Arreola et al v. Mercedes-Benz

Vehicle because Defendant was a third-party beneficiary to the lease agreement they signed

containing an arbitration clause. In support of the motion, counsel for Defendant, Ali Ameripour

submits a declaration and attaches a copy of the Lease Agreement as Exhibit 2. (Ameripour

Decl. ¶ 4; Exh. 2.)

1. Application of the FAA

Defendant contends the FAA applies to the Agreement as it provides: “Any arbitration under this

lease shall be governed by the Federal Arbitration Act.” (Ameripour Decl., Exh. 2 at p. 4 of 10.) If

an arbitration agreement contractually provides for the FAA to apply, then it applies. (Cronus,

supra, 35 Cal.4th at p. 394; Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 964 [S]ince

arbitration is a matter of contract, the FAA also applies if it is so stated in the

agreement.]; Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1115.)

Plaintiffs do not contest this. Accordingly, the FAA applies.

2. Whether There is an Agreement to Arbitrate Plaintiffs’ Claims

Plaintiffs do not dispute the existence of the Agreement or that they signed it. Instead, Plaintiffs

argued that no agreement was formed because Defendant is a nonsignatory to the agreement.

Defendant, of course, does not dispute this as it is relying on its standing as a third-party

beneficiary.

a. Whether Defendant may compel arbitration as a third-party beneficiary

The Agreement provides:

Any 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, agent, successor, assigns, 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 (including any such relationship with third parties who do not sign this

contract) shall, at the election of either you, us, or a Third Party Beneficiary, be resolved by a

neutral, binding arbitration and not by a court action.

(See Ameripour Decl., Exh. 2 at p. 4 of 10, emphasis added.)

Accordingly, Defendant argues that it is an intended third-party beneficiary because it is

specifically identified as one under Agreement, falls within the class of entities for whom the

arbitration provision was intended, and because the claims against Defendant arise out of and

relate to the lease of the vehicle and the resulting warranty relationship that followed the

execution of the Agreement.

Plaintiffs largely rely on Ford Motor Warranty Cases (2025) 17 Cal.5th 1122 to argue that

Defendant is not a bona-fide third-party. On reply, Defendant correctly argues that the

Agreement here expressly names Defendant as a third-party beneficiary while none of the

agreements in the cases relied on by Plaintiffs expressly identifies the movant as a third-party

beneficiary. Both parties, however, agree that the requirements set forth in Goonewardene v.

ADP (2019) 6 Cal.5th 817 control.

“Under California law, a non-signatory is a third-party beneficiary only to a contract “made

expressly for [its] benefit.” Cal. Civ. Code § 1559. [The non-signatory] 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.”” (Ngo v. BMW of North America, LLC (9th Cir. 2022) 23

F.4th 942, 946, citing Goonewardene v. ADP, LLC, 6 Cal. 5th 817, 830.)

Defendant persuasively argues these elements are met here. First, Defendant clearly benefits

from the Agreement. Second, there is a clear “intent to benefit the third party” as the provision

unambiguously identifies Mercedes-Benz USA, LLC as a third-party beneficiary. (See Ameripour

Decl.; Exh. 2, page 4 of 10.) Lastly, Defendant notes that Goonewardene makes clear that “this

element calls for a judgment regarding the potential effect that permitting third party enforcement

would have on the parties’ contracting goals, rather than a determination whether the parties

actually anticipated third party enforcement at the time the contract was entered into.”

(Goonewardene (2019) 6 Cal.5th 817, 831.) Defendant explains that there is a clear objective of

the contract to include Defendant since it is so named.

In fact, in Ford Motor Warranty Cases, supra, 17 Cal.5th 1122, the court held that a

manufacturer could not compel arbitration as a third-party beneficiary despite a reference to

“third parties” in the arbitration provision. Specifically, the provision in Ford Motor provided:

[a]ny claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation

and scope of this Arbitration Provision, and the arbitrability of the claims 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 did not sign this

contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a

court action. (17 Cal.5th at p. 1129, emphasis added)

The Court of Appeal explained: We do not read this . . . language as consent by the purchaser to

arbitrate claims with third party nonsignatories. Rather, we read it as a further delineation of

the subject matter of claims the purchasers and dealers agreed to arbitrate. They agreed to

arbitrate disputes ‘between’ themselves—‘you and us’—arising out of or relating to

‘relationship[s],’ including ‘relationship[s] with third parties who [did] not sign th[e] [sale]

contract[s],’ resulting from the ‘purchase, or condition of th[e] vehicle, [or] th[e] [sale] contract.

