Ngo v. BMW of N. Am., LLC

• Citation: 23 F.4th 942
• Decision Date: 12 January 2022
• Docket Number: No. 20-56027,20-56027
• Parties: Kim NGO, Plaintiff-Appellant, v. BMW OF NORTH AMERICA, LLC; BMW Aktiengesellschaft ; Does, 1 Through 10, Inclusive, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

23 F.4th 942

Kim NGO, Plaintiff-Appellant,

v.BMW OF NORTH AMERICA, LLC; BMW Aktiengesellschaft ; Does, 1 Through 10, Inclusive, Defendants-Appellees.

No. 20-56027

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 16, 2021 Pasadena, California

Filed January 12, 2022

Jennifer D. Bennett (argued), Gupta Wessler PLLC, San Francisco, California; Matthew W.H. Wessler, Gupta Wessler PLLC, Cambridge, Massachusetts.; Payam Shahian, Strategic Legal Practices, Los Angeles, California; for Plaintiff-Appellant.

Thomas M. Peterson, Morgan Lewis & Bockius LLP, San Francisco, California; Karyn L. Ihara, Morgan Lewis & Bockius LLP, Los Angeles, California; for Defendants-Appellees.

Before: Kim McLane Wardlaw, Barrington D. Parker,^** and Andrew D. Hurwitz, Circuit Judges.

PARKER, Circuit Judge:

In 2012, Kim Ngo bought a new BMW 535i sedan from Peter Pan Motors, Inc, a car dealership. Because the dealership financed Ngo's purchase, they entered into a purchase agreement which contained an arbitration clause. As a result of alleged defects with the car, Ngo sued BMW of North America, LLC ("BMW"), the manufacturer, which was not a signatory to the purchase agreement. The question presented to us is whether BMW may compel arbitration under the purchase agreement between Ngo and the dealership. We conclude that it cannot, and we reverse the district court's order compelling arbitration.

I.

The purchase agreement listed Ngo as the "Buyer," the dealership as the "Creditor-Seller," and BMW Bank of North America (the financing company to which the purchase agreement referred) as the "Assignee." The arbitration clause provided:

Either you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial .... Any 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

....

The purchase agreement also stated that it had no effect on any "warranties covering the vehicle that the vehicle manufacturer may provide."

Ngo had a variety of issues with her car. Allegedly, the engine shook violently on start-up, the back-up camera was defective, the spark plugs were faulty, the sunroof was broken, the brake rotors were warped, and the radiator hose leaked. Although Ngo took her car to authorized BMW facilities for a series of repairs, the problems persisted.

BMW expressly warrants its vehicles "against defects in materials or workmanship." BMW's warranty offers purchasers the option of non-binding mediation through the Better Business Bureau, but it also makes clear that dissatisfied consumers may sue in court. Under California's Song-Beverly Consumer Warranty Act ("Song-Beverly Act"), a manufacturer that is unable to repair a new vehicle to conform to its warranty must promptly replace or repurchase the vehicle. Cal. Civ. Code § 1793.2(d)(2). The federal Magnuson-Moss Warranty Act ("Magnuson-Moss Act") imposes similar requirements. See 15 U.S.C. § 2304(a)(4). When BMW refused to replace or repurchase the car, Ngo brought the present action, alleging violations of the Song-Beverly and the Magnuson-Moss Acts.

Ngo's complaint named only BMW as a defendant. Her first, second, third, and fourth claims assert breaches of an express warranty. Her fifth claim alleges breach of the implied warranty of merchantability. Her sixth claim, based on the Magnuson-Moss Act, will "stand or fall with [the] express and implied warranty claims under state law." Clemens v. DaimlerChrysler Corp. , 534 F.3d 1017, 1022 (9th Cir. 2008).

BMW moved to compel arbitration, invoking the arbitration clause in the purchase agreement between Ngo and the dealership, arguing that it was a third-party beneficiary of the arbitration clause. Alternatively, BMW invoked equitable estoppel, arguing that Ngo's claims were "intimately founded in and intertwined with" the purchase agreement.

The district court granted the motion to compel arbitration, finding BMW to be a third-party beneficiary, but not addressing equitable estoppel. The court held that BMW was a third-party beneficiary because:

First , the arbitration provision here specifically calls for the arbitration of any claim dealing with the "purchase or condition of the vehicle" including a claim involving "third parties who do not sign this contract."

