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Daniel RUDERMAN, an individual, Plaintiff, v. ROLLS ROYCE MOTOR CARS, LLC, a Delaware Corporation, and Does 1 through 10, inclusive, Defendants.
ORDER DENYING DEFENDANT'S MOTION TO COMPEL ARBITRATION [ECF No. 22]
Before the Court is the motion of Defendant Rolls Royce Motor Cars NA, LLC to compel arbitration.1 The Court finds this matter appropriate for resolution without a hearing. See Fed. R. Civ. P. 78; L.R. 7-15. After considering the papers filed in support and in opposition, the Court DENIES the Motion.
Plaintiff Daniel Ruderman filed this action in Los Angeles County Superior Court on April 17, 2019. In his Complaint, Ruderman asserts three causes of action: (1) Violation of the Song-Beverly Act—Breach of Express Warranty; (2) Violation of the Song-Beverly Act—Breach of Implied Warranty; and (3) Violation of the Song-Beverly Act § 1793.2.2 Rolls-Royce removed the action to federal court on May 20, 2020. The Court found removal proper on August 21, 2020.3
On September 23, 2020, Rolls-Royce moved to compel arbitration.4 Ruderman opposed on October 26, 2020,5 and Rolls-Royce replied on November 6, 2020.6 On November 12, 2020, the Court ordered the parties to submit supplemental briefing regarding the applicability of a recent California appellate court opinion, Felisilda v. FCA US LLC, 53 Cal. App. 5th 486, 266 Cal.Rptr.3d 640 (2020), review denied (Nov. 24, 2020).7 On November 30, 2020, both parties provided their respective supplemental briefs.8
III. FACTUAL BACKGROUND
Ruderman's allegations in his Complaint are simple: On June 30, 2016, Ruderman leased a new 2016 Rolls Royce Ghost at an “authorized dealership.”9 The 2016 Ghost was defective.10 Rolls-Royce was unable to repair the defects successfully.11
IV. LEGAL BACKGROUND
The Federal Arbitration Act (the “FAA”) provides that contractual arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA establishes a general policy favoring arbitration agreements. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011); Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (“Section 2 of the FAA creates a policy favoring enforcement of agreements to arbitrate.”). This statute's principal purpose is to “ensure that private arbitration agreements are enforced according to their terms.” Concepcion, 563 U.S. at 347 n.6, 131 S.Ct. 1740. “Arbitration is a matter of contract, and the FAA requires courts to honor parties’ expectations.” Id. at 351, 131 S.Ct. 1740.
Under the FAA, “[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court ․ for an order directing that such an arbitration proceed in the manner provided for in [the arbitration] agreement.” 9 U.S.C. § 4. Upon a showing that a party has failed to comply with a valid arbitration agreement, the district court must issue an order compelling arbitration. Id. If such a showing is made, the district court shall also stay the proceedings, pending the resolution of the arbitration, at the request of one of the parties bound to arbitrate. Id. § 3.
Rolls-Royce moves to compel Ruderman to arbitrate this claim, based upon the following language in the arbitration clause of the contract that Ruderman signed with the dealership that leased him the vehicle:
Either you or I may choose to have any dispute between us decided by arbitration and not in a court or by jury trial. If a dispute is arbitrated, I will give up my right to participate as a class representative or class member on any Claim I may have against you including any right to class arbitration or any consolidation of individual arbitrations. Discovery and rights to appeal in arbitration are generally more limited than in a lawsuit, and other rights you and I would have in court may not be available in arbitration ․ “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 I assert against you, which arises out of or relates to my credit application, 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).12
Rolls-Royce is not a signatory to this contract. Its arguments for enforcing this arbitration clause against Ruderman are considered in turn below.
