Opinion
1:24-cv-00708
10-15-2024
ORG HOLDINGS LTD, Plaintiff, v. BMW FINANCIAL SERVICES NA, LLC, Defendant.
OPINION AND ORDER
J. Philip Calabrese United States District Judge
Plaintiff ORG Holdings sued the administrator of its lease agreement, individually and on behalf of all others similarly situated, in State court. Plaintiff claims that Defendant BMW Financial Services NA, LLC was unjustly enriched when it retained “excess insurance proceeds” belonging to ORG. On April 18, 2024, Defendant removed this putative class action to federal court, invoking jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d). In response, Plaintiff moved to remand. After removing, Defendant moved to compel arbitration based on the lease agreement at issue. For the reasons that follow, the Court DENIES Plaintiff's motion to remand and its request for jurisdictional discovery. Finding that BMW Financial Services is not a party who may compel arbitration under the lease agreement, the Court DENIES Defendant's motion to compel arbitration and DENIES AS MOOT Plaintiff's motion for leave to file a surreply. On its own motion, the Court CERTIFIES this ruling for interlocutory appeal pursuant to 28 U.S.C. § 1292(b).
FACTUAL AND PROCEDURAL BACKGROUND
A. The Lease Agreement
On August 31, 2021, Plaintiff ORG Holdings entered into a vehicle lease agreement with BMW of Westlake. (ECF No. 3-3, PageID #90.)
A.1. The Parties
The lease provides that it was entered into between “you” (BMW of Westlake as the lessor) and “me” (ORG Holdings as the lessee). (Id., ¶¶ 1 & 2, PageID #90.) The lease defines “you” to include not just BMW of Westlake as the lessor but also the “Lessor's assignee.” (Id., ¶ 2.) Additionally, the lease provides: “'Assignee refers to BMW Financial Services NA, LLC (“BMW FS”) or, if this box is checked 0 to Financial Services Vehicle Trust.” (Id.) The lease has the box checked. (Id.)
“BMW FS will administer this Lease on behalf of itself or any assignee.” (Id.) In a separate servicing agreement between BMW FS and Financial Services Vehicle Trust, BMW FS agreed that:
[BMW FS] shall service, administer and collect under the Leases in accordance with the terms of this Agreement and shall have full power and authority, acting alone and subject only to the specific requirements and prohibitions of this Agreement, to do any and all things in
connection with such servicing, administering, and collecting that it may reasonably deem necessary or desirable.(ECF No. 3-2, § 2.1, PageID #66.)
A.2. The Arbitration and Class Action Waiver Clause
The lease includes an arbitration clause. (ECF No. 3-3, ¶ 38, PageID #95.) The arbitration clause provides that “[e]ither you or I may choose to have any dispute between us decided by arbitration and not in a court or by jury trial.” (Id.) Also, the arbitration clause disclaims the lessee's ability to bring or maintain a claim in arbitration as a class representative or on behalf of a class member: “If a dispute is arbitrated, I will give up my right to participate as a class representative or a class member on any Claim I may have against you including any right to class arbitration or any consolidation of individual arbitrations.” (Id.) Notably, it applies broadly even to claims against third parties:
“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, offices, 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, the lease, purchase or condition of the Vehicle, this Lease, or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease).(Id. (emphasis added).) The definition of the term “claim” contains certain exceptions not relevant here and goes on, again, to provide for arbitration: “Any Claim shall, at your or my election, be resolved by neutral, binding arbitration and not by a court action.” (Id.)
In a bolded stand-alone paragraph, the arbitration clause contains a class action waiver. (Id.) In relevant part, it provides:
Notwithstanding any other provision of this Lease or Arbitration Clause, if either you or I elect to arbitrate a Claim, neither you nor I will have the right: (a) to participate in a class action, mass action, private attorney general action or other representative action in court or in arbitration, either as a class representative or class member; or (b) to join or consolidate Claims with claims of any other persons. No arbitrator shall have authority to conduct any arbitration in violation of this provision The Class Action Waiver is material and essential to the arbitration of any claims between the parties and is nonseverable from this Arbitration Clause. If the Class Action Waiver is limited, voided or found unenforceable, then this Arbitration Clause (except for this sentence) shall be null and void with respect to such proceeding, notwithstanding any other provision of this Contract, subject to the right to appeal the limitation or invalidation of the Class Action Waiver. The parties acknowledge and agree that under no circumstances will a class action be arbitrated.(Id.) As noted in this paragraph, the class action waiver is not severable from the arbitration clause. (Id.)
