Adawy vs. Mercedes-Benz USA, LLC

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# Case Name Tentative

4. 2026-1558759 Defendant Mercedes-Benz USA, LLC’s motion to compel plaintiff Adawy vs. Saad Adawy to arbitrate his claims in this action is granted. This Mercedes-Benz action will be stayed pending completion of arbitration. [ROA #17.] USA, LLC Facts This is an action for violation of the Song-Beverly Act. Plaintiff asserts four causes of action under the Act regarding a new Mercedes-Benz, distributed by Defendant, that Plaintiff leased from Fletcher Jones Motorcars. [Complaint (ROA #2), ¶¶ 3-4.] The claims asserted include a claim for breach of express warranty. [Id., ¶¶ 5, 38-45.]

The lease agreement signed by Plaintiff contains an arbitration provision. [Newman Decl. (ROA #15), Ex. C.]

The arbitration provision is on the fourth page of a ten-page document. It provides for arbitration of:

[a]ny claim or dispute, whether in contract, tort or otherwise (including any dispute over the interpretation, scope, or validity of this lease, arbitration

section or the arbitrability of any issue), between you and us or any of our employees, agents, successors, assigns, or the vehicle distributor, including Mercedes-Benz USA LLC (each a 3Third Party Beneficiary ́), which arises out of or relates to a credit application, this lease, or any resulting transaction or relationship arising out of this lease (including any such relationship with third parties who do not sign this contract)

[Id. Bold added.]

The arbitration provision provides that arbitration will be administered by the American Arbitration Association – or whoever else the parties agree to – and provides the website address where AAA rules can be found. Arbitration is expressly governed by the Federal Arbitration Act (9 USC 1, et seq.).

On the sixth page, just above Plaintiff’s signature there is an additional warning that signing the lease is an acknowledgement that they have read the entire lease and agree to it “INCLUDING THE IMPORTANT ARBITRATION DISCLOSURES ON PAGES 4 AND 5.”

The Service and Warranty information 2026 also contains an arbitration provision with an opt-out provision. [Newman Decl. (ROA ## 15, 18), Ex. B at pp. 7-10.]

Legal Standard

Code Civ. Proc. § 1281.2 provides, inter alia:

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for rescission of the agreement. (c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. ...”

(Emphasis supplied.)

“‘[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement--either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation (see § 1281.2, subds. (a), (b))--that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.’” Hotels Nevada v.

L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761, quoting Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.

While there is a policy in favor of arbitration and doubts are to be resolved in favor of arbitration, there is no public policy in favor of compelling persons to accept arbitration of controversies they have not agreed to arbitrate. Mitri v. Arnel Management Co. (2007) 157 Cal.App.4th 1164, 1170; Greenspan v. LADT, LLC. (2010) 185 Cal.App.4th 1413, 1437. As a general rule, a party cannot be compelled to arbitrate a dispute that he or she has not agreed to resolve by arbitration. Buckner v. Tamarin (2002) 98 Cal.App.4th 140, 142; Benasra v. Marciano (2001) 92 Cal.App.4th 987, 990 (“The strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement, and a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration”).

As a result, the first step in determining whether to grant a motion to compel contractual arbitration is to determine whether there was, in fact, an agreement to arbitrate the pending dispute.

Discussion

Has Defendant Established the Existence of an Agreement? In the absence of any evidence that Plaintiff was given or saw the Service and Warranty Information, Defendant has not shown the existence of an arbitration agreement on that basis.

But Defendant has submitted a lease agreement with an arbitration provision that covers Plaintiff’s claims. [Newman Decl., Ex. C at p. 4.] The agreement appears to be signed by Plaintiff, and plaintiff does not deny signing the lease agreement with the arbitration provision in it.

There is no contention that Defendant is a signatory, or successor to a signatory, of the agreement. Plaintiff opposes arbitration on that basis.

“Although the FAA preempts any state law that stands as an obstacle to its objective of enforcing arbitration agreements according to their terms,...we apply general California contract law to determine whether the parties formed a valid agreement to arbitrate their dispute.” Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59–60.

“General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting.’” Franco v. Greystone Ridge Condominium (2019) 39 Cal.App.5th 221, 227. “The words of a contract are to be understood in their ordinary and popular sense.” Id. “Furthermore, ‘[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’” Id.

The general rule is that “one must be a party to an arbitration agreement to be bound by it or invoke it.” DMS Servs., Inc. v. Superior Court (2012) 205 Cal.App.4th 1346, 1352 (internal quotes and citation omitted). Courts have recognized limited exceptions to this general rule: “there are six theories by which a nonsignatory may be bound to arbitrate: (a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary.” Young Seok Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513.

Third-party beneficiary “‘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.’” Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 827.

In order to determine whether Defendant is a “third party beneficiary,” this court must “carefully examin[e] the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” Id. at 829-830. “All three elements must be satisfied to permit the third-party action to go forward.” Id. at 830.

