendant’s motion to compel arbitration is DENIED.

Background

          Plaintiff Balbir Dogra (“Plaintiff”) purchased a “Mercedes-B S560V” automobile model (“Subject Vehicle”) at an undisclosed time from an authorized retailer of Defendant Mercedes-Benz USA, LLC (“Defendant”). In July 2022, the Subject Vehicle malfunction and remained locked while Plaintiff’s toddler grandson was still inside. It was only after firefighters arrived at the scene and broke the window of the Subject Vehicle could Plaintiff’s grandson be freed. While her grandson was unharmed despite facing the risk of heat stroke, permanent brain damage and possible death, Plaintiff suffered mental anguish. It is further alleged that Defendant was aware of this manufacturing and safety defect and failed to disclose it to Plaintiff at the time of her purchase.

          On January 12, 2023, Plaintiff initiated this action against Defendant, and the complaint alleges the following causes of action: (1) fraudulent non-disclosure; (2) negligence; (3) violation of Business & Professions Code § 17200, et seq.; and (4) violation of Civil Code §§ 1750, et seq.

          On April 10, 2023, Defendant filed the instant motion to compel arbitration. Plaintiff opposes the motion.

Legal Standard

           When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate.  (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.)  The burden then shifts to the plaintiff to prove the falsity of the agreement.  (Ibid.)  After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability.  (Ibid.)  The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement.  (Ibid.; Code Civ. Proc., § 1281.2.) 

Judicial Notice

          Defendant requests the Court to take judicial notice of Plaintiff’s complaint. The request is granted pursuant to Evidence Code § 452(d).

Discussion

Existence of an Enforceable Arbitration Agreement

“[T]he petitioner bears the burden of proving its existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) “If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation [citation]—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.” (Ibid.)

In support of its burden, Defendant submits evidence of the lease agreement that Plaintiff initialed leased the Subject Vehicle, which contains an arbitration provision. (Ameripour Decl. ¶ 4, Exh. 2.) Notably, Defendant is not a signatory to the lease agreement. Pursuant to the lease agreement, the arbitration provision states in relevant part:

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.

(Ibid.)

Because Defendant concedes that it was not a signatory to the lease agreement, the issue of standing must still be resolved, and this shall be discussed further below. But first, in opposition, Plaintiff disputes that an arbitration agreement exists on the ground that the aforementioned lease agreement has expired. (Opposition at pp. 4-5.) In support of this argument, Plaintiff argues that expired on April 3, 2022 by its own terms. (Opposition at pg. 5.) Plaintiff further points out that the Subject Vehicle was sold to her, and title was effectively released to Plaintiff on April 7, 2022. (Opposition at pg. 6; Dogra Decl. ¶ 2, Exh. A.) However, this argument is not persuasive because Plaintiff’s option to purchase the Subject Vehicle was a resulting transaction that arose out of the lease agreement.  Thus, even though the contractual relationship may have changed, and the alleged incident occurred after the expiration of the lease agreement, the arbitration provision is written in a way that would arguably encompass Plaintiff’s claims following Plaintiff’s exercise of the purchase option under the lease agreement.

Accordingly, an arbitration agreement does exist. Whether Defendant has standing to enforce it shall be addressed next.

Standing to Enforce Arbitration Agreement

While Defendant concedes that it was not a signatory to the lease agreement, it maintains that it has standing to compel arbitration under the lease pursuant to the doctrines of third-party beneficiary and equitable estoppel. (Motion at pp. 4-5.) The Court shall address each in turn.

          Third-Party Beneficiary

To invoke the third-party beneficiary exception, the non-signatory must show that the arbitration clause of the agreement was “made expressly for [their] benefit.”  (Civ. Code, § 1559.) It is “not necessary that the beneficiary be named and identified as an individual. A third party may enforce a contract where he shows that he is a member of a class of persons for whose benefit it was made.”  (Garratt v. Baker (1936) 5 Cal.2d 745, 748; accord, Cargill, Inc. v. Souza (2011) 201 Cal.App.4th 962, 967.)

A third party is entitled to enforce a contract where: (1) it benefits 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 reasonable expectations of the parties.  (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

Here, Defendant asserts that it is an intended beneficiary because Plaintiff’s claims relate to the lease of the Subject Vehicle and focus on the “resulting relationship” between the parties due to Defendant’s alleged liability for the Subject Vehicle. (Id. at pp. 5-6.) Upon review of the arbitration provision, this argument is not persuasive. Even though the lease agreement references a “resulting transaction or relationship,” Defendant has failed to show that the lease agreement was expressly made for its benefit. Rather, it appears that the lease agreement was drafted for the purpose of securing benefits for the contracting parties. This is evidenced by the fact that, other than referencing the contracting parties, the arbitration provision only refers to the finance company’s employees, agents, successors or assigns. Thus, Defendant may not rely on the third-beneficiary doctrine as a means of enforcing the arbitration provision within the lease agreement.