(Ibid., emphasis in original)

The Supreme Court agreed with the lower court’s reading of the provision and analyzed the

language of this provision as follows:

[T]he provision begins and ends with references to the contract signatories. It describes disputes

between “you and us,” and clarifies that “us” includes the dealers’ employees, agents,

successors or assigns. There is no claim here that Ford is an employee, agent, successor, or

assign of any of the dealers. By its terms, the arbitration clause controls disputes (between “you

and us”) that arise out of the credit application, purchase, or condition of the vehicle, “this

contract,” or any “resulting transaction or relationship with third parties.” . . .

The “third party” language in the arbitration clause means that if a buyer sues a dealer based on

the condition of the vehicle, the dealer can elect to arbitrate that claim. The sales contract “says

nothing of binding the purchaser to arbitrate with the universe of unnamed third parties.” (Id. at p.

1130, emphasis in original.)

Thus, “[w]hile mentioning a dispute based on ‘a transaction or relationship with third parties,’ the

provision as a whole makes clear that the parties to the contract are agreeing to arbitrate

described disputes between themselves.” (Ibid.) Ultimately, the Court read this provision as

stating that while disputes relating to a third party resulting from the purchase or condition of the

vehicle, or the sale of a contract may be a basis for which the dealer, as a signatory, could

compel arbitration against the purchaser, the third-party was not able to do so. Plaintiffs present

this argument in their Opposition.

But in the appellate decision Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1339

(Ochoa) that was affirmed by the California Supreme Court, the court stated: “If the signatories

had intended to benefit FMC, such a purpose would have been easy to articulate. They could

have simply named FMC-directly or by class as the vehicle’s manufacturer-as a person entitled

to compel arbitration.”

That is what the Agreement does here. While the agreement in Ford Motors described disputes

between “you and us,” and clarified that “us” includes the dealers’ employees, agents,

successors or assigns,” the Agreement here describes disputes “between you and us or any of

our employees, agent, successor, assigns, or the vehicle distributor, including Mercedes-Benz

USA LLC (each a “Third Party Beneficiary”).” (Ameripour Decl., Exh. 2 at p. 4 of 10, emphasis

added.) Thus, Defendant is, in fact, explicitly mentioned in the Agreement as a party that may

elect to have disputes heard before an arbitrator.

Therefore, Defendant has standing to enforce the arbitration agreement as a third-party

beneficiary.

b. Scope of the arbitration provision

Defendant argues that Plaintiffs’ claims fall within the scope of the arbitration provision because

they arise out of not only the lease, but the relationship between Plaintiffs and Defendant as well

as are related to the Subject Vehicle itself. Specifically, Defendant contends that Plaintiffs claims

arise out of the manufacture, lease, warranting, and repairs of the vehicle.

Plaintiffs argue that Defendant confuses the scope of the arbitration clause and that it should

only cover a credit application, this lease, or any resulting transaction or relationship arising out

of this lease. (See Ameripour Decl.; Exh. 2 at p. 4 of 10.) It is hard to imagine, however, how the

breach of warranty claims in this action do not relate to or arise out of the lease agreement.

Moreover, it appears the scope is broad such that it covers these claims as it is also stated to

cover any “resulting transaction or relationship arising out of this lease.” Further, as noted in the

Reply, the arbitration agreement itself states that it applies to “any claim or dispute, whether in

contract, tort or otherwise” between Plaintiffs and Defendant. (Ibid.)

Ultimately, however, though neither party notes the clause, any issue regarding the scope of

arbitrability is for the arbitrator, and not the Court, to decide. The Agreement contains an explicit

delegation provision that provides: “any dispute over the interpretation, scope, or validity of this

lease, arbitration section, or the arbitrability of any issue . . . shall . . . be resolved by a neutral,

binding arbitration and not by a court action.” (Ibid.)

3. Defenses to the Arbitration Agreement.

While Plaintiffs do not put forth any defenses to the Agreement, such as unconscionability, they

do argue that because one of their claims falls under the Magnuson-Moss Warranty Act

(MMWA), binding pre-dispute arbitration is prohibited. Plaintiffs cite 15 U.S.C. § 2310(a)(3),

which requires: “he incorporates in a written warranty a requirement that the consumer resort to

such procedure before pursuing any legal remedy under this section respecting such warranty”.

