Judge Ralph C. Hofer, Case Number: 22GDCV00442, Date: 2023-10-27 Tentative Ruling

Parties to the agreement are not parties to an action with a third party arising out of the same transaction, occurrence, or event with the possibility of conflicting rulings on a common issue of law or fact (CCP §1281.2(c))* [but does not apply to arbitration of professional negligence of health care providers made pursuant to CCP §1295): Not mentioned

Plaintiffs Jeong In Oh and Amor Coin Laundry, Inc. allege that in October of 2021 plaintiffs purchased a 2022 BMW X5 X Drive 45E vehicle, and that along with the sale of the vehicle, plaintiffs received written warranties and other express and implied warranties from defendant BMW of North America, LLC, the manufacturer of the vehicle. Plaintiffs allege that these warranties included that the vehicle and its components would be free from all defects in material and workmanship, that the vehicle would pass without objection in the trade under the contract description, that the vehicle would be fit for the ordinary purposes for which it was intended, that the vehicle would conform to the promises and affirmations of fact made, and that defendants would perform any repairs, alignments, adjustments, and/or replacements of any parts necessary to ensure that the vehicle conformed to warranty during the warranty periods.

Plaintiffs allege that they have delivered the vehicle to the manufacturer’s authorized service and repair facilities on several separate occasions, and that the defects, malfunctions, and nonconformities to warranty with plaintiffs’ vehicle include an illuminated supported driver assistance restraint restricted warning, defective KAFAS camera, KAFAS camera replacement, and an amp fuse replacement.

The complaint alleges causes of action for Breach of Implied Warranty of Merchantability under the Song-Beverly Warranty Act, Breach of Express Warranty under the Song-Beverly Warranty Act, Breach of Express Warranty under the Magnuson-Moss Warranty Act, and Breach of Implied Warranty under the Magnuson- Moss Warranty Act.

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

Generally, there is a strong public policy in favor of arbitration of disputes and any doubts concerning the scope of arbitrable disputes should be resolved in favor of arbitration. Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 (“courts will ‘indulge every intendment to give effect to such proceedings.’”) (quotation omitted). However, arbitration is “strictly a matter of consent.” Granite Rock Co. v. International Broth. of Teamsters (2010) 561 U.S. 287, 299, quotation omitted; Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 252; Civil Code section 1648 (a contract “extends only to those things concerning which it appears that the parties intended to contract.”) Accordingly, “[t]he strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement.” Comedy Club, Inc. v. Improv West Associates (9th Cir. 2009) 553 F.3d 1277, 1287, quoting Buckner v. Tamarin (2002, 2nd Dist.) 98 Cal.App. 4th 140, 142; see also, Engineers & Architects Assn. v. Community Development Dept. (1994, 2nd Dist.) 30 Cal.App.4th 644, 653.

In this case, defendants have submitted a copy of a Retail Installment Sale Contract (Sale Contract) between Pacific BMW as Seller-Creditor and Amor Coin Laundry Inc. as Buyer and Jeong In Oh as Co-Buyer. [Grener Decl., para. 3, Ex. A]. This Sale Contract includes an Arbitration Provision. [Ex. A, following para. 8]. Pacific BMW, the party named as Seller-Creditor in the Contract, has not been named as a party to this action.

Plaintiffs have filed objections to the Grener Declaration submitting this document. The declarant, Aaron Grener, states he is the Controlling and Finance Systems Manager for BMW Financial Services NA, LLC (BMW FS), and that BMW Bank of North America (BMW Bank) is a wholly owned subsidiary of BMW FS, and is the original assignee of retail installment sales contracts for BMW vehicles. [Grener Decl., paras. 1, 2]. The declaration states, “Attached hereto as Exhibit ‘A’ is a true and correct copy of the Purchase Contract entered into between Plaintiffs and Pacific BMW.” [Grener Decl., para. 3].

Plaintiffs object that Grener has failed to establish that he is the proper person to declare whether BMW Bank, as opposed to BMW FS, would have any connection to or interest in the Sale Contract, and lacks personal knowledge as to the statement that the attached document is a true and correct copy of the Sale Contract. It is not in fact mentioned that BMW Bank is the assignee of this particular contract, or how Grener of BMW FS is familiar with the records of BMW Bank. The Sale Contract attached does include a clause after the arbitration clause which states that “Seller assigns its interest in this contract to BMW BK NA.” [Ex. A, following Arbitration Provision]. However, it remains unclear how the witness would be familiar with the documents of BMW Bank.

