Judge: Malcolm Mackey, Case: 21STCV46012, Date: 2022-09-09 Tentative Ruling
Case Number: 21STCV46012 Hearing Date: September 9, 2022 Dept: 55
PAMELA ADEL
v. MERCEDES-BENEZ USA, LLC, et al.
Date of Hearing:
Notice:
Opposition
Filed
MP: Defendants Mercedes-Benz USA, LLC and
Carwell, LLC d/b/a Mercedes-Benz of South Bay (collectively, “Defendants”)
RP:
Plaintiff Pamela Adel
Summary
On 12/16/21, Plaintiff Pamela Adel (“Plaintiff”) filed
a Complaint against defendants Mercedes-Benz USA, LLC (“MBUSA”), LAD-MB, LLC
d/b/a Mercedes-Benz of Los Angeles, and Carwell, LLC d/b/a Mercedes-Benz of
South Bay (“MBSB”). The Complaint sets forth allegations that, on January 5,
2021, Plaintiff purchased a 2020 Mercedes-Benz CLA 250, which included express warranties
regarding the utility and performance of the subject vehicle. It is further
alleged that the subject vehicle was delivered to Plaintiff with defects and
nonconformities and/or developed defects and nonconformities to the warranty
that included, but not limited to: “the engine, engine and related systems,
check engine light on, cylinder head, vehicle jerking, vehicle struggling to
switch gear, hesitation upon acceleration, EIS, vehicle shaking, pressure
sensor malfunction, start/stop inop, clock changing on its own, and other
defects.” (Compl. ¶ 10.) The Complaint asserts causes of action for:
1. SONG-BEVERLY
CONSUMER WARRANTY ACT – BREACH OF EXPRESS WARRANTY;
2. SONG-BEVERLY
CONSUMER WARRANTY ACT – BREACH OF IMPLIED WARRANTY;
3. SONG-BEVERLY
CONSUMER WARRANTY ACT – CIVIL CODE §1793.2(b); and
4. NEGLIGENT
REPAIR
4.
MP
Position
Moving party seeks a ruling to compel arbitration, on
grounds including the following:
·
On January 5, 2021, Plaintiff purchased
the subject vehicle from Mercedes-Benz of Arcadia and entered into a Retail
Installment Sale Contract (“RISC”), having a broad arbitration agreement
requiring that Plaintiff arbitrate a wide range of disputes arising from,
related to, or in connection with, the subject vehicle.
·
Although they are not signatories to RISC,
Defendants contend that they are nevertheless entitled to compel arbitration as
third-party beneficiaries and under the doctrine of equitable estoppel because
Plaintiff’s claim are inseparable from the underlying contract obligations
pursuant to the RISC.
·
Defendants further argue that the arbitration
clause is governed by the FAA because it is adopted by the RISC.
·
Because Plaintiff’s claims revolve around
the condition of the subject vehicle, all of her claims fall within the scope
of the arbitration clause.
·
The entire action should be stayed pending
arbitration.
RP
Position
Opposing party requests the Court to not compel
arbitration, on grounds including the following:
·
Defendants failed to properly authenticate
the RISC because the only declaration submitted is by Defendants’ counsel.
·
The arbitration clause is procedurally and
substantively unconscionable because
·
Neither MBUSA nor MBSB can compel
arbitration because they are non-signatories to the RISC and they are not
intended beneficiaries.
·
The doctrine of equitable estoppel is
inapplicable because Defendants are third-party non-signatories and they have
no independent right to enforce the arbitration clause.
·
The FAA does not apply because the RISC
does not directly involve interstate commerce.
Tentative
Ruling
The motion to compel arbitration is denied.
Arbitration
Judicial Notice
Defendants requests the Court to take judicial notice
of Plaintiff’s complaint filed in this action. The Court grants this request
pursuant to Evidence Code § 452(d).