B. Loss of Leased Vehicle
On October 21, 2023, the vehicle that ORG Holdings leased was involved in a serious car accident that resulted in its total loss. (ECF No. 1-1, ¶¶ 20-21, PageID #15.) The lease addresses a total loss where there is a gap between the insurance proceeds and the amount owed under the lease. (ECF No. 3-3, ¶ 25, PageID #93.) However, it does not specify the opposite circumstance-where the insurance pays more than the amount due under the lease. (Id.; ECF No. 1-1, ¶ 13, PageID #13.)
Plaintiff alleges that it owed $81,781.04 under the lease at the time of the accident. (ECF No. 1-1, ¶ 28, PageID #16.) Insurance paid BMW FS $98,516.70 for the loss of the vehicle. (Id., ¶ 30.) BMW FS retained that excess payment of $16,735.66. (Id.)
STATEMENT OF THE CASE
On March 19, 2024, ORG Holdings filed a class action complaint against BMW FS in the Cuyahoga County Court of Common Pleas. (ECF No. 1-1, PageID #10.) Plaintiff brings a claim for unjust enrichment, claiming that ORG Holdings had a right to the “excess insurance proceeds” in the amount of $16,735.66. (Id., ¶ 64, PagelD #23-24.) It seeks certification of a nationwide class of all persons who leased a vehicle declared a total loss and where BMW FS as the administrator retained excess insurance proceeds. (Id., ¶ 35, PageID #18.) Plaintiff claims that “hundreds of individuals” fall within the definition of the proposed class. (Id., ¶ 38.)
Defendant timely removed this action to federal court, arguing that it meets the requirements for removal under the Class Action Fairness Act, 28 U.S.C. § 1332(d). (ECF No. 1, ¶ 7, PageID #3.) BMW FS moved to compel arbitration, dismiss the case, or alternatively, stay the case pending arbitration. (ECF No. 3, PageID #39.) Then, Plaintiff timely moved to remand. (ECF No. 5, PageID #100.) Additionally, the Court requested supplemental briefing to address (1) whether the class arbitration waiver in the lease agreement precludes Defendant from aggregating claims to invoke jurisdiction under the Class Action Fairness Act and (2) whether Defendant may simultaneously aggregate claims to invoke jurisdiction under CAFA while enforcing the class arbitration waiver to compel arbitration on an individual basis. (ECF No. 17.)
Taking up Plaintiff's motion to remand first, the Court begins by examining its jurisdiction. Doing so might be bound up with the merits of Defendant's motion to compel arbitration. After all, the class action waiver in the lease provides: “if either you or I elect to arbitrate a Claim, neither you nor I will have the right: . . . (b) to join or consolidate Claims with claims of any other persons.” (ECF No. 3-3, PageID #95.) This language might foreclose aggregation of claims to reach the amount-in-controversy for jurisdiction under Class Action Fairness Act. Alternatively, the Act may provide jurisdiction without regard to the parties' contract, or Defendant might have waived the class action waiver by removing the case based on aggregation of the class claims. Because, as explained below, BMW FS is not a party to the lease and may not invoke its arbitration clause, the Court need not consider these issues. Therefore, the question of federal subject matter jurisdiction presents a more straightforward analysis under CAFA.
JURISDICTION
Under the Class Action Fairness Act, a relaxed form of diversity jurisdiction applies. Nessel ex rel. Mich. v. AmeriGas Partners, L.P., 954 F.3d 831, 841 (6th Cir. 2020). The Act gives federal courts jurisdiction over interstate class actions where (1) a case has minimal diversity of citizenship-which is not in dispute (see ECF No. 1, ¶¶ 11-15, PagelD #3-4; see generally ECF No. 5 (not challenging minimal diversity), (2) the proposed class has at least 100 putative members, and (3) the aggregate amount in controversy exceeds $5 million. 28 U.S.C. § 1332(d)(2) & (d)(5)(B); see also Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81, 8485 (2014).
