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Zara GEMILYAN, Plaintiff, v. ROLLS-ROYCE MOTOR CARS NA, LLC, et al., Defendants.
Order DENYING Defendant Rolls-Royce Motor Cars NA, LLC's Amended Motion to Compel Arbitration (Dkt. 13)
Defendant Rolls-Royce Motor Cars NA, LLC (Rolls-Royce) moves to compel arbitration of claims brought by Plaintiff Zara Gemilyan. Dkt. 13 (Mot.). Gemilyan opposes. Dkt. 15 (Opp'n). The Court deems this matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78; Local Rule 7-15. For the reasons stated below the motion is DENIED.
Gemilyan leased a 2017 Rolls-Royce Ghost on January 2, 2018. Dkt. 1, Ex. A (Compl.) ¶ 6. She signed a lease agreement with the dealership, id., Ex. C (Lease Agreement), and received an express warranty provided by Rolls-Royce, id. ¶6. The dealership then assigned the Lease Agreement to Rolls-Royce Financial Services (RR FS). Id. at 2. When Gemilyan leased the car it allegedly “was not in a merchantable condition, was not safe, and did not conform to the quality and safety guidelines reasonably expected of a motor vehicle.” Compl. ¶ 7. The car “failed an unreasonable amount of times, did not function properly, and was not safe or reliable.” Id. ¶ 8. The problems were not a result of any misuse or modifications on Gemilyan's part and the condition of the vehicle breached the express warranty provided by Rolls-Royce. Id. ¶¶ 6, 8, 19. After the problems arose, Gemilyan complained several times and tried to have the car repaired, but Rolls-Royce “did not properly repair the car within a reasonable time frame.” Id. ¶ 20. Gemilyan filed suit, asserting claims for breach of implied warranty, breach of express warranty, and violation of the Song Beverly Consumer Act. Gemilyan did not sue the dealership, only Rolls-Royce.
On October 15, 2020, Rolls-Royce filed this motion to compel arbitration, relying on an arbitration clause in Gemilyan's Lease Agreement, which provides:
“Claim” broadly means any claim, dispute or controversy, whether in contract, tort, statute or otherwise, whether preexisting, present or future, between me and you and 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, this Lease or any resulting transaction or relationship (including any such relationship with third parties who do not sign this Lease).
Lease Agreement ¶ 41.
II. Federal Arbitration Act
The Federal Arbitration Act (FAA) “makes agreements to arbitrate ‘valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’ ” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 336, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011) (quoting 9 U.S.C. § 2). “The FAA provides for stays of proceedings in federal district courts when an issue in the proceeding is referable to arbitration, and for orders compelling arbitration when one party has failed or refused to comply with an arbitration agreement.” EEOC v. Waffle House, Inc., 534 U.S. 279, 289, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002) (citing 9 U.S.C. §§ 3, 4).
“By its terms, the [FAA] 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) (emphasis in original). “A party seeking to compel arbitration has the burden under the FAA to 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). When determining whether a valid contract to arbitrate exists, the court applies “ordinary state law principles that govern contract formation.” Davis v. Nordstrom, Inc., 755 F.3d 1089, 1093 (9th Cir. 2014).
The parties agree that the Lease Agreement contains a valid arbitration clause but disagree about whether it applies in this case. Rolls-Royce, a non-signatory, asserts it can enforce the arbitration agreement because it is a third-party beneficiary of the Lease Agreement. Rolls-Royce also contends that the principles of equitable estoppel favor arbitration here. Gemilyan argues Rolls-Royce is not a party to the arbitration agreement and cannot enforce it under any theory.
“Generally, the contractual right to compel arbitration may not be invoked by one who is not a party to the agreement and does not otherwise possess the right to compel arbitration.” Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1126 (9th Cir. 2013) (internal quotation marks omitted). However, both signatories and “nonsignatories of arbitration agreements may be bound by the agreement under ordinary contract and agency principles[,]” including as third-party beneficiaries and under equitable estoppel. Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 2006). “Following the U.S. Supreme Court's decision in Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009), ․ courts must apply state law in determining the applicability of these principles.” Dylag v. W. Las Vegas Surgery Ctr., LLC, 719 F. App'x 568, 570 (9th Cir. 2017).