Legal Standard
In a motion to compel arbitration, the moving party
must prove by a preponderance of evidence the existence of the arbitration
agreement and that the dispute is covered by the agreement. The burden then
shifts to the resisting party to prove by a preponderance of evidence a ground
for denial (e.g., fraud, unconscionability, etc.). Rosenthal v. Great Western Fin. Securities
Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v.
L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 758.
Generally, on a petition to compel arbitration, the
court must grant the petition unless it finds either (1) no written agreement
to arbitrate exists; (2) the right to compel arbitration has been waived; (3)
grounds exist for revocation of the agreement; or (4) litigation is pending
that may render the arbitration unnecessary or create conflicting rulings
on common issues. Cal. Code Civ. Proc.,
§ 1281.2; Condee v. Longwood Management Corp. (2001) 88
Cal.App.4th 215, 218-219.
“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.” Id. (internal quotations omitted).
Analysis
A. Existence
of a Valid Arbitration Agreement
Here, Defendants have met their initial burden of
showing that an arbitration agreement exists between Plaintiff and Mercedes
Benz of Arcadia, in which Plaintiff signed a contract relating to the sale of
the subject vehicle. See Tahsildoost
Decl., Exh. 2, Retail Installment Sale Contract (“RISC”). An arbitration clause
was included in RISC. Id. In pertinent parts, the arbitration clause
states:
ARBITRATION PROVISION
PLEASE REVIEW – IMPORTANT
– AFFECTS YOUR LEGAL RIGHTS
1. EITHER YOU OR WE MAY
CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT
OR BY JURY TRIAL.
. . .
Any claim or dispute,
whether in contract, tort, statute or otherwise (including the interpretation
and scope of this Arbitration Provision, and the arbitrability of the claim or
dispute), between you and us or our employees, agents, successors or assigns,
which arises out of or relates to your 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) shall, at your or our election, be resolved by neutral,
binding arbitration and not by a court action […]
Id. at pg. 7.
In opposition, Plaintiff argues that Defendants have
failed to properly authenticate the Arbitration Agreement, and thus,
Defendants’ motion must be denied. (Opposition at pg. 2.) However, the Court
does not find this argument persuasive because Plaintiff does not deny signing
the Arbitration Agreement. “[F]or
purposes of a petition to compel arbitration, it is not necessary to follow the
normal procedures of document authentication. Condee, supra, 88 Cal.App.4th at
218. The Court in Condee held
“that a petitioner is not required to authenticate an opposing party's
signature on an arbitration agreement as a preliminary matter in
moving for arbitration or in the event the authenticity of the
signature is not challenged.” See Ruiz
v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 845.
Despite being given the opportunity, Plaintiff has not submitted any
evidence, such as his own declaration, to suggest that he did not sign the
arbitration agreement. Thus, because
Plaintiff does not directly challenge the authenticity of the signature,
Defendants are not required to authentic Plaintiff’s signature.
Based on the foregoing, Defendants proved the
existence of a valid arbitration agreement.
B. Controlling
Law
The general rule is that the FAA governs all agreements
to arbitrate in contracts “involving interstate commerce.” Higgins v. Superior Court (2006) 140
Cal.App.4th 1238, 1247. The term
“involving” commerce is broad and is the functional equivalent of “affecting”
commerce. Allied-Bruce Terminix Cos.
v. Dobson (1995) 513 U.S. 265, 273–274. The application of the FAA means
that state laws that attempt to undercut the enforceability of arbitration
agreements and that interfere with the enforcement of arbitration agreements
according to their terms are preempted. Tompkins
v. 23andMe, Inc. (9th Cir. 2016) 840 F.3d 1016, 1022. The FAA contains a savings clause that
“permits agreements to arbitrate to be invalidated by generally applicable
contract defenses, such as fraud, duress, or unconscionability, but not by
defenses that apply only to arbitration or that derive their meaning from the
fact that an agreement to arbitrate is at issue.” Id. (internal
quotations omitted).