Where, as here, a plaintiff's complaint does not state the amount in controversy, the removal statute requires only a short and plain statement of the grounds for jurisdiction that need not contain evidence. Dart Cherokee, 574 U.S. at 84 (citing 28 U.S.C. § 1446(c)(2)(A)). To assert the amount in controversy, the defendant need only plausibly allege the that the class claim exceeds $5 million. Id. at 84, 87. To do so, the defendant need not “research, state and prove the plaintiff's claim for damages.” Hayes v. Equitable Energy Res. Co., 266 F.3d 560, 572 (6th Cir. 2001).
If the plaintiff contests the defendant's allegation, Section 1446(c)(2)(B) instructs that “removal of the action is proper on the basis of an amount in controversy asserted [by the defendant] if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds the jurisdictional threshold.” Therefore, the removal statute requires evidence only where, as here, the plaintiff disputes the facts supporting removal. Dart Cherokee, 574 U.S. at 89. In such circumstances, “both sides submit proof and the court decides, by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied.” Id. at 88. Plaintiff's position on jurisdiction overlooks this established methodology for determining jurisdiction based on CAFA. (See ECF No. 18.)
No presumption against removal applies in cases invoking jurisdiction under CAFA. Standard Fire Ins., 568 U.S. at 595. To the contrary, the Act embodies a strong preference that the federal courts hear class actions, if properly removed. Dart Cherokee, 574 U.S. at 89 (citation omitted). “Courts may use their judicial experience and common sense in determining whether the case stated in a complaint meets federal jurisdictional requirements.” Naji v. Lincoln, 665 Fed.Appx. 397, 398 (6th Cir. 2016). The removing party has the burden to prove that the court has federal subject-matter jurisdiction. Jerome-Duncan, Inc. v. Auto-By-Tel, LLC, 176 F.3d 904, 907 (6th Cir. 1999); see also Tennial v. Bank of America, N.A., No. 17-6377, 2020 WL 2530872, at *1 (6th Cir. Apr. 15, 2020).
I. Number of Putative Class Members
Plaintiff disputes that the record on removal shows the class has more than 100 members. (ECF No. 5, PageID #103.) However, the complaint pleads that “there are hundreds of individuals in the Class.” (ECF No. 1-1, ¶ 38, PageID #18.) Whether that allegation carries weight when Plaintiff contests removal need not detain the Court. Defendant provides a declaration attesting that more than 100 persons fall within the class as defined in the complaint. (ECF No. 10-1, ¶ 6, PageID #152.) Evidence may include declarations from a party demonstrating that the claim meets CAFA's jurisdictional requirements. Kiparskis v. Envirotest Sys. Corp., No. 1:20-cv-2485, 2021 WL 119259, at *3 (N.D. Ohio Jan. 13, 2021); Lewis v. Verizon Commc'ns, Inc., 627 F.3d 395, 397 (9th Cir. 2010). Based on the declaration, Defendant carries its burden of showing that the proposed class has at least 100 members. See 28 U.S.C. § 1332(d)(11)(B)(i).
II. Amount in Controversy
Defendant must also prove that the aggregated amount in controversy exceeds $5 million. 28 U.S.C. § 1332(d)(2). Again, Defendant relies on Plaintiff's complaint, which places in dispute an excess payment in the amount of $16,735.66, to reach the jurisdictional amount in controversy. (ECF No. 10, PageID #144; ECF No. 1-1, ¶ 30, PageID #16.) Defendant goes beyond that, however, to include a declaration that a review of BMW FS's records shows an amount in controversy in excess of $5 million under Plaintiff's proposed class definition. (ECF No. 10-1, ¶¶ 5 & 7, PageID #152.)
Plaintiff argues that Defendant did not carry its burden regarding the amount in controversy. (ECF No. 5, PagelD #104-05.) Specifically, it contends that Defendant assumes, without support, that the amount in controversy in the claim of ORG Holdings approximates the value of others in the class. (Id.). However, Defendant's declarant attests that he reviewed the records of those falling within Plaintiff's class definition and that “the alleged non-refunded amount of excess insurance proceeds nationwide within Plaintiff's alleged Class Definition exceeds $5 million.” (ECF No. 10-1, ¶ 7, PageID #152.) Although Defendant does not provide the backup for this statement, it suffices for present purposes to meet the jurisdictional threshold under the Class Action Fairness Act.
