Judge Thomas D. Long, Case 22STCV33452 2023-03-21 Tentative Ruling

On October 13, 2022, Plaintiffs Saerom Ha and Jason Ha filed this action against Defendants Century West, LLC and BMW of North America, LLC arising from Plaintiffs’ lease of an allegedly defective vehicle with a non-party dealership.

On November 16, 2022, BMW of North America, LLC (“BMW”) filed a motion to compel arbitration and stay the action pending completion of arbitration.

Plaintiffs’ objection to BMW’s Exhibit A is overruled. Plaintiffs repeatedly refer to the language of this document and thereby act upon it as though it is authentic. (Evid. Code, § 1414.)

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.) 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.)

The parties do not dispute the existence of an arbitration agreement between Plaintiffs and Lessor Beverly Hills BMW, and BMW provided the full lease contract containing the arbitration provision. (Grener Decl., Ex. A [“Arbitration Agreement”].)

The Arbitration Agreement governs “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 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 or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease).” (Arbitration Agreement at p. 6, ¶ 38.)

Plaintiffs signed on page 7 of the lease, under text stating, “By signing below, you acknowledge that you have read all pages of this Lease, and that you have received a completed filled in copy of this Lease.”

B. BMW Can Compel Arbitration as a Third-Party Beneficiary of the Arbitration Agreement.

BMW argues that although it was not a signatory to the lease, it can compel arbitration as a third-party beneficiary. (Motion at p. 12.)

“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.)

The lease states that “‘I,’ ‘me’ and ‘my’ refer to the Lessee [Plaintiffs] and ‘you’ and ‘your’ refer to the Lessor [Beverly Hills BMW] or Lessor’s assignee. . . . ‘Assignee’ refers to BMW Financial Services NA, LLC.” (Arbitration Agreement at p. 1, ¶ 2.)

The Arbitration Agreement states, “Either you [Lessor or Assignee] or I [Plaintiffs] may choose to have any dispute between us decided by arbitration and not in a court or by jury trial.” (Arbitration Agreement at p. 6, ¶ 38.) Claims subject to the Arbitration Agreement include any dispute “between me [Plaintiffs] and you [Lessor or Assignee] or your employees, officers, directors, affiliates, successors or assigns . . . which arises out of or relates to my . . . lease or condition of this Vehicle . . . (including any such relationship with third parties who do not sign this Contract).” (Arbitration Agreement at p. 6, ¶ 38.) Assignee BMW Financial Services NA, LLC is a wholly-owned subsidiary of Defendant BMW, and thus they are affiliates. (Grener Decl. ¶ 4.)

As an affiliate of the Assignee, BMW is an intended third-party beneficiary of the Arbitration Agreement and may compel arbitration on this basis.

Plaintiffs argue that BMW, who did not sign the sales contract, cannot compel arbitration based on equitable estoppel. (See Opposition at pp. 2-8.)

Generally, only a party to an arbitration agreement may enforce the agreement, but the doctrine of equitable estoppel is an exception that allows a non-signatory to enforce an agreement. (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495 (Felisilda).) Under the doctrine of equitable estoppel, “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 in either of two circumstances: (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 court in Felisilda examined a similar arbitration clause contained in a dealer’s sales contract: “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. . . .” (Felisilda, supra, 53 Cal.App.5th at p. 490.) The court concluded that 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.” (Id. at p. 497.)

Plaintiffs allege that they received various warranties in connection with the lease. (E.g., Complaint ¶¶ 15, 28-29.) The court in Felisilda held that a similar allegation established that “the sales contract was the source of the warranties at the heart of this case.” (Felisilda, supra, 53 Cal.App.5th at p. 496.) As in Felisilda, Plaintiffs’ claims against the manufacturer “directly relate[] to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract.” (Id. at p. 497.)

Plaintiff argues that Felisilda is distinguishable because the plaintiffs there brought claims against both the dealership and the manufacturer. (Opposition at pp. 708.) But in Felisilda, the claims against the dealership were eventually dismissed, leaving only the claims against the manufacturer before the plaintiffs’ appeal. (See Felisilda, supra, 53 Cal.App.5th at p. 489.) The Court of Appeal also expressly framed the issue as “whether a nonsignatory to the agreement has a right to compel arbitration under that agreement.” (Felisilda, supra, 53 Cal.App.5th at p. 495.)

The reasoning and holding of Felisilda lead to the conclusion that equitable estoppel doctrine also permits BMW to compel arbitration of Plaintiffs’ claims against it.

C. The Court Will Not Take This Motion Under Submission Pending a Decision in a Different Appeal.

Plaintiffs ask the Court to take this motion under submission pending a decision in Martha Ochoa et al. v. Ford Motor Company (Cal. Ct. App., Case No. B312261) (Ochoa), or for 60 days. (Opposition at p. 2.) Plaintiffs provide a copy of the Court of Appeal’s tentative opinion before the upcoming March 30, 2023 oral argument. (Samra Decl., ¶ 6 & Ex. 2.)

Oral argument has not occurred in Ochoa, and the tentative opinion may change. The tentative opinion also does not indicate if the opinion will be published and therefore precedential. Even if the opinion were to be published when finally issued, this Court could still choose to follow Felisilda because “[a]ll trial courts are bound by all published decisions of the Court of Appeal . . . Unlike at least some federal intermediate appellate courts, though, there is no horizontal stare decisis in the California Court of Appeal.” (Sarti v. Salt Creek Ltd. (2008) 167 Cal.App.4th 1187, 1193.)