Under Evidence Code section 702 (a), except for in connection with expert witness opinion testimony, “the testimony of a witness concerning a particular matter is inadmissible unless he has personal knowledge of the matter. Against a party’s objection, such personal knowledge must be shown before the witness may testify concerning the matter.”

“A petition to compel arbitration or stay proceedings pursuant to Code of Civil Procedure section 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be attached to the petition and incorporated by reference.”

“In determining whether an enforceable arbitration agreement exists, the initial burden is on the party petitioning to compel arbitration. “Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413; see Engalla v. Permanente Medical Group (1997) 15 Cal.4th 951, 972 [64 Cal. Rptr. 2d 843, 938 P.2d 903].) Once the petitioner has met that burden, the burden shifts to the party opposing arbitration, to “produc[e] evidence of, and prov[e] by a preponderance of the evidence, any fact necessary to the defense.” (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413.”

Under federal law as well, the moving party to compel enforcement of an arbitration agreement bears the burden of establishing the existence of a valid agreement to arbitrate and that the agreement encompasses the dispute at issue, while the opposing party bears the party of establishing any defenses to enforceability. Sanfilippo v. Tinder, Inc. (C.D. Cal. 2018) 2018 WL 6681197, *2.

However, in Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218, the court of appeal found that the trial court had improperly denied a petition to compel arbitration on the ground that the purported arbitration agreement had not been properly authenticated. The court of appeal in Condee observed that, “In this case, although no evidence was ever introduced to verify the signature’s authenticity, it was never challenged.” Condee, at 218. The case also involved a situation where the trial court had denied a proffer of a declaration of a custodian of records which purported to authenticate the agreement. Condee, at 217. Similarly, the Second District observed in Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165, that if the moving party submits an unauthenticated agreement to meet its prima facie burden, “and the opposing party does not dispute the existence of the arbitration agreement,” then nothing more is required on the initial burden.

Here, there has been an objection asserted, and no declaration of a custodian offered to authenticate the material to which objection has been made, and the court could find that defendant has failed to meet its initial burden sufficient to shift the burden to the parties opposing arbitration to produce evidence of facts necessary to a defense.

However, because plaintiffs have not affirmatively asserted that plaintiffs signatories never saw or signed the agreement, or do not remember seeing or signing the agreement, as the Second District suggested would be appropriate in Gamboa, and because plaintiffs in opposition affirmatively rely on provisions of the subject Sale Contract, the objections will be noted, but the court will, in light of these factors, nevertheless consider the Sale Contract based on the relaxed authentication standard applied under case law, and the waiver implied by the reliance on the Sale Contract by plaintiffs in the opposition.

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.”

With respect to the argument by defendant that it is entitled to enforce the arbitration provision based on equitable estoppel, in Boucher v. Alliance Title Co. (2005) 127 Cal.App.4th 262 the Second District found that a non-signatory defendant could invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims “when the causes of action against the non-signatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” Boucher, at 272, quotation omitted.

“Equitable estoppel precludes a party from asserting rights 'he otherwise would have had against another' when his own conduct renders assertion of those rights contrary to equity." (Schwabedissen, supra, 206 F.3d at pp. 417–418.) In the arbitration context, a party who has not signed a contract containing an arbitration clause may nonetheless be compelled to arbitrate when he seeks enforcement of other provisions of the same contract that benefit him. (Id. at p. 418; NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 81 [100 Cal. Rptr. 2d 683] (NORCAL).)”

Defendant argues that it can compel plaintiffs to arbitrate the claims in the complaint based on equitable estoppel, relying on Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, in which the court of appeal found that the trial court had not erred in granting a motion to compel arbitration of a Song-Beverly Act claim which plaintiffs had filed against both the dealer who had sold them the subject vehicle and the vehicle manufacturer which had undertaken express warranties concerning the utility and performance of the vehicle. The court of appeal found that the arbitration provision in that case supported the trial court’s order despite plaintiffs’ argument that the manufacturer was not a signatory to the sales contract.

