1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 HA NGUYEN, Case No.: 20-CV-2432 JLS (BLM)
12 Plaintiff, ORDER (1) DENYING 13 v. DEFENDANT’S EX PARTE APPLICATION FOR LEAVE TO 14 BMW OF NORTH AMERICA, LLC; and FILE SUPPLEMENTAL REPLY; DOES 1 to 10, 15 (2) OVERRULING PLAINTIFF’S Defendants. EVIDENTIARY OBJECTIONS; 16 (3) GRANTING DEFENDANT’S 17 MOTION TO COMPEL ARBITRATION; AND 18 (4) STAYING ACTION 19 (ECF Nos. 16, 21) 20
21 22 Presently before the Court is Defendant BMW of North America, LLC’s Motion to 23 Compel Arbitration (“Mot.,” ECF No. 16), Plaintiff Ha Nguyen’s Opposition thereto 24 (“Opp’n,” ECF No. 18), and Defendant’s Reply in support thereof (“Reply,” ECF No. 19). 25 The Court took this matter under submission without oral argument pursuant to Civil Local 26 Rule 7.1(d)(1). ECF No. 20. Also before the Court are Defendant’s Ex Parte Application 27 for Leave to File Supplemental Reply (“S.R. Mot.,” ECF No. 21) and Plaintiff’s Opposition 28 thereto (“S.R. Opp’n,” ECF No. 24); and Plaintiff’s Evidentiary Objections to the 1 Declaration of Robert K. Dixon (“Dixon Objs.,” ECF No. 18-1) and Defendant’s Response 2 thereto (“Objs. Resp.,” ECF No. 19-1). Having considered the Parties’ arguments and the 3 law, the Court DENIES Defendant’s Application for Leave to File Supplemental Reply, 4 OVERRULES Plaintiff’s evidentiary objections, and GRANTS Defendant’s Motion to 5 Compel Arbitration. 6 BACKGROUND 7 On August 2, 2017, Plaintiff entered into a written contract with BMW of Monrovia 8 (“Dealer”) to purchase a 2014 BMW 435i Convertible (the “Vehicle”), which Defendant 9 allegedly manufactured or distributed. See generally ECF No. 1-5 (“Compl.”). Defendant 10 gave Plaintiff an express written warranty that Defendant would “preserve or maintain the 11 utility or performance of the Vehicle or . . . provide compensation if there is a failure in 12 utility or performance for a specified period of time.” Id. ¶ 5. The contract between 13 Plaintiff and Dealer, titled BMW Financial Services Motor Vehicle Retail Installment 14 Contract–California (“Purchase Agreement,” ECF No. 16-2), contains an arbitration clause 15 that is the subject of the present Motions. Mot. at 2. 16 Plaintiff alleges that, during the warranty period, the Vehicle manifested several 17 reoccurring problems, including: (1) malfunction of the engine or engine system; (2) 18 activation of the drivetrain malfunction warning light; (3) activation of the check engine 19 light; (4) loss of power; and (5) the Vehicle going into neutral or stalling while being 20 driven. Compl. ¶ 6. After several opportunities, Defendant and its representatives were 21 unable to repair the alleged defects in the Vehicle to conform it to the express warranty. 22 Id. ¶ 7. Defendant has also purportedly failed to make restitution to Plaintiff. Id. 23 Plaintiff filed this action pursuant to the Song-Beverly Consumer Warranty Act 24 (“Song-Beverly Act”), California Civil Code §§ 1790 et seq., in the Superior Court of the 25 State of California, County of San Diego, on October 1, 2020. See generally Compl. 26 Plaintiff alleges three causes of action arising from Defendant’s (1) failure to replace the 27 Vehicle or make restitution; (2) failure to service or repair the Vehicle to conform to the 28 applicable warranties within 30 days; and (3) breach of the implied warranty of 1 merchantability. See generally id. Plaintiff also alleges a cause of action for Defendant’s 2 unlawful business practices under California Business and Professions Code §§ 17200 et 3 seq. Id. ¶¶ 24–25. On December 14, 2020, Defendant removed to this Court. See ECF 4 No. 1. Plaintiff moved to remand the action, see ECF No. 9, which this Court denied, see 5 ECF No. 26. Defendant then filed the present Motion to Compel Arbitration. 6 ANALYSIS 7 I. Motion for Leave to File Sur-Reply 8 Almost two months after the Court took the present Motion to Compel Arbitration 9 under submission, see ECF No. 20, Defendant filed an ex parte application requesting leave 10 to file a sur-reply to address Plaintiff’s arguments regarding preemption. See S.R. Mot. at 11 2. Plaintiff’s preemption arguments, which were first raised by Plaintiff in her Opposition, 12 were not addressed by Defendant in its Reply brief. See id. Defendant argues that Plaintiff 13 will not be prejudiced by a sur-reply and that good cause exists to grant its application 14 because it would “provide the court a complete record to facilitate a well-reasoned 15 decision.” See id. at 4. Plaintiff counters that Defendant seeks “a second bite at the apple” 16 by filing this application. S.R. Opp’n at 4. Plaintiff argues that Defendant had an 17 opportunity to address Plaintiff’s arguments in its Reply, but