Additionally, the tentative opinion indicates that Ochoa and Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942 (Ngo) involve “the same arbitration provision under similar circumstances.” (Samra Decl., Ex. 2 at p. 2.) In Ngo, the Ninth Circuit specifically noted that “[h]ere, arbitrable disputes do not include those involving BMW Bank of North America’s assignees and affiliates, only those involving the dealership’s assignees,” distinguishing the facts there from those in Hajibekyan v. BMW of North America, LLC (9th Cir. 2021) 839 Fed.Appx. 187 (Hajibekyan). (Ngo, supra, 23 F.4th at p. 947.) In Hajibekyan, the Ninth Circuit upheld an order compelling arbitration because BMW of North America, LLC was a third-party beneficiary of an arbitration clause that encompassed claims between the plaintiff and “affiliates” of the contracting party. (Hajibekyan, supra, 839 Fed.Appx. at p. 188.) That arbitration agreement specified that you” and “your” refer to Lessor Pacific BMW and its assignee, BMW Financial Services NA, LLC. (Ibid.) Therefore, the court found that BMW of North America, LLC (the parent company of assignee BMW Financial Services NA, LLC) was an intended beneficiary as an affiliate of the assignee. (Ibid.) That is identical to the situation here, with Defendant BMW being an affiliate of the Lessor’s Assignee, BMW Financial Services NA, LLC. (Grener Decl. ¶ 4; see Arbitration Agreement at p. 1, ¶ 2; Arbitration Agreement at p. 6, ¶ 38.) Therefore, this case can also be distinguished from Ngo and other cases involving “the same arbitration provision under similar circumstances” as in Ngo.

Accordingly, the Court will not take this motion under submission pending a final decision in Ochoa. The Court relies on BMW’s status as an affiliate of the Assignee and thus a third-party beneficiary, as well as the doctrine of equitable estoppel as articulated in Felisilda.

D. The Arbitration Agreement Has a Slight Degree of Procedural Unconscionability.

For an arbitration agreement to be unenforceable as unconscionable, both procedural and substantive unconscionability must be present. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.) “The relevant factors in assessing the level of procedural unconscionability are oppression and surprise.” (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 997.) “‘The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party.’” (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 656.) “The circumstances relevant to establishing oppression include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract was aided by an attorney.” (Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1348, fn. omitted.) “The component of surprise arises when the challenged terms are ‘hidden in a prolix printed form drafted by the party seeking to enforce them.’” (Ibid.)

Plaintiffs argue that the Arbitration Agreement is procedurally unconscionable because it was provided on a “take it or leave it” basis with no real opportunity to negotiate the terms. (Opposition at p. 11.) Arbitration agreements that are “take it or leave it” have some degree of procedural unconscionability. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 796.)

The Arbitration Agreement therefore has some degree of unconscionability due to its adhesive nature, but as explained below, not enough.

“‘Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. [Citations.] A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be “so one-sided as to ‘shock the conscience.’”’ [Citation.]’” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85.)

Plaintiffs argue that the Arbitration Agreement mandates that “each party is responsible for its own attorney, expert and other fees” in violation of the Song-Beverly Act’s provision of costs and fees to prevailing plaintiffs. (Opposition at p. 11.) However, the Arbitration Agreement provides that when “determining liability or awarding damages or other relief, the arbitrator will follow the applicable substantive law . . . that would apply if the matter had been brought in court. . . . The arbitrator may award any damages or other relief or remedies permitted by applicable law . . . .” (Arbitration Agreement at p. 6, ¶ 38.) It also provides that “you [Lessor or Assignee, or intended beneficiaries standing in their place] will always bear any fees and costs . . . that you are required to bear pursuant to the administrator’s rules or applicable law.” (Arbitration Agreement at p. 6, ¶ 38.) Accordingly, if Plaintiffs prevail and the law requires that they be awarded fees and costs, the arbitrator must follow that law, and BMW will always bear any costs required by law.

Plaintiffs also argue that the arbitration fees are unconscionable as a substantial deterrent to pursuing their claims because only the dealership, not BMW, will pay up to $5,000.00 of Plaintiffs’ fees. (Opposition at pp. 11-12.) The Arbitration Agreement provides: “In any arbitration that I [Plaintiffs] have commenced against you [Lessor or Assignee, or intended beneficiaries standing in their place], if the total amount of my Claim(s) is less than $25,000; (a) you will pay any and all fees of the administrator and/or the arbitrator if I make a written request for you to pay such fees; and (b) you will pay my reasonable attorneys’ fees and expert witness fees and costs if and to the extent I prevail in the arbitration. Moreover, you will always bear any fees and costs . . . that you are required to bear pursuant to the administrator’s rules or applicable law. You will not seek reimbursement from me of any fees or costs (including administrator and arbitrator fees and attorneys and expert witness fees and costs) that you incur on your own behalf or pay on my behalf in connection with the arbitration. (Arbitration Agreement at p. 6, ¶ 38.) Plaintiffs have not shown that this provision is unconscionable.

Because the Court finds a low level of procedural unconscionability and no substantive unconscionability, the arbitration agreement should not be invalidated due to unconscionability.

BMW’s motion to compel arbitration is GRANTED. The action against BMW is STAYED pending the completion of arbitration. The action against Century West, LLC is not stayed.

A Status Conference re: Arbitration is scheduled for October 3, 2023 at 8:30 a.m. in Department 48 at Stanley Mosk Courthouse. Five court days before, the parties are to file a joint report regarding the status of arbitration, including the name of the retained arbitrator.

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