Judge Thomas D. Long, Case 22STCV06824 2022-08-10 Tentative Ruling

On February 24, 2022, Plaintiff Reza Forouzesh filed this action against Mercedes-Benz USA, LLC (“MBUSA”) and Second Motor Group of Valencia LLC dba Mercedes-Benz of Valencia (“Mercedes-Benz of Valencia”) (collectively, “Defendants”), arising from Plaintiff’s lease of an allegedly defective vehicle.

On March 28, 2022, Defendants filed a motion to compel arbitration and stay the action pending completion of arbitration. Defendants’ request for judicial notice of the Complaint is granted.

At the original hearing on June 8, 2022, Plaintiff’s counsel stated Plaintiff may dismiss the dealership. The Court directed Plaintiff to file a notice of dismissal by June 10, 2022. The Court also continued the hearing to allow for supplemental briefing if Plaintiff did dismiss the dealership. Plaintiff did not file a notice of dismissal, but the parties still filed supplemental briefs, apparently under the misunderstanding that Plaintiff had dismissed the dealership.

At the July 5, 2022 hearing, the Court continued the hearing to August 10, 2022. The same day, Plaintiff dismissed Second Motor Group of Valencia LLC dba Mercedes-Benz of Valencia.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219 (Condee).) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.) The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.) When a nonsignatory seeks to enforce an arbitration agreement against a signatory, “the nonsignatory bears the burden to establish he or she is a party to the arbitration agreement/provision covering the dispute.” (Jones v. Jacobson (2011) 195 Cal.App.4th 1, 15.)

MBUSA contends that when Plaintiff leased a vehicle from Mercedes-Benz of Valencia, the lease contained an arbitration agreement. (Motion at pp. 3-4.) MBUSA provides a copy of the agreement between Plaintiff and Mercedes-Benz of Valencia. (Tahsildoost Decl., Ex. 2 [“Arbitration Agreement”].) The Arbitration Agreement applies to “[a]ny claim or dispute, whether in contract, tort or otherwise (including any dispute over the interpretation, scope, or validity of this lease, arbitration section or the arbitrability of any issue), between you and us or any of our employees, agents, successors or assigns, which arises out of or relates to a credit application, this lease, or any resulting transaction or relationship arising out of this lease . . . .” (Id. at p. 4.)

Plaintiff does not dispute the existence of the Arbitration Agreement. However, he argues that claims under the Song-Beverly Act cannot be arbitrated because they involve unwaivable rights. (Opposition at pp. 2-3.) According to Plaintiff, “compelling arbitration would deny plaintiff a judicial forum to adjudicate important statutory rights in contrast to the statute’s public policy concerns in safeguarding consumer rights.” (Id. at p. 3.) Plaintiff cites no authority that Song-Beverly Act claims are exempt from arbitration.

MBUSA argues that even though it did not sign the lease that includes the arbitration provision, it can compel arbitration because it is a third-party beneficiary to the arbitration provision and its claims are intimately founded in and intertwined with the underlying contractual obligations. (Motion at pp. 4-5.)

“A third party beneficiary may enforce a contract made for its benefit. (Civ. Code, § 1559.) However, ‘[a] putative third party’s rights under a contract are predicted upon the contracting parties’ intent to benefit’ it. [Citation.] Ascertaining this intent is a question of ordinary contract interpretation. [Citation.]” (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.) MBUSA argues it is an intended third-party beneficiary because the arbitration provision “requires Plaintiff to arbitrate the claims against non-signatories such as MBUSA, if Plaintiff asserts a claim that arises out of or relates to ‘any resulting transaction or relationship arising out of this lease.’” (Motion at p. 6.) MBUSA argues that warranty relationship between Plaintiff and MBUSA resulted from the lease. (Reply at pp. 4-5.)

