Judge: Lynette Gridiron Winston, Case: 25PSCV00219, Date: 2025-04-30 Tentative Ruling

Case Number: 25PSCV00219    Hearing Date: April 30, 2025    Dept: 6

CASE NAME:  Dylan Grish v. Mercedes-Benz USA, LLC, et al. 

Defendant Mercedes-Benz USA, LLC’s Motion to Compel Binding Arbitration and Motion to Stay Action 

TENTATIVE RULING 

The Court GRANTS Mercedes-Benz USA, LLC’s motion to compel arbitration and stay this action, and hereby stays this action pending the completion of arbitration. 

            Plaintiff is ordered to give notice of the Court’s ruling within five calendar days of this order. 

BACKGROUND 

This is a lemon law case. On January 21, 2025, plaintiff Dylan Grish (Plaintiff) filed this action against defendants Mercedes-Benz USA, LLC (Moving Party), Mercedes Benz of West Covina (Dealership), and Does 1 through 50, alleging causes of action for violation of Song-Beverly Act – breach of express warranty, violation of Song-Beverly Act – breach of implied warranty, violation of the Song-Beverly Act section 1793.2(b), and violation of Civil Code section 1796.5. 

On February 25, 2025, Moving Party moved to compel arbitration and stay this action. On April 17, 2025, Plaintiff opposed the motion. On April 23, 2025, Moving Party replied. 

LEGAL STANDARD 

Parties may be compelled to arbitrate a dispute upon the court finding that: (1) there was a valid agreement to arbitrate between the parties; and (2) said agreement covers the controversy or controversies in the parties’ dispute.¿(Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.) A party moving to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court¿(1998) 62 Cal.App.4th 348, 356-357.) A party seeking to compel arbitration meets their initial burden of establishing the existence of a valid arbitration agreement by attaching a copy to the motion or setting forth its terms verbatim. (Condee v. Longwood Mgmt. Corp. (2001) 88 Cal.App.4th 215, 218-219 (Condee).) 

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld ‘unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute. [Citation.]’” (Ibid.) This is in accord with the liberal federal policy favoring arbitration agreements under the Federal Arbitration Act (FAA), which governs all agreements to arbitrate in contracts involving interstate commerce. (9 U.S.C. § 2, et seq.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.) 

REQUEST FOR JUDICIAL NOTICE and OBJECTION 

The Court DENIES Moving Party’s request for judicial notice and SUSTAINS Plaintiff’s objection to the request for judicial notice. (Evid. Code, § 452, subd. (h).) “’[T]he existence of a contract between private parties cannot be established by judicial notice under Evidence Code section 452, subdivision (h).’ [Citation.]” (CSHV 1999 Harrison, LLC v. Cnty. of Alameda (2023) 92 Cal.App.5th 117, 135, fn. 12.) 

DISCUSSION 

FAA v. CAA

“[T]he FAA's procedural provisions do not apply unless the contract contains a choice-of-law clause expressly incorporating them. [T]he question is not whether the parties adopted the CAA’s procedural provisions: The state's procedural statutes apply by default because Congress intended the comparable FAA sections to apply in federal court. The question, therefore, is whether the parties expressly incorporated the FAA’s procedural provisions into their agreements.” (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 345, internal citations omitted and italics in original (Victrola 89).) “[P]revious cases have held that when an arbitration agreement provides that its ‘enforcement’ shall be governed by California law, the [CAA] governs a party's motion to compel arbitration. It follows that when an agreement provides that its ‘enforcement’ shall be governed by the FAA, the FAA governs a party's motion to compel arbitration.” (Id. at p. 346.) 

The California Supreme Court has held that the FAA requires enforcement of an arbitration provision similar to the one found in the Lease here. (Sanchez v. Valencia Holding Co. (2015) 61 Cal.4th 899.) The Lease explicitly states that “any arbitration under this lease shall be governed by the Federal Arbitration Act.” (Lease, Ex. 1 to White Decl., p. 7 of pdf.) The choice of law language of the arbitration provision found in the Lease make clear that the parties contractually agreed that the FAA would govern this agreement. When parties expressly adopt the FAA to govern their arbitration, the FAA controls. (Rodriguez v. Am. Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122.) Further, the arbitration clause in the Lease distinctly provides that such Lease involves interstates commerce. (Lease, Ex. 1 to White Decl., p. 7 of pdf.) 