Defendant neglected to do so. 18 Id. 19 The Civil Local Rules do not allow for sur-replies. “District courts have the 20 discretion to either permit or preclude the filing of a sur-reply.” Estate of Alvarado v. 21 Tackett, No. 13-CV-1202 W (JMA), 2018 WL 1141502, at *1 (S.D. Cal. Mar. 2, 2018) 22 (citing Johnson v. Wennes, No. 08-CV-1798-L (JMA), 2009 WL 1161620, at *2 (S.D. Cal. 23 Apr. 28, 2009)). Courts generally exercise discretion when a valid reason exists, such as 24 where the movant raises new arguments in the Reply brief. Id. (citation omitted). But this 25 is not an instance where the movant raised new arguments in the Reply brief. Rather, 26 /// 27 /// 28 /// 1 Defendant seeks to file a sur-reply to supplement its own Reply brief. As Plaintiff points 2 out, “Plaintiff’s opposition has not changed; there are no new facts; and Defendant is not 3 arguing there is new controlling law.” S.R. Opp’n at 5. Defendant had an opportunity to 4 address all the arguments raised by Plaintiff in her Opposition, and Defendant simply 5 neglected to do so. “In short, [Defendant] was afforded a full opportunity to address 6 [Plaintiff’s] arguments . . . and the [C]ourt declines to afford [Defendant] a second bite at 7 the apple.” Hammler v. Hudson, No, 2:16-cv-1153-JAM-EFB P, 2018 WL 6199056, at *1 8 (E.D. Cal. Nov. 28, 2018); see also Sawicky v. AMC Networks Inc., No. CV 18-114-R, 9 2018 WL 11292263, at *1 (C.D. Cal. July 11, 2018) (“It appears [the plaintiff] seeks a 10 second bite at the apple but does not show good cause to do so. Therefore, her request is 11 denied.”). 12 The Court therefore declines to exercise its discretion to allow Defendant to 13 supplement its own Reply and DENIES Defendant’s Motion for Leave to File a Sur-Reply. 14 II. Evidentiary Objections 15 The Court next addresses Plaintiff’s evidentiary objections. In conjunction with its 16 motion to compel arbitration, Defendant submitted the declarations of Robert Dixon 17 (“Dixon Decl.,” ECF No. 16-1) and Lilly Natividad (“Natividad Decl.,” ECF No. 16-2). 18 Attached as exhibits to the declarations are the Purchase Agreement entered into between 19 Plaintiff and Dealer and Defendant’s Statement of Information from the California 20 Secretary of State’s website. Plaintiff objects to Mr. Dixon’s declaration on numerous 21 evidentiary grounds including lack of foundation, lack of authentication, hearsay, and 22 relevance. See generally Dixon Objs. 23 As an initial matter, it is not clear to the Court what Plaintiff is objecting to. Plaintiff 24 provides a list of evidentiary rules without any analysis to support her objections. 25 26 1 The Court further notes that Defendant’s original Reply brief exceeded the ten-page limit set forth in Civil Local Rule 7.1.h. Although Defendant “apologize[d] to the Court for this oversight,” S.R. Mot. at 27 2 n.1, allowing Defendant an opportunity to file a third brief regarding its Motion to Compel Arbitration 28 is prejudicial to Plaintiff, who filed a single opposition brief in compliance with the local rules and the 1 Additionally, Plaintiff objects to Mr. Dixon’s declaration, but does not object to Ms. 2 Natividad’s. 3 Plaintiff challenges the paragraph of Mr. Dixon’s declaration that introduces the 4 Purchase Agreement. See generally Dixon Objs. However, the Purchase Agreement 5 entered into between Plaintiff and Dealer is included as an exhibit to Ms. Natividad’s 6 declaration, not Mr. Dixon’s declaration. See generally Natividad Decl., Ex. 1. Ms. 7 Natividad avers that she is employed as the controller of Dealer. Natividad Decl. ¶ 2. In 8 her role as controller, Ms. Natividad is Dealer’s custodian of records, and she has access 9 to Dealer’s documents, including sales files and repair records. Id. Under penalty of 10 perjury, Ms. Natividad states that the exhibit attached to her declaration is a true and correct 11 copy of Plaintiff’s Purchase Agreement. Id. ¶ 3. Plaintiff objects that Mr. Dixon’s 12 declaration is inadequate to authenticate the Purchase Agreement. Dixon Objs. at 2. 13 Federal Rule of Evidence 901 requires that an item be authenticated “by evidence 14 sufficient to support a finding that the matter in question is what its proponent claims” prior 15 to its admission into evidence. This finding is governed under the conditional relevancy 16 standard of Rule 104(b). Fed. R. Evid. 901(a) advisory committee note. Under Rule 17 104(b), “[t]he court simply examines all the evidence in the case and decides whether the 18 jury could reasonably find the conditional fact . . . by a preponderance of the evidence.” 19 Huddleston v. United States, 485 U.S. 681, 690 (1988). 