Judge: Stephen P. Pfahler, Case: 23STCV24500, Date: 2024-05-20 Tentative Ruling
Case Number: 23STCV24500 Hearing Date: May 20, 2024 Dept: 68
Dept.
68
Date:
5-20-24
Case:
23STCV24500
ARBITRATION
MOVING
PARTY: Defendant, Mercedes-Benz USA, LLC
RESPONDING
PARTY: Plaintiff, Noushin Misaghi
RELIEF
REQUESTED
Motion
to Compel Arbitration and Stay Action
SUMMARY
OF ACTION
Plaintiff
either leased or purchased a new 2022 Mercedes-Benz vehicle on an unspecified
date. The vehicle suffers from unspecified defects.
On
October 9, 2023, Plaintiff filed a complaint for Violations Violation of
Song-Beverly Act – Breach of Express Warranty, Violation Violation of
Song-Beverly Act – Breach of Implied Warranty, Violation Violation of
Song-Beverly Act – Section 1793.2, and Violation Violation of Song-Beverly Act
Section 1793.22 – Tanner Consumer Protection Act. Mercedes-Benz USA, LLC answered
on November 13, 2023.
RULING: Denied.
Request
for Judicial Notice: Granted.
The
court takes judicial notice of the existence of the complaint, but cannot take
judicial notice of the content for any truth of the matter asserted.
Defendant
Mercedes-Benz USA, LLC (Mercedes-Benz) moves to compel arbitration pursuant to
the terms of the lease executed at the time of the acquisition of the vehicle. Mercedes-Benz
seeks arbitration on grounds that the claims arise from alleged defects with
the vehicle. Mercedes-Benz in its role as manufacturer, concedes it was not a
signatory party to the agreement, but insists it can enforce the agreement as
the party responsible for the warranty provisions under both the terms of the
contract as a third party beneficiary and equitable estoppel. Plaintiff in
opposition denies any third party beneficiary
relationship between the dealership and manufacturer or basis of estoppel. Plaintiff
also challenges the agreement as unconscionable. Mercedes-Benz in reply
reiterates the enforceability of the arbitration provision. Mercedes-Benz characterizes the warranty as part of the lease contract,
and cites to the language in the arbitration agreement as in no way excluding Mercedes-Benz as a party to any arbitration. Mercedes-Benz
emphasizes the equitable estoppel and third party beneficiary basis to compel.
“A written agreement to submit to arbitration an existing
controversy or a controversy thereafter arising is valid, enforceable and
irrevocable, save upon such grounds as exist for the revocation of any
contract.” (Code Civ. Proc., § 1281.) “On petition of a party to an arbitration
agreement alleging the existence of a written agreement to arbitrate a
controversy and that a party thereto refuses to arbitrate such 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: (a) The right to compel arbitration has been waived by the
petitioner; or (b) Grounds exist for the revocation of the agreement.” (Code
Civ. Proc., § 1281.2.)
Mercedes-Benz moves to compel under the Federal
Arbitration Act (FAA), as provided in the contract. While the FAA governs the
rules for conducting arbitration, barring citation to a case precluding
California law, motions to compel arbitration are still governed by California
law. (Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1119; Viking River Cruises, Inc. v.
Moriana (2022) 142 S.Ct. 1906; Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford
Junior University (1989) 489 U.S. 468, 477–479; Victrola 89, LLC v. Jaman
Properties 8 LLC (2020) 46 Cal.App.5th 337, 346; see AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 341-346.)
The law creates a general presumption in favor of
arbitration. 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'l Securities Corp. (1996) 14
Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Ctr., Inc. (2006)
144 Cal.App.4th 754, 758.)
Any challenges to the formation of the
arbitration agreement should be considered before any order sending the parties
to arbitration. The trier of fact weighs all
evidence, including affidavits, declarations, documents, and, if applicable,
oral testimony to determine whether the action goes to arbitration. (Hotels Nevada v. L.A. Pacific Ctr.,
Inc., supra, 144 Cal.App.4th at p. 758.)
The court finds
the declaration of counsel for defendant sufficiently establishes competence in
knowledge, and the rightful possession of the lease agreement containing the
subject arbitration clause applicable to the subject action. [Declaration
of Ali Ameripour, Ex. 2.] The
court finds the language of the agreement also clearly applies to the
warranties on the vehicle.
The court therefore considers the defenses to arbitration. Plaintiff first raises a brief
unconscionability argument on grounds of adhesion presentation and unfavorable
terms.
Unconscionability claims have both a “‘procedural’” and
“‘substantive’” element. (Stirlen v.
Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1531.) “‘Procedural unconscionability’” concerns the manner in
which the contract was negotiated and the circumstances of the parties at that
time. (Kinney
v. United HealthCare Services, Inc. (1999)
70 Cal.App.4th 1322, 1329.) “‘The procedural element focuses on two
factors: “oppression” and “surprise.”
