Judge Ralph C. Hofer, Case Number: 22GDCV00968, Date: 2023-12-08 Tentative Ruling

Plaintiff Sarkis Grigorian alleges that in August of 2021 plaintiff leased a new 2021 BMW M5 vehicle from Pacific BMW in Glendale, and that the subject vehicle was delivered to plaintiff with serious defects and nonconformities to warranty, including transmission issues, center console screen issues, and repeat driver seat motor defects.

Plaintiff alleges that plaintiff presented the vehicle on numerous occasions to defendant BMW of North America, LLC’s authorized repair facilities for repair of the defects during the warranty period, including defendant Pacific BMW. Plaintiff alleges that the vehicle was presented on four occasions, three of them to Pacific BMW, that the total number of days to complete warranty repairs to plaintiff’s vehicle is in excess of thirty days in violation of Civil Code section 1793.2 (d)(2), and that defendant BMW has an affirmative duty to monitor its warranty database and promptly repurchase or repair vehicles as they qualify, but has failed to do so.

The complaint also alleges that defendant Pacific BMW engaged in negligent repair of the vehicle and breached its duty to plaintiff to use ordinary care and skill by failing to properly store, prepare and repair the vehicle in accordance with industry standards.

The complaint alleges three causes of action for violation of the Song-Beverly Act, including for breach of express warranty, breach of implied warranty, and section 1793.2(b), and a fourth cause of action for negligent repair.

Defendants BMW of North America, LLC (BMW NA) and Pacific BMW have brought this joint motion to compel plaintiff to arbitrate the claims alleged in the complaint, arguing that the Lease Agreement for the vehicle contains a valid and enforceable arbitration clause, which both defendants are entitled to enforce.

“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:

Under the Federal Arbitration Act, arbitration agreements “shall be valid, irrevocable and enforceable, save upon such grounds that exist at law or in equity for the revocation of a contract.” 9 U.S.C. section 2.

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). “[A]rbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question.” Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189, quoting Weeks v. Crow (1980) 113 Cal.App.3d 350, 353. See also AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 339.

In this case, defendants have submitted a copy of a Motor Vehicle Lease Agreement between defendant Pacific BMW as Lessor, and Sarkis Grigorian as Lessee. [Leyva Decl., Ex. A, para. 1]. This Agreement includes an Arbitration Clause at paragraph 38. [Ex. A, para. 38].

Plaintiff has filed an “Opposition to Defendant BMW North America and Pacific BMW’s Joint Notice of Motion to Compel Arbitration and to Stay All Proceedings,” but makes no argument that Pacific BMW is not entitled to compel arbitration pursuant to the Agreement to which Pacific BMW is an expressly named party. The Agreement states that “Unless otherwise specified, ‘I,’ ‘me’ and ‘my’ refer to the Lessee and ‘you’ and ‘your’ refer to the Lessor or Lessor’s assignee.” [Ex. A, para. 2].

‘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 any 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.”

As noted above, the parties and signatories to this Lease are the Lessor, Pacific BMW (you or your) and the Lessee, Sarkis Grigoryan (I, me or my). [See Ex. A, paras. 1, 2]. The Lease also includes an Assignment clause which assigns the Lease to the Assignee listed in Section 2, above, which is designated as “Financial Services Vehicle Trust.” [Ex. A, paras. 41, 2].

Defendant Pacific BMW, as the Lessor, is accordingly a party to the executed Agreement, and expressly entitled to elect neutral binding arbitration. Plaintiff in the opposition does not oppose the court compelling the matter between plaintiff and Pacific BMW to arbitration, does not dispute that a valid Agreement to arbitrate exists, and does not argue or show that the right to compel arbitration has been waived or that grounds exist for rescission of the Agreement. The court accordingly grants the motion as made by Pacific BMW.

BMW NA argues that it is entitled to compel arbitration under the Agreement because the Agreement expressly applies to Pacific BMW, its assignees, and any of their “affiliates.” BMW NA argues that here it is an affiliate of the assignee and submits an LLC-12 filing of BMW Financial Services NA, LLC, filed with the California Secretary of State, which shows that BMW NA is the manager or member of BMW Financial Services NA, LLC. [Saddigh Decl., Ex. A]. BMW NA also submits a declaration of the Finance Systems Manager for BMW Financial Services NA, LLC, who indicates that BMW NA and BMW Financial Services, and BMW Bank of North America are affiliates of each other. [Grener Decl., paras. 3, 4]. However, as noted above, the Agreement states that the Lease is assigned “if this box is checked,” to “Financial Services Vehicle Trust.” [Ex. A, para. 2]. There is no evidence showing how this entity, the actual assignee, is affiliated with BMW NA.

In any case, BMW NA argues that this matter is controlled by the court of appeal decision in Felisilda v. FCA US LLC (2000) 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 who 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.