Defendant argues that the court in Felisilda addressed an arbitration provision in a vehicle sales contract which allowed arbitration of “[a]ny claim or dispute, whether in contract, tort, statute or otherwise…between you and us…which arises out of or relates to…[the] condition of this vehicle…shall…be resolved by neutral, binding arbitration.” Felisilda, at 496.

“Based on language in the sales contract and the nature of the Felisildas’ claim against FCA, we conclude the trial court correctly ordered that the entire matter be submitted to arbitration. In signing the sales contract, the Felisildas agreed that “[a]ny claim or dispute, whether in contract, tort, statute or otherwise ... between you and us ... which arises out of or relates to ... [the] condition of this vehicle ... shall ... be resolved by neutral, binding arbitration and not by a court action.” (Italics added.) Here, the Felisildas’ claim against FCA relates directly to the condition of the vehicle.”

Plaintiffs point out that the case here is distinguishable from Felisilda on the ground there is no involvement of the dealership, and no claims are brought jointly against the manufacturer and the dealership. Instead, plaintiffs here seek to enforce the warranties owed by the manufacturer independently of the rights and duties set forth under the Sale Contract.

Defendant argues that here, as in Felisilda, plaintiffs’ claims relate directly to the condition of the vehicle, as plaintiffs allege in their complaint that the vehicle has defects and nonconformities, and also uses these allegations to support the Song-Beverly claims. Defendant cites to paragraph 38 of the Complaint, which does not include the language cited. However, the court recognizes that this lawsuit seeks to enforce warranty obligations with respect to the correction of alleged defects and nonconformities in the vehicle. [Complaint, paras. 10-13].

Plaintiffs in opposition point out that the complaint here does not rely on any provision of the Sale Contract with the dealership for financing the purchase but relies on the separately issued warranties from the manufacturer, which are independent of any agreement plaintiffs entered into with the dealership, and that plaintiffs’ standing to bring claims under the warrant acts does not derive from the Sale Contract.

“The plaintiffs in Felisilda purchased a used 2011 Dodge Grand Caravan from the Elk Grove Dodge dealership and signed a purchase agreement containing an arbitration provision that was virtually identical to the one Ngo signed. See id. After discovering “serious defects” with the car, the Felisildas sued both the dealership and the manufacturer. Id. at 491, 266 Cal.Rptr.3d 640. The dealership moved to compel arbitration. Id. at 489, 266 Cal.Rptr.3d 640. After the manufacturer filed a notice of non-opposition, the trial court compelled arbitration. Id. at 491, 266 Cal.Rptr.3d 640. The Felisildas then dismissed the dealership, and the district court ordered it to arbitrate with the manufacturer alone. Id. at 499, 266 Cal.Rptr.3d 640. The California Court of Appeal affirmed. Id.

It makes a critical difference that the Felisildas, unlike Ngo, sued the dealership in addition to the manufacturer. In Felisilda, it was the dealership—a signatory to the purchase agreement—that moved to compel arbitration rather than the non-signatory manufacturer. See id. at 489, 266 Cal.Rptr.3d 640 (“Relying on the retail installment sales contract ... signed by the Felisildas, Elk Grove Dodge moved to compel arbitration.”). Furthermore, the Felisildas dismissed the dealership only after the court granted the motion to compel arbitration. Accordingly, Felisilda does not address the situation we are confronted with here, where the non-signatory manufacturer attempted to compel arbitration on its own. We therefore decline to affirm on the ground of equitable estoppel.

In this case, it is clear that the seller dealership is not named or pursued in this action, and is not seeking to compel arbitration, but the motion is brought by the manufacturer without implicating other parties to the arbitration provision. The distinction would also apply here to justify denying the motion.

Plaintiffs also rely on Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, which suggests that the appropriate analysis here would conclude that in a case such as this one, where there is no mention of or reliance on the Sale Contract to support the statutory claims based on the manufacturer’s responsibility under separate warranty obligations relating to defects in the vehicle, the requisite intertwining, and equity are not present.