* * *

Second , if there is any doubt as to whether this "third party" clause should be read to include BMW NA, BMW Bank, a subsidiary of BMW NA, is an assignee of the arbitration provision and the Purchase Agreement. In other words, BMW NA is not some random third party, but is affiliated with the assignee of the agreement itself.

* * *

Third , BMW NA was responsible for the warranty on the Vehicle, and the "vehicle manufacturer" (which is BMW NA) is explicitly mentioned in the Purchase Agreement.

The court then dismissed the complaint and Ngo appealed.

II.

State law determines whether a non-signatory to an agreement containing an arbitration clause may compel arbitration. Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 631–32, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009). Under California law, a non-signatory is a third-party beneficiary only to a contract "made expressly for [its] benefit." Cal. Civ. Code § 1559. BMW was obligated to prove that "express provisions of the contract," considered in light of the "relevant circumstances," show that (1) "the third party would in fact benefit from the contract;" (2) "a motivating purpose of the contracting parties was to provide a benefit to the third party;" and (3) permitting the third party to enforce the contract "is consistent with the objectives of the contract and the reasonable expectations of the contracting parties." Goonewardene v. ADP, LLC , 6 Cal. 5th 817, 830, 243 Cal.Rptr.3d 299, 434 P.3d 124 (Cal. 2019). BMW fails this test.

First, a third party must "in fact benefit from the contract." Id. But a third party that "only incidentally or remotely benefit[s]" from a contract does not meet this standard. Lucas v. Hamm , 56 Cal. 2d 583, 590, 15 Cal.Rptr. 821, 364 P.2d 685 (1961) ; see also Levy v. Only Cremations for Pets, Inc. , 57 Cal.App.5th 203, 271 Cal. Rptr. 3d 250, 257–58 (2020). Here, the arbitration clause expressly states that only three parties—Ngo, the dealership, and the assignee—may compel arbitration. The contract defines "you" as Ngo and "we" as the dealership and its assignee. The clause specifies that "[e]ither you or we may choose to have any dispute between us decided by arbitration and not in court or by jury trial." (emphasis added). The clause also states that "[a]ny 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 ..." (emphasis added).

The district court found, and BMW argues on appeal, relying on Hajibekyan v. BMW of North America, LLC , 839 F. App'x 187 (9th Cir. 2021), that when an agreement provides that it covers claims involving particular parties, that agreement has been made expressly for the benefit of those parties. The memorandum disposition in Hajibekyan , however, is not binding precedent and, in any event, does not help BMW. There, the arbitration clause defined arbitrable disputes as those between "me and you or your employees, officers, directors, affiliates , successors, or assigns," and defined "you" and "your" to include the assignee of the contract. Id. at 188 (emphasis added). BMW was an affiliate of the assignee in Hajibekyan . Id. Here, arbitrable disputes do not include those involving BMW Bank of North America's assignees and affiliates, only those involving the dealership's assignees.

That BMW could, at some point down the line, receive some benefit if the arbitration clause were read to extend to the manufacturer is of no moment: incidental or secondary benefit is not sufficient. See Lucas , 56 Cal. 2d at 590, 15 Cal.Rptr. 821, 364 P.2d 685. The clause is pellucid that only three parties may compel arbitration, none of which is BMW. Language limiting the right to compel arbitration to a specific buyer and a specific dealership (and its assignees) means that extraneous third parties may not compel arbitration. See Kramer v. Toyota Motor Corp. , 705 F.3d 1122, 1128 (9th Cir. 2013) (finding similar language to evince the buyer's intent to arbitrate with the expressly named parties and no one else); see also Safley v. BMW of N. Am., LLC , No. 20-cv-00366-BAS-MDD, 2021 WL 409722, at *5–6 (S.D. Cal. Feb. 5, 2021) ; Qi Ling Guan v. BMW of N. Am., LLC , No. 20-cv-05025-MMC, 2021 WL 148202, at *2 (N.D. Cal. Jan. 15, 2021) ; Manuwal v. BMW of N. Am., LLC , No. CV 20-2331 DSF, 484 F. Supp. 3d 862, 868 (C.D. Cal. 2020). Any benefit that BMW might receive from the clause is peripheral and indirect because it is predicated on the decisions of others to arbitrate. BMW therefore fails to meet the first prong of the Goonewardene test.

Second, the contracting parties must have had a "motivating purpose" of providing a benefit to the third party. Goonewardene , 6 Cal. 5th at 830, 243 Cal.Rptr.3d 299, 434 P.3d 124. The phrase "motivating purpose" was intended to "clarify that the contracting parties must have a motivating purpose to benefit...