Katz v. BMW of North America, LLC

Background

Simon Katz leased a BMW M3 from Peter Pan BMW on May 12, 2017. He alleged that BMW of North America, LLC failed to bring the vehicle into compliance with its express warranty after a reasonable number of attempts or within 30 days. He asserted express- and implied-warranty claims under California’s Song-Beverly Consumer Warranty Act. Katz initially sued BMW and the dealer, but later dismissed the dealer before the case was removed to federal court.

The lease was between Katz and the dealer or its assignee, BMW Financial Services NA, LLC. It contained a broad arbitration clause covering disputes related to the lease, purchase, or condition of the vehicle, including claims involving affiliates and certain third parties. Katz signed the lease. The clause stated that the Federal Arbitration Act governed it.

Rulings

The court granted BMW’s request for judicial notice of the lease and BMW Financial Services’ statement filed with the California Secretary of State.

The court granted BMW’s motion to compel arbitration. It first concluded that BMW could enforce the arbitration clause as an affiliate of BMW Financial Services, the lease assignee. The lease referred to claims involving affiliates, and the court found that BMW managed BMW Financial Services. The court also noted that the lease contemplated that BMW, rather than the dealer or BMW Financial Services, would provide the vehicle warranty.

The court alternatively held that BMW could enforce the clause under equitable estoppel. That doctrine can allow a nonsignatory to compel arbitration when the signatory’s claims against that nonsignatory arise from the underlying contract. The court found Katz’s warranty claim intertwined with the lease because the lease referred to the manufacturer’s warranty and Katz sought damages under the lease contract.

The court rejected Katz’s argument that the arbitration clause was unconscionable, meaning so unfair that it could not be enforced. The court found only a minimal level of procedural unfairness because the lease was offered on a take-it-or-leave-it basis. It found no sufficient substantive unfairness in the possibility that Katz would have to pay some arbitration costs. The court noted that Katz did not claim he could not afford those costs or that his financial situation had changed.

The court also rejected Katz’s argument that arbitration would violate the Song-Beverly Act. It explained that the Act’s qualified third-party dispute-resolution process is optional and does not conflict with the lease’s arbitration clause. The court noted that BMW maintained such a program and that Katz chose not to participate in it.

Disposition

The court granted BMW’s motion to compel arbitration and stayed the proceedings in the case pending resolution of the arbitration under the Federal Arbitration Act. The order was issued by Judge Kandis Westmore on September 17, 2019.