Opinion
Case No.: 20cv1700 JM(DEB)
2021-04-20
Yahav CAINE, an individual, Plaintiff, v. BMW OF NORTH AMERICA, LLC, a Delaware Limited Liability Company; and Does 1 through 20, inclusive, Defendants.
Christopher Michael Lovasz, Jeeho Lim, Consumer Legal Services, P.C., Long Beach, CA, for Plaintiff. Kate S. Lehrman, Lehrman Law Group, Los Angeles, CA, for Defendant BMW of North America, LLC.
Christopher Michael Lovasz, Jeeho Lim, Consumer Legal Services, P.C., Long Beach, CA, for Plaintiff.
Kate S. Lehrman, Lehrman Law Group, Los Angeles, CA, for Defendant BMW of North America, LLC.
ORDER ON DEFENDANT'S MOTION TO COMPEL ARBITRATION AND STAY ACTION
Jeffrey T. Miller, United States District Judge
Defendant BMW of North America, LLC ("BMW") moves for an order compelling Plaintiff Yahav Caine to arbitrate his claim related to alleged defects in a BMW vehicle. (Doc. No. 10.) The motion has been fully briefed and the court finds it suitable for submission on the papers and without oral argument in accordance with Civil Local Rule 7.1(d)(1). For the reasons set forth below, Defendant's motion is denied . I. BACKGROUND
On July 27, 2020, Plaintiff filed suit in San Diego County Superior Court for breach of express warranty under the Song-Beverly Consumer Warranty Act, California Civil Code sections 1790 -90.4. (Doc. No. 1-2 at 12-20.) The allegations of the complaint stem from Plaintiff's leasing of a new 2018 BMW M4 Convertible (the "Vehicle") on August 12, 2017 from BMW Encinitas (the "Dealership"). Specifically, the complaint alleges that the vehicle has defects, malfunctions, misadjustments and or nonconformities, continues to breakdown and does not perform as the manufacturer, BMW, expressly promised and warranted. (Id. at ¶¶ 14-20.) Plaintiff is not pursuing his claim against the Dealership, rather he is seeking a restitution buyback based on BMW's written warranty contained in the warranty booklet furnished by BMW. (Id. at 18.)
On August 27, 2020, BMW filed its answer in state court. (Doc. No. 2.) On August 31, 2020, it removed the case to this court based on diversity jurisdiction, 28 U.S.C. § 1332. (Doc. No. 1.)
On December 30, 2020, BMW filed the instant motion to compel arbitration and stay this action. (Doc. No. 10.) Plaintiff timely filed his opposition (Doc. No. 12), and Defendant filed its reply (Doc. No. 16). BMW, while acknowledging that is a non-signatory to the arbitration provision contained with the lease agreement Plaintiff signed with the Dealership, makes multiple arguments as to why Plaintiff must arbitrate the breach of express warranty claim against it.
II. LEGAL STANDARD
The Federal Arbitration Act (FAA) allows "a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any United States District Court .... for an order directing that .... arbitration proceed in the manner provided for in [the arbitration] agreement." 9 U.S.C. § 4. The FAA promotes a general policy favoring arbitration agreements. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ; see also Hall St. Assoc., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 581, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). The FAA thus "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds Inc. v. Byrd , 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985).
"[A]n agreement to arbitrate is a matter of contract." Chiron Corp. v. Ortho Diagnostic Sys., Inc. , 207 F.3d 1126, 1130 (9th Cir. 2000). When a party seeks an order compelling arbitration, interpreting the parties’ intent on certain issues in the agreement remains "within the province of judicial review." Momot v. Mastro , 652 F.3d 982, 987 (9th Cir. 2011). Arbitration "is a way to resolve those disputes – but only those disputes – the parties have agreed to submit to arbitration." Id. (citing First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ). "[A] party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers v. Warrior & Gulf Navigation Co. , 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). The party seeking to compel arbitration bears the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence. Norcia v. Samsung Telecoms. Am., LLC , 845 F.3d 1279, 1283 (9th Cir. 2017) (citing Knutson v. Sirius XM Radio Inc. , 771 F.3d 559, 565 (9th Cir. 2014) ). III. DISCUSSION
BMW begins by arguing that Plaintiff must arbitrate his claim against it because his breach of express warranty claim falls within the scope of the arbitration provision. (Doc. No. 10 at 8-10 .) BMW also contends that arbitration may be compelled by applying either a third-party beneficiary theory or under equitable estoppel. (Id. at 10-15.) Plaintiff takes the opposing position arguing that there is no close relationship between BMW and the Dealership, and that the claim for breach of warranty is not intertwined with the lease agreement to warrant application of either of BMW's other theories.
Document numbers and page references are to those assigned by CM/ECF for the docket entry.