A. Third-Party Beneficiary
Although Rolls-Royce was not a signatory to the Lease Agreement, it asserts it has standing to enforce the arbitration clause as a third-party beneficiary because the agreement was specifically intended to benefit it. Mot. at 2-3. A nonsignatory may enforce an arbitration agreement if the nonsignatory is a third-party beneficiary of the agreement. Jenks v. DLA Piper Rudnick Gray Cary US LLP, 243 Cal. App. 4th 1, 8, 196 Cal.Rptr.3d 237 (2015); see also Cal. Civ. Code § 1559 (“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.”). To claim the benefits of such an agreement, 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. Smith v. Microskills San Diego L.P., 153 Cal. App. 4th 892, 900, 63 Cal.Rptr.3d 608 (2007); see also Gilbert Fin. Corp. v. Steelform Contracting Co., 82 Cal. App. 3d 65, 69-70, 145 Cal.Rptr. 448 (1978) (explaining that the third-party must be “more than incidentally benefitted by the contract”).
“Whether the third party is an intended beneficiary or merely an incidental beneficiary involves construction of the intention of the parties, gathered from reading the contract as a whole in light of the circumstances under which it was entered.” Cione v. Foresters Equity Servs., Inc., 58 Cal. App. 4th 625, 636, 68 Cal.Rptr.2d 167 (1997). Doubts regarding the scope of arbitrable issues should be resolved in favor of arbitrability, but where the question is “not whether a particular issue is arbitrable, but whether a particular party is bound by the arbitration agreement ․ the liberal federal policy regarding the scope of arbitrable issues is inapposite.” Rajagopalan v. NoteWorld, LLC, 718 F.3d 844, 847 (9th Cir. 2013) (internal citations and quotation marks omitted).
Rolls-Royce argues it is an “affiliate” of RR FS 1 within the meaning of the arbitration provision and therefore a third-party beneficiary. Rolls-Royce claims it is “a subsidiary of the manager of RR FS, the assignee of the Lease Agreement.” Mot. at 6. Id. Based on this relationship, Rolls-Royce claims “the Lease Agreement imposes obligations on Defendant and provides benefits. The Lease Agreement specifically intended to benefit affiliates of RR FS, such as Defendant.” Id. at 6. But a footnote further explaining the relationship between Rolls-Royce and RR FS does not support that Rolls-Royce is a subsidiary of the manager of RR FS. Instead, Rolls-Royce states “RR FS is a business division of BMW Financial Services of North America LLC. Third-party BMW of North America, LLC manages BMW Financial Services of North America LLC. Defendant is a subsidiary of BMW (U.S.) holding corporation.” Id. at 6 n.1 (emphasis added).
There are two problems with Rolls-Royce's argument. First, the actual relationship between Rolls-Royce and BMW of North America, LLC is unclear in light of the possibly contradictory statements made by counsel concerning Rolls-Royce's relationship to RR FS. Although Rolls-Royce alleges a relationship between it and “BMW (U.S.) holding corporation,” it is unclear how “BMW (U.S.) holding corporation” and BMW of North America are related, if at all.
Second, to establish the relationship between Rolls-Royce and RR FS, Rolls-Royce submits a declaration from its attorney, Kate Lehrman, along with a “true and correct copy of BMW Financial Services NA, LLC's publicly-filed Statement of Information.” Dkt. 12-1 (Lehrman Decl.) ¶ 6, Ex. 3. But as Gemilyan notes, “[n]o evidence is provided as to the entity Rolls-Royce Financial Services or its relationship to BMW entities.” Opp'n at 5. The evidence provided relates only to the relationship between BMW Financial Services NA, LLC and BMW of North America, LLC.2 Even if the connection between RR FS and the BMW entities were supported by admissible evidence, the Court still cannot determine whether Roll-Royce is an affiliate of RR FC because of the lack of connection between BMW of North America, LLC and Rolls-Royce, as noted above. It is Rolls-Royce's burden, as the moving party, to establish the supposed corporate relationship between the two entities. See Ashbey, 785 F.3d at 1323. Rolls-Royce has not met its burden.