Defendants argue that the
arbitration clause is governed by the FAA and enforceable under California Law. Motion at pp. 10-14. Defendants reason that the sale of automobiles
affects interstate commerce. Motion at
pg. 11, relying on United States
v. Oliver (9th Cir. 1995) 60 F.3d 547, 550. Moreover, because the arbitration clause
adopts the FAA to govern the
terms therein, Defendants reason that the FAA controls. Motion at pg. 11, relying on Rodriguez v.
Am. Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122.
In opposition, Plaintiff
argues that the FAA does not control because the RISC does not directly involve
interstate commerce. See Opposition
at pg. 13. However, the Court does not
find this persuasive. Upon review of the arbitration clause, it expressly
states that FAA would control. See Tahsildoost Decl., Exh. 2 at pg. 7; Rodriguez, supra,
136 Cal.App.4th at 1122. Therefore, the Court finds that the Federal
Arbitration Act applies.
C. Standing
to Invoke Arbitration Clause
Defendants next argue that they have standing to
compel arbitration under two separate legal theories: the third-party
beneficiary exception and the doctrine of equitable estoppel. The Court shall
address each in turn.
i.
Third-Party Beneficiary
Defendants argue that, even though they are not
signatories to the RISC, they are permitted to invoke the arbitration clause
because they are third-party beneficiaries.
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.” See
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, the Defendants contend that the arbitration clause
states that it applies to any claim that “arises out of or relates” to
Plaintiff’s “purchase or condition of this vehicle” or “any resulting
transaction or relationship (including any such relationship with third parties
who do not sign this contract).” Tahsildoost
Decl., Exh. 2 at pg. 7. Thus, Defendants
reason that, even though they are not explicitly named in the RISC, MBUSA and
MBSB are intended beneficiaries as the manufacturer of the subject vehicle and
authorized repair facility, respectively.
See Motion at p. 5-7.
However, in opposition, Plaintiff argues that
Defendants are not parties to the arbitration clause, and as a result, they may
not invoke arbitration. See Opposition
at pp. 5-7, relying on Ngo v. BMW N. A. LLC (9th Cir. 2022.) 23 F.4th
942, 946. Furthermore, Plaintiff
contends the only cause of action directed at MBSB is the claim for negligent
repair, which is unrelated to the purchase of the subject vehicle. See Opposition at pg. 8-9.
Upon review of the arbitration provision, the Court
finds that Defendants are not third-party beneficiaries of the RISC. Even
though the RISC references third-parties, Defendants have failed to show how
that RISC was made expressly for their benefit. Moreover, there is nothing in
the RISC that shows that Defendants can independently compel arbitration. Similarly, in Ngo, the Ninth Circuit
analyzed a similar arbitration clause as the one before this Court and
determined that the manufacturer of the vehicle was not third-party beneficiary
to the arbitration clause. Ngo, supra, 23 F.4th at 946-948. The
Ninth Circuit reasoned that “the vehicle purchase agreement in question was
drafted with the primary purpose of securing benefits for the contracting
parties themselves. In such an agreement, the purchaser seeks to buy a car, and
the dealership and assignees seek to profit by selling and financing the car.
Third parties are not purposeful beneficiaries of such an undertaking.” Id.
at 947. It is further pointed out that the arbitration agreement there only
gave three parties the ability to compel arbitration: the buyer, the
dealership, and the assignee. Id.
at 948. It was concluded that the sales
contract did not extend the number of parties that could enforce the
arbitration clause. Id. It is noted that Defendants fail to address Ngo
in their reply. Consequently, because
the arbitration provisions between these two cases are substantially similar,
the Court finds Ngo persuasive authority and analytically sound. Vaquero v. Stoneledge Furniture LLC
(2017) 9 Cal.App.5th 98, 110, fn. 9.
Accordingly, the Court finds that Defendants lack
standing to compel arbitration because they are not intended third-party
beneficiaries of the arbitration provision.
ii.
Equitable Estoppel
Next, Defendants argue that they are permitted to
compel arbitration under the doctrine of equitable estoppel. See Motion at pp. 7-10.