Accordingly, because the lease agreement was not created for Defendant’s benefit, the third-party beneficiary doctrine does not apply.

          Equitable Estoppel

Next, Defendant asserts it is nonetheless entitled to enforce the arbitration provision pursuant to the doctrine of equitable estoppel under Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, review denied (Nov. 24, 2020) (Felisilda). (Motion at pp. 7-9.)

 When a petitioner seeks to compel arbitration as to a non-signatory to the arbitration agreement, various theories are available to support the moving party’s demand, which include the doctrine of equitable estoppel. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) Under this doctrine, 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. (Id.)

In Felisilda, the Court of Appeal found that purchasers of a vehicle were estopped from refusing to arbitrate Song-Beverly Act claims against the vehicle manufacturer, based on an agreement between the purchaser and the vehicle dealer. (See Felisilda, supra, at 496-99.) After Defendant filed the instant motion, the Court of Appeal issued a contrary appellate decision. In Kielar v. Superior Court of Placer Cnty. (2023) 94 Cal.App.5th 614, the Third District Court of Appeal expressly repudiated Felisilda. (Id. at 616.) The Third District issued a preemptory writ of mandate directing the trial court in the case to vacate an order compelling arbitration of a plaintiff’s Song-Beverly Act claims against an automobile manufacturer based on an arbitration clause in the purchase agreement between the plaintiff and the dealer from which the plaintiff purchased the automobile.  (Ibid.)  The trial court order in Keilar was premised on Felisilda’s view that the doctrine of equitable estoppel applied in this context.  (Ibid.)  The Third District in Keilar held that it does not apply.  (Ibid.)

In abandoning Felisilda, the Third District in Keilar adopted instead the rulings of Division Eight of the Second District in the Ford Motor Warranty Cases, known by the lead case, Ochoa v. Ford Motor Co. (2023) 89 Cal.App.5th 1324, and Division Seven of the Second District in Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958 (Montemayor).  (See Keilar, supra, 94 Cal.App.5th at 620-621 [discussing Ochoa and Montemayor].  The Courts in Ochoa and Montemayor rejected the reasoning of Felisilda and held that the claims against a non-signatory automobile manufacturer are not intimately founded in and intertwined with the obligations in the contract containing the arbitration clause between the plaintiff and the dealer from which the plaintiff purchased the automobile at issue, and therefore the manufacturer could not invoke the doctrine of equitable estoppel to enforce the arbitration clause.  (Ochoa, supra, 89 Cal.App.5th at 1333,1335-1336; Montemayor, supra, 92 Cal.App.5th at 969-971.) Thus, Defendant’s reliance on Felisilda is misplaced.

In reply, Defendant argues that it can still avail itself of the doctrine of equitable estoppel to enforce the arbitration clause pursuant to Ochoa. (Reply at pg. 5.)  Defendant asserts that the complaint alleges language to show that Plaintiff’s claims arise from the lease agreement. (Ibid.) In particular, Defendant relies on the following allegation: “In conjunction with each sale, Defendants marketed, advertised and warranted that the defective components of the Product were of merchantable quality fit for the ordinary purpose for which such goods were used and were free from defects.” (Compl. ¶ 30.) However, this allegation does not show that Plaintiff sued Defendant based on the terms of the lease agreement.  (Ochoa, supra, 89 Cal.App.5th at 1334.) Rather, Plaintiff’s claims for fraudulent non-disclosure, negligence, violation of Business & Professions Code §§ 17200, et seq., and violation of Civil Code §§ 1750, et seq. stem from warranties beyond the lease agreement. In fact, as in Ochoa, the lease agreement does not include any warranty or assurances regarding the quality of the vehicle sold, and instead, it disclaims any warrant beyond the one extended by the manufacture. (Ochoa, supra, 89 Cal.App.5th at 1335; 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’ ”].) Therefore, because Plaintiff’s claims do not arise from the terms of the lease agreement, Plaintiff is not estopped from asserting Defendant has no right to demand arbitration.

Based on the foregoing, because the doctrine of equitable estoppel does not apply, Defendant lacks standing to bring the instant motion. Accordingly, Defendant’s motion to compel is denied.