Rolls-Royce is also not covered by the clause regarding claims “between [Gemilyan] and any third parties if [Gemilyan] assert[s] a Claim against such third parties in connection with a Claim [she] assert[s] against [the dealership or RR FS], which arises out of or relates to [Gemilyan's] 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).” Lease Agreement ¶ 41. This clause covers claims involving third parties only if they are brought in connection with a claim against the dealership or RR FS. In Kramer, the Ninth Circuit held that because a purchase agreement “expressly differentiate[d] dealer warranties from manufacturer warranties,” an implied warranty claim against the manufacturer “ar[ose] independently from the Purchase Agreements.” Kramer, 705 F.3d at 1131. Here, the “WARRANTIES” section of the Lease Agreement notes the car is subject to the manufacturer's new vehicle warranty if the car is new or the “standard manufacturer's new vehicle warranty if the Vehicle is not a new vehicle” if a related box is checked. Lease Agreement ¶ 16. Otherwise, the Lease Agreement disclaims all warranties by the lessor, express or implied, in bold and all-caps. Id.
The alleged breach of express or implied warranties as relates to Rolls-Royce does not “arise from” any obligations incurred or benefits received by the dealership or RR FS. Gemilyan did not name the dealership as a party and does not mention any of the obligations or terms of the Lease Agreement in her complaint. Gemilyan's claim therefore is not “in connection with a Claim [she] asserts against [the dealership or RR FS],” Mot. at 5, so the arbitration agreement does not apply. Rolls-Royce has not established that it is a third-party beneficiary of the lease.3
B. Equitable Estoppel
Rolls-Royce argues 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.” Mot. at 8 (quoting Mance v. Mercedes-Benz USA, 901 F. Supp. 2d 1147, 1155 (N.D. Cal. 2012)).
“The theory behind equitable estoppel is that a plaintiff may not, ‘on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory.’ ” In re Henson, 869 F.3d 1052, 1060 (9th Cir. 2017) (quoting Murphy v. DirecTV, Inc., 724 F.3d 1218, 1229 (9th Cir. 2013)); see also NORCAL Mut. Ins. Co. v. Newton, 84 Cal. App. 4th 64, 84, 100 Cal.Rptr.2d 683 (2000) (“No person can be permitted to adopt that part of an entire transaction which is beneficial to him/her, and then reject its burdens.”). Two kinds of equitable estoppel may support a nonsignatory's right to compel arbitration:
(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 inter-dependent 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 (citing Goldman v. KPMG LLP, 173 Cal. App. 4th 209, 219, 221, 92 Cal.Rptr.3d 534 (2009)).
Rolls-Royce contends Gemilyan's claims are “premised on, and arise out of, the Lease Agreement” because Gemilyan's claims “make[ ] reference to or presume[ ] the existence of the written agreement.” Mot. at 7, 9. Rolls-Royce also contends Gemilyan's claims “are intertwined with” claims that are covered by the arbitration agreement. Id. As discussed above, Rolls-Royce's warranty obligations are independent from and do not arise out of the Lease Agreement. Kramer, 705 F.3d at 1127-31 (equitable estoppel did not apply because “[t]he terms of the arbitration clauses [in purchase agreements between the Plaintiffs and Toyota dealerships] are expressly limited to Plaintiffs and the Dealerships,” therefore none of the plaintiffs’ claims were intertwined with their purchase agreements with the dealers, nor did they reference or rely upon them).
Gemilyan does not refer to or rely on the Lease Agreement for any of her claims.4 All of her claims relate to the independent express or implied warranties provided by Rolls-Royce. Here, as in Kramer, “Plaintiffs’ claims [arise] independently of the terms of the agreements containing arbitration provisions.” Id. at 1132. That Gemilyan's claims would not exist but for her purchase of the vehicle does not mean that her claims are “intertwined with” the Lease Agreement.5 In re Henson, 869 F.3d at 1060. Rolls-Royce's argument “confuses the concept of ‘claims founded in and intertwined with the agreement containing the arbitration clause’ with but-for causation.” DMS Servs., LLC v. Superior Court, 205 Cal. App. 4th 1346, 1356-57, 140 Cal.Rptr.3d 896 (2012) (finding that while a party's claims would not exist but for deductible agreements, the claims were not “inextricably intertwined with” the agreements). Gemilyan's claims neither arise out of nor are they intertwined with her signing of the Lease Agreement.