One final procedural note. In its motion to remand, Plaintiff seeks jurisdictional discovery directed toward the amount in controversy. (ECF No. 5, PageID #105-06.) But that request came before Defendant supplied the declaration providing an evidentiary basis to meet CAFA's amount-in-controversy requirement. Although Plaintiff later sought discovery relating to the ability of BMW FS to invoke the arbitration clause in the lease (ECF No. 20), after seeing the declaration, Plaintiff did not address the issue again in the context of the Court's subject matter jurisdiction. In this procedural posture, the Court has no reason to believe that discovery would call federal jurisdiction into question. Therefore, the Court declines to order jurisdictional discovery.
For these reasons, Defendant has carried its burden of establish subject matter jurisdiction under the Class Action Fairness Act, and the record shows that the Act's jurisdictional requirements are met. Therefore, the Court has jurisdiction and DENIES Plaintiff's motion to remand the case to State court. (ECF No. 5.)
ANALYSIS
BMW FS moved to stay or dismiss the case and compel arbitration under the Federal Arbitration Act. (ECF No. 3.) The “central purpose” of the Act is to “ensure that private agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 664 (2010) (cleaned up). The Act “embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts.” Buckeye Check Cashing, Inc. v. Cardenga, 546 U.S. 440, 443 (2006). Accordingly, “courts considering whether arbitration clauses cover nonparties should neutrally apply the relevant state law that otherwise governs.” AtriCure, Inc. v. Meng, 12 F.4th 516, 520 (6th Cir. 2021) (citing Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630-32 (2009)).
Therefore, when determining whether the parties agreed to arbitrate, the Court applies the State law governing contracts. First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Like other contracts, arbitration agreements “are enforced according to their terms.” Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 54 (1995). “[W]e do not override the clear intent of the parties, or reach a result inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated.” E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 294 (2002).
A motion to compel arbitration requires a court to perform four tasks: (1) “determine whether the parties agreed to arbitrate”; (2) “determine the scope of that agreement”; (3) if a party asserts federal statutory claims, “consider whether Congress intended those claims to be nonarbitrable”; and (4) if the court concludes that some, but not all, of the claims in the action are subject to arbitration, “determine whether to stay the remainder of the proceedings pending arbitration.” Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000).
I. Agreement to Arbitrate
BMW FS argues that it may compel arbitration under the Federal Arbitration Act. It maintains that it meets each of the elements necessary to compel arbitration under the Federal Arbitration Act (FAA). (ECF No. 13, PageID #168.) That is, BMW FS argues that: (1) the parties agreed to arbitrate with one another; (2) the one claim that ORG Holdings brings falls under the scope of the arbitration agreement; and (3) ORG Holdings does not assert a federal statutory claim that Congress intended to be nonarbitrable. (ECF No. 3, PageID #45.) Because Plaintiff asserts only one claim the fourth element does not apply. Here, arbitrability turns on the first of these issues-whether ORG Holdings and BMW FS agreed to arbitrate, which turns on
interpretation of the contract at issue. If they did not agree to arbitrate, then the question becomes whether BMW FS may nonetheless invoke the lease's arbitration clause.
I.A. The Arbitration Clause
“An arbitrator's authority derives solely from, and is limited by, the contract between the parties.” W.J. O'Neil Co. v. Shepley, Bulfinch, Richardson & Abbott, Inc., 765 F.3d 625, 631 (6th Cir. 2014) (citations omitted). For that reason, “the first question in any arbitration dispute must be: What have these parties agreed to?” Coinbase, Inc. v. Suski, 602 U.S., 144 S.Ct. 1186, 1192 (2024). Plaintiff argues that under the plain meaning of the contract, BMW FS is not a party that can compel arbitration under the agreement. (ECF No. 11, PageID #154.)
The contract's arbitration clause provides: “Either you or I may choose to have any dispute between us decided by arbitration and not in a court or by jury trial.” (ECF No. 3-3, PageID #95.) Under the contract, use of the first person refers to ORG Holdings and the second person refers to BMW of Westlake as the lessor. (ECF No. 3-3, ¶¶ 1 & 2, PageID #90.) But it extends the definition of “you” to the “Lessor's assignee.” (Id., ¶ 2.) Under the lease, “[a]ssignee refers to BMW Financial Services NA, LLC (“BMW FS”) or, if this box is checked 0 to Financial Services Vehicle Trust.” (Id.) By default, the lease defines BMW FS as the assignee, entitled to invoke the arbitration clause. However, because of checked box, the assignee is not BMW FS but Financial Services Vehicle Trust.