20 The Court need not rely on Mr. Dixon’s declaration to authenticate the Purchase 21 Agreement because Defendant has met its burden to authenticate the Purchase Agreement 22 with Ms. Natividad’s declaration. Ms. Natividad avers that the Purchase Agreement is a 23 true and correct copy. Natividad Decl. ¶ 3. Ms. Natividad, who is employed as the 24 controller at Dealer, declares that the Purchase Agreement is from Dealer’s sale files, and 25 that such documents and files are prepared by Dealer in its ordinary course of business. Id. 26 ¶¶ 2–3. Ms. Natividad states that “BMW of Monrovia maintains a sales file for every retail 27 vehicle sale.” Id. ¶ 5. The document also contains “sufficient indicia that, taken in 28 conjunction with the circumstances of its production from [Ms. Natividad’s] employer, 1 support Defendant’s claim that the agreement is what it purports to be.” Safley v. BMW of 2 N. Am., LLC, No. 20-cv-00366-BAS-MDD, 2021 WL 409722, at *3 (S.D. Cal. Feb. 5, 3 2021). Further, Plaintiff has presented no evidence contesting the document’s authenticity. 4 Defendant meets its low burden to authenticate the Purchase Agreement, and because 5 Plaintiff does not submit any evidence challenging the document’s authenticity, the Court 6 overrules Plaintiff’s objection. 7 As for the remainder of Plaintiff’s boilerplate objections, “[t]he Court declines 8 [Plaintiff’s] invitation to analyze objections that [Plaintiff] did not [herself] bother to 9 analyze[.]” Californians for Disability Rts., Inc. v. California Dep’t of Transp., 249 F.R.D. 10 334, 350 (N.D. Cal. 2008); Dukes v. Wal-Mart, Inc., 222 F.R.D. 189, 199 (N.D. Cal. 2004) 11 (denying evidentiary objections as “unduly vague” where the defendant failed to provide 12 any individualized discussion of the objections); Capitol Records, LLC v. BlueBeat, Inc., 13 765 F. Supp. 2d 1198, 1200 n.1 (C.D. Cal. 2010) (citation omitted) (declining to scrutinize 14 “boilerplate recitations of evidentiary principles or blanket objections without analysis 15 applied to specific items of evidence.”). Accordingly, the Court OVERRULES Plaintiff’s 16 evidentiary objections. 17 III. Request for Judicial Notice 18 In light of the Court’s ruling on Plaintiff’s evidentiary objections, the Court next 19 turns to Defendant’s request for judicial notice. Defendant requests the Court take judicial 20 notice of the Purchase Agreement, a Notice of Interested Parties that Defendant filed in a 21 previous case in the Central District of California, and Defendant’s Statement of 22 Information filed with the California Secretary of State’s office. See ECF No. 16–5. The 23 Court will take judicial notice of these materials. See Glenbrook Capital Ltd. P’ship v. 24 Kuo, 525 F. Supp. 2d 1130, 1137 (N.D. Cal. 2007) (“A court may take judicial notice of 25 documents that are ‘integral to the plaintiff’s claims’ and whose ‘authenticity is not 26 disputed,’ even if they are not explicitly incorporated into the complaint.” (citation 27 omitted)); Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) 28 (“[A court] may take judicial notice of court filings and other matters of public record.” 1 (citation omitted)); Vieira v. Mentor Worldwide, LLC, No. 2:18-cv-06502-AB (PLAx), 2 2018 WL 4275998, at *3 n.2 (C.D. Cal. Sept. 7, 2018) (“A court may take judicial notice 3 of maters of public record, and a California Statement of Information is a matter of public 4 record.” (citation omitted)). 5 IV. Motion to Compel Arbitration 6 A. Legal Standard 7 “The Federal Arbitration Act (‘FAA’) governs the enforceability of arbitration 8 agreements in contracts involving commerce.” Kalasho v. BMW of N. Am., LLC., No. 3:20- 9 CV-01423-CAB-AHG, 2021 WL 673535, at *1 (S.D. Cal. Feb. 22, 2021) (citing 9 U.S.C. 10 §§ 1 et seq.). The FAA provides that arbitration agreements “shall be valid, irrevocable, 11 and enforceable, save upon such grounds as exist at law or in equity for the revocation of 12 any contract.” 9 U.S.C. § 2. Additionally, the FAA permits an aggrieved party to a written 13 arbitration provision to “petition any United States District Court . . . for an order directing 14 that such arbitration proceed in a manner provided for in [the arbitration] agreement.” Id. 15 § 4. “A party seeking to compel arbitration has the burden under the FAA to show (1) the 16 existence of a valid, written agreement to arbitrate; and, if it exists, (2) that the agreement 17 to arbitrate encompasses the dispute at issue.” Ashbey v. Archstone Prop. Mgmt., Inc., 785 18 F.3d 1320, 1323 (9th Cir. 2015) (citation omitted). Once it is shown that a party has failed 19 to comply with a valid agreement to arbitrate, “the district court must issue an order 20 compelling arbitration.” Safley, 2021 WL 409722, at *2 (citing 9 U.S.C. § 4). “[C]ourts 21 apply a presumption in favor of arbitrability . . . and the party resisting arbitration bears the 22 burden of establishing that the arbitration agreement is inapplicable.” Wynn Resorts v. Atl.