Defendants argue that the court in Felisilda addressed an arbitration provision in a vehicle sales contract which allowed arbitration of “any claim or dispute, whether in contract, tort, statute or otherwise…which arises out of or relates to…the 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.)”

The court of appeal found that in the circumstances before it, in which the signatory dealership had moved to compel arbitration of the entire action and the manufacturer did not oppose that motion, the trial court had correctly ordered that the entire matter be submitted to arbitration, noting that:

“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.”

Plaintiff in opposition argues that the case here is distinguishable from Felisilda on the ground that none of the cases cited by BMW NA in support of equitable estoppel involve only a non-signatory defendant bringing a motion to compel arbitration, which is a bit confusing, as this is also not a case where only the non-signatory is bringing the motion to compel arbitration; the motion is brought jointly with the dealer signatory in this case.

As noted above, in Felisilda, the dealer defendant from which the vehicle was obtained moved to compel arbitration, falling squarely within the parties defined in the Lease withstanding to compel arbitration, that is, “YOU,” the lessee, or “US,” defined as the Lessor. The dealer was the lessor in that case, which is the same situation we have here, not a situation addressed in much of the authority which followed Felisilda, where the plaintiff had not brought any claims against the signatory dealer, which had not moved to compel arbitration as a party expressly permitted to elect arbitration.

Plaintiff relies on Ninth Circuit authority which has distinguished Felisilda in a situation where there was no involvement of the dealer, in reversing the district court’s granting of a manufacturer’s motion to compel arbitration:

“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, the signatory dealership is named, pursued in this action based on the condition of the vehicle, and has successfully moved to compel arbitration of the dispute between plaintiff and the dealership in this action.

BMW NA has argued that in this case, as in Felisilda, plaintiff has alleged concerted misconduct between BMW NA and Pacific BMW, including that the plaintiff “presented the Subject Vehicle to an authorized BMW OF NORTH AMERICA, LLC repair facility for repair of the nonconformities” and “Defendant was unable to conform Plaintiff’s vehicle to the applicable express after a reasonable number of repair attempts.” [Complaint ¶¶ 40-41]. Additionally, plaintiff has alleged that “Defendant’s authorized repair facilities did not conform the Subject Vehicle to warranty within 30-days and/or commence repairs within a reasonable time.” [Complaint ¶ 66.] The complaint alleges that of the four repair attempts, three of them were made by Pacific BMW. [Complaint ¶¶ 13-17]. It is also alleged that defendant BMW NA has requirements of its repair facilities such as Pacific BMW, including warranty repair and warranty communications requirements, and authorizes them to act as its special agent. [Complaint ¶¶ 20-23].

As argued in the reply, plaintiff fails to acknowledge that this matter involves allegations of negligent repair by a party entitled to compel arbitration, and the necessary intertwining of which occurs with the Lease and arbitration agreement in connection with the condition of the vehicle. The facts involved against the dealer and those against the manufacturer with respect to the condition of the vehicle are properly determined in one proceeding.

Felisilda found that Song-Beverly and related claims about failed repairs and the condition of the vehicle were directly intertwined with the sale agreement in that case, and that the third-party nonsignatory’s right to independently compel arbitration was “[b]ased on language in the sales contract” and the “nature of the [plaintiff’s] claim against [nonsignatory warrantor]” under Song-Beverly. Felisilda, at 496. Felisilda found under circumstances similar to those alleged and pursued here that the claims regarding the failed repairs and condition of the vehicle were “so intertwined with the claim against” the nonsignatory manufacturer “that the entirety of the matter was arbitrable under the sales contract”. Felisilda, at 491.

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.

In Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, in which the court of appeal reversed an order denying a motion to compel arbitration, observing with respect to equitable estoppel in such a context:

“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).)

Applying this analysis here to a matter involving a clearly arbitrable action against a dealer, the court finds that plaintiff’s claims against BMW NA are intimately founded in and intertwined with those against the signatory dealer, and equitable estoppel has been sufficiently established to justify the court ordering the entire matter to arbitration. This result appears particularly appropriate where the Lease under which plaintiff agreed to arbitration expressly includes claims involving the condition of the vehicle.

"shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies."

Defendants have requested in the motion that the action be stayed. The matter is currently pending only between plaintiff and moving defendants as named defendants, and the entire action is stayed pending arbitration.

The Court finds that an agreement to arbitrate the controversy exists, that there is no showing that there has been any waiver of the right to compel arbitration, and no showing that the agreement has been rescinded or that grounds exist for rescission of the agreement.

The Court orders plaintiff Sarkis Grigorian and defendants BMW of North America, LLC and Pacific BMW to arbitrate this matter according to the Arbitration Agreement included in the Motor Vehicle Lease Agreement between Pacific BMW and Sarkis Grigorian.

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