Judge: Michael Small, Case: 23STCV06302, Date: 2023-10-19 Tentative Ruling

Inform the clerk if you submit on the tentative ruling. If moving and opposing parties submit, no appearance is necessary.

Case Number: 23STCV06302    Hearing Date: October 19, 2023    Dept: 57

Plaintiff LaShawn Noel purchased a 2016 Mercedes-Benz C300 (“the Subject Vehicle”) from WI Simons (“the Dealership.”).  The Subject Vehicle was manufactured and distributed by Mercedes-Benz USA, LLC (“MBUSA).  Based on alleged defects in the Subject Vehicle, Noel sued MBUSA under the Song-Beverly Consumer Warranty Act (“Song-Beverly Act”) for breach of the express and implied warranties that MBUSA furnished to Noel in connection with the purchase of the Subject Vehicle.

MBUSA moved to compel arbitration of Noel’s Song-Beverly Act claims based on an arbitration clause in the Retail Installment Sale Contract (“RISC”) that Noel entered into with the Dealership. Noel opposed the motion.

 MBUSA is not a party to the RISC. Nevertheless, MBUSA argues that it can enforce the arbitration clause in the RISC under the doctrine of equitable estoppel and as a third-party beneficiary of the RISC.  Binding precedent holds that MBUSA is wrong on both fronts. Equitable estoppel is inapplicable here. And MBUSA is not a third party beneficiary of the RISC. Accordingly, MBUSA’s motion to compel arbitration is denied.  With the denial of the motion, the stay of proceedings in this Court that went into effect when MBUSA filed the motion is lifted, and the Court will proceed to set the case for trial.

 Doctrine of Equitable Estoppel

The doctrine of equitable estoppel authorizes “a nonsignatory defendant [to] invoke an arbitration clause [in a contract] 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.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237, internal quotations omitted; Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218.)   In support of the argument that it can avail itself of the doctrine of equitable estoppel to enforce the arbitration clause in the RISC, MBUSA relies on the Third District Court of Appeal decision in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 (“Felisilda”). Felisilda was a Song-Beverly Act case. The Court of Appeal in Felisilda held that the doctrine of equitable estoppel enabled the manufacturer of the automobile that was the subject of the plaintiffs’ Song-Beverly Act claims to enforce the arbitration clause in the sales contract between the plaintiffs and the dealership from which they purchased the vehicle. 

Felisilda is no longer good law.  Two months ago, in Kielar v. Superior Court (2023) 94 Cal.App.5th 614, the Third District Court of Appeal expressly repudiated Felisilda.  The Court issued a preemptory writ of mandate directing the trial court in the case to vacate an order compelling arbitration of plaintiff’s Song-Beverly Act claims against the automobile manufacturer based on an arbitration clause in the purchase agreement between the plaintiff and the dealer from which the plaintiff purchased the automobile.  (Id. at p. 617.)  The trial court order in Kielar was premised on Felisilda’s view that the doctrine of equitable estoppel applied in this context.  (Ibid.)  The Third District in Kielar stated that it disagreed with Felisilda and held that the doctrine does not apply.  (Id., at p. 620.)  

In abandoning Felisilda, the Third District in Kielar adopted instead the rulings of Division Eight of the Second District in the Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324 (“Ford Motor”) and Division Seven of the Second District in Montemayor v. Ford Motor Company (2023) 92 Cal.App.5th 958 (“Montemayor”).  (See Kielar, supra, 94 Cal.App.5th at p. 620 [discussing Ford Motor and Montemayor].) The Courts in Ford Motor and Montemayor rejected the reasoning of Felisilda and held that Song-Beverly Act 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.  (Ford Motor, supra, 89 Cal.App.5th at p. 1333, 1335-1336; Montemayor, supra, 92 Cal.App.5th at pp. 969-971.)  

 A few weeks after Keilar was decided, the First District Court of Appeal joined the anti-Felisilda chorus.  It did so in Yeh v. Superior Court (2023) 95 Cal.App.5th 264.  In that case, the First District expressed agreement with the reasoning of Ford Motor, Montemayor, and Keilar and held that an automobile manufacturer’s warranties are not part of the sales contract between a buyer of the automobile and the dealer from which the buyer purchased the automobile. 

With Felisilda jettisoned by the very District that issued it, there is no precedent supporting MBUSA’s contention here that it can avail itself of the doctrine of equitable estoppel to enforce the arbitration clause in the RISC.   All the precedents -- Ford Motor, Montemayor, Kielar, and Yeh -- say the opposite.  Those precedents control.  They render the doctrine of equitable estoppel off limits to MBUSA.

Third Party Beneficiary Status

Alternatively, MBUSA contends that it should be treated as a third-party beneficiary of the RISC with the right therefore to enforce the arbitration clause in that agreement.   Here, too, MBUSA collides head on with precedent that is directly on point and directly to the contrary.  That precedent is Montemayor and Ford Motor.  The Courts in those cases said no to the pleas of an automobile manufacturer that it is a third party beneficiary of arbitration clauses in the agreements between purchasers of the automobiles and the dealers that sold the automobiles.    

The test for determining if a non-party to a contract is a third party beneficiary of the contract is whether (1) the third party actually would benefit from the contract; (2) a motivating purpose of the parties to the contract was to benefit the third party; and (3) allowing a third party to sue one of the parties for breach of contract is consistent with the expectations of the parties.  (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830).  Applying that test and stopping after the second prong, the Courts in Montemayor and Ford Motor held that nothing in the sales agreements between the purchasers and the dealers directly benefited Ford and there was nothing in the agreements evincing an intent by the parties to benefit Ford.  (Montemayor, supra, 92 Cal.App.5th at pp. 973-974; Ford Motor, supra, 89 Cal.App.5th at p. 1338.)  The same is true of the RISC here. 

In sum, Montemayor and Ford Motor compel the conclusion that third beneficiary status is not a hook for enforcement by MBUSA of the arbitration clause in the RISC.