Messih v. Mercedes-Benz USA, LLC

Background

Gamil Messih purchased a 2014 Mercedes-Benz E350 from Mercedes-Benz of Walnut Creek on July 20, 2013. Mercedes-Benz USA, LLC (MBUSA) manufactured the vehicle and issued a written warranty. Messih alleged that the vehicle had multiple malfunctions and defects, including steering-wheel, hood-seal, auxiliary-battery, and software problems, and that MBUSA and its authorized repair facility failed to repair the vehicle despite multiple opportunities.

Messih filed three claims under California’s Song-Beverly Consumer Warranty Act: breach of express warranty, breach of implied warranty, and violation of California Civil Code section 1793.2. He filed the case in Contra Costa County Superior Court. MBUSA removed it to federal court and then moved to compel arbitration under an arbitration provision in the retail installment sale contract between Messih and the dealership. Messih opposed arbitration and moved to remand the case to state court, arguing that the amount-in-controversy requirement for diversity jurisdiction was not met.

Evidentiary issue

The court considered the retail installment sale contract because it contained the arbitration provision and the purchase-price information MBUSA used in support of removal. Messih challenged the contract’s authenticity, including because its signatures were unclear. The court overruled the objection, finding that a dealership controller’s declaration about the dealership’s records and the contract’s production provided enough evidence to authenticate the document.

Motion to remand

A federal court has diversity jurisdiction when the parties are completely diverse and more than $75,000 is in controversy. Because the complaint did not specify estimated damages, MBUSA had to show by a preponderance of the evidence that it was more likely than not that the amount in controversy exceeded $75,000. The parties did not dispute complete diversity.

The court accepted MBUSA’s calculation that Messih’s potential actual damages were at least $45,435.36. That calculation began with the vehicle’s total cash price of $56,146.50 and deducted a $5,673.14 mileage offset and three optional service contracts totaling $5,038. MBUSA also calculated potential civil penalties of $90,906.72, twice the alleged actual damages. The court concluded that these amounts were enough to exceed the jurisdictional threshold. It therefore denied Messih’s motion to remand. The court said it did not need to decide whether to add MBUSA’s estimated attorney-fee amount because the actual damages and civil penalties already placed more than $75,000 in controversy.

Motion to compel arbitration

The court first decided that it, rather than an arbitrator, should determine whether MBUSA could enforce the arbitration provision. The provision covered disputes “between you and us” or the dealership’s employees, agents, successors, or assigns. The court found no clear and unmistakable evidence that Messih had agreed to let an arbitrator decide whether MBUSA, a nonsigner, could enforce the provision.

MBUSA argued that it could enforce the arbitration provision under two doctrines. A third-party beneficiary is a person or entity for whose benefit a contract was specifically made. Equitable estoppel can sometimes prevent a contract signer from avoiding arbitration when the signer’s claims depend closely on the contract or allege closely connected misconduct by the signer and a nonsigner.

The court rejected MBUSA’s third-party-beneficiary argument. It found that the contract’s references to the vehicle’s condition and relationships with third parties described the types of disputes covered by the clause, but did not show that the contract was made specifically for MBUSA’s benefit. The clause’s more specific language limited the covered disputes to those involving Messih and the dealership or the dealership’s employees, agents, successors, or assigns.

The court also rejected equitable estoppel. Messih’s complaint referred to the purchase contract only to describe when he bought the vehicle and how much he paid. His warranty claims arose from warranties issued separately by MBUSA, not from duties or obligations imposed by the dealership’s purchase contract. The court concluded that Messih’s claims were not sufficiently dependent on or intertwined with that contract.

Because MBUSA could not enforce the arbitration agreement under either theory, the court denied MBUSA’s motion to compel arbitration. The court’s conclusion made it unnecessary to decide Messih’s alternative argument that the arbitration provision violated public policy.

Disposition

The court denied Messih’s motion to remand and denied MBUSA’s motion to compel arbitration. The case remained in federal court, and the court set a case-management conference for August 17, 2021, at 2:00 p.m.