The arbitration agreement states that “you” and “we” agree to arbitrate. “You” refers to the Lessee (Plaintiff), and “we” refers to Lessor (Mercedes-Benz of Valencia), Daimler Trust, and Daimler Trust’s successors and assigns. Thus, the express parties to the agreement do not include MBUSA. The arbitration agreement states that it covers any claim “between you and us or any of our employees, agents, successors or assigns.” The lease defines “Assignee” as Daimler Trust and its successors and assigns. The arbitration agreement is reasonably read to include claims between Plaintiff on one hand and Mercedes-Benz of Valencia; Mercedes-Benz of Valencia’s employees, agents, successors or assigns; or Daimler Trust or its successors or assigns on the other hand. MBUSA does not fall into any of those categories of parties, and none of these categories includes third parties unrelated to Mercedes-Benz of Valencia or Daimler Trust.

MBUSA’s argument appears to be that because Plaintiff acquired the vehicle via the lease and because the vehicle was covered by a warranty from MBUSA, MBUSA and Plaintiff’s warranty relationship was a “resulting relationship,” and therefore the parties to the lease intended MBUSA to be a third-party beneficiary. To the contrary, the “resulting relationship” language defines the types of claims covered, not the third parties intended to benefit from the contract. The lease did not create the warranty relationship between MBUSA and Plaintiff. The lease stated, “If the vehicle is new, it is covered by a standard new vehicle warranty from the manufacturer,” at most acknowledging the existence of a warranty between the manufacturer and Plaintiff. Plaintiff’s warranty relationship with MBUSA was incidental to the lease, not formed by any term in the lease. If the parties had intended MBUSA to be a third-party beneficiary to the lease, Mercedes-Benz of Valencia could have included language stating the arbitration provision covered third parties and claims about the condition of the car, like the arbitration agreements in some of the cases cited by the parties.

The doctrine of equitable estoppel also allows a non-signatory to enforce an agreement. (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.) “[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.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) The doctrine applies: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.) The first situation exists “ ‘when the signatory to a written agreement containing an arbitration clause “must rely on the terms of the written agreement in asserting [its] claims” against the nonsignatory.’ [Citation.]” (Id. at p. 218.)

MBUSA argues that Plaintiff must rely on the existence of the lease because his possession of the vehicle is based on the lease. (Motion at p. 7.) Plaintiff’s claims do not depend on the terms of the lease. The lease did not create the warranties upon which Plaintiff sues. That Plaintiff mentions the lease by alleging that he acquired the vehicle via a lease is not sufficient to invoke the equitable estoppel doctrine. (Goldman, supra, 173 Cal.App.4th at p. 218.)

Mercedes-Benz also argues that the causes of action against it are “ ‘intimately founded in and intertwined’ with the underlying contractual obligations,” citing Felisilda. (Motion at p. 8.) In Felisilda, the arbitration provision stated, “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 . . . 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. . . .” (Id. at p. 490.) The court there held the equitable estoppel doctrine applied: “Because the [buyers] expressly agreed to arbitrate claims arising out of the condition of the vehicle – even against third party nonsignatories to the sales contract – they are estopped from refusing to arbitrate their claim against [the manufacturer]. Consequently, the trial court properly ordered the [buyers] to arbitrate their claim against FCA.” (Ibid.) Here, the arbitration provision does not mention the condition of the vehicle or third parties. Therefore, the holding in Felisilda is not dispositive.

MBUSA also cites Mance v. Mercedes-Benz USA (N.D. Cal. 2012) 901 F.Supp.2d 1147. In that case, the arbitration provision also stated it covered claims arising out of the condition of the vehicle and included relations with third parties who did not sign the contract. (Id. at p. 1153.) Numerous federal cases after Mance have criticized that case and the Ninth Circuit rejected its reasoning. (Kramer v. Toyota Motor Corp. (2013) 705 F.3d 1122, 1131.) Also, Mance is contrary to the holding in Goldman that referring to the contract containing the arbitration provision is not sufficient. Finally Monce, like all federal decisions interpreting state law, is not binding on this court.

MBUSA did not show that Plaintiff’s claims allege “substantially interdependent and concerted misconduct” by MBUSA and Mercedes-Benz of Valencia and that the alleged misconduct is “founded in or intimately connected with the obligations of” the lease.

Because MBUSA did not show that it is a signatory to the lease, that it is a third-party beneficiary of the lease, or that it may enforce the arbitration provision under the doctrine of equitable estoppel, the motion to compel arbitration with MBUSA is denied.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court