“Oppression” arises from an inequality of bargaining power which results
in no real negotiation and an absence of meaningful choice. “Surprise” involves
the extent to which the supposedly agreed-upon terms of the bargain are hidden
in the prolix printed form drafted by the party seeking to enforce the disputed
terms.’” (Stirlen v. Supercuts, Inc.,
supra, 51 Cal.App.4th at p. 1532.) “Substantive unconscionability” involves
contracts leading to “‘“overly harsh”’” or “‘“one-sided”’” results.’” …
“[U]nconscionability turns … on an absence of ‘justification “for it…” [and
therefore] must be evaluated as of the time the contract was made.’” (Id. at p. 1532.)
“The adhesive nature of the [consumer] contract is
sufficient to establish some degree of procedural unconscionability. Yet ‘a
finding of procedural unconscionability does not mean that a contract will not
be enforced, but rather that courts will scrutinize the substantive terms of
the contract to ensure they are not manifestly unfair or one-sided.’” (Sanchez
v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915.) “In the area of consumer arbitration,
the Legislature has addressed costs in a different way. In 2002, shortly
after Armendariz was decided, the Legislature enacted
Code of Civil Procedure section 1284.3 to address fees and costs in consumer
arbitration. Subdivision (a) of section 1284.3 provides that ‘[n]o neutral
arbitrator or private arbitration company shall administer a consumer
arbitration under any agreement or rule requiring that a consumer who is a
party to the arbitration pay the fees and costs incurred by an opposing party
if the consumer does not prevail in the arbitration, including, but not limited
to, the fees and costs of the arbitrator, provider organization, attorney, or
witnesses.’ Most pertinently, section 1284.3, subdivision (b)(1) provides that
‘[a]ll fees and costs charged to or assessed upon a consumer party by a private
arbitration company in a consumer arbitration, exclusive of arbitrator fees,
shall be waived for an indigent consumer. For the purposes of this section,
“indigent consumer” means a person having a gross monthly income that is less
than 300 percent of the federal poverty guidelines. Nothing in this section
shall affect the ability of a private arbitration company to shift fees that
would otherwise be charged or assessed upon a consumer party to a nonconsumer
party.’ Subdivision (b)(2) requires the arbitration provider to give notice of
the fee waiver provision, and subdivision (b)(3) provides that “[a]ny consumer
requesting a waiver of fees or costs may establish his or her eligibility by
making a declaration under oath on a form provided to the consumer by the
private arbitration company for signature stating his or her monthly income and
the number of persons living in his or her household. No
private arbitration company may require a consumer to provide any further
statement or evidence of indigence.” (Code Civ. Proc., § 1284.3, subd. (b)(2)
& (3).)” (Sanchez v.
Valencia Holding Co., LLC, supra, 61 Cal.4th
at pp. 918–919.)
The court finds the
circumstances regarding the transaction, including the placement of the
arbitration clause itself, and circumstances in the execution of the agreement rendering
the lease as a “one sided” transaction insufficiently supports any basis
unconscionability to thwart the enforceability of the agreement on this basis.
(See Sanchez v. Valencia Holding Co., LLC, supra, 61
Cal.4th at p. 919-921.) Plaintiff lacks any substantive support establishing a
material disadvantage due to the adhesion nature of the contract. The court
finds no evidence or argument for indigence thereby materially impacting
Plaintiff, especially given the presumed contingency basis of representation in
the instant action. The court therefore
finds no bar of the arbitration agreement on grounds of unconscionability.
The court next considers the argument regarding the lack of Mercedes-Benz
as a signatory party to the agreement, thereby barring enforcement of the
contract. The lease itself provides for the terms, and includes the referenced
arbitration clause. The agreement was only between Plaintiff and non-party
Keyes European. Mercedes-Benz is not a named party within the agreement.
[Ameripour Decl., Ex. 2.]
Arbitration agreements may only be generally compelled by
parties to the agreement. The doctrine of equitable estoppel allows for a
non-signatory party to compel arbitration “‘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; Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486,
495-496 (Felisilda); Goldman v.
KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218; Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008)
158 Cal.App.4th 1061, 1070 [Under equitable estoppel, a party cannot avoid
participation in arbitration, where the party received
“a direct benefit under the contract containing an arbitration
clause…”]; Boucher v. Alliance Title Co, Inc. (2005)
127 Cal.App.4th 262, 271).)
Plaintiff in opposition seeks to
distinguish the number of cases enforcing an arbitration clause by a third
party based on the lack of any established third party beneficiary and/or lack
of applicability of estoppel doctrine. Prior to recent cases within the Second
Appellate District, auto manufacturers moved to compel on grounds of estoppel
and/or third party beneficiary status. (Ngo v. BMW of North America,
LLC (9th Cir. 2022) 23 F.4th 942 (“Ngo.”) “A third party beneficiary is someone who may enforce
a contract because the contract is made expressly for his benefit.” (Jensen v. U-Haul Co. of California (2017) 18
Cal.App.5th 295, 301.) The Ngo case involved BMW of North America
seeking to compel arbitration over a dispute regarding the financing agreement,
and found BMW of North America lacked any basis to compel arbitration as a
third party beneficiary, due to the failure to establish any third party
beneficiary status. (Ngo, supra, at p. 948.)