A. Third-Party Beneficiary
Rolls-Royce alleges that it has a right to enforce the arbitration agreement because it is an intended third-party beneficiary of the contract.13 “To sue as a third-party beneficiary of a contract, 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) (citing Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1211 (9th Cir. 1999)). Courts generally decline to find intended third-party beneficiaries where sophisticated signatories of a contract could have named the party as a beneficiary and did not. See Murphy v. DirecTV, Inc., 724 F.3d 1218, 1234 (9th Cir. 2013) (“To the extent the Customer Agreement is ambiguous with respect to the parties’ intent to benefit Best Buy, that rule of construction militates against concluding that Best Buy is a third-party beneficiary, in light of the fact that DirecTV clearly knew how to provide for a third-party beneficiary if it wished to do so.”).
As excerpted more fully above, the contract provides that “you or I” (i.e., Ruderman or the seller) may compel arbitration of any claim “between me and you or your employees, officers, directors, affiliates, successors or assigns.” Rolls-Royce alleges that because it is an affiliate of the auto seller, it is a third-party beneficiary of this contract and can compel arbitration. Ruderman counters that the leasing contract does not make Rolls-Royce an affiliate and, in fact, the contract disclaims association with the manufacturer's express warranties over which Ruderman now sues. Furthermore, Ruderman argues that there is no evidence that the signatories intended Rolls-Royce to be a third-party beneficiary of the leasing contract.
Automotive companies routinely seek to compel arbitration as third-party beneficiaries based upon this exact contractual language. Federal district courts in California have decided the issue both ways. Compare Tseng v. BMW of N. Am., LLC, No. 2:20-cv-00256-VAP-AFMx, 2020 WL 4032305, at *4 (C.D. Cal. Apr. 15, 2020) (car company was an affiliate and therefore an intended beneficiary); Phillips-Harris v. BMW of N. Am., LLC, No. CV 20-2466-MWF (AGRx), 2020 WL 2556346, at *10 (C.D. Cal. May 20, 2020) (car company's provision of the warranty makes it an intended third-party beneficiary) with Schulz v. BMW of N. Am., LLC, 472 F.Supp.3d 632, 640-41 (N.D. Cal. 2020) (car company not a third-party beneficiary because the clause at issue “refers to the subject matter of the dispute, not to the parties involved in the dispute”).
The Court finds the reasoning of Ruderman and the Schulz court more persuasive. The reference to “affiliates” upon which Rolls-Royce hangs its hat is in the definition of Claim: “ ‘Claim’ broadly means any claim, dispute, or controversy ․ between me and you or your employees, officers, directors, affiliates, successors or assigns.”14 So far, so good, for Rolls-Royce; the drafter of the contract clearly intended to include Rolls-Royce in identifying which claims could be arbitrated. But Rolls-Royce is clearly not included in the class of litigants who may compel arbitration: “Either you or I may choose to have any dispute between us decided by arbitration and not in a court or by jury trial.”15 Rolls-Royce does not establish that the signatories of the contract intended to include Rolls-Royce in the “you or I” who may compel arbitration. As the Schulz court found, Rolls-Royce is therefore not an intended beneficiary of the contract, and it may not compel arbitration on this argument.
B. Equitable Estoppel
“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1126 (9th Cir. 2013) (citing United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). However, a litigant who is not a signatory to an arbitration agreement may enforce that arbitration agreement against a signatory if the relevant state law so allows. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 632, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009). In California, a nonsignatory can enforce an arbitration agreement under the doctrine of equitable estoppel in two circumstances:
(1) [W]hen 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 the allegations of interdependent misconduct are founded in or intimately connected with the obligations of the underlying agreement.
Kramer, 705 F.3d at 1128–29 (internal citations and quotations omitted).
