Schulz v. BMW of N. Am., LLC, Case No. 5:20-cv-01697-NC

• Decision Date: 15 July 2020
• Docket Number: Case No. 5:20-cv-01697-NC
• Citation: 472 F.Supp.3d 632
• Parties: Ulrich SCHULZ, Plaintiff, v. BMW OF NORTH AMERICA, LLC, Defendant.
• Court: U.S. District Court — Northern District of California

472 F.Supp.3d 632

Ulrich SCHULZ, Plaintiff,

v.BMW OF NORTH AMERICA, LLC, Defendant.

Case No. 5:20-cv-01697-NC

United States District Court, N.D. California.

Signed July 15, 2020

Larry Chae, Veracis Law Corporation, Orange, CA, for Plaintiff.

Mark William Allen, Molly Moriarty Lane, Morgan, Lewis & Bockius LLP, San Francisco, CA, Lisa Rose Weddle, Morgan Lewis and Bockius LLP, Los Angeles, CA, for Defendant.

ORDER DENYING BMW'S MOTION TO COMPEL ARBITRATION

Re: Dkt. No. 19.

NATHANAEL M. COUSINS, United States Magistrate Judge

Plaintiff Ulrich Schulz brings this case against Defendant BMW of North America for breach of warranty claims arising out a car purchase from a dealership. Before the Court is BMW's motion to compel arbitration and stay proceedings. The Court concludes that BMW lacks standing to enforce the arbitration agreement between Schulz and the dealership, Stevens Creek BMW, because equitable estoppel and third-party beneficiary doctrines do not apply here. Accordingly, the Court DENIES BMW's motion to compel arbitration.

I. Background

A. Factual Allegations

In 2016, Plaintiff Ulrich Schulz purchased a new BMW 335Xi GT from Stevens Creek BMW. See Dkt. No. 1 ¶ 4. Schulz and the dealership signed a purchase agreement titled "RETAIL INSTALLMENT SALE CONTRACT – SIMPLE FINANCE CHARGE (WITH ARBITRATION PROVISION)" ("Purchase Agreement"). See Dkt. No. 19, Att. 1, Ex. A ("Purchase Agreement"). The Purchase Agreement contained an arbitration provision that stated:

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN A 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.

Id. The Purchase Agreement also included a provision titled "WARRANTIES SELLER DISCLAIMS" which stated:

If you do not get a written warranty, and the Seller does not enter into a service contract within 90 days from the date of this contract, the Seller makes no warranties, express or implied, on the vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose. This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide. If the Seller has sold you a certified used vehicle, the warranty of merchantability is not disclaimed.

Id.

Defendant BMW manufactured Schulz's vehicle and provided Schulz with an express warranty. See Dkt. No. 1 ¶ 5. If the subject vehicle were to malfunction due to a defect within a certain period, the warranty allowed Schulz to bring the vehicle into a BMW-authorized repair facility. Id. During the warranty period, Schulz's vehicle exhibited a rattle/metallic buzzing noise and Schulz brought the vehicle to a BMW-authorized repair facility. Id. ¶¶ 7–8. However, the facility was unable to repair the vehicle and refused to provide restitution or replace the vehicle. Id. ¶¶ 8–9.

B. Procedural Background and Evidentiary Issues

Schulz filed his initial complaint in Santa Clara County Superior Court bringing claims for (1) breach of warranty obligation to provide restitution or replacement, (2) breach of warranty obligation to commence or complete repairs within thirty days, and (3) breach of implied warranty of merchantability. See Dkt. No. 1. After BMW removed the action to this Court, BMW filed the instant motion to compel arbitration. See Dkt. No. 19.

BMW filed a statement of recent decision for Qiu v BMW N. Am. LLC , and Schulz filed a statement of recent decision for Wirth v Ford Motor Company. See Dkt. Nos. 28, 30. The Court considered those cases in deciding this order. BMW also requested judicial notice of appellant's opening brief in Kramer v. Toyota Motor Corp , 705 F.3d 1122 (9th Cir. 2013). See Dkt. No. 23. Concurrently, Schulz requested judicial notice that (1) Exhibit 1 shows that Sonic-Stevens Creek B, Inc. owns and operates Stevens Creek BMW, (2) Exhibit 4 shows that Sonic Automotive Inc. wholly owns Sonic-Stevens Creek B, Inc., (3) Exhibit 5 is an excerpt of Appellant's opening brief from Kramer v. Toyota Motor Corp. , (4) the Choi and Del Real purchase agreement from Kramer v. Toyota Motor Corp. contains arbitration provisions that are nearly identical to the arbitration provisions in this matter, and (5) Reynold and Reynold form 553-CA is a version of Schulz's purchase agreement that does not contain an arbitration clause. See Dkt. No. 21. Both parties filed objections to each other's evidence. Dkt. Nos. 24, 25, 26, 29. The Court finds:

• Schulz's request for judicial notice over Exhibits 1 and 4 to the Declaration of Larry Chae at Dkt. No. 21 is GRANTED. All of Schulz's other requests for judicial notice are DENIED. While the Court may take notice of the existence of court filings under Federal Rule of Civil Procedure 201(b)(2), here Schulz appears to request that the Court take notice of Schulz's interpretations, arguments, and conclusions found in those filings. BMW's request for judicial notice of Exhibit A at Dkt. No. 23 is DENIED for the same reason.

• BMW's objections at Dkt. Nos. 24 and 25 are OVERRULED. BMW's objection at Dkt. No. 26 is DENIED AS MOOT based on the Court's denial of Schulz's request for judicial notice over Exhibit 7 to Chae's declaration.

• Schulz's objection at Dkt. No. 27 is OVERRULED. The Court considered all cases filed by the parties in deciding this Order and took appropriate account of which had authoritative precedential value and which did not.

All parties consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). See Dkt. Nos. 8, 9.

II. Legal Standard

Under the Federal Arbitration Act (FAA), courts are required to enforce contractual arbitration agreements except "upon such grounds as exist at law or in equity for the revocation of any contract." Epic Sys. Corp. v. Lewis , ––– U.S. ––––, 138 S. Ct. 1612, 1616, 200 L.Ed.2d 889 (2018). The FAA "reflect[s] both a ‘liberal federal policy favoring arbitration,’ and the ‘fundamental principle that arbitration is a matter of contract.’ " AT & T Mobility LLC v. Concepcion , 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). The court's role is to decide: "(1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute." Brennan v. Opus Bank , 796 F.3d 1125, 1130 (9th Cir. 2015). The party seeking to compel arbitration must prove both counts by a preponderance of the evidence. Knutson v. Sirius XM Radio Inc. , 771 F.3d 559, 565 (9th Cir. 2014). The scope of an arbitration agreement is governed by federal substantive law. Kramer v. Toyota Motor Corp. , 705 F.3d 1122, 1126 (9th Cir. 2013). "If the response is affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in accordance with its terms." Chiron Corp. v. Ortho Diagnostic Sys., Inc. , 207 F.3d 1126, 1130 (9th Cir. 2000). "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Id. at 1131.

III. Discussion

A. BMW Cannot Invoke the Federal Arbitration Act to Compel Arbitration.

Because "arbitration is a matter of contract," the FAA cannot require a party "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). BMW contends that it can enforce the arbitration provision in Schulz's purchase agreement with the dealership. The Court disagrees and discusses each of BMW's arguments in turn.

1. The Court May Decide the Question of Arbitrability Because BMW Does Not Have the Contractual Right to Enforce the Delegation Clause.

When the parties "delegate[ ] the arbitrability question to an arbitrator, a court may not override the contract." Henry Schein, Inc. v. Archer and White Sales, Inc. , ––– U.S. ––––, 139 S. Ct. 524, 529, 202 L.Ed.2d 480 (2019). However, "[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so." First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (quoting AT & T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) ). Thus, the right to compel arbitration generally "may not be invoked by one who is not a party to the agreement." Britton v. Co-op Banking Grp. , 4 F.3d 742, 744 (9th Cir. 1993). In Kramer v. Toyota Motor Corp. , 705 F.3d 1122, 1126 (9th Cir. 2013), the Ninth Circuit held that an automobile manufacturer cannot compel a plaintiff to arbitrate based on an agreement between the plaintiff and a non-litigant dealership, even if the agreement delegates "issues of interpretation, scope, and applicability of the arbitration provision" to an arbitrator. In that case, the arbitration provision's phrasing, "[e]ither you [buyer] or we [dealership] may choose to have any dispute between you and us decided by arbitration," indicated the plaintiff's intent to delegate the arbitrability issue only in disputes with the dealership. Id. at 1127.

Likewise, the arbitration clause here contains the same "you and us" language which implies that Schulz agreed to arbitrate arbitrability only in disputes with the dealership—not with BMW. The arbitration provision here extends the right to arbitrate to disputes between Schulz and the dealerships' "employees, agents, successors, or assigns." Purchase Agreement at 7. This extension...