Summary
finding that whether BMW, as a nonsignatory, can be bound by an arbitration clause "is not a question for the arbitrator"
Summary of this case from Jurosky v. BMW of N. Am., LLCOpinion
Case No. 2:19-cv-04209-R-GJS
10-03-2019
Eugene KIM v. BMW OF NORTH AMERICA, LLC, et al.
Christine J. Haw, Tionna Dolin, Strategic Legal Practices APC, Los Angeles, CA, for Plaintiff. Robert A. Philipson, Blake Harrison Ramsay, Daniel R. Villegas, Kate S. Lehrman, Lehrman Law Group, Los Angeles, CA, for Defendants.
Christine J. Haw, Tionna Dolin, Strategic Legal Practices APC, Los Angeles, CA, for Plaintiff.
Robert A. Philipson, Blake Harrison Ramsay, Daniel R. Villegas, Kate S. Lehrman, Lehrman Law Group, Los Angeles, CA, for Defendants.
Proceedings: (IN CHAMBERS) Order re: Defendant's Motion to Compel Arbitration and Stay Action (DE 11)
The Honorable R. GARY KLAUSNER, UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
On July 17, 2018, Plaintiff Eugene Kim ("Plaintiff") filed this "lemon law" action against Defendant BMW of North America, LLC ("Defendant") and former-defendant Pacific BMW in Los Angeles Superior Court. The Complaint asserts the following causes of action: (1) violation of California Civil Code Section 1793.2(d), (2) violation of Civil Code Section 1793.2(b), (3) violation of Civil Code Section 1793.2(a)(3), (4) breach of express written warranty, (5) breach of the implied warranty of merchantability, and (6) fraud.
Plaintiff dismissed the action with respect to Pacific BMW on April 15, 2019. The case was then removed to this Court on May 15, 2019.
Presently before the Court is Defendant's Motion to Compel Arbitration and Stay Action pursuant to an arbitration clause contained in the Retail Installment Sale Contract (the "Purchase Agreement") executed by Plaintiff and Pacific BMW. For the following reasons, the Court DENIES the Motion.
II. FACTUAL BACKGROUND
Plaintiff contends that the Certified Pre-Owned 2012 BMW 750i that he purchased from Pacific BMW, Defendant's authorized dealer, suffers from various defects and that Defendant and its representatives in California have been unable to service or repair the vehicle to conform to the applicable express warranties after a reasonable number of opportunities, thus making the vehicle a "lemon" under California's Song-Beverly Consumer Warranty Act, California Civil Code Section 1793.2. Plaintiff further alleges that Defendant has failed to promptly replace the vehicle or make restitution to Plaintiff as required by California law. In addition to his Song-Beverly claims, Plaintiff brings claims for breach of express written warranty, breach of the implied warranty of merchantability, and fraud relating to the same defects.
The Purchase Agreement between Plaintiff and Pacific BMW contains an arbitration clause stating that both parties "may choose to have any dispute between us decided by arbitration and not in court or by jury trial," and that "[a]ny 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 your credit application, purchase or 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."
III. JUDICIAL STANDARD
Under the Federal Arbitration Act (the "FAA"), a party moving to compel arbitration must show: "(1) the existence of a valid, written agreement to arbitrate; and, if it exists, (2) that the agreement to arbitrate encompasses the dispute at issue." Ashbey v. Archstone Prop. Mgmt., Inc. , 785 F.3d 1320, 1323 (9th Cir. 2015). "[C]ourts must enforce the parties' agreement to arbitrate threshold issues regarding the arbitrability of the dispute," but only if there is "clear and unmistakable evidence" that the parties so agreed. Momot v. Mastro , 652 F.3d 982, 987 (9th Cir. 2011). The party seeking arbitration need only prove 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).
IV. DISCUSSION
It is beyond dispute here that the Purchase Agreement contains an enforceable arbitration clause encompassing claims of alleged defects affecting the subject vehicle. However, the parties disagree as to whether the arbitration clause applies to this particular case given that the Purchase Agreement is between Plaintiff and non-party Pacific BMW, and Defendant was not a signatory.
First, Defendant argues that the question of arbitrability is for the arbitrator to decide. When parties "clearly and unmistakably" demonstrate their intent to have the arbitrator decide arbitrability, those issues must be referred to the arbitrator. See Oracle Am., Inc. v. Myriad Grp., A.G. , 724 F.3d 1069, 1072 (9th Cir. 2013). Here, however, only Plaintiff and Pacific BMW have clearly and unmistakably demonstrated their intent to have the arbitrator decide arbitrability. Since Defendant was not a party to the Purchase Agreement, it could not have demonstrated any such intent.
There appears to be no Ninth Circuit authority holding that whether a non-signatory may be bound by an arbitration clause is a question of arbitrability. In support of its position, Defendant cites to Eckert/Wordell Architects, Inc. v. FJM Props. of Willmar, LLC , 756 F.3d 1098 (8th Cir. 2014). However, in that case, the court relied largely on the express incorporation of the American Arbitration Association ("AAA") rules into the contract, which, under Eight Circuit precedent, is "a clear and unmistakable indication the parties intended for the arbitrator to decide threshold questions of arbitrability[,]" such as whether a non-signatory may be bound. That precedent is not binding authority in this circuit, and, in any case, the Purchase Agreement does not expressly incorporate the AAA rules. Thus, whether Defendant may be bound by the arbitration clause is not a question for the arbitrator.
