Judge Margaret L. Oldendorf, Case 22BBCV00520 2023-02-15 Tentative Ruling

Judge: Margaret L. Oldendorf, Case: 22BBCV00520, Date: 2023-02-15 Tentative Ruling

In this lemon law case, Plaintiff Panos Simonian (Simonian) alleges claims against Defendants BMW of North America, LLC (BMW) and Century West BMW, LLC (Dealer) concerning his leased vehicle. Defendant BMW seeks an order compelling Simonian to arbitrate his disputes pursuant to an arbitration provision in the lease agreement. For the reasons that follow, the motion is granted. As to Century the action is stayed pending completion of arbitration.

Code Civ. Proc. §1281 provides: “A written agreement to submit to arbitration an existing controversy or a controversy thereafter existing is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract.”

Code Civ. Proc. §1281.2 provides that upon petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate and a party’s refusal to submit to arbitration, the court shall order the parties to arbitrate the controversy if it determines that an agreement exists, unless it determines that the right to arbitrate has been waived, that grounds exist for revocation, or that a party to the agreement is also party to pending litigation arising out of the same facts and there exists a possibility of conflicting rulings on a common issue of fact or law. In such a situation, the court may (1) refuse to enforce the arbitration agreement and order intervention or joinder of all parties in a single action, (2) order intervention or joinder as to all or only certain issues, (3) order arbitration among the parties who have agreed to arbitration and stay the action pending outcome of arbitration, or (4) stay arbitration pending outcome of the litigation.

Written arbitration clauses in contracts evidencing a transaction involving commerce are valid, irrevocable, and enforceable, except where grounds exist at law or in equity for revocation of any contract. 9 U.S.C. §2. This reflects a liberal policy favoring arbitration and the principle that arbitration is a matter of contract. AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 339.

The “involving” requirement is to be interpreted broadly. Allied-Bruce Terminix Companies v. Dobson (1995) 513 U.S. 265, 274.

Here, because the pleading alleges lease of a vehicle from Defendant BMW, a Delaware corporation with its principal place of business in New Jersey, interstate commerce is implicated.

Code Civ. Proc. §1281.4 and 9 U.S.C. §3 provide for a stay of non-arbitrable claims while matters subject to a written arbitration agreement are being arbitrated.

According to the allegations in the First Amended Complaint, Simonian leased a vehicle from Defendants. Express warranties allegedly accompanied the transaction. Simonian identifies Century as the retailer and repair facility, and BMW North America as the manufacturer and distributor. He alleges the vehicle was delivered with serious defects, including “issues related to the trunk, surround system not working, camera malfunctions, electrical issues, front axle issues, noises and vibration problems with the vehicle, issues with the sunroof shade, issues upon acceleration and braking.” FAC, ¶12. Simonian alleges that he took the vehicle in for repairs and that Defendants were not able to conform the vehicle after a reasonable number of attempts.

The FAC contains the following causes of action: (1) Breach of Express Warranty; (2) Breach of Implied Warranty; (3) Violation of Song-Beverly, Civ. Code §1793.2(b); (4) Violation of Song-Beverly, Civ. Code §1793.22- Tanner Consumer Protection Act; (5) Negligence; (6) Violation of Civ. Code §1796.5. The 1^st through 4^th Causes of Action are alleged against BMW. The 5^th Cause of Action is alleged against both defendants. And the 6^th Cause of Action is alleged against Century.

A. Defendants Have Established the Existence of a Written Arbitration Agreement

When a petition to compel arbitration is “filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself determines whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable.” Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413 (Rosenthal). “[T]he facts are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court’s discretion.” Id. at 413-414.

Here, the evidence demonstrates an original lease agreement between McKenna BMW and Takui Tina Keshishyan, neither of whom are parties to this action. The agreement contains an arbitration provision. Declaration of Aaron Grener, ¶5 and Exhibit A. The lease was assumed by Simonian with BMW’s permission. Id. at ¶6 and Exhibit B. The Lease Transfer Agreement signed by Simonian contains the term that Simonian understands and accepts, “all the rights, interest and obligations of the Transferor as set forth in the Lease.”

This Motor Vehicle Lease Agreement (“Lease”) is entered into between the lessee and co-lessee (“Lessee”) and the lessor (“Lessor”) named above. Unless otherwise specified, “I,” “me” and “my” refer to the Lessee and “you” and “your” refer to the Lessor or Lessor’s assignee. “Vehicle” refers to the leased vehicle described below. “Assignee” refers to BMW Financial Services NA, LLC (“BMW FS”) or, if this box is checked ¿ to Financial Services Vehicle Trust. BMW FS will administer this Lease on behalf of itself or any assignee. The consumer lease disclosures contained in this Lease are made on behalf of Lessor and its successors or assignees.

The arbitration language in the Lease is contained in Paragraph 38. It includes the following terms (bolding added):

-Either you or I may choose to have any dispute between us decided by arbitration and not in a court or by jury trial.

-“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, lease, purchase or condition of this Vehicle, this Lease or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease). Any Claim shall, at your or my election, be resolved by neutral, binding arbitration and not by a court action.

The Grener Declaration provides evidence about the relationship between various BMW entities. Speaking as a principal of BMW Financial Services NA, LLC, he declares that it is an affiliate of BMW of North America LLC (Defendant).