- 23 Pac. Capital, Inc., 497 F. App’x 740, 742 (9th Cir. 2012) (citations omitted). 24 B. Analysis 25 As a threshold matter, the Court notes that “[t]his type of case is not new.” Safley, 26 2021 WL 409722, at *2 (quoting Ruderman v. Rolls Royce Motor Cars, LLC, No. 2:20-cv- 27 04529-JWH (RAOx), 2021 WL 141179, at *3 (C.D. Cal. Jan. 7, 2021)). “It is but one of 28 many where a car manufacturer or distributor seeks to enforce the arbitration clause in a 1 dealership’s contract.” Id. Courts tend to reach divergent conclusions on whether to 2 compel arbitration, “depending on the language of the dealership’s agreements and the 3 parties’ arguments.” See id. (collecting cases). 4 The arbitration clause in the Purchase Agreement provides: 5 NOTICE: Either you or I may choose to have any dispute between us decided by arbitration and not in a court or by jury 6 trial. If a dispute is arbitrated, I will give up my right to 7 participate as a class representative or class member on any Claim I may have against you including any right to class 8 arbitration or any consolidation of individual arbitrations. 9 Discovery and rights to appeal in arbitration are generally more limited than in a lawsuit, and other rights you and I would have 10 in court may not be available in arbitration. 11 “Claim” broadly means any claim, dispute or controversy, 12 whether in contract, tort, statute or otherwise, whether 13 preexisting, present or future, between me and you or your employees, officers, directors, affiliates, successors or assigns, or 14 between me and any third parties if I assert a Claim against such 15 third parties in connection with a Claim I assert against you, which arises out of or relates to my credit application, purchase 16 or condition of this Vehicle, this Contract or any resulting 17 transaction or relationship (including any such relationship with third parties who do not sign this Contract). 18
19 Purchase Agreement at 6.2 With this clause in mind, the Court turns to the Parties’ 20 contentions.3 21 Defendant claims that Plaintiff consented to arbitration by signing the Purchase 22 Agreement and that the Parties’ dispute falls within the scope of the arbitration clause. See 23 Mot. at 4, 6. While Defendant concedes that it is not “expressly a signatory to the Purchase 24 Agreement,” Defendant argues it has standing to enforce the arbitration provision as a 25 26 2 Per the Purchase Agreement, “I,” “me,” and “my” refer to the car buyer—i.e., Plaintiff—see Purchase Agreement at 1, while “you” and “your” refer to the Dealer, BMW of Monrovia, or the Dealer’s assignee, 27 BMW Bank of North America, see id. at 1, 7. 28 1 third-party beneficiary or through the doctrine of equitable estoppel. See generally id. 2 Plaintiff contends that Defendant cannot enforce the arbitration clause because Defendant 3 is not a third-party beneficiary to the Purchase Agreement and equitable estoppel does not 4 apply here. See Opp’n at 8–14. Alternatively, Plaintiff argues that even if Defendant has 5 standing to invoke the arbitration clause, the arbitration clause is unenforceable because it 6 “expressly prohibits” application of the California Arbitration Act, California Civil 7 Procedure Code §§ 1280 et seq. (“CAA”). Id. at 6. The Court will first determine whether 8 Defendant has standing to compel arbitration, and then examine the enforceability of the 9 arbitration provision. 10 1. Defendant’s Standing to Compel Arbitration 11 Plaintiff first argues that her claims do not arise out of the Purchase Agreement that 12 contains the arbitration clause, and instead the implied and express warranties are stand- 13 alone agreements between Plaintiff and Defendant. Opp’n at 8. In response, Defendant 14 asserts that Plaintiff’s claims necessarily rely on the Purchase Agreement because a 15 purchase transaction is required to trigger protections under the Song-Beverly Act. See 16 Reply at 5. Next, Plaintiff argues that if the Court does consider the Purchase Agreement, 17 that Defendant cannot compel arbitration because it is not a signatory to the Purchase 18 Agreement. See id. at 8–10. Defendant does not dispute that it is not an express signatory 19 to the Purchase Agreement between Plaintiff and Dealer; however, Defendant contends 20 that it is entitled to enforce the arbitration clause contained in the Purchase Agreement 21 either as a third-party beneficiary or based on a theory of equitable estoppel. Mot. at 11– 22 15, 17–19. As the Court finds that Defendant is a third-party beneficiary expressly 23 contemplated in the Purchase Agreement, the Court need not reach Defendant’s equitable 24 estoppel argument. 