Here, the arbitration agreement unambiguously states that any dispute between Defendant and Plaintiff shall be arbitrated: “Any claim or dispute ... between you and us or ... the vehicle distributor, including Mercedes-Benz USA LLC (each a “Third-Party Beneficiary”), which arises out of or relates to a credit application, this lease, or any resulting transaction or relationship arising out of this lease.” [Newman Decl., Ex. C at 4-5.] Thus, Defendant can compel arbitration of Plaintiff’s claims.

Plaintiff’s citation to Ford Motor Warranty Cases (2025) 17 Cal.5th 1122, 1128 and arguments that equitable estoppel does not apply are not to the point in light of the express terms of the arbitration provision designating Defendant as a third-party beneficiary of the arbitration agreement.

Plaintiff also contends that the arbitration agreement is unconscionable.

Is the Arbitration Agreement Unenforceable for Unconscionability? Unconscionability is one ground on which a court may refuse to enforce a contract, including an arbitration agreement. Civ. Code §1670.5. Whether a provision is unconscionable is a question of law. Civ. Code §1670.5(a); Flores v. Transamerica (2001) 93 Cal.App.4th 846, 851.

The core concern of unconscionability doctrine is the absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Sonic Calabasas A, Inc. v. Moreno, (2013) 57 Cal.4th 1109, 1145. “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”

Civ. Code §1670.5(a); Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 122. The absence of severability clause is irrelevant to the determination whether the offensive provisions are “severable” for purposes of unconscionability analysis. Severability is decided as a matter of state law. Terminix Int’l Co., LP v. Palmer Ranch Ltd. Partnership (11th Cir. 2005) 532 F.3d 1327, 1331.

Unconscionability has a procedural and a substantive element: the procedural element focuses on the existence of oppression or surprise, and the substantive element focuses on overly harsh or

one-sided results. Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.

To be unenforceable, a contract must be both procedurally and substantively unconscionable, but the elements need not be present in the same degree. The analysis employs a sliding scale: “...the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174-175.

Procedural Unconscionability Procedural unconscionability concerns the way the contract was negotiated and the parties’ circumstances at that time. It focuses on the factors of oppression or surprise. Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.

Procedural unconscionability is often found in contracts of adhesion – i.e. standardized contracts which, imposed and drafted by the party of superior bargaining strength, relegate to the subscribing party only the opportunity to adhere to the contract or to reject it. Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113. “When the weaker party is presented the clause and told to take it or leave it without the opportunity for meaningful negotiation, oppress, and therefore procedural unconscionability, are present.”

Szetela v. Discover Bank (2002) 97 Cal.App.4th 107, 114. See also Lhotka v. Geographic Expeditions, Inc. (2010) 181 Cal.App.4th 816, 821-824 (finding take it or leave it contract for recreational activity procedurally unconscionable even though activity not a “necessity”). A “meaningful opportunity to negotiate or reject the terms of a contract requires, at a minimum, that a party have reasonable notice of the opportunity to negotiate or reject the terms of the contract and an actual, meaningful, and reasonable choice to exercise that discretion.

Circuit City Stores, Inc. v. Mantor (9th Cir. 2003) 335 F.3d 1101, 1106.

“Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice.” Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1165 (citation omitted). “When the weaker party is presented the clause and told to ‘take it or leave it’ without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present.” Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1100 (citation omitted).

Surprise usually involves supposedly agreed-upon terms buried in complex documentation. Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 114.

Here, Plaintiff contends the arbitration agreement was adhesive. Plaintiff does not provide any evidence on this point, but cite to Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 87-88, which found the automobile lease in question there to be adhesive based on “substantial evidence” that it was presented on a take it or leave it basis as well as the fact that the arbitration clause was on the back and no one told the plaintiff it was there. Id. at p. 89 (italics added).

Substantive Unconscionability [S]ubstantive unconscionability focuses on the one-sidedness of the contract terms. In the context of an arbitration agreement, the agreement is unconscionable unless there is a “ ‘modicum of bilaterality’ ” in the arbitration remedy. [Citation.] “Although parties are free to contract for asymmetrical remedies and arbitration clauses of varying scope, ... the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself.” [Citation.] Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 854.

To be substantively unconscionable, contract terms must be “unduly harsh, oppressive, or one-sided.” Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 403.

Plaintiff does not identify any provision in the arbitration agreement that he claims is harsh, oppressive, or one-sided. Plaintiff only points to lack of “mutuality” given that “[d]isputes arising out of or relating to the lease that involve the manufacturer are, as a practical matter, brought only by consumers. The clause therefore strips consumers of a jury trial while giving MBUSA a forum advantage and no reciprocal burden.” [Opp. (ROA #37) at 9:17-20.] Plaintiff presents no evidence to support the broad assertion of fact on which he predicates his conclusion that Defendant receives an advantage without a reciprocal burden.