A straightforward reading of these provisions means that Lessee Simonian is bound by the arbitration provision as to both McKenna BMW and Assignee BMW Financial Services, NA, LLC. Beyond that, the terms of the agreement extend to affiliates and to third parties with whom Simonian transacted, but who did not sign the lease. BMW may enforce the arbitration provision as an affiliate and a third-party beneficiary.

Simonian’s opposition argument that the arbitration clause is limited to McKenna and Keshishyan is not well taken. By signing the Lease Transfer Agreement, Simonian agreed to be bound by the “rights, interest, and obligations” of Keshishyan. Those obligations include arbitration.

The agreement covers any claim which arises out of the condition of the vehicle and any resulting transaction or relationship, including with third parties who do not sign the agreement. Language very similar to this has been found to mean that, pursuant to the doctrine of equitable estoppel, dealerships who attempt repairs may enforce the arbitration clause. Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486.

“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.’ (Citations.) ‘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.’ (Citations.)

“ ‘Where the equitable estoppel doctrine applies, the nonsignatory has a right to enforce the arbitration agreement.’ (Citation.) ‘ “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.” ’ (Citation.) ‘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.’ (Citation.) In determining whether the plaintiffs’ claim is founded on or intimately connected with the sales contract, we examine the facts of the operative complaint. (Citation.)” Id. at 495-496.

In the operative First Amended Complaint in this case, Simonian alleges that the causes of action against BMW “arise out of the warranty obligations of BMW in connection with a vehicle leased by Plaintiff for which BMW issued a written warranty.” FAC, ¶6. The pleading contains other allegations of express and implied warranties accompanying the sale (FAC, ¶¶ 11, 20, 35, 50) and alleges Simonian delivered the vehicle to BMW’s authorized service representatives on multiple occasions but the facilities did not conform the vehicle to warranty (FAC, ¶¶51, 52). Thus, like the plaintiffs in Felisilda, “the sales contract was the source of the warranties at the heart of this case” (Felisilda, supra, 53 Cal.App.5th at 496), and Simonian is therefore estopped from refusing to arbitrate his claims. This is so because his Song-Beverly claims are “intimately intertwined” with the lease agreement containing the arbitration provision. Simonian’s argument that there is no binding contract between the parties (Opposition at 6:10-7:24) contradicts his allegation of written warranties that accompanied the lease of the vehicle to him.

In urging that Defendants cannot compel arbitration under principles of equitable estoppel, Simonian fails to address the holding of Felisilda. Opposition at 5:11-6:5. Simonian relies mainly on non-binding federal cases. The only state court case he cites, JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, generally supports the rule that nonsignatories may enforce arbitration agreements when the causes of action against the nonsignatory are” intimately founded and intertwined with” the underlying contract. Id. at 1237. In JSM, a case involving a complex set of facts and real estate contracts, the trial court’s denial of arbitration was reversed. Felisilda is based on a Song-Beverly claim like the present action. It is on point and supports BMW’s position.

Equitable estoppel prevents Simonian from suing to enforce contractual warranty provisions while at the same time disavowing the contractual arbitration provision.

Under both California and federal law, arbitration agreements are valid and enforceable except where grounds exist for revocation. Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 98. “Because unconscionability is a reason for refusing to enforce contracts generally, it is also a valid reason for refusing to enforce an arbitration agreement under Code of Civil Procedure section 1281, which, as noted, provides that arbitration agreements are ‘valid, enforceable and irrevocable, save upon such grounds as exist [at law or in equity] for the revocation of any contract.’” Id. at 114.

Unconscionability has both procedural and substantive elements, both of which must be established. Ibid.

Simonian argues the arbitration provision in this case should not be enforced because it is unconscionable. The opposition brief contains various arguments regarding procedural unconscionability, including that no one at McKenna told Keshishyan the lease contained an arbitration provision; Simonian was neither aware of the arbitration provision nor given a chance to negotiate it; and that it was presented on a take-it-or-leave-it basis. Opposition at 2:19-25, 7:14-18, and 9:23-10:6. These arguments, which are addressed to procedural unconscionability, are not supported with any evidence.

Simonian also argues that the arbitration agreement is unconscionable because it fails to comply with the requirements of the Tanner Act, Civ. Code §1793.22. This argument is unpersuasive. The Tanner Act allows manufacturers to set up a third-party dispute process (Civ. Code §1793.22(c)) and requires that if it does so, the process must meet certain requirements (Id. at subdivision (d)). Whether a manufacturer establishes a third-party process or not is a separate issue from whether it may require contractual arbitration. See, e.g., Lanning v. BMW of North America, LLC (S.D. Cal. Nov. 5, 2019) 2019 WL 5748518, *5.[1] Thus, Simonian has not established substantive unconscionability.

Defendant BMW has presented evidence establishing the existence of a written agreement containing an arbitration provision. The agreement binds Simonian and is enforceable by BMW both as an affiliate and third-party beneficiary, and because Simonian is estopped from refusing to arbitrate. Defendant BMW’s motion to compel arbitration is therefore granted. The balance of this action (the claim against Century) is ordered stayed pending completion of arbitration.

[1] Although citation to unpublished California cases is not permitted, the Rule of Court do not prohibit reliance on unpublished federal cases for their persuasive value. Landmark Screens, LLC v. Morgan, Lewis & Bokius, LLP (2010) 183 Cal.App.4th 238, 251, fn. 6.