I.B. Non-Party Enforcement
Notwithstanding the plain language of the arbitration clause, Defendant argues that BMW FS can compel arbitration as a third-party beneficiary, as an agent or affiliate, and under a theory of equitable estoppel. The Court addresses each argument in turn.
I.B.1. Third-Party Beneficiary
Although the lease has no provision naming BMW FS a third-party beneficiary, Defendant argues that it can nonetheless compel arbitration as one. (ECF No. 3, PageID #46-47; ECF No. 13, PageID #171-74.) Under Ohio law, which governs here (see ECF No. 3-3, ¶ 37, PageID #95), a nonparty to a contract generally may not enforce a party's contractual duties. AtriCure, 12 F.4th at 526 (citing Hill v. Sonitrol of Sw. Ohio, Inc., 36 Ohio St.3d 36, 521 N.E.2d 780, 784-86 (1988); Restatement (Second) of Contracts §§ 302, 315 (1981)).
A third-party beneficiary is “one for whose benefit a promise is made, but who is not a party to the contract encompassing the promise.” Berge v. Columbus Cmty. Cable Access, 136 Ohio App.3d 281, 303, 736 N.E.2d 517 (1999) (citing Chitlik v. Allstate Ins. Co., 34 Ohio App.2d 193, 196, 299 N.E.2d 295 (1973)). An intended beneficiary may enforce the provisions of a contract, but a merely incidental beneficiary may not. AtriCure, 12 F.4th at 526. An intended beneficiary “need not be named in the contract, as long as he is contemplated by the parties to the contract and sufficiently identified.” Chitlik, 34 Ohio App.2d at 196. But it must be clear that “the contract was made and entered into with the intent to benefit the third person. A mere incidental or indirect benefit is not sufficient to give him a right of action.” Id.; West v. Household Life Ins. Co., 170 Ohio App.3d 463, 469, 867 N.E.2d 868 (2007).
To differentiate between incidental and intended beneficiaries, Ohio courts seek guidance from Section 302 of the Restatement (Second) of Contracts. Cook v. Ohio Nat'l Life Ins. Co., 961 F.3d 850, 855 (6th Cir. 2020). Under the Restatement, a nonparty may be an intended beneficiary where appropriate to effect the intent of the parties to the contract. It provides:
(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.Restatement (Second) of Contracts, § 302. Therefore, courts “look first to the parties' expression of intent ‘in the language of the agreement.'” Cook, 961 F.3d at 856 (citing Huff v. FirstEnergy Corp., 2011-Ohio-5083, 130 Ohio St.3d 196, 957 N.E.2d 3, ¶ 12). By check box, that language expressly names Financial Services Vehicle Trust as the assignee, removing BMW FS from that role, and the lease provides that only BMW of Westlake or Financial Services Vehicle Trust as its assignee may invoke the arbitration clause.
I.B.1a. Non-Signatory
Defendant argues that BMW FS can enforce the agreement as a third-party beneficiary because the arbitration clause subjects claims against Financial Services Vehicle Trust and its affiliates, which Defendant asserts includes BMW FS, to arbitration. While the scope of the arbitration agreement sweeps broadly, who may invoke that agreement presents a different question. Ohio courts have not directly spoken to the specific question-whether a non-signatory may invoke an arbitration clause as a third-party beneficiary. Instead, Ohio law recognizes that a “third party seeking to benefit from a contractual relationship need not be expressly named in the contract, but must be contemplated by the parties and be sufficiently identified.” West v. Household Life Ins. Co., 170 Ohio App.3d 463, 2007-Ohio-845, 867 N.E.2d 868, ¶ 4. To fill this void, the parties rely on competing authorities from California that reach opposite conclusions on the issue.
Defendant looks to Collins v. BMW of North America, LLC, No. 20-cv-1635, 2021 WL 242938 (S.D. Cal. Jan. 25, 2021). There, the plaintiff sued BMW NA for breach of a warranty. When the defendant sought to compel arbitration pursuant to an arbitration clause in the purchase agreement between the plaintiff and a dealer to which BMW NA was not a signatory, the plaintiff contested the defendant's standing to enforce the clause. In the contract at issue in that case, BMW FS, which is a wholly owned subsidiary of BMW NA, was the assignee in the contract. Applying California law, which like Ohio law allows a non-signatory to enforce a contract where it is an intended beneficiary, Comer v Micor, Inc., 436 F.3d 1098, 1102 (9th Cir. 2006), the court determined that BMW NA could invoke the arbitration clause as a third- party beneficiary of the contract, Collins, 2021 WL 242938, at *3-4. Here, however, BMW FS and Financial Services Vehicle Trust are not part of the same corporate family, distinguishing Collins.