1. Nonsignatory to Arbitration Agreement
First, BMW argues that Plaintiff must arbitrate his claims against it because the breach of express warranty claim falls with the scope of the arbitration provision of the lease agreement, which includes any claims against affiliates of the dealership and the assignee of the lease agreement, BMW Financial Services NA, LLC ("BMW FS"). (Doc. No. 10 at 8-10; Doc. No. 16 at 2-3.) Although not entirely clear, BMW seems to be making two arguments, maintaining: (1) that it is an affiliate of BMW FS, because BMW FS is one of its wholly own subsidiaries, therefore, the arbitration provision provides for its claims, (Doc. No. 16 at 3) and; (2) as an affiliate of BMW FS, the lease agreement intended to benefit BMW, as BMW warranted the condition of Plaintiff's vehicle, (Doc. No. 10 at 8.) Further, for the first time, in its reply brief, BMW claims the provision in the lease agreement provides for mandatory as opposed to elective arbitration. (Doc. No. 16 at 3.)
Here, the pertinent arbitration provision states:
"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 such third parties in connection with a Claim 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.
The court takes judicial notice of the lease agreement between Plaintiff and the Dealership, attached as Exhibit 1 to the Declaration of Kate S. Lehrman. (Doc. No. 10-1.)
The front page of the lease agreement provides that the "you/your" being referred to in the agreement means either the Dealership or BMW FS. (Doc. No. 10-1 at 4.) The final sentence of the applicable provision makes clear that the Dealership and Plaintiff as the signatories – may invoke their right to arbitrate any claims under the lease agreement. Under the terms of the agreement, BMW FS also retains the right to arbitrate. However, the provision does not state that a third party nonsignatory such as BMW, regardless of its relationship to the assignee, may arbitrate claims under the lease agreement. The Dealership and BMW FS have never been parties to this lawsuit; therefore, BMW cannot compel arbitration of Plaintiff's claim under the arbitration provision in the lease agreement.
2. Third Party Beneficiary
Second, BMW argues that it should be allowed to enforce the arbitration clause as a third party beneficiary. (Doc. No. 1 at 10-12.)
Under California law, a "contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties rescind it." CAL. CIV. CODE § 1559. "It is well established that a nonsignatory beneficiary of an arbitration clause is entitled to require arbitration." Harris v. Super. Ct. , 188 Cal. App. 3d 475, 478, 233 Cal.Rptr. 186 (1986) (citations omitted). To successfully compel arbitration, a third party beneficiary of a contract must show the contract reflects the original parties’ express or implied intent to benefit the third party. Comer v. Micor, Inc. 436 F.3d 1098, 1102 (9th Cir. 2006). In California, while a third party need not be specifically named, it must be "more than incidentally benefitted by the contract." Gilbert Fin. Corp. v. Steelform Contracting Co. , 82 Cal. App. 3d 65, 69-70, 145 Cal.Rptr. 448 (1978).
BMW claims that it "is vastly more than incidentally benefitted by the Lease Agreement for a vehicle it warrants." (Doc. No. 10 at 11.) It argues that the arbitration provision applies to this litigation by virtue of the express terms used, namely the portion relating to claims about the "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)." (Id. ) Further, BMW points to the warranty section of the lease agreement, claiming the agreement contemplated it, not BMW FS, was responsible for providing the warranty covering the condition of the vehicle. The relevant provision of the lease agreement states:
16. WARRANTIES
The Vehicle is subject to the following express warranties. If the Vehicle is new, the Vehicle is subject to the standard manufacturer's new vehicle warranty.
Doc. No. 10-1 at 6. In sum, BMW argues that when the lease agreement is read as a whole, it is an intended third party beneficiary of the arbitration clause because it falls within the class of persons or entities the arbitration clause was intended to benefit.
The court is not persuaded by BMW's arguments. The warranties section of the lease agreement simply acknowledges the existence of a manufacturer's warranty. Moreover, BMW's briefing ignores the portion of the warranties section where the Dealership disclaims the vehicle's warranty and protects itself from unwanted claims. (See id. ) In other words, it is the Dealership, and not BMW that is the beneficiary of the warranties provision. See Schulz v. BMW of N. Am., LLC. , 472 F. Supp. 3d 632, 640 (N.D. Cal. 2020). Further, as explained above, the signatories of the lease agreement are the ones who must elect to arbitrate. Thus, while the arbitration provision "encompasses disputes that arise out of or relate to the condition of the vehicle, it did not extend to disputes against third parties, especially because the signatories had to elect to exercise the right." Id. (citing Vincent v. BMW of N. Am., LLC , No. cv-19-6439 AS, 2019 WL 8013093, at *5 (C.D. Cal. Nov. 26, 2019) ). Moreover, the arbitration clause BMW relies on refers to the subject matter of the dispute and relationships with third parties, it does not demonstrate an intent to confer more than an incidental benefit. Therefore, because any benefit that BMW may receive from the arbitration provision is entirely incidental, as this court has previously held, the lease "agreement here does not reflect the express or implied intent of the parties to benefit BMW." Jurosky v. BMW of N. Am , 441 F. Supp. 3d 963, 975 (S.D. Cal. 2020). Accordingly, BMW cannot compel arbitration of Plaintiff's claim as a third party beneficiary.