“Looking to California contract law, the correct analysis is whether Plaintiffs would have a claim independent of the existence of the Purchase Agreement (equitable estoppel applies “when the signatory must rely on the terms of the written agreement in asserting its claims against the nonsignatory,” Goldman, 173 Cal.App.4th at 222, 92 Cal.Rptr.3d 534(emphasis added), or “when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations,” Jones, 195 Cal.App.4th at 20, 125 Cal.Rptr.3d 522 (emphasis added)), not whether the court must look to the Purchase Agreement to ascertain the requested relief. The emphasis of the case law is unmistakably on the claim itself, not the relief. Despite Toyota's focus on Plaintiffs' relief, Toyota offers no cases to support Toyota's proposed application.

Here, Plaintiffs' claims are premised on California consumer law, unfair competition, false advertising, breach of the implied warranty of merchantability, and breach of contract. In order for Toyota's equitable estoppel argument to succeed, Plaintiffs' claims themselves must intimately rely on the existence of the Purchase Agreements, not merely reference them. Toyota is correct that Plaintiffs' claims presume a transaction involving a purchase of a Class Vehicle. The claims do not, however, rely upon the existence of a Purchase Agreement. For illustration, a consumer who purchased a vehicle with cash instead of credit would still state a claim for which relief could be granted, absent a Purchase Agreement. In this regard, the facts resemble the facts of Goldman and Mundi, in which Plaintiffs' claims arose independently of the terms of the agreements containing arbitration provisions. Moreover, we note that Plaintiffs' First Amended Complaint never actually references the Purchase Agreement, either in the prayer for relief or otherwise.

Similarly, in this case, plaintiffs’ claims are not rooted in the Sale Contract, there is no reliance on any contract terms from the Sale Contract in the claims against defendant, and all of plaintiff’s claims would be the same had plaintiffs not financed the purchase of the vehicle but obtained the vehicle in some other manner.

Overall, considering the underlying basis of the equitable indemnity doctrine, as emphasized in Metalclad, above, upon which defendants rely, this does not appear to be a case where plaintiffs’ own conduct renders assertion of plaintiffs’ rights contrary to equity, that is where plaintiffs are seeking enforcement of other provisions of the same contract that benefit plaintiffs. See Metalclad, quoted above, at 1713.

Moreover, although not cited in the moving papers, a recent published California court of appeal case, Ford Motor Warranty Cases (2023) 89 Cal.App. 5th 1324 (Ford Warranty) addressed this issue and distinguished Felisilda and is relied upon by plaintiffs in the opposition. The case is referred to in the opposition as the “Ochoa” case.

“The issue to be briefed and argued is limited to the following: Do manufacturers' express or implied warranties that accompany a vehicle at the time of sale constitute obligations arising from the sale contract, permitting manufacturers to enforce an arbitration agreement in the contract pursuant to equitable estoppel?

Pending review, the opinion of the Court of Appeal, which is currently published at 89 Cal.App.5th 1324, 306 Cal.Rptr.3d 611, may be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, 20 Cal.Rptr. 321, 369 P.2d 937, to choose between sides of any such conflict. (See Standing Order Exercising Authority Under California Rules of Court, Rule 8.1115(e)(3), Upon Grant of Review or Transfer of a Matter with an Underlying Published Court of Appeal Opinion, Administrative Order 2021-04-21; Cal. Rules of Court, rule 8.1115(e)(3) and corresponding Comment, par. 2.)”

“As provided in Standing Order Exercising Authority Under California Rules of Court, Rule 8.1115(e)(3), Upon Grant of Review or Transfer of a Matter with an Underlying Published Court of Appeal Opinion, Administrative Order 2021-04-21, under this subdivision, when the Supreme Court grants review of a published Court of Appeal opinion, the opinion may be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow superior courts to exercise discretion under Auto Equity, supra, 57 Cal.2d at page 456, to choose between sides of any such conflict. Superior courts may, in the exercise of their discretion, choose to follow a published review-granted Court of Appeal opinion, even if that opinion conflicts with a published, precedential Court of Appeal opinion. Such a review-granted Court of Appeal opinion has only this limited and potential precedential effect, however; superior courts are not required to follow that opinion's holding on the issue in conflict. Nor does such a Court of Appeal opinion, during the time when review is pending, have any precedential effect regarding any aspect or holding of the Court of Appeal opinion outside the part(s) or holding(s) in conflict. Instead, it remains, in all other respects, “potentially persuasive only.”