Plaintiff responds with Almada v. BMW of North America, LLC, No. SA CV 2001427, 2021 WL 1156850 (C.D. Cal. Feb. 11, 2021). There, the purchaser of a vehicle signed a retail installment contract that contained warranties from BMW NA, though it was not a party to the purchase agreement. When the plaintiff brought a breach of warranty claim against BMW NA, it sought to compel arbitration under the retail contract. In contrast to Collins, the Almada Court read the contract to exclude the ability of BMW NA to compel arbitration: the relevant contractual language, similar to that here, “only identifies which claims may be arbitrated and what the subject matter of those claims may be. It does not define who may compel arbitration.” Id. at *4. Instead, “[t]he clause that identifies the class of litigants who may compel arbitration, ‘either you or I does not include BMW NA.” Id. The court found no other intention within the contract to confer a benefit on BMW NA.
As Almada recognizes, the lease specifies which parties may compel arbitration. (ECF No. 3-3, ¶ 38, PageID #95.) Under Defendant' reading of the contract, BMW FS can invoke the arbitration clause whether it is designated as the assignee of BMW of Westlake or not. This argument reads the following sentence out of the contract: “Assignee refers to BMW Financial Services NA, LLC (“BMW FS”) or, if this box is checked 0 to Financial Services Vehicle Trust.” (ECF No. 3-3, ¶¶ 1 & 2, PageID #90.) That sentence demonstrates the parties' intent to disclaim the ability of BMW FS to enforce the lease's arbitration clause. It affirmatively removes BMW FS as an intended beneficiary. To the extent it receives a benefit from the contract, it is merely incidental. Absent some other legal principle, then, Ohio law does not permit it to compel arbitration under this agreement.
I.B.l.b BMW FS as Administrator
Defendant argues that it may enforce the contract and its arbitration clause as the administrator of the lease, which provides that “BMW FS will administer this lease on behalf of itself or any assignee.” (ECF No. 3-3, ¶ 2, PageID #90.) This role allows BMW FS to enforce the agreement, it contends, as an intended beneficiary of the contract. Without more, however, this language in the lease does not confer a benefit on BMW FS, overcome the plain language of the check-box designation of Financial Services Vehicle Trust as the assignee entitled to compel arbitration, or otherwise authorize the BMW FS to enforce the arbitration clause. Mere reference to or provision of a role for a non-signatory does not confer third-party beneficiary status. “[M]any companies enter into contracts where they utilize representatives, agents or employees of one of the contracting parties for the benefit of the other, but this does not make the representatives intended third-party beneficiaries to the contract.” Cook, 961 F.3d at 857.
The servicing agreement between Financial Services Vehicle Trust, the assignee, and BMW FS spells out their relationship. (ECF No. 3-2.) As administrator, BMW FS shall:
service, administer and collect under the Leases in accordance with the terms of this Agreement and shall have full power and authority, acting alone and subject only to the specific requirements and prohibitions of
this Agreement, to do any and all things in connection with such servicing, administering, and collecting that it may reasonably deem necessary or desirable.(Id., § 2.1, PageID #66.)
Though seemingly broad, this delegation of authority empowers BMW FS to act independently (without consulting Financial Services Vehicle Trust), subject to the express terms of the agreement. The duties of BMW FS include, “among other things, collecting and posting payments, responding to inquiries of Obligors on the Leases, investigating delinquencies, sending payment statements and reporting tax information to Obligors, paying costs of disposition of Leased Vehicles related to Charged-off Leases.” (Id.) In addition, BMW FS shall “polic[e] the Leases, administer[] the Leases, including accounting for collections, furnishing monthly and annual statements to the Origination Trust with respect to distributions, generat[e] federal and state income tax information and prepar[e] and fil[e] all tax returns of the Origination Trust.” (Id.) Its obligations extend to handling insurance proceeds received in connection with a leased vehicle. (Id., § 2.2(c), PageID #69.)