Indeed, regardless of whose claim it is, Defendant gives up a jury trial along with Plaintiff. Further, where the jury waiver stems from the nature of arbitration itself, which is incompatible with a jury trial, unconscionability has been held not to exist. See Prima Donna Dev. Corp. v. Wells Fargo Bank (2019) 42 Cal.App.5th 22, 43, 44.

Having failed to show any substantive unconscionability, Plaintiff has not shown a defense to enforcement of the arbitration agreement.

Finally, Plaintiff argues that Defendant waived its right to arbitration by its served initial disclosures under Code of Civil Procedure section 871.26. [David Decl. (ROA #33), ¶¶ 3-4.]

Waiver? Waiver of rights under an arbitration agreement is to be determined by the same standard as would be applied to any contract and not under an “arbitration-specific rule.” Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, 580, 583.

Accordingly, no showing of prejudice is required to establish waiver. Id. at 583-585. Rather, “[t]he waiver inquiry is exclusively focused on the waiving party’s words or conduct; neither the effect of that conduct on the party seeking to avoid enforcement of the contractual right nor that party’s subjective evaluation of the waiving party’s intent is relevant.” Id. at 585 (citation omitted). Intentional relinquishment must be shown by clear and convincing evidence, however. Id. at 584.

A party may be found to have waived its right to arbitration by delaying any arbitration demand and choosing, instead, to litigate his claims. See Kokubu v. Sudo (2022) 76 Cal.App.5th 1074, 1085 (affirming denial of motion to compel arbitration upon finding of waiver: “Until filing their motion to compel in December 2020, Appellants proceeded in the same manner as a party without any right to arbitrate, participating in case management conferences, filing motions, seeking ex parte relief, and seeking and participating in discovery.”)

Plaintiff points to the fact that Defendant made the disclosure required under Code of Civil Procedure section 871.26 in Song- Beverly actions where the defendant manufacturer has previously (that is, not just for purposes of a single lawsuit) opted into the statutory discovery scheme. See Code Civ. Proc. §871.20 (“Notwithstanding any other law, this chapter applies to an action, brought against a manufacturer who has elected under Section 871.29 to proceed under this chapter, seeking restitution or replacement of a motor vehicle pursuant to subdivision (b) or (d) of Section 1793.2, Section 1793.22, or Section 1794 of the Civil Code, or for civil penalties pursuant to subdivision (c) of Section 1794 of the Civil Code, where the request for restitution or replacement is based on noncompliance with the applicable express warranty.”).

The timing of the disclosure was not something Defendant chose but is set by the statute. Notably, the disclosure took place after Defendant filed its motion to compel arbitration, thus showing its intent to pursue its right to arbitration. [David Decl., ¶¶ 3-4.]

This record does not show, by clear and convincing evidence or otherwise, that Defendant has “intentionally relinquished or abandoned” its right to arbitrate. Accordingly, the court finds that Defendant has not waived its right to arbitration.

Plaintiff also objects that Defendant did not demand arbitration, and await Plaintiff’s refusal, prior to moving to compel. [Opp. at 4; David Decl., ¶ 2.] See Code Civ. Proc. §1281.2 (“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate....”)

But, here, the fact that Plaintiff has already filed his lawsuit, “suffice[s] to show [his] refusal to arbitrate the controversy.” Hyundai Amco America, Inc. v. S3H, Inc. (2014) 232 Cal.App.4th 572, 577–578.

The motion to compel arbitration is granted.

5. 2024-1394324 Defendant requests the Court exercise its discretion to strike the Meador vs. corrected costs memorandum under CCP section 1033, subdivision Bricks and (a). The Court declines to do so and denies the motion to strike. Mortar Entertainment The motion to tax the costs in Plaintiff’s corrected memorandum of LLC costs (ROA 312) is granted in part and denied in part.

“The right to recover costs is entirely a creature of statute (citation), and section 1032 is ‘the fundamental authority for awarding costs in civil actions.’” (Brown v. Desert Christian Center (2011) 193 Cal.App.4th 733, 737–738, citations omitted.) Code of Civil Procedure section 1032, subdivision (b), provides that a “prevailing party” is entitled to costs “as a matter of right.” “Code of Civil Procedure section 1033 enumerates allowable costs and costs which are not allowable, and restricts allowable costs to those reasonably necessary to the conduct of the litigation.” (Nelson v.

Anderson (1999) 72 Cal.App.4th 111, 129.) Where items on the costs bill appear to be proper charges, “the verified memorandum is prima facie evidence that the costs, expenses and services therein listed were necessarily incurred by the defendant[.]” (Id. at p. 131.) The burden is on the objecting party to show that costs are unnecessary or unreasonable. (Litt v. Eisenhower Medical Center (2015) 237 Cal.App.4th 1217, 1224.)