25 As an initial matter, Plaintiff’s arguments that her claims do not arise out of the 26 Purchase Agreement are not persuasive. Plaintiff’s Song-Beverly Act claims arise from 27 her purchase of the Vehicle. See Cal. Civ. Code § 1794 (providing that “[a]ny buyer of 28 consumer goods” has standing to bring a claim “under an implied or express warranty or 1 service contract”) (emphasis added); see also Johnson Decl., Ex. 1 at 11 (stating coverage 2 under Defendant’s warranty “begins on the date of first retail sale”). Absent the Purchase 3 Agreement, Plaintiff would not have received the express or implied warranties from 4 Defendant. See Lanning v. BMW of N. Am., LLC, No. 3:19-CV-00773-BEN-LL, 2019 WL 5 5748518, at *3 (S.D. Cal. Nov. 5, 2019) (finding the plaintiff’s Song-Beverly Act claims 6 against manufacturer are “intertwined” with the purchase agreement). Therefore, the Court 7 will examine whether Defendant is a third-party beneficiary to the Purchase Agreement. 8 Under California law, a “contract, made expressly for the benefit of a third person, 9 may be enforced by him at any time before the parties thereto rescind it.” Cal. Civ. Code 10 § 1559. Where a party seeks to enforce a contract as a third-party beneficiary, “the third 11 party must show that the contract reflects the express or implied intention of the parties to 12 the contract to benefit the third party.” Comer v. Micor, Inc., 436 F.3d 1098, 1102 (9th 13 Cir. 2006) (quoting Klamath Water Users Protective Ass’n v. Patterson, 204 F.3d 1206, 14 1211 (9th Cir. 2000)). The party seeking to enforce the contract must demonstrate it is a 15 member of a class of persons for whose benefit the contract was made, although it is not 16 necessary that the third party be expressly named or identified. See Balsam v. Tucows Inc., 17 627 F.3d 1158, 1161 (9th Cir. 2010) (citing Spinks v. Equity Residential Briarwood 18 Apartments, 171 Cal. App. 4th 1004, 1023 (2009)). 19 California federal district courts examining whether a car manufacturer or distributor 20 qualifies as a third-party beneficiary to a dealership’s sales contract have decided the issue 21 both ways depending in large part on the language of the arbitration agreement. Compare 22 Ruderman, 511 F. Supp. 3d at 1058 (finding language in purchase agreement that “[e]ither 23 you or I” may compel arbitration does not encompass car company), and Jurosky v. BMW 24 of N. Am., LLC, 441 F. Supp. 3d 963, 975 (S.D. Cal. 2020) (finding manufacturer not 25 expressly referenced in “you and us” clause or “third parties” clause is not a third-party 26 beneficiary), with Tseng v. BMW of N. Am., LLC, No. 220CV00256VAPAFMX, 2020 WL 27 4032305, at *3 (C.D. Cal. Apr. 15, 2020) (finding car company is an “affiliate” expressly 28 contemplated by the plain language of the purchase agreement), and Zeto v. BMW of N. 1 Am., LLC, No. 20-CV-1380-GPC-KSC, 2020 WL 6708061, at *9 (S.D. Cal. Nov. 16, 2020) 2 (finding car manufacturer falls into broad “any third party” category that may compel 3 arbitration for covered “claims”). 4 The arbitration clauses analyzed by the Tseng and Zeto courts are identical to the 5 one at issue here. Both courts found Defendant was a third-party beneficiary of the sales 6 contract the plaintiffs entered into with a dealership because the language of the arbitration 7 clause contemplates Defendant as a third-party beneficiary. Tseng, 2020 WL 4032305, at 8 *3; Zeto, 2020 WL 6708061, at *9. The Court finds the reasoning of these courts 9 persuasive. The arbitration clause covers, inter alia, Dealer’s “assigns” and “affiliates.” 10 Purchase agreement at 6. The Purchase Agreement names BMW Bank of North America 11 LLC, a wholly owned subsidiary of BMW Financial Services NA, LLC, as Dealer’s 12 assignee. Purchase agreement at 12. Defendant is a “manager” or “member” of BMW 13 Financial Services NA, LLC, and therefore qualifies as an affiliate under the Purchase 14 Agreement. See Ex. 4, ECF No. 16-1; see also Fikhman v. BMW of N. Am. LLC, No. 15 219CV03963VAPMRWX, 2019 WL 6721626, at *3 (C.D. Cal. Oct. 15, 2019) (finding 16 Defendant, “the manager” of BMW Financial Services NA, LLC, to be an “affiliate” of 17 BMW Financial Services NA, LLC and thus granting Defendant’s motion to compel 18 arbitration). Based on the plain language of the Purchase Agreement, the Court finds 19 Defendant is “a member of a class of persons whose benefit [the Purchase Agreement] was 20 made.” Balsam, 627 F.3d at 1161 (quoting Spinks, 171 Cal. App. 4th at 1023). 