In Ford Warranty, the Second District affirmed a trial court order denying the motion of defendant Ford Motor Company (FMC) to compel arbitration of plaintiffs’ claims relating to defects in vehicles it manufactured, agreeing with the trial court that FMC, “could not compel arbitration based on plaintiffs’ agreements with the dealers that sold them the vehicles.” Ford Warranty, at 1329. With respect to equitable estoppel, the Second District held, “Equitable estoppel does not apply because, contrary to FMC’s arguments, plaintiffs’ claims against it in no way rely on the agreements.” Ford Warranty, at 1329.

In analyzing the equitable estoppel argument, the Second District addressed an arbitration provision including the same relevant language included in the Sale Contract here, and expressly declined to follow the Third District determination that equitable estoppel applied based on the same contractual language in Felisilda. Ford Warranty, at 1330.

The court of appeal disagreed with the Felisilda court’s interpretation of broadly calling for arbitration of claims against third party non-signatories based on the language, “including any such relationship with third parties who do not sign this contract,” reasoning that the language of the sale contracts delineated the subject matter of claims the purchasers and dealers agreed to arbitrate. The court of appeal also offered a reasoning not included in the federal cases, based on interpretation of the sale contracts and the typical components of a vehicle sale transaction, describing several examples of third party transactions which the parties to a sale contract could themselves reasonably expect to elect to arbitrate:

“We do not read this…language as consent by the purchaser to arbitrate claims with third party nonsignatories. Rather, we read it as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate. They agreed to arbitrate disputes “between” themselves—“you and us”—arising out of or relating to “relationship[s],” including “relationship[s] with third parties who [did] not sign th[e] [sale] contract[s],” resulting from the “purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.”

Purchasers, like plaintiff Mathew Davidson-Codjoe, whose sale contract we described above, can elect to buy insurance, theft protection, extended warranties and the like from third parties, and they can finance their transactions with those third parties under the sale contracts. The “third party” language in the arbitration clause means that if a purchaser asserts a claim against the dealer (or its employees, agents, successors or assigns) that relates to one of these third-party transactions, the dealer can elect to arbitrate that claim. It says nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.”

“no plaintiffs alleged violations of the sale contracts’ express terms. Rather, plaintiffs’ claims are based on FMC’s statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty. Certain plaintiffs also sued on theories of breach of implied warranty or merchantability and fraudulent inducement. Not one of the plaintiffs sued on any express contractual language in the sale contracts.”

“The sale contracts include no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arise. To the contrary, the sale contracts disclaim any warranty on the part of the dealers, while acknowledging no effect on “any warranties covering the vehicle that the vehicle manufacturer may provide.” In short, the substantive terms of the sale contracts relate to sale and financing and nothing more.”

The Second District also rejected the manufacturer’s argument in that case that the warranty claims were founded in the sales contracts, explaining, by reference to multiple authorities, that “California law does not treat manufacturer warranties imposed outside the four corners of a retail sale contract as part of the sale contract.” Ford Warranty, at 1335.

“Again, the “ ‘ “fundamental point” ’ ” of using equitable estoppel to compel arbitration is to prevent a party from taking advantage of a contract's substantive terms while avoiding those terms requiring arbitration. (Felisilda, supra, 53 Cal.App.5th at p. 496, 266 Cal.Rptr.3d 640.) Plaintiffs’ claims in no way rely on the sale contracts. Equitable estoppel does not apply.”

As noted above in the Supreme Court’s opinion granting the petition for review, the Ford Warranty opinion may be considered for its persuasive value pending review, and also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, to choose between sides of any such conflict.

The opposition also relies on Montemayor v. Ford Motor Co. (2023) 92 Cal.App.5th 958 (review granted, September 30, 2023) 535 P.3d 1, in which the Second District held that a nonsignatory manufacturer could not enforce an arbitration provision in a sales contract between the seller and purchasers, expressly holding:

“We disagree with the decision of our colleagues in the Third District in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495, 266 Cal.Rptr.3d 640 (Felisilda) that equitable estoppel applies to enable the nonsignatory manufacturer to enforce the arbitration provision in a similar sales contract. We conclude Ford cannot enforce the arbitration provision in the sales contract because the Montemayors’ claims against Ford are founded on Ford's express warranty for the vehicle, not any obligation imposed on Ford by the sales contract, and thus, the Montemayors’ claims are not inextricably intertwined with any obligations under the sales contract. Nor was the sales contract between the Montemayors and AutoNation intended to benefit Ford.”