Rolls-Royce attempts to distinguish Kramer because the arbitration clause there was narrower than the clause here. The clause here is broader, but, as explained above, Gemilyan's claims “do not ․ rely upon the existence of a [Lease] Agreement.” Kramer, 705 F.3d at 1132. Because the manufacturer's warranty is independent from the Lease Agreement, the breadth of the arbitration clause as to the resolution of claims involving the dealership or RR FS is irrelevant. “ ‘The fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute ․ should be resolved.’ ” Jensen v. U-Haul Co. of Cal., 18 Cal. App. 5th 295, 306, 226 Cal.Rptr.3d 797 (2017) (quoting NORCAL, 84 Cal. App. 4th at 84, 100 Cal.Rptr.2d 683) (alterations in original). Gemilyan “do[es] not seek to simultaneously invoke the duties and obligations of [Rolls-Royce] under the [Lease Agreement], as it has none, while seeking to avoid arbitration. Thus, the inequities that the doctrine of equitable estoppel is designed to address are not present.” Kramer, 705 F.3d at 1134.
Rolls-Royce has not met its burden to establish it can enforce the arbitration agreement between Gemilyan and the dealership or RR FS. The motion to compel arbitration is DENIED.
IT IS SO ORDERED.
1. The Lease Agreement states “ ‘you’ and ‘your’ refer to the Lessor or Lessor's assignee.” Therefore, the Court analyzes whether Rolls-Royce qualifies as an employee, officer, director, affiliate, successor or assign of either the dealership, as the signatory, or RR FS, as the assignee.
2. Lehrman's declaration and Rolls-Royce's notice of removal also seem to describe the relationship between the entities differently. The notice of removal states the “sole member” of Rolls-Royce is “BMW (US) Holding Corp” which is “wholly owned by BMW AG, a publicly held German corporation.” Dkt. 1 ¶14. Lehrman also does not explain the relationship, if any, between BMW AG and BMW of North America. Further, Lehrman does not establish how she knows anything related to this corporate structure; she states only that she attaches “a true and correct copy of BMW Financial Services NA, LLC's publicly filed Statement of Information.” Lehrman Decl. ¶ 6.
3. Because the Court finds Rolls-Royce cannot enforce the arbitration agreement, it does not reach the issue of whether the claims here involve the “condition” of the vehicle. See Opp'n at 3.
4. Rolls-Royce attaches Gemilyan's complaint to its notice of removal and to its motion to compel arbitration, but the third page is missing. See Compl. and dkt. 12-1, Ex. 4. It is not clear whether the page was missing when the complaint was filed in Superior Court. The Court considers only the allegations in the pages of the complaint that Rolls-Royce has provided.
5. Gemilyan states she leased a “used 2017 Rolls-Royce Ghost,” Compl. ¶ 6, and that, “[a]t the time of purchase,” the car had 16,320 miles on the odometer,” id. But the Lease Agreement has the box for a new car checked and the odometer reading is shown as 1,132. Lease Agreement ¶ 4. And Rolls-Royce contends Gemilyan leased a new car. Mot. at 1. It is not clear whether Gemilyan actually purchased the car at some later date or what impact that might have had on the Lease Agreement. That information may be on the missing third page of Gemilyan's complaint. If the car was used when it was originally leased, it would strengthen the argument that the Lease Agreement does not “intimately rel[y]” on the warranty provided by Rolls-Royce. As noted previously, the Lease Agreement specifically disclaims all warranties. Further, the Lease Agreement has two lines with boxes for warranties that may apply. If a box is checked, that warranty applies. On Gemilyan's Lease Agreement, neither box is checked. Lease Agreement ¶ 16. Thus, if the new car warranty also did not apply, rather than “intimately” relying on the warranty, it would seem the Lease Agreement did not guarantee any Rolls-Royce warranty applied.
DALE S. FISCHER, United States District Judge
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Docket No: CV 20-8207 DSF (PDx)
Decided: November 18, 2020
Court: United States District Court, C.D. California.
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