21 Additionally, the arbitration clause in the Purchase Agreement encompasses claims 22 against third parties that arise out of the “condition of this Vehicle.” Purchase Agreement 23 at 6. When examining identical language, the Zeto court found that “the Arbitration Clause 24 foresees and includes the current dispute, where a consumer sues the manufacturer 25 concerning the defects of the car.” Zeto, 2020 WL 6708061, at *9. The Zeto court 26 accordingly found that the express terms of the agreement intended the defendant to be a 27 third-party beneficiary that may compel arbitration. Id. at *10–11. Such is also the case 28 here. 1 Therefore, Defendant has standing to compel arbitration as a third-party beneficiary 2 of the Purchase Agreement. The Court will next examine whether the arbitration clause is 3 enforceable. 4 2. Enforceability 5 Plaintiff argues that the arbitration clause is void and unenforceable due to the 6 purported waiver of Plaintiff’s right to select a neutral arbitrator under the CAA. Opp’n at 7 4–6. Two provisions of the arbitration clause are determinative in the Court’s analysis. 8 The Purchase Agreement provides that (1) “[t]his Contract involves interstate commerce 9 and this Arbitration Clause and any arbitration hereunder shall be governed by the [FAA] 10 and not by any state law concerning arbitration” and (2) “[t]he arbitrator will not be bound 11 by judicial rules of procedure and evidence that would apply in a court, nor by state or local 12 laws that relate to arbitration proceedings.” Purchase Agreement at 6. The Court agrees 13 with Plaintiff that these provisions are unenforceable. 14 “California Civil Code section 3513 prohibits a waiver of statutory rights by private 15 agreement where one of the primary purposes of the statute is to benefit the public.” 16 Kalasho, 2021 WL 673535, at *4 (citing Cal. Civ. Code § 3513). Plaintiff relies on Azteca 17 Construction to argue that “CAA’s procedural safeguards for ensuring selection of a 18 neutral arbitrator are laws established for a public reason.” Opp’n at 6 (citing Azteca 19 Constr., Inc. v. ADR Consulting, Inc., 121 Cal. App. 4th 1156, 1167 (2004)). Defendant, 20 for its part, claims that Azteca Construction is distinguishable because “it analyzed a 21 construction, not a consumer, arbitration under AAA rules.” Reply at 4 (footnote omitted). 22 But the Court finds this distinction unpersuasive. Azteca Construction noted that “there is 23 no doubt [the CAA was] enacted primarily for a public purpose.” 121 Cal. App. 4th at 24 1167. Nothing in the opinion would suggest that this statement is limited to arbitration 25 involving construction under AAA rules. See generally id. In fact, Azteca Construction 26 recognized that the purpose behind the CAA is “to provide basic measures of consumer 27 protection with respect to private arbitration[.]” Id. at 1165 (emphasis added) (citation and 28 internal quotation marks omitted). The Court therefore disagrees with Defendant that this 1 case is inapposite and finds that one of the primary purposes of the CAA is to benefit the 2 public. 3 Further, Plaintiff contends that the CAA is not preempted by the FAA. See Opp’n 4 at 5. Defendant does not address preemption in its Reply. See generally Reply. “Section 5 2 of the FAA preempts state statutes and common law principles that ‘undercut the 6 enforceability of arbitration agreements,’ unless the savings clause applies.” Villarreal v. 7 Perfection Pet Foods, LLC, No. 1:16-cv-01661-LJO-EPG, 2017 WL 1353802, at *4 (E.D. 8 Cal. Apr. 10, 2017) (emphasis added) (quoting Southland Corp. v. Keating, 465 U.S. 1, 16 9 (1984)). The FAA’s savings clause provides that agreements to arbitrate may be 10 unenforceable “upon such grounds as exist at law or in equity for the revocation of any 11 contract.” 9 U.S.C. § 2. “In other words, a court cannot enforce state laws that apply to 12 agreements to arbitrate but not to contracts more generally.” Villarreal, 2017 WL 13 1353802, at *4 (citing Mortenson v. Bresnan Commc’ns, LLC, 722 F.3d 1151, 1159 (9th 14 Cir. 2013)); see also Reynoso v. Bayside Mgmt. Co., LLC, No. 13-cv-4091 YGR, 2013 WL 15 6173765, at *3 (N.D. Cal. Nov. 25, 2013) (“[T]he FAA preempts any state-law defenses 16 that apply only to arbitration or that derive their meaning from the fact that an agreement 17 to arbitrate is at issue.” (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 18 (2011))); Sherman v. RMH, LLC, No. 13cv1986-WQH-WMc, 2014 WL 30318, at *5 (S.D. 19 Cal. Jan. 2, 2014) (“Under the FAA savings clause, state law that arose to govern issues 20 concerning the validity, revocability, and enforceability of contracts generally remains 21 applicable to arbitration agreements.” (quoting Kilgore v. KeyBank, Nat’l Ass’n, 718 F.3d 22 1052, 1058 (9th Cir. 2013) (en banc))). California Civil Code § 3513 applies to contracts 23 in