As its designation as “administer” suggests, these tasks largely involve administrative or ministerial tasks. One paragraph of the servicing agreement relates to litigation. It provides that BMW FS may “commence a legal proceeding to enforce a Lease.” (Id., § 2.1(b), PageID #67.) But BMW FS does not seek to commence a legal proceeding here. Plaintiff already did that. Further, the inclusion of this provision suggests that, if the parties intended to allow BMW FS to invoke the arbitration clause, they would so agree. Indeed, Defendant makes no argument that this language extends so far as to allow BMW FS to compel arbitration.
No task assigned to BMW FS in the servicing agreement indicates that it may invoke the substantive rights of the lease itself. None demonstrates that BMW FS derives a benefit from any lease. Its fee comes not from the lease but from the servicing agreement. In short, Defendant fails to identify a benefit to BMW FS that would allow it to invoke the arbitration clause as a third-party beneficiary.
II.B.2. BMW FS as Agent of the Assignee
In Defendant's view, BMW FS may enforce the arbitration clause as an agent or affiliate of Financial Services Vehicle Trust. (ECF No. 3, PageID #47.) This theory presents an unsettled issue under Ohio law on which the Ohio Supreme Court has not spoken. The lower courts in Ohio employ two different approaches.
Under the common-law rule, agents do not become parties to a contract when they sign on behalf of a disclosed principal or perform duties as agents for that principal. See AtriCure 12 F.4th at 531-32 (collecting cases). This approach requires agents to show that they are intended third-party beneficiaries to invoke the rights and protections of a contract. Id. at 532 (citing State ex rel. Brophy v. City of Cleveland, 141 Ohio St. 518, 49 N.E.2d 175, 176 (Ohio 1943); Restatement (Third) of Agency § 6.01 cmt. D). In the arbitration context, however, an agent may enforce an arbitration clause in a contract signed by the principal when sued for actions taken within the scope of its agency. Id. (collecting cases). Ohio law appears to allow an agent to invoke an arbitration clause in such circumstances even where it is not a third-party beneficiary. Id. (citing Genaw v. Lieb, No. 20593, 2005-Ohio-807, ¶ 24 (Ohio Ct. App.)
In its most recent case on this issue, the Sixth Circuit declined to predict how the Ohio Supreme Court would resolve the tension between these lines of cases. See id. at 533; see Firexo, Inc. v. Firexo Grp. Ltd., 99 F.4th 304, 322 (6th Cir. 2024) (treating arbitration clauses as “a particular type of forum selection clause” and recognizing that an agent's invocation of an arbitration clause presents a question of State law). Instead, it assumed the broader pro-arbitration position. AtriCure 12 F.4th at 533.
Like the Sixth Circuit, the Court declines to attempt to predict which rule the Ohio Supreme Court would adopt, but for a different reason. On its face, the contract only allows “you or I”-defined as the lessor, the lessor's assignee, and the lessee-to compel arbitration. (ECF No. 3-3, ¶ 2, PageID #90; ECF No. 3-3, ¶ 38, PageID #95.) Moreover, it affirmatively disclaims BMW FS as the assignee, evincing a clear intent to remove BMW FS's ability to compel arbitration. (Id., ¶ 2, PageID #90.) To hold otherwise would enable BMW FS effectively to read the parties' clear choice out of the contract, using an unsettled legal doctrine. Certainly, the parties could have written a contract allowing BMW FS to invoke the arbitration clause. But they did not. In this case, an agency theory would defeat rather than enforce or promote the intent of the parties as expressed in their agreement.
II.B.3. Equitable Estoppel
In its reply, Defendant argues that Plaintiff should be equitably estopped from avoiding arbitration under the contract. (ECF No. 13, PageID # 177-78). In response, Plaintiff moves for leave to file a surreply, asserting that Defendant raised this argument for the first time in reply. (ECF No. 14.) Defendant says that it advanced this argument in reply only to highlight that it has multiple avenues by which it can compel arbitration. (ECF No. 16, PageID #192.) Whatever the reason, equitable estoppel presents a separate ground on which a non-signatory could seek to compel arbitration, and a new argument. By raising this argument for the first time in reply, Defendant waived it. See Jenkins v. Rock Hill Local School District, 513 F.3d 580, 584 n.4 (6th Cir. 2008); United States v. Campbell, 279 F.3d 392, 401 (6th Cir. 2002). Therefore, the Court DENIES Plaintiff's motion for leave to file a surreply.