Under the FAA, the arbitration agreement is "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 U.S.C. § 2.) As the U.S. Supreme Court has explained, "[t]he overarching purpose of the FAA … is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings." (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 344). And this "liberal federal policy favoring arbitration agreements" applies "notwithstanding any state substantive or procedural policies to the contrary." (Id. at 346.) 

Existence of Valid Arbitration Agreement 

Moving Party seeks to compel arbitration based on the arbitration agreement (the Arbitration Agreement) contained in the subject lease agreement (the Lease). (White Decl., Ex. 1, p. 7 of pdf.) The Arbitration Agreement provides as follows: 

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, assigns, or the vehicle distributor, including Mercedes-Benz USA LLC (each a “Third-Party Beneficiary”), which arises out of or relates to a credit application, 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 a court action. 

(White Decl., Ex. 1, p. 7 of pdf.) 

            By having attached a copy of the Arbitration Agreement and quoting it in the moving papers, Moving Party has met its initial burden in establishing the existence of an arbitration agreement. (Condee, supra, 88 Cal.App.4th at p. 218; Cal. Rules of Court, rule 3.1330.) The burden now shifts to Plaintiff to challenge its validity. (Condee, supra, 88 Cal.App.4th at p. 219.) 

            In opposition, Plaintiff does not dispute the existence of the Arbitration Agreement. Thus, Moving Party has sufficiently established the existence of an arbitration agreement. The next issue is whether Moving Party has standing as a third-party beneficiary under the Arbitration Agreement. 

            Third-Party Beneficiary 

To prevail as a third-party beneficiary, the third party must demonstrate that, “(1)…the third party would in fact benefit from the contract, but also (2)…a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3)…permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. All three elements must be satisfied to permit the third party action to go forward.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.) 

            Moving Party contends it has standing as a third-party beneficiary to move to compel arbitration based on the express terms of the Arbitration Agreement, which specifically identifies Moving Party as a third party entitled to move to compel arbitration thereunder. Moving Party also contends Plaintiff’s claims against Moving Party entirely arise out of and relate to the resulting relationship between the parties as lessee and warrantor, which arose out of execution of the Lease. 

            In opposition, Plaintiff contends Moving Party is not a third-party beneficiary because the contract did not benefit Moving Party and was not intended to benefit Moving Party. Plaintiff contends that other than allowing for the possibility of Moving Party to file this motion, there is no benefit to Moving Party from the Lease since it provides a different company will furnish a vehicle to Plaintiff and a different company will receive money for Plaintiff’s ability to use it. 

            The Court finds Moving Party is an intended third-party beneficiary of the Arbitration Agreement. The Arbitration Agreement expressly identifies Moving Party as a third party that may move to compel arbitration thereunder. (White Decl., Ex. 1, p. 7 of pdf.) The Court finds this demonstrates the parties’ intent to benefit Moving Party in terms of the Arbitration Agreement. “For a third party to qualify as a beneficiary under a contract, the contracting parties must have intended to benefit that third party, and their intent must appear from the terms of the contract. [Citation.]” (Strauss v. Summerhays (1984) 157 Cal.App.3d 806, 816, italics added.) Whether Moving Party was an intended third-party beneficiary of the other portions of the Lease is irrelevant. The parties clearly intended to provide Moving Party the right to move to compel arbitration under the Arbitration Agreement. (See Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1339 [“If the signatories had intended to benefit FMC, such a purpose would have been easy to articulate. They could have simply named FMC—directly or by class as the vehicle's manufacturer—as a person entitled to compel arbitration. But they did not.”].) Plaintiff even concedes that the Arbitration Agreement allows Moving Party the “possibility” to file this motion. (Opp., 10:4.) 

            Accordingly, the Court finds Moving Party has standing as a third-party beneficiary to move to compel arbitration under the express terms of the Arbitration Agreement. 

            Covered Claims 

            Plaintiff contends the Arbitration Agreement does not cover Plaintiff’s claims. But, Plaintiff also referenced the delegation provision in the Arbitration Agreement, which Moving Party further addressed in its reply. (Opp., 12:28-13:1; Reply, 2:3-5, 5:9-6:9.) 