Unlike Ngo, the subject
action involves an equitable estoppel basis to compel via a claim against the
warranty(ies) provided by the manufacture of the vehicle itself—moving
defendant Mercedes-Benz. The Ngo court further differentiated claims
between a credit financing agreement and warranty claims. (Id. at pp.
948-950.) The court therefore distinguishes Ngo in that the complaint
arises from the express and implied warranties offered and required by the
manufacturer, rather than terms regarding the financed purchase of the vehicle.
Plaintiff names no other defendants as responsible for adherence to the
warranty (e.g. Keyes European).
Furthermore, a leading case
decided in the Second Appellate District distinguishes the contractual basis of
warranty claims. (Ford Motor
Warranty Cases (Ochoa) (2023) 89 Cal.App.5th 1324.) The Ford Motor
Warranty Cases specifically confronted the exact situation regarding a
third party non-signatory manufacturer seeking to compel arbitration(s) via (a)
sales contract(s) of the various purchasing parties for 2015-2016 manufacturing
dated vehicles. The court categorically distinguished Felisilda whereby non-signatory manufacturers could compel
arbitration on grounds of equitable estoppel. The holding, at least in part,
relies on a finding that the warranty obligations, and therefore claims against
the manufacturer arise independently from the sales contract. (Id.
at p. 1324, 133-1334.)
The court also found that Ford
Motor Company was precluded from making an argument as a third party
beneficiary, due to the failure to establish any showing within the express
terms of the contract. (Id. at
pp. 1334-1335) Another recent case in the Second
Appellate District on the subject affirms the holding of the Ford Warranty case
on both equitable estoppel and third party beneficiary theories. (Montemayor v. Ford Motor Co.
(2023) 92 Cal.App.5th 958, 971-974.) The Third Appellate District recently
granted a writ of mandate reversing an order compelling arbitration citing the
Second District opinions in support. (Kielar
v. Superior Court (2023) 94 Cal.App.5th
614, 619-621.)
To the extent Mercedes-Benz may depend
on a finding of privity of contract among the parties and therefore a basis of
standing for enforcement of the warranties, the court also finds no basis of
enforcement. As addressed in the plain language of the Song-Beverly Act
statute, along with other California law, purchasers gain vested warranties
with the purchase of new and certain used automobiles. The Ford Motor
Warranty Cases specifically found the arbitration clause within the finance
contracts constitutes a separate and independent consideration from said legally
vested warranties imposed outside the purchase contract context. (Ford Motor Warranty Cases, supra,
89 Cal.App.5th at pp. 1334-1335.) The Ford Motor Warranty Cases court
specifically decoupled inherently owed warranties from contractual principles
governing arbitration. In separating the governing spheres, the court
specifically found warranties shall not be governed by sales contracts. (Id.
at pp. 1335-1336.) The court also specifically held that said contracts lack evidence in support of any independent argument for a
third party beneficiary relationship. (Id. at pp. 1336-1337.)
The California Supreme Court
granted review of the Ford Motor Warranty Cases, Montemayor,
and Kielar. “Grant of review by the Supreme Court of a decision
by the Court of Appeal does not affect the appellate court's certification of
the opinion for full or partial publication under rule 8.1105(b) or rule
8.1110, but any such Court of Appeal opinion, whether officially published in
hard copy or electronically, must be accompanied by a prominent notation
advising that review by the Supreme Court has been granted. [¶] (2) The Supreme
Court may order that an opinion certified for publication is not to be published
or that an opinion not certified is to be published. The Supreme Court may also
order depublication of part of an opinion at any time after granting review.” (Cal.
Rules of Court, rule 8.1105(e)(1)(B), (e)(2).) “Pending
review and filing of the Supreme Court's opinion, unless otherwise
ordered by the Supreme Court
under (3), a published
opinion of a Court
of Appeal in the matter has no binding or precedential effect, and may be cited
for potentially persuasive value only. Any citation to the Court of Appeal
opinion must also note the grant of review and any subsequent action by the
Supreme Court.”
(Cal. Rules of Court, 8.1115(e)(1).)
Notwithstanding the California
Supreme Court review, the court still considers the cases persuasive impacts. “As a practical matter, a superior court ordinarily
will follow an appellate opinion emanating from its own district even though it
is not bound to do so. Superior courts in other appellate districts may pick
and choose between conflicting lines of authority.” (McCallum v. McCallum (1987) 190 Cal.App.3d 308, 315
(footnote 4).)
The court finds the reasoning of Ford
Motor Warranty Cases, regarding the legal separation of warranty
obligations from sales contract arbitration contract principles sufficiently
dissociates any findings of an inextricably intertwined contractual
relationship on grounds of estoppel between Plaintiff and Mercedes-Benz. The
motion otherwise lacks sufficient argument or evidence establishing a third
party beneficiary relationship, or authority of the Keyes European
representative from executing the agreement on behalf of Mercedes-Benz. The
court finds no distinction in the instant lease agreement from the agreement(s)
considered in the Ford case. Thus, for both court policy reasons, and
factual agreement with the Ford Motor Warranty Cases, Montemayor,
and Kielar, the court continues to adhere to the subject authority
pending California Supreme Court review.
The motion is therefore denied.
Trial scheduled for February 3, 2025.
Defendant to provide notice.