Judge Linda S. Marks, Case 2022-01257134 2022-12-12 Tentative Ruling

Judge: Linda S. Marks, Case: 2022-01257134, Date: 2022-12-12 Tentative Ruling

1. Motion to Compel Arbitration filed by Tammy M. Sandoval
2. Case Management Conference

Plaintiff Tammy Sandoval entered into a Motor Vehicle Retail Installment Contract dated November 9, 2017 (“Contract”) with Crevier BMW for the purchase of a 2018 BMW X5. (Wagner Dec., ¶3, Exhibit A). Defendant BMW NA is not a signatory to the Contract.

Federal Arbitration Act (“FAA”) Applies: The FAA “applies where there is ‘a contract evidencing a transaction involving commerce.’” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 277 [quoting 9 USC § 2] [emphasis in original].) It is undisputed that the FAA applies here.

A court’s role in considering a petition to compel arbitration under the FAA is limited to “determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. If the response is affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in accordance with its terms.” (Chiron Corp. v. Ortho Diagnostic Sys. Inc. (9th Cir. 2000) 207 F.3d 1126, 1130.) If these requirements are met, “the court must compel arbitration.” (Boardman v. Pacific Seafood Group (9th Cir. 2016) 822 F.3d 1011, 1017.) “In determining the rights of parties to enforce an arbitration agreement within the FAA’s scope, courts apply state contract law while giving due regard to the federal policy favoring arbitration.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Ibid.)

Existence of a valid agreement to arbitrate: Paragraph 17 of the Contract contains an agreement to arbitrate. The arbitration clause states, in pertinent part, that: “NOTICE: Either you or I may choose to have any dispute between us decided by arbitration and not in a court or by jury trial. If a dispute is arbitrated, I will give up my right to participate as a class representative or class member on any Claim I may have against you including any right to class arbitration or any consolidation of individual arbitrations.[…]”(Contract, p. 6, ¶17). The terms “you” and “I” are defined as follows:“Unless otherwise specified, ‘I’, ‘me’ and ‘my’ refer to the Buyer and ‘you’ and ‘your’ refer to the Seller or Sellers assignee.”(Contract, p. 1, ¶1.)“ ‘Claim’ broadly means any claim, dispute or controversy, whether in contract, tort, statute or otherwise, whether preexisting, present or future, between me and you or your employees, officers, directors, affiliates, successors or assigns, or between me and any third parties if I assert a Claim against such third parties in connection with a Claim I assert against you, which arises out of or relates to my 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). Any Claim shall, at your or my election, be resolved by neutral, binding arbitration and not by a court action[…]” (Contract, p. 6, ¶17.)

Plaintiff contends that defendant BMW NA, which is not a signatory to the Contract may not compel the matter to arbitration

Enforcement by Non-Signatory: “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” (United Steelworkers v. Warrior & Gulf Navigation Co. (1960) 363 U.S. 574, 582.) However, “[t]he United States Supreme Court has held that a litigant who is not a party to an arbitration agreement may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement.” (Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1128.) “[T]here are six theories by which a nonsignatory may be bound to arbitrate: ‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary’ (Citation).” (Suh v. Superior Ct. (2010) 181 Cal. App. 4th 1504, 1513.)

Here, BMW NA moves to compel arbitration as a third-party beneficiary of the Contract as well as pursuant to the doctrine of equitable estoppel.

Third-Party Beneficiary: The arbitration provision grants “me” (defined as Plaintiff) and “you” (defined as the dealer and its assignee) the right to compel arbitration. BMW NA is not referenced and there is no indication in the arbitration provision or elsewhere in the Contract that the agreement is intended to benefit BMW NA. Any benefit BMW NA receives is only incidental. “[P]ersons only incidentally or remotely benefited by the contract are not entitled to enforce it.” (Levy v. Only Cremations for Pets, Inc. (2020) 57 Cal.App.5th 203, 212; see also Lucas v. Hamm (1961) 56 Cal.2d 583, 590 [a third party that “only incidentally or remotely benefit[s]” from a contract does not benefit from a contract].) “Language limiting the right to compel arbitration to a specific buyer and a specific dealership (and its assignees) means that the extraneous third parties may not compel arbitration.” (Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942, 947.) Permitting Defendant to enforce the arbitration provision is not consistent with the “objectives of the contract” and the “reasonable expectations of the contracting parties.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

BMW NA contends that it is a third-party beneficiary because “you” and “your” are defined to include both Crevier BMW and its assignee; Crevier BMW’s assignee is BMW Bank of North America, a wholly owned subsidiary of BMW Financial Services NA, LLC (“BMW FS”); BMW FS is a wholly-owned subsidiary of BMW NA; and BMW NA is therefore an “affiliate” of BMW FS. Contract, p.7 ¶19; Grener Decl. ¶4). Per BMW NA, the inclusion of the affiliates in the definition of Claim demonstrates that BMW NA is a third party beneficiary of the contract.

This argument is rejected. The Contract specifically provides that the only parties who can request arbitration are “you” or “I,” with “you” being defined as Crevier BMW and its assignee. Affiliates are not included. Further, BMW NA has not demonstrated that there was an intent to benefit BMW NA, or that such an interpretation is consistent with the reasonable expectations of the contracting parties.

The court finds that BMW NA is not a third-party beneficiary of the arbitration provision.

Equitable Estoppel:

Estoppel only applies where “the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations. By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” (Felisilda, 53 Cal.App.5th at 495-496, citations omitted.) “Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th at 1222, 1237, fn. 18.) “ ‘The fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute . . . should be resolved.’ ” (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, quoting NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 84.) “In any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 219.)

Here, the warranties at issue are alleged to consist of those warranties directly between Plaintiff and BMW NA. (Complaint, ¶¶ 10, 13). The complaint does not include any reference to the Contract. Additionally, the Contract expressly differentiates BMW NA’s warranties from the dealership/Seller’s warranty. The Contract states: “A. WARRANTIES. I understand that you are not offering any express warranties unless you have given a written warranty to me. If you extend, or the Vehicle’s manufacturer extends, a written warranty or service contract covering the Vehicle within 90 days from the date of this Contract, I get implied warranties of merchantability and fitness for a particular purpose covering the Vehicle. If not, you specifically disclaim any implied warranties of merchantability and fitness for a particular purpose covering the Vehicle.” (Contract, p.5 ¶12). Thus, the warranties at issue are expressly disclaimed in the Contract.

Plaintiff’s claims against BMW NA do not depend on the existence of the Contract or any term contained therein, and Plaintiff’s claims against BMW NA are independent from the Contract. Accordingly, BMW NA is not entitled to enforce the arbitration provision under the doctrine of estoppel.

Tentative Ruling: Defendant BMW of North America, LLC’s (“BMW NA”) Motion to Compel Arbitration and Stay All Legal Proceedings is DENIED.

Plaintiff to give notice.