“We look to the facts alleged in the complaint to determine whether the Montemayors’ claims against Ford are dependent on and inextricably intertwined with the obligations imposed by the sales contract. (Ford Warranty, supra, 89 Cal.App.5th at p. 1333, 306 Cal.Rptr.3d 611; DMS Services, supra, 205 Cal.App.4th at p. 1354, 140 Cal.Rptr.3d 896; Goldman v. KPMG, LLP, supra, 173 Cal.App.4th at pp. 229-230, 92 Cal.Rptr.3d 534.) They are not. As discussed, the Montemayors allege as part of each cause of action against Ford at issue on appeal that Ford's obligations arose out of its express written warranty, not the sales contract. As the Ford Warranty court explained with respect to similar allegations, “[P]laintiffs’ claims are based on [Ford's] statutory obligations to reimburse consumers or replace their vehicles when unable to repair in accordance with its warranty.... Not one of the plaintiffs sued on any express contractual language in the sale contracts.” (Ford Warranty, at p. 1335, 306 Cal.Rptr.3d 611.) Moreover, the “sale contracts include no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arise. To the contrary, the sale contracts disclaim any warranty on the part of the dealers, while acknowledging no effect on ‘any warranties covering the vehicle that the vehicle manufacturer may provide.’ ” (Ibid.) “In short, the substantive terms of the sale contracts relate to sale and financing and nothing more.” (Ibid.)

Ford contends the Montemayors’ claims are inextricably intertwined with the sales contract because the claims concern the condition of the vehicle sold by AutoNation, and the arbitration agreement specifically applies to the purchase and “condition of this vehicle.” But this argument conflates the concept of “but for” causation with a determination whether the Montemayors’ claims are founded on obligations imposed on Ford under the sales contract. To be sure, the Montemayors would not have sued Ford for the defective condition of the vehicle but for the sale of the vehicle by AutoNation pursuant to the sales contract. And Ford provided an express warranty to the Montemayors as a result of the sale. But that does not mean Ford's obligation to provide a non-defective vehicle under its separate express warranty is in any way founded on an obligation imposed by the sales contract or is intertwined with those obligations.”

As noted, on September 30, 2023, the California Supreme Court granted a petition for review in Montemayor, and ordered, “Further action in this matter is deferred pending consideration and disposition of a related issue in Ford Motor Cases, S279969,” again citing to CRC rule 8.512, “or pending further order of the court.” Montemayor v. Ford Motor Company (2023) 535 P.3d 1.

Defendant also argues that it may compel arbitration as a third-party beneficiary of the Sale Contract pursuant to the plain language of the Sale Contract, which includes a reference to any “claim or dispute…which arises out of or relates to… any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract)….” [Ex. A, following para. 8].

‘[A] review of this court's third party beneficiary decisions reveals that our court has carefully examined the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether 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.”

Plaintiffs in opposition argue that defendant as manufacturer fails to establish these elements. Plaintiffs argue that the Sale Contract disclaimed all warranties by the dealer, and more importantly, that the Arbitration Provision expressly encompasses only claims between “you,” defined as “the Buyer (and Co-buyer, if any)” and “we” or “us,” defined as the “Seller-Creditor,” or Pacific BMW, the dealership from which plaintiffs purchased the vehicle and obtained financing. [See Ex. A, p. 1]. Plaintiffs argue that by limiting the parties who could enforce the arbitration clause to plaintiffs and/or Norm Reeves Honda Superstore, the arbitration provision demonstrates an intent not to benefit defendant, or anyone else falling outside the Sale Contract’s definitions of “you” and “we.”

Defendant appears to attempt to make a factual showing that defendant BMW NA was an intended beneficiary as an “assignee” of the dealership, indicating in the Grener declaration that BMW Bank, the assignee of the dealership, is a wholly owned subsidiary of BMW FS. [Grener Decl., paras. 1, 2]. Grener than indicates that defendant BMW NA and BMW FS are affiliates of each other, but fails to show how BMW Bank would be an affiliate of BMW NA. The assignee would step into the shoes of the dealership, which is not named in this lawsuit, and there is no clear showing that the assignee and defendant here are in such a relationship that their separate corporate existence should not be recognized.