general, not just arbitration agreements. See, e.g., Sieg v. Fogt, 55 Cal. App. 5th 77, 92 24 (2020) (noting that, under § 3513, a homeowner and a contractor cannot agree to the 25 contractor departing from accepted trade standards); Coker v. JPMorgan Chase Bank, N.A., 26 62 Cal. 4th 667, 686 (2016) (holding that, pursuant to § 3513, the plaintiff could not validly 27 agree to a short sale with the defendant). See generally Gutierrez v. Autowest, Inc., 114 28 Cal. App. 4th 77, 94 (2003) (“In California, private contracts that violate public policy are 1 unenforceable.” (citations omitted)). Therefore, Defendant’s failure to address this 2 argument notwithstanding, the Court agrees with Plaintiff that the CAA is not preempted 3 by the FAA with respect to the arbitration agreement at issue here. 4 The present arbitration clause is virtually identical to that in Kalasho, where the court 5 found the arbitration clause unenforceable and denied the defendant’s motion to compel 6 arbitration. See 2021 WL 673535, at *5. In fact, the only difference between the arbitration 7 clause here and the arbitration clause in Kalasho is that the arbitration clause in Kalasho 8 used the term “Lease” instead of “Contract.” See id. at *2.4 The court in Kalasho found 9 the arbitration clause to be unenforceable because the clause “purport[ed] to waive the 10 application of the CAA to ‘this Arbitration Clause and any arbitration hereunder.’” 2021 11 WL 673535, at *5 (citation omitted). Indeed, the court noted that “California courts have 12 recognized that the CAA provisions relating to the selection of neutral arbitrators 13 (including disclosure requirements and disqualification procedures) were undoubtedly 14 ‘enacted primarily for a public purpose.’” Id. (quoting Azteca Constr., Inc., 121 Cal. App. 15 4th at 1167). And because “[u]nder California contract law, a contract is ‘unlawful, and 16 therefore unenforceable, if it is contrary to an express provision of law or contrary to the 17 policy of express law,’” the Kalasho court found the arbitration clause unenforceable. Id. 18 at *3, *5 (quoting Sheppard, Mullin, Richter & Hampton, LLP v. J-M Mfg. Co., 6 Cal. 5th 19 59, 73 (2018)). 20 This Court finds the reasoning of Kalasho to be persuasive, particularly given that 21 the two arbitration clauses are substantively identical. Like the clause at issue in Kalasho, 22 the arbitration clause here precludes application of any state law, including the CAA. 23 Purchase Agreement at 6. Waiving the provisions of the CAA by way of private agreement 24 violates California law, given that the CAA was enacted for a public purpose. See Cal. 25 26 4 The slight difference between the language of the two arbitration clauses—namely, “Contract” and “Lease”—has no bearing on the Court’s analysis. Under California law, “[a] lease is a contract, governed 27 by the same rules of interpretation as other types of contracts.” Praetorian Fin. Ins. Co. v. U.S., No. C 28 07-5746 SBA, 2009 WL 4723339, at *3 (N.D. Cal. Dec. 4, 2009) (citing ASP Props. Grp. v. Fard, Inc., 1 Civ. Code § 3513; Azteca Constr., 121 Cal. App. 4th at 1167. Cf. Rashid v. BMW of N. 2 Am., LLC, No. 20cv573-L-DEB, 2021 WL 2433925, at *3 (S.D. Cal. June 15, 2021) 3 (finding arbitration clause to be enforceable because it contained no provision prohibiting 4 application of the CAA, thus distinguishing Kalasho). 5 Nevertheless, Defendant points out that, pursuant to the arbitration clause, the 6 American Arbitration Association (“AAA”) or Judicial Arbitration and Mediation Services 7 (“JAMS”) may be chosen at the option of Plaintiff. Reply at 3. Therefore, according to 8 Defendant, the arbitration clause “does not waive Plaintiff’s right to select a neutral 9 arbitrator.” Id. But this argument misses the mark. The arbitration clause provides that 10 “all arbitration hereunder shall be governed by the [FAA] and not by any state law 11 concerning arbitration.” Purchase Agreement at 6 (emphasis added). Thus, as in Kalasho, 12 “[t]he explicit language in [the arbitration clause] is sufficient to establish that the parties 13 clearly waived the application of state law to arbitration proceedings conducted under the 14 [Purchase] Agreement.” 2021 WL 673535, at *5. Accordingly, it is irrelevant that Plaintiff 15 may choose an arbitrator from the AAA or JAMS, because ultimately the arbitration clause 16 waives the provisions of the CAA in violation of California Civil Code § 3513. 17 The Court therefore finds the portions of the arbitration clause purporting to waive 18 application of the CAA to be unenforceable. 