Plaintiffs then cite the Code of Federal Regulations to argue that the purported arbitration

agreement was not disclosed on the first page of the warranty and was not disclosed “clearly

and conspicuously” and therefore is prohibited by the MMWA. (See 16 C.F.R. § 703.2(b)(3), 16

C.F.R. § 703.1(h).) In response, Defendant notes this is not a pre-dispute arbitration but one in a

matter currently in litigation. Moreover, Plaintiffs rely on their citations to FTC regulations, but

federal courts have found this not to preclude arbitration.

“The MMWA also permits warrantors to establish “informal dispute settlement procedures” for

breach of written warranty claims, and to require consumers to resort to such procedures before

bringing a civil action. Id. § 2310(a). While the term “informal dispute settlement procedure” is

not defined anywhere in the text of the Act, the Federal Trade Commission (the “FTC”) is

instructed to “prescribe rules setting forth minimum requirements for any informal dispute

settlement procedure which is incorporated into the terms of a written warranty.” Id. § 2310(a)(2).

If a warrantor establishes an informal dispute settlement procedure in accordance with the FTC

rules, the warrantor is permitted to include language in the warranty requiring consumers to

resort to this procedure “before pursuing any legal remedy” under the Act. Id. § 2310(a)(3)(C).

The FTC has adopted a regulation stating that informal dispute settlement procedures under the

MMWA cannot be legally binding on any person. See 16 C.F.R. § 703.5(j). The FTC therefore

has found that written warranties cannot require binding arbitration. 40 Fed. Reg. 60168, 60211

(1975) (“[T]here is nothing in the Rule which precludes the use of any other remedies by the

parties following a Mechanism decision.... However, reference within the written warranty to any

binding, non-judicial remedy is prohibited by the Rule and the Act.”) Thus, according to the FTC's

interpretation, binding arbitration is simply impermissible under the MMWA.” (Walton v. Rose

Mobile Homes LLC (5th Cir. 2002) 298 F.3d 470, 474–475.)

But the fifth circuit court also noted: “The text of the MMWA does not specifically address binding

arbitration, nor does it specifically allow the FTC to decide whether to permit or to ban binding

arbitration. Although the MMWA allows warrantors to require that consumers use “informal

dispute settlement procedures” before filing a suit in court, and allows the FTC to establish rules

governing these procedures, it does not define “informal dispute settlement procedure.”

However, the MMWA does make clear that these are to be used before filing a claim in court.

Yet binding arbitration generally is understood to be a substitute for filing a lawsuit, not a

prerequisite.” (Id. at p. 475.)

In sum, the fifth circuit court found that: “We also note that binding arbitration is not normally

considered to be an “informal dispute settlement procedure,” and it therefore seems to fall

outside the bounds of the MMWA and of the FTC’s power to prescribe regulations. We thus

conclude that the text of the MMWA does not evince a congressional intent to prevent the use of

binding arbitration.” (Id. at p. 476.) Finally, the fifth circuit court held that the MMWA does not

preclude binding arbitration of claims pursuant to a valid binding arbitration agreement, which the

courts must enforce pursuant to the FAA. (Id. at p 479.)

On the other hand, the Court did recognize a split in authority. “We recognize that some courts

have found that the MMWA precludes binding arbitration, and that a number of courts have

agreed with us.” (Id. at p. 478.) But Defendant goes on to cite several other federal circuit court

decisions that have similarly found the MMWA does not preclude binding arbitration. And, at

least one district court in the ninth circuit has found the MMWA claim is subject to arbitration

where predicated on state law. (See In re Apple iPhone 3G Products Liability Litigation (N.D.

Cal. 2012) 859 F.Supp.2d 1084, 1091.) Though federal district court decisions are not binding

and only persuasive authority, Plaintiffs have only cited the FTC regulations and no California

case or any federal case, for that matter, showing its MMWA claim cannot be arbitrated. (See

Rubin v. Ross (2021) 65 Cal.App.5th 153, 163; People v. Bocanegra (2023) 90 Cal.App.5th

1236, 1255, fn. 7.)

RULING

Based on the above, Defendant’s Motion is well-taken. Thus, the Court GRANTS the motion to

compel arbitration. Defendant has also requested a stay of the proceedings, which the Court

also GRANTS.

The Court now sets an OSC re Status of Arbitration on May 28, 2027 at 8:30 a.m. in Dept. S37.

Defendant’s counsel is ordered to give notice of the Court’s ruling and OSC hearing in 2027.