Overall, it does not appear that permitting defendant manufacturer to enforce the clause would be consistent with the objectives of the contract, and not violate the reasonable expectations of the contracting parties. The objective of the Sale Contract here was to finance plaintiffs’ vehicle purchase, and the objective of the arbitration clause specifically was to enable, “you” and “us,” plaintiffs and/or Pacific BMW, to choose to arbitrate disputes. Allowing defendant to take advantage of the arbitration provision would not effectuate either of these objectives.

To the extent defendant appears to rely on the Sale Contract provision which limits arbitrable disputes to those “between you and us or our employees, agents, successor or assigns,” as noted above, defendant has not submitted any clear argument or evidence establishing how defendant has any of these relationships to the dealership. Specifically, there appears to be no coherent argument or evidence to support a claim that because the various BMW entities were purportedly affiliated with one another, the corporate separateness of each imposed by law should be disregarded.

Plaintiffs again cite to Ngo v. BMW of North America, LLC (USDC., 9th Cir. 2022) 23 F.4th 942, discussed above, in which the Ninth Circuit reversed the district court’s granting of a manufacturer’s motion to compel arbitration based on an arbitration provision very similar to the form contract provision at issue here. With respect to the argument that the manufacturer in that case was an intended third-party beneficiary, the Ninth Circuit found that defendant manufacturer had failed to establish any of the required elements to demonstrate it was a third-party beneficiary.

The Ninth Circuit concluded that the manufacturer had failed to establish in that case that it was a third party which in fact benefitted from the contract, setting forth the “you” and “we” designations in that case from the same form used here, and noting that in that case, the arbitration provision through this language expressly provided that only three parties, plaintiff, the dealership, and, in that case, as here, the assignee, could compel arbitration, and that arbitrable disputes were limited to the dealership’s employees, agents, successors, or assigns, which did not include BMW. The Ninth Circuit reasoned:

“That BMW could, at some point down the line, receive some benefit if the arbitration clause were read to extend to the manufacturer is of no moment: incidental or secondary benefit is not sufficient. See Lucas, 56 Cal. 2d at 590, 15 Cal.Rptr. 821, 364 P.2d 685. The clause is pellucid that only three parties may compel arbitration, none of which is BMW. Language limiting the right to compel arbitration to a specific buyer and a specific dealership (and its assignees) means that extraneous third parties may not compel arbitration. See Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1128 (9th Cir. 2013) (finding similar language to evince the buyer's intent to arbitrate with the expressly named parties and no one else); see also Safley v. BMW of N. Am., LLC, No. 20-cv-00366-BAS-MDD, 2021 WL 409722, at *5–6 (S.D. Cal. Feb. 5, 2021); Qi Ling Guan v. BMW of N. Am., LLC, No. 20-cv-05025-MMC, 2021 WL 148202, at *2 (N.D. Cal. Jan. 15, 2021); Manuwal v. BMW of N. Am., LLC, No. CV 20-2331 DSF, 484 F. Supp. 3d 862, 868 (C.D. Cal. 2020). Any benefit that BMW might receive from the clause is peripheral and indirect because it is predicated on the decisions of others to arbitrate. BMW therefore fails to meet the first prong of the Goonewardene test.”

The Ninth Circuit in Ngo also found that BMW had failed to establish that the contracting parties had the “motivating purpose” of providing a benefit to the manufacturer such as had been recognized in case law in cases involving agreements to draft wills or manage trusts or mutual funds, “arrangements inherently formed with third parties in mind.” The court reasoned that, in contrast:

“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.

The text of the arbitration clause supports this conclusion. It provides that claims and disputes “which arise[ ] out of or relate[ ] 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.” (emphasis added). Though the language allows for arbitration of certain claims concerning third parties, it still gives only Ngo, the dealership, and the assignee the power to compel arbitration. Nothing in the clause or, for that matter, in the purchase agreement reflects any intention to benefit BMW by allowing it to take advantage of the arbitration provision.”