This type of case is not new. The Ninth Circuit has long held that car manufacturers like Rolls-Royce cannot enforce similar arbitration provisions in contracts between consumers and car dealers against plaintiff consumers where the plaintiff is not seeking to enforce a term of the contract. Id. at 1134 (arbitration could not be compelled where “Plaintiffs do not seek to simultaneously invoke the duties and obligations of Toyota under the Purchase Agreement, as it has none, while seeking to avoid arbitration”); see, e.g., Vincent v. BMW of N. Am., LLC, No. CV 19-6439 AS, 2019 WL 8013093, at *8 (C.D. Cal. Nov. 26, 2019) (arbitration could not be compelled where “Plaintiff's claims do not rely on any of the terms in the Purchase Agreement, only the fact that he purchased the vehicle” (arbitration provision at issue was identical to the instant Arbitration Provision)); Jurosky v. BMW of N. Am., LLC, 441 F. Supp. 3d 963, 970 (S.D. Cal. 2020) (arbitration could not be compelled where “all of Plaintiff's claims expressly reference BMW's warranties, [but] none of them reference the purchase agreement”).
Kramer, however, is not directly on point. The arbitration agreement in Kramer read as follows: “If either you or we elect, any claims or disputes arising out of this transaction, or relating to it, will be determined by binding arbitration and not by court action. This includes all claims and disputes arising out of, or relating to: the vehicle, your credit application, this contract, the sale or financing of the vehicle, and any collection activities.” Kramer, 705 F.3d at 1124–25. Crucially, the Kramer agreement does not include the third-party language at issue in the arbitration provision of the contract that Ruderman signed. The absence of that language leaves a gap for other courts to fill. Neither the Ninth Circuit nor the California Supreme Court has yet ruled on whether an arbitration agreement identical to the one that Ruderman signed can be enforced by a nonsignatory under the doctrine of equitable estoppel.
However, a California appeals court recently ruled on an arbitration provision identical to the one Ruderman signed. Felisilda had similar facts: the Felisildas purchased a used vehicle from a dealer, and, when the vehicle turned out to be a lemon, they sued both the dealer and the manufacturer. Felisilda, 53 Cal. App. 5th at 489, 266 Cal.Rptr.3d 640. The dealer moved to compel arbitration based upon an arbitration contract virtually identical to the one that Ruderman signed, the manufacturer filed a notice of non-opposition, and the trial court compelled the Felisildas to arbitrate their claims against both the dealer and the manufacturer. The California appellate court upheld the decision compelling the Felisildas to arbitrate their claims against the manufacturer “because the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the sales contract.” Id. at 497.
But Felisilda is not directly on point, because the Felisildas sued both the manufacturer and the dealer. Ruderman, on the other hand, sued only Rolls-Royce. Felisilda, therefore, does not change state law that directly controls this case. Kramer remains the controlling precedent for this case. Under the Kramer line of cases, Rolls-Royce cannot compel Ruderman to arbitrate his claims against it under the doctrine of equitable estoppel.
For the foregoing reasons, the Court DENIES Defendant Rolls-Royce's Motion to Compel Arbitration.
IT IS SO ORDERED.
1. Mot. of Def. Rolls Royce Motor Cars NA, LLC to Compel Arbitration and Stay Action (the “Motion”) [ECF No. 22].
2. Compl. [ECF No. 1].
3. See Minute Order Discharging OSC [ECF No. 19].
4. See Motion.
5. Pl.’s Opp'n to Motion (the “Opposition”) [ECF No. 27].
6. Def.’s Reply in Supp. of Motion [ECF No. 28].
7. Order Re: Suppl. Br. [ECF No. 29].
8. Pl.’s Suppl. Br. [ECF No. 32]; Def.’s Suppl. Br. [ECF No. 31].
9. Compl. ¶¶ 8 & 31. Ruderman names this dealership as “Westlake Coach Company” in his Opposition. Opposition at 1.
10. Compl. ¶ 9.
11. Id. ¶¶ 22 & 23.
12. Motion 1-2.
13. Id. at 5.
14. Id. at 2.
15. Id. (emphasis added).
JOHN W. HOLCOMB, UNITED STATES DISTRICT JUDGE
Response sent, thank you
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Docket No: Case No. 2:20-cv-04529-JWH (RAOx)
Decided: January 07, 2021
Court: United States District Court, C.D. California.
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