19 3. Severability 20 Neither Party addresses whether the unenforceable provisions in the Purchase 21 Agreement are severable. See generally Opp’n; Reply. However, the Purchase Agreement 22 contains a severability clause, which provides that “[i]f any part of this Arbitration Clause, 23 other than the Class Action Waiver, is deemed or found to be unenforceable for any reason, 24 the remainder shall remain enforceable.” Purchase Agreement at 6. 25 An unenforceable provision of an arbitration agreement may be severed to retain the 26 remaining provisions. Rent-A-Center, West, Inc., v. Jackson, 561 U.S. 63, 71–72 (2010). 27 Under California law, “where no strong objections of public policy are present, a party to 28 an illegal contract may be permitted to enforce it.” Chun Ping Turng v. Guaranteed Rate, 1 Inc., 371 F. Supp. 3d 610, 631–32 (N.D. Cal. 2019) (quoting Nevcal Enters., Inc. v. Cal- 2 Neva Lodge, Inc., 217 Cal. App. 799, 806 (1963)). “Severability clauses evidence the 3 parties’ intent that, to the extent possible, the valid provisions of the contract be given 4 effect, even if some portion is found to be invalid or unlawful.” Id. at 632 (citation and 5 internal quotation marks omitted). “If the central purpose of the contract is tainted with 6 illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to 7 the main purpose of the contract, and the illegal provision can be extirpated from the 8 contract by means of severance or restriction, then such severance and restriction are 9 appropriate.” Martinez v. Check ’N’ Go of Cal., Inc., No. 15-CV-1864 H (RBB), 2015 WL 10 12672702, at *5 (S.D. Cal. Oct. 5, 2015) (quoting Armendariz v. Found. Health Psychare 11 Servs., Inc., 24 Cal. 4th 83, 122 (2000)). 12 Although the court in Kalasho did not reach the issue of severability, the Court finds 13 that the unenforceable provisions are severable. Plaintiff has not met her burden of 14 showing that the Purchase Agreement is so tainted with illegality that severance is not 15 possible. The Court concludes that these provisions are severable, as they do not permeate 16 the entire Purchase Agreement, and the presence of a severability clause makes severance 17 feasible. Thus, the Court SEVERS the following unenforceable provisions from the 18 Purchase Agreement: (1) “this Arbitration Clause and any arbitration hereunder shall be 19 governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. (“FAA”) and not by any state 20 law concerning arbitration” and (2) “[t]he arbitrator will not be bound by judicial rules of 21 procedure and evidence that would apply in a court, nor by state or local laws that relate to 22 arbitration proceedings.” Purchase Agreement at 6. The Court finds the remainder of the 23 arbitration clause is valid and enforceable. Therefore, the Court GRANTS Defendant’s 24 Motion to Compel Arbitration. 25 CONCLUSION 26 Based on the foregoing, the Court DENIES Defendant’s Ex Parte Application for 27 Motion for Leave to File Supplemental Reply (ECF No. 21) and OVERRULES Plaintiff’s 28 evidentiary objections (ECF No. 18-1). The Court SEVERS the following provisions from ] || the arbitration agreement: (1) “this Arbitration Clause and any arbitration hereunder shall 2 governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. (“FAA”) and not by any 3 || state law concerning arbitration” and (2) “[t]he arbitrator will not be bound by judicial rules 4 procedure and evidence that would apply in a court, nor by state or local laws that relate 5 || to arbitration proceedings.” Purchase Agreement at 6. Furthermore, the Court GRANTS 6 || Defendant’s Motion to Compel Arbitration (ECF No. 16). 7 Pursuant to the FAA, the Court STAYS this action pending the outcome of any 8 arbitration. See 9 U.S.C. § 3 (“If any suit or proceeding be brought in any of the courts of 9 ||the United States upon any issue referable to arbitration under an agreement in writing for 10 arbitration, the court in which such suit is pending, upon being satisfied that the issue 11 ||involved in such suit or proceeding is referable to arbitration under such an agreement, 12 ||shall on application of one of the parties stay the trial of the action until such arbitration 13 ||has been had in accordance with the terms of the agreement, providing the applicant for 14 || the stay is not in default in proceeding with such arbitration.”); Martin Marietta Aluminum, 15 || Inc. v. Gen. Elec. Co., 586 F.2d 143, 147 (9th Cir. 1978) (holding that courts shall order a 16 ||stay of judicial proceedings “pending compliance with a contractual arbitration clause’). 17 Parties are ORDERED to file a status update on arbitration proceedings every 120 18 || days and within 15 days of completion of the arbitration proceedings. 19 IT IS SO ORDERED. 20 || Dated: January 11, 2022 . tt f te 21 on. Janis L. Sammartino 79 United States District Judge 23 24 25 26 27 28