            Delegation 

An arbitration clause that “clearly and unmistakably” empowers the arbitrator to decide issues of arbitrability is enforceable, provided the delegation is not revocable by a contractual defense, such as unconscionability, fraud, or duress. (B.D. v. Blizzard Entertainment, Inc., supra, 76 Cal.App.5th at p. 959.) “There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. [Citation.] Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.’ [Citations.] The ‘clear and unmistakable’ test reflects a ‘heightened standard of proof’ that reverses the typical presumption in favor of the arbitration of disputes.” (Id. at p. 957, italics in original.) 

The delegation provision in the Arbitration Agreement provides that the arbitrator determines the scope and validity of claims under the Arbitration Agreement, including arbitrability of any issue. (White Decl., Ex. 1, p. 7 of pdf.) The Court finds this delegation provision clearly and unmistakably empowers the arbitrator to decide issues of arbitrability, including the scope of the Arbitration Agreement and whether it covers Plaintiff’s claims. (B.D. v. Blizzard Entertainment, Inc. (2022) 76 Cal.App.5th 931, 957, 959.) The only other issue the Court may decide at this point is whether the delegation provision itself is enforceable. (See ibid.) Plaintiff mentions the delegation clause in Plaintiff’s unconscionability arguments. (Opp., 12:28-13:1.) Thus, the Court will address whether the delegation clause is itself unconscionable.

Unconscionability

“[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.) The courts invoke a sliding scale which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Id. at p. 114.)

            Procedural Unconscionability

“Procedural unconscionability focuses on the elements of oppression and surprise. [Citations] ‘Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice … Surprise involves the extent to which the terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.’ [Citations].” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469 (Roman).)

Moving Party preemptively contends that the Arbitration Agreement is not unconscionable because it is prominently displayed.

Plaintiff contends the Arbitration Agreement is procedurally unconscionable because it is an adhesion contract. Plaintiff contends that while Plaintiff may have been able to negotiate the price of the vehicle, there is no ability to negotiate the other standardized terms including the arbitration provision and the various clauses within it. Plaintiff contends the Lease is a standardized consumer form contract with an arbitration provision, which includes the delegation provision, and is therefore procedurally unconscionable on these grounds alone. Plaintiff also contends that Moving Party’s ability to enforce the clause is completely hidden. Plaintiff contends there is no reason for a lessor like Plaintiff to believe that his warranty claims against Moving Party are subject to arbitration. Plaintiff contends that the warranty is not incorporated into the contract by reference, that the Lease disclaims all warranties, that the language regarding relationships is not spelled out directly, and that Moving Party’s own warranty does not say that binding arbitration is required to resolve disputes.

In reply, Moving Party contends any question about the interpretation, scope, or arbitrability must be resolved by the arbitrator. Moving Party also contends the Arbitration Agreement is not unconscionable and that Plaintiff has failed to meet his burden to prove that it is both procedurally and substantively unconscionable. Moving Party contends that even if the Lease were a contract of adhesion, this would not automatically render the Arbitration Agreement unconscionable. Moving Party contends the Arbitration Agreement is prominently displayed, contains bolded language with clearly enumerated items in the same font size as most of the Lease, and that Plaintiff initialed both pages of the Arbitration Agreement.

The Court agrees with Plaintiff that the Arbitration Agreement, and the delegation provision by extension, is contained within an ostensibly adhesive contract, i.e., a preprinted form contract. (See Beco v. Fast Auto Loans, Inc. (2022) 86 Cal.App.5th 292, 307 [procedural unconscionability analysis begins with determining whether the contract is adhesive, i.e., standardized, generally on a preprinted form, and offered by the party with superior bargaining power on a take-it-or-leave-it basis].) But, an adhesive contract by itself is insufficient to invalidate the Arbitration Agreement here. (See Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1470; Sanchez v. Valencia Holding Co. (2015) 61 Cal.4th 899, 913-914.) 