In any event, this equitable doctrine fares no better in allowing BMW FS to invoke the lease's arbitration clause. A signatory “may be estopped from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the underlying contract.” Javitch v. First Union Secs., Inc., 315 F.3d 619, 629 (6th Cir. 2003). For this doctrine to apply, the plaintiff's claims must “arise from the contract containing the arbitration clause.” Harrison v. General Motors LLC, 651 F.Supp.3d 878, 889 (E.D. Mich. 2023) (quoting AtriCure, Inc., 12 F.4th at 527).
Here, Plaintiff's claim does not arise out of the contract. Indeed, it brings a quasi-contractual claim for unjust enrichment relating to the allegedly wrongful retention of insurance proceeds-not a claim for breach of the lease agreement. To argue otherwise, Defendant points to repeated mentions of the lease in the complaint. (ECF No. 13, PageID #178.) But those references describe the contractual relationships of the parties and ultimately allege that the lease does not speak to the practice complained of. (See ECF No. 1-1, ¶ 29, PageID #16.) Defendant's reliance on Javitch is unavailing. There, the Sixth Circuit remanded for a determination whether the non-signatory was a third-party beneficiary, 315 F.3d at 629-a determination which the Court already made regarding BMW FS.
Finally, Defendant argues that it can assert equitable estoppel because the “claim raises allegations of . . . substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract.” (ECF No. 13, PageID #177-78 (quoting Liedtke v. Frank, 437 F.Supp.2d 696, 699 (N.D. Ohio 2006).) But Plaintiff does not claim that BMW of Westlake, the signatory, committed misconduct, or was in concert with BMW FS. To the contrary, Plaintiff's allegations of misconduct implicate BMW FS alone. (See ECF No. 1-1, ¶¶ 17-19 (citing BMW FS's statements in its securities filings).) Even if not waived, equitable estoppel does not allow BMW FS to compel arbitration here.
II. Certification for Interlocutory Review
Under 28 U.S.C. § 1292(b), a district court may certify an order for interlocutory appeal. Swint v. Chambers Cnty. Comm'n, 514 U.S. 35, 36 (1995). Certification under the statute is granted sparingly and only in exceptional cases. Kraus v. Board of Cnty. Rd. Comm'rs for Kent Cnty., 364 F.2d 919, 922 (6th Cir. 1966). Certification is appropriate where (1) the order involves a controlling question of law; (2) a substantial ground for difference of opinion exists regarding the correctness of the decision; and (3) an immediate appeal may materially advance the ultimate termination of the litigation. West Tenn. Chapter of Associated Builders & Contractors, Inc. v. City of Memphis (In re City of Memphis), 293 F.3d 345, 350 (6th Cir. 2002) (citing 28 U.S.C. § 1292(b) and Cardwell v. Chesapeake & Ohio Ry. Co., 504 F.2d 444, 446 (6th Cir. 1974)).
In the Court's opinion, BMW FS's ability to enforce the arbitration clause presents substantial grounds for differences of opinion among reasonable jurists and lawyers on a question of law that controls in the sense that whether this case proceeds in litigation or arbitration affects the substantial rights of the parties. In addition, those questions are bound up with the availability of the class action waiver. Because that clause prohibits the parties to the contract from “join[ing] or consolidate[ing] Claims with claims of any other persons,” it might also affect federal jurisdiction under CAFA. (ECF No. 3-3, PageID #95.) On an individual basis, Plaintiff's claim might not be worth pursuing in litigation or, perhaps, even in arbitration. As a class action, however, it might exert sufficient pressure on Defendant to settle without a ruling on the merits. Either way, “an immediate appeal from the order may materially advance the ultimate termination of the litigation[.]” 28 U.S.C. § 1292(b). Accordingly, the Court CERTIFIES this ruling for immediate appeal under Section 1292(b).
CONCLUSION
For the foregoing reasons, the Court determines that Defendant properly invoked federal jurisdiction under the Class Action Fairness Act and, therefore, DENIES Plaintiff's motion to remand (ECF No. 5). Because the Court concludes that BMW FS may not compel arbitration on an agency theory, the Court DENIES Plaintiff's motion to conduct discovery (ECF No. 20), which was based on this defense argument, and DENIES Plaintiff's motion for leave to file a surreply (ECF No. 14). Finally, the Court DENIES Defendant's motion to compel arbitration (ECF No. 3) and CERTIFIES this ruling for immediate appeal pursuant to 28 U.S.C. § 1292(b).
SO ORDERED.