3. Equitable Estoppel
Finally, BMW argues that equitable estoppel principles mitigate in favor of compelling arbitration. (Doc. No. 10 at 12-15.) BMW argues the claim asserted against it are premised on, and arise out of the lease agreement, and, therefore, involved the same facts and vehicle. Further, it contends that the warranty upon which Plaintiff's claim is based was provided by it. BMW takes the position that pursuant to the express terms of the lease agreement, Plaintiff's claim must be resolved through binding arbitration and that the only fair and efficient result is to enforce the conspicuous arbitration provision in the agreement.
In taking this position, BMW relies on Mance v. Mercedes-Benz USA , 901 F. Supp. 2d 1147, 1155-1156 (N.D. Cal. 2012) and Felisilda v. FCA US LLC , 53 Cal. App. 5th 486, 266 Cal.Rptr.3d 640 (2020). But Felisilda is not directly on point because the Felisildas sued both the manufacturer and the dealer while Plaintiff has only sued the manufacturer. And, as this court did so previously in Jurosky , it once again declines BMW's invitation to rely on the district court's reasoning in Mance , preferring to rely on the Ninth Circuit's decision in Kramer v. Toyota Motor Corporation , 705 F.3d 1122, 1126-27 (9th Cir. 2013) cert denied , 571 U.S. 818, 134 S.Ct. 62, 187 L.Ed.2d 26 (2013).
The principle of equitable estoppel may be used by a nonsignatory to an arbitration agreement to compel arbitration of claims in two instances:
(1) when a signatory must rely on the terms of the written agreement in asserting its claims against the nonsignatory or the claims are intimately founded in and intertwined with the underlying contract, and (2) when the signatory alleges substantially interdependent and concerted misconduct by the nonsignatory and another signatory and allegations of interdependent misconduct are founded in or intimately connected with the obligations of the underlying agreement.
Kramer , 705 F.3d at 1126-27 ; see also Mundi v. Union Sec. Life Ins. Co. , 555 F.3d 1042, 1045-46 (9th Cir. 2009).
Applying Kramer , BMW cannot compel Plaintiff to arbitrate his claim under the doctrine of equitable estoppel. Plaintiff's claim does not rely on the lease agreement and is not intimately founded in and intertwined with the lease agreement. His complaint contains a single claim for breach of express warranty under the Song-Beverly Consumer Warranty Act, relies solely on the warranties issued by BMW, the manufacturer, and makes no reference to the lease agreement. (Doc. No. 1-2 at 15-17.) See Kramer , 705 F.3d at 1132 (relying on the fact that Plaintiff's claims did not reference the purchase agreement); see also Schulz , 472 F. Supp. 3d at 640 (disagreeing with manufacturer's position that plaintiff's breach of warranty causes of action were intertwined with the purchase agreement). Admittedly, Plaintiff's complaint refers to the fact that Plaintiff entered a lease agreement, the amount of the lease, and that he received written warranties and other express warranties along with the lease of the Vehicle, (id. ¶¶ 4, 6) but, at best, this amounts to background information. For the complaint to be intertwined with the lease agreement, Plaintiff must allege a violation of a "duty, obligation, term or condition" imposed by the purchase agreement. Jurosky , 441 F. Supp. 3d at 970 (citing In re Henson , 869 F.3d 1052, 1060 (9th Cir. 2017) ) (internal citation omitted). Plaintiff made no such allegations. Furthermore, the Dealership disclaimer in the warranties section of the lease agreement does not support a finding of interrelatedness. Rather, it "demonstrates an intent to distinguish and distance the dealership's purchase agreement from any warranty that BMW ‘may’ provide." Id. See also Kramer , 705 F.3d at 1131 (after reviewing similar warranty provisions, the Ninth Circuit found plaintiffs’ implied warranty claim against the manufacturer arose independently from the purchase agreement, "rather than intimately relying on them.")
Additionally, Plaintiff's complaint contains no allegations of substantially interdependent and concerted misconduct by BMW and another signatory. See id. ("The doctrine of equitable estoppel applies when a signatory raises allegations of substantially interdependent and concerted misconduct by both a nonsignatory and a signatory.") Accordingly, the second scenario that might warrant the application of equitable estoppel does not apply. Thus, BMW may not compel arbitration under equitable estoppel principles.
IV. CONCLUSION
As set forth above, BMW has provided the court with no basis to enforce the arbitration clause in the lease agreement, it may not, therefore, compel arbitration in this case. Consequently, BMW's motion to compel arbitration and stay all proceedings is DENIED . (Doc. No. 10.)
IT IS SO ORDERED.