Here, the Sale Contract is similarly an arrangement pursuant to which plaintiffs as the buyer and co-buyer sought to purchase and finance a car, and the dealership sought to profit by selling and financing the car. The arbitration provision itself similarly gives only the buyers and the seller dealership or its assignees the power to compel arbitration, not the manufacturer, and defendant has pointed to no other language or circumstances to distinguish this case from the Ngo analysis, which, as discussed above, and again below, was accepted by the Second District in Ford Warranty.

The Ninth Circuit in Ngo also interpreted the contractual language to establish that the third element had not been met, that is, that permitting the third party to enforce the contract must be consistent with the objectives of the contract and the reasonable expectations of the contracting parties, concluding:

“Nothing in the contract here evinces any intention that the arbitration clause should apply to BMW. The arbitration clause's enforcement provisions are limited to the dealership, the assignee, and Ngo. The compelling inference from this arrangement is that the parties knew how to give enforcement powers to non-signatories when they wished to do so but gave none to BMW.”

“We agree with Ngo that the sale contracts reflect no intention to benefit a vehicle manufacturer under Goonewardene. First, nothing in the sale contracts or their arbitration provision offers any direct “benefit” to FMC (Goonewardene, supra, 6 Cal.5th at p. 830, 243 Cal.Rptr.3d 299, 434 P.3d 124). FMC's claim that it “would benefit from utilizing arbitration as an efficient means of dispute resolution” (italics added) if treated as a third party beneficiary begs the question: does the provision directly benefit FMC? The answer is patently “no.” Its direct benefits are expressly limited to those persons who might rely on it to avoid proceeding in court—the purchaser, the dealer, and the dealer's employees, agents, successors or assigns. FMC is none of these.

Second, there is no indication that a benefit to FMC was the signatories’ “motivating purpose” (Goonewardene, supra, 6 Cal.5th at p. 830, 243 Cal.Rptr.3d 299, 434 P.3d 124) in contracting for the sale and purchase of a Ford vehicle. The manifest intent of the parties was to buy, sell and finance a car, and to allow either the purchaser or the dealer to compel arbitration of the specified categories of disputes between them, or between the purchaser and any of the dealer's “employees, agents, successors or assigns.” (See Martinez v. BaronHR, Inc. (2020) 51 Cal.App.5th 962, 967, 265 Cal.Rptr.3d 523 [intent of arbitration agreement ascertained solely from words of written agreement, if possible; language controls if clear and explicit].)

Any interest FMC may have in where its dealers and consumers choose to resolve their disputes is remote and certainly not articulated in FMC's briefing. 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. What they said was that “EITHER YOU OR WE”—the purchaser or the dealer—“MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION,” and reiterated that arbitrable disputes “shall, at your or our”—the purchaser's or the dealer's—“election, be resolved by neutral, binding arbitration ....” (Italics added.)….

Finally, allowing FMC to enforce the arbitration provision as a third party beneficiary would be inconsistent with the “reasonable expectations of the contracting parties” (Goonewardene, supra, 6 Cal.5th at p. 830, 243 Cal.Rptr.3d 299, 434 P.3d 124) where they twice specifically vested the right of enforcement in the purchaser and the dealer only.”

The court notes that the issue framed by the California Supreme Court to be reviewed from Ford Warranty was limited to the equitable estoppel question, and it does not appear that the Court intends to review the conclusion of the Second District in Ford Warranty that a third party beneficiary analysis failed.

“[“[T]he 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.”].)

The Montemayors and AutoNation agreed in the sales contract on terms for the financing and purchase of the vehicle from AutoNation, and they agreed to arbitrate disputes between them arising out of the credit application, purchase, or condition of the purchased vehicle. In no way was the sales contract “made expressly for the benefit of a third person.” (Civ. Code, § 1559.)”

This appears sound, and this court again finds the analysis in Ford Warranty and Montemayor, and the other cited authorities in the opposition distinguishing Felisidas and interpreting the Sale Contract language, well-reasoned and appropriate, and will follow the court of appeal precedent set forth in Ford Warranty.

While the Court finds the objection would ordinarily justify disregarding the Sale Contract, the Court will nevertheless consider the Sale Contract submitted, although without proper authentication, based on the relaxed authentication standard applied under case law, and the waiver implied by the reliance by plaintiffs in their opposition papers on the terms of the submitted Sale Contract.