Moreover, Plaintiff’s other arguments are focused on the Arbitration Agreement and Lease as a whole, and say virtually nothing about the purported procedural unconscionability of the delegation provision. (Rent-A-Ctr., W., Inc. v. Jackson (2010) 561 U.S. 63, 72-73 [unconscionability challenge to delegation provision must be directed at the delegation provision, and not just the arbitration agreement as a whole]; Luxor Cabs, Inc. v. Applied Underwriters Captive Risk Assurance Co. (2018) 30 Cal.App.5th 970, 979, italics in original [“Thus, like an arbitration provision generally, a delegation clause nested in an arbitration provision is severable from the remainder of the contract and the question of its enforceability is for the court to decide if a challenge is directed specifically at the validity of the delegation clause”].) Even then, Plaintiff’s arguments regarding the terms that purport to give Moving Party the ability to enforce the Arbitration Agreement conflates interpretation of terms with where they are physically located in the agreement, the latter of which is a concern in a procedural unconscionability analysis. (See Roman, supra, 172 Cal.App.4th at p. 1469.) The Arbitration Agreement is not buried within a prolix contract, but in fact is prominently displayed. (White Decl., Ex. 1, pp. 7-8 of pdf; see Roman, supra, 172 Cal.App.4th at p. 1469.) 

Accordingly, Plaintiff will need to demonstrate a strong level of substantive unconscionability to prevail here. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 796.) 

Substantive Unconscionability

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results’ [Citations] that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation] Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided’ in favor of the employer without sufficient justification, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.’ [Citations].” (Roman, supra, 172 Cal.App.4th at pp. 1469-1470.)

Moving Party preemptively contends the Arbitration Agreement is not substantively unconscionable because it provides that Moving Party will pay the filing fee or case management fee, the first day of arbitration costs and fees, and gives Plaintiff the ability to request a waiver or reduction of fees based on Plaintiff’s financial circumstances or the nature of Plaintiff’s claim. 

Plaintiff contends that the Arbitration Agreement is substantively unconscionable because it can be enforced by too many parties who are not specifically named, and because the Lease provides that it can be assigned without Plaintiff’s consent. Plaintiff also cites Cook v. University of Southern California (2024) 102 Cal.App.5th 312 (Cook) for the proposition that such a provision is unconscionable because it lets a virtually boundless set of parties on one side of the agreement force arbitration on the other. 

In reply, Moving Party contends that Plaintiff has not demonstrated the requisite level of substantive unconscionability to render the Arbitration Agreement unenforceable and that the Arbitration Agreement does not lack mutuality. Moving Party contends the Arbitration Agreement applies equally to both parties and that Plaintiff has the same ability to invoke arbitration as Moving Party. 

The Court finds Plaintiff’s arguments unpersuasive. Again, Plaintiff’s arguments here do not address the delegation provision. (Rent-A-Ctr., W., Inc. v. Jackson, supra, 561 U.S. at pp. 72-73; Luxor Cabs, Inc. v. Applied Underwriters Captive Risk Assurance Co., supra, 30 Cal.App.5th at p. 979.) Even then, the Court of Appeal in Cook held that the arbitration agreement in that case was unconscionable because it required the plaintiff to arbitrate any claim she had against the defendant, even those unrelated to her employment with the defendant. (Cook, supra, 102 Cal.App.5th at pp. 317, 321.) The Arbitration Agreement here is limited to matters involving the lease of the subject vehicle. (See White Decl., Ex. 1, pp. 7-8 of pdf.) With respect to enforcement by unnamed third parties, the Court of Appeal found the arbitration agreement in Cook problematic because it required the plaintiff to arbitrate claims she may have against any of the defendant’s employees that are unrelated to the defendant or her employment with the defendant. (Cook, supra, 102 Cal.App.5th at pp. 326-327.) Here, the Arbitration Agreement simply says that Plaintiff on the one hand and the Dealership and third-party beneficiaries on the other agreed to arbitrate certain disputes. (White Decl., Ex. 1, p. 7 of pdf.) These are merely ancillary benefits to third-party beneficiaries, which do not render the Arbitration Agreement or its delegation provision unconscionable. (Cook, supra, 102 Cal.App.5th at pp. 326-327.) 

The Court declines to address the parties’ remaining arguments. Based on the foregoing, the Court GRANTS the motion. 

CONCLUSION 

The Court GRANTS Mercedes-Benz USA, LLC’s motion to compel arbitration and stay this action, and hereby stays this action pending the completion of arbitration. 

            Plaintiff is ordered to give notice of the Court’s ruling within five calendar days of this order.