Next, Defendant argues that both federal and state law favor the enforcement of arbitration provisions. The United States Supreme Court has consistently reaffirmed the long-standing "liberal federal policy favoring arbitration" and the "fundamental principle that arbitration is a matter of contract." See, e.g. , AT&T Mobility, LLC v. Concepcion , 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). "In line with these principles, courts must place arbitration agreements on equal footing with other contracts ... and enforce them ‘according to their terms.’ " Id. Likewise, the California Supreme Court has stated that the comprehensive statutory scheme regulating private contractual arbitration in California expresses the "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution .... Consequently, courts will indulge every intendment to give effect to such proceedings." Moncharsh v. Heily & Blase , 3 Cal. 4th 1, 9, 10 Cal.Rptr.2d 183, 832 P.2d 899 (1992) (citations and internal quotations omitted). In order for the arbitration clause to govern this case, however, there must be some legal basis for allowing Defendant, a non-signatory, to invoke the benefit of the clause. The general policy favoring enforcement of arbitration provisions is insufficient by itself to allow an arbitration provision to be enforced by a non-signatory. 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).
Defendant next argues that the Court may utilize the summary procedures of the California Arbitration Act ("CAA") to enforce the arbitration clause. However, as Defendant itself points out, "the California Arbitration Act governs arbitral procedures brought in California courts. " Sanchez v. Valencia Holding Co., LLC , 61 Cal. 4th 899, 922, 190 Cal.Rptr.3d 812, 353 P.3d 741 (2015). Defendant has not cited any case applying the CAA to a motion to compel arbitration brought in federal court.
Next, Defendant seeks to enforce the arbitration clause as a third-party beneficiary of the Purchase Agreement. California Civil Code Section 1559 provides that a "contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it." Where a party seeks to enforce a contract as a third-party beneficiary, "the third party must show that the contract reflects the express or implied intention of the parties to the contract to benefit the third party." Comer v. Micor, Inc. , 436 F.3d 1098, 1102 (9th Cir. 2006) (quoting Klamath Water Users Protective Ass'n v. Patterson , 204 F.3d 1206, 1211 (9th Cir. 2000) ); see also Gilbert Fin. Corp. v. Steelform Contracting Co. , 82 Cal. App. 3d 65, 70, 145 Cal.Rptr. 448 (1978) (explaining that the language "expressly for the benefit of a third person" in Cal. Civ. Code § 1559 means the third person is "more than incidentally benefitted by the contract").
Here, nothing in the Purchase Agreement suggests that the contract was entered into for Defendant's benefit. Defendant argues that it is more than incidentally benefitted by the Purchase Agreement because Plaintiff also signed a "Buyer's Guide" and warranty form indicating the existence of a manufacturer's warranty, and because the warranty arose through Plaintiff's purchase of the subject vehicle. Just below Plaintiff's signature, the warranty form contains a notice stating: "IMPORTANT: The information on this form is part of any contract to buy this vehicle." However, this warranty statement does not provide any benefits to Defendant, it was not signed by any representative of Defendant, and it does not even mention Defendant by name. Moreover, as Plaintiff points out, a manufacturer's standard warranty, like the warranty here, typically follows the vehicle even if it is resold. Thus, the above notice does not demonstrate that Defendant was more than incidentally benefitted by the Purchase Agreement.
Finally, Defendant argues that it may enforce the arbitration provision under a theory of equitable estoppel, "because of the close relationship between the entities involved, as well as the relationship of the alleged wrongs to the nonsignatory's obligations and duties in the contract ... and [the fact that] the claims were intimately founded in and intertwined with the underlying contract obligations." Mance v. Mercedes-Benz USA , 901 F. Supp. 2d 1147, 1155 (N.D. Cal. 2012) (citations omitted). "Two kinds of equitable estoppel may support a nonsignatory's right to compel arbitration: (1) when the signatory's claims against a nonsignatory arise out of the underlying contract; and (2) when the nonsignatory's conduct is intertwined with a signatory's conduct." Id. at 1155-56. Here, Defendant contends that Plaintiff's claims arise out of and are intertwined with the Purchase Agreement because the express manufacturer's warranty is referenced in the Complaint, the Complaint includes a claim for breach of the express warranty, and the warranty attached to the subject vehicle through Plaintiff's purchase of the vehicle. However, as discussed above, Defendant's warranty obligations are independent from and do not arise out of the Purchase Agreement. Plaintiff's claims likewise do not arise out of that agreement.
Kramer v. Toyota Motor Corp. , 705 F.3d 1122 (9th Cir. 2013) is on point. In Kramer , which involved nearly identical facts, the Ninth Circuit held that "[t]he terms of the arbitration clauses [in purchase agreements between the plaintiffs and Toyota dealerships] are expressly limited to Plaintiffs and the Dealerships," and equitable estoppel did not apply because none of the plaintiffs' claims were intertwined with their purchase agreements with the dealers, nor did they reference or rely upon them. Id. at 1127-31 (emphasis added). Similarly here, Plaintiff does not reference or rely upon the Purchase Agreement for any of his claims. There is no support for Defendant's contention that the express warranty became part of the Purchase Agreement via the previously discussed notice, which was printed on a form that neither referenced Defendant nor was signed by any representative of Defendant. Accordingly, Plaintiff's claims neither arise out of nor are intertwined with his signing of the Purchase Agreement.
In sum, none of Defendant's arguments for compelling arbitration here are supported by the applicable law or the facts of this case.
V. CONCLUSION
For the foregoing reasons, the Court DENIES Defendant's Motion to Compel Arbitration and Stay Action. (DE 11).