“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. 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 v. FCA US LLC (2020) 53
Cal.App.5th 486, 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, 306, 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 at 209, 219; see also Kramer v. Toyota Motor Corp. (9th Cir.
2013) 705 F.3d 1122, 1128-1129. In
determining whether the plaintiffs’ claim is founded on or intimately connected
with the sales contract, we examine the facts of the operative complaint. Goldman, supra, 173 Cal.App.4th
at pp. 229-230.
The Court of Appeal in Felisilda held that a
nonsignatory may compel arbitration “when claims against the nonsignatory are
found in and inextricably bound with the obligations imposed by the agreement
containing the arbitration clause.” Felisilda
v. FCA US LLC (2020) 53 Cal.App.5th 486, 495-496. In Felisilda, the plaintiffs brought
claims against the dealership and manufacturer FCA under the Song-Beverly Act. Id. at 489. The arbitration award in
favor of Defendant FCA was ultimately confirmed, and the plaintiffs
appealed—arguing in part that the trial court lacked discretion to order the
Plaintiffs to arbitrate their claim against non-signatory FCA in the first
place. Id.
The Felisilda court held that the plaintiffs
were estopped from refusing to arbitrate their claims against the manufacturer.
The court reasoned that the Complaint alleged the sales contract was the source
of the warranties at the heart of the case. Id. at 496. Further, the plaintiffs’ claim against the
manufacturer directly relates to the condition of the vehicle. Id. at 497.) Thus, “[b]ecause the
Felisildas expressly agreed to arbitrate claims arising out of the condition of
the vehicle—even against third party non-signatories to the sales contract—they
are estopped from refusing to arbitrate their claim against FCA.” Id. at 497.
Here, Defendants argue that the circumstances here are
similar to Felisilda because Plaintiff alleges that his causes of action
arise from the express warranty and the condition of the vehicle. Motion at pp.
7-10. However, the Court is not
persuaded by this argument. Similarly, the Ngo Court rejected the
manufacturer’s argument that the warranties and the sales agreement were
intertwined. Ngo, supra,
23 F.4th at 949-950. Instead, the Ngo
court stated that, “under California law, warranties from a manufacturer that
is not a party to the sales contract are ‘not part of [the] contract of sale.’”
Id. at 949, citing Corp. of
Presiding Bishop of Church of Jesus Christ of Latter-Day Saints v. Cavanaugh
(1963) 217 Cal.App.2d 492, 514. Upon
review of the Complaint, none of Plaintiff’s claims arise from the RISC.
Rather, it asserts claims arising from warranties provided under the
Song-Beverly Act, which is codified under Civil Code §§ 1790, et seq.
Thus, Plaintiff’s claims about the condition of subject vehicle does not depend
on the terms of the RISC in order to assert them. For instance, if Plaintiff
decided not to finance the subject vehicle and was to buy it outright, the RISC
would not exist but Plaintiff’s claims would remain the same. See, e.g. Fuentes v. TMCSF, Inc.
(2018) 26 Cal.App.5th 541, 553. As a result, while Plaintiff’s claims are tied
to the condition of the vehicle, they are not intimately found in the RISC.
Nevertheless, Defendants continue to argue that Felisilda
is controlling in this instance and permits a non-signatory to compel
arbitration under the doctrine of equitable estoppel. However, an important
distinction between the facts here and those found in Felisilda, and that
is the dealership here is not the party seeking to compel arbitration. In fact, the dealership is not a party to
this lawsuit. As stated in the RISC, the
arbitration clause expressly states that arbitration can be compelled by the
dealership; it does not grant the third-party non-signatory authority to compel
arbitration. See Tahsildoost Decl., Exh. 2 at pg. 7. Because of
the particular factual and procedural history in Felisilda, the Court
here declines to impermissibly extend the scope of its holding.
Accordingly, the Court finds that Defendants lack
standing to compel arbitration under the doctrine of equitable estoppel.