Bacon v. BMW of North America

Filed 12/20/23 Bacon v. BMW of North America CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
JAY BACON,
Plaintiff and Appellant,
v.
BMW OF NORTH AMERICA, LLC,
Defendant and Respondent.
H050174
(Santa Clara County
Super. Ct. No. 19CV350387)
Plaintiff Jay Bacon signed a contract with a dealership to purchase a BMW sedan.
That contract included an arbitration provision that can be invoked by the purchaser, the
dealership, or the dealership’s assignee. The provision covers claims between the buyer
and the dealership and also any claim between plaintiff and “any third parties if [buyer]
assert[s] a Claim against such third parties in connection with a Claim [buyer] asserts[s]
against” the dealership. Bacon sued the dealership and defendant BMW of North
America, LLC (the manufacturer), alleging that the sedan was defective. The
manufacturer successfully moved to compel arbitration, an arbitrator issued an award in
the manufacturer’s favor, and judgment was entered for the manufacturer. Bacon
contends the trial court erred in compelling arbitration because the manufacturer was not
a party to the sales contract, the manufacturer could not enforce the contract as a third

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party beneficiary, and equitable estoppel does not apply. We agree with Bacon and will
reverse the judgment.
I. BACKGROUND
According to the complaint Bacon filed against the dealership and the
manufacturer, Bacon bought a BMW sedan in 2007 from a dealership in Mountain View.
It is undisputed that the retail installment contract attached to the complaint accurately
reflects the written contract for the sedan. The contract was between Bacon and the
dealership. The contract defines references to “ ‘I’, ‘me’ and ‘my’ ” as referring to the
buyer, and references to “ ‘you’ and ‘your’ ” as referring to the dealership or its assignee.
Another term in the contract assigned the dealership’s interest in the contract to “BMW
Bank of North America, a wholly owned subsidiary of BMW Financial Services NA,
LLC.” The manufacturer is not a party to the contract.
The contract’s arbitration provision begins: “Either [dealer/assignee] or [buyer]
may choose to have any dispute between us decided by arbitration and not in a court or
by jury trial.” The arbitration provision defines a claim as “any claim, dispute or
controversy, whether in contract, tort, statute or otherwise, whether preexisting, present
or future, between me and you or your employees, officers, directors, affiliates,
successors or assigns, or between me and any third parties if I assert a Claim against such
third parties in connection with a Claim I assert against you, which arises out of or relates
to my credit application, purchase or condition of this Vehicle, this Contract or any
resulting transaction or relationship (including any such relationship with third parties
who do not sign this Contract).” The next sentence provides: “Any Claim shall, at your
or my election, be resolved by neutral, binding arbitration and not by a court action.”
The contract includes a paragraph about warranties: “I understand that you are not
offering any express warranties unless you have given a warranty to me. If you extend,
or the Vehicle’s manufacturer extends, a written warranty or service contract covering the
Vehicle within 90 days from the date of this Contract, I get implied warranties of

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merchantability and fitness for a particular purpose covering the Vehicle. If not, you
specifically disclaim any implied warranties of merchantability and fitness for a
particular purpose covering this Vehicle.”
Bacon signed a separate “Extended Vehicle Protection” contract directly with the
manufacturer. That warranty contract has no arbitration clause.
Bacon alleged in the complaint that he experienced a sudden acceleration issue in
2018 while trying to park the sedan. Bacon took the sedan to the dealership, and the
dealership ultimately concluded that the sedan was not defective based on a road test
allegedly performed by the manufacturer.
The complaint alleged that the sedan “has had serious and dangerous defects” and
“is currently in a defective state.” Among other causes of action, the complaint alleged
breaches of implied and express warranties under the Song-Beverly Consumer Warranty
Act (Civ. Code, § 1790 et seq.); breach of written contracts; violations of the Consumer
Legal Remedies Act (Civ. Code, § 1750 et seq.); intentional and negligent
misrepresentation; and violations of the federal Magnuson-Moss Warranty Act.
The manufacturer moved to compel arbitration; the dealership did not.1 The
manufacturer filed a supporting declaration from a finance systems manager for BMW
Financial Services NA, LLC, declaring that BMW Financial Services NA, LLC is a
wholly owned subsidiary of the manufacturer.
The trial court granted the motion to compel arbitration, concluding that the
manufacturer had “standing to compel arbitration as a third-party beneficiary of the
Purchase Agreement as well as under the doctrine of equitable estoppel.” The trial court
addressed and rejected Bacon’s allegations of fraud in the inducement, reasoning that
these allegations related to his acceptance of the contract as a whole and not specifically
1 The record on appeal does not indicate the status of Bacon’s action against the
dealership.

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the agreement to arbitrate. The court stayed proceedings and ordered the parties to
arbitration. A stipulated judgment in the manufacturer’s favor was entered in 2022 after
an arbitrator decided all claims in the manufacturer’s favor.
II. DISCUSSION
A. Arbitration Agreement Interpretation
The Federal Arbitration Act (9 U.S.C. § 1 et seq.) governs the contract at issue
here. The federal legislation’s “policy is to make ‘arbitration agreements as enforceable
as other contracts, but not more so.’ ” (Morgan v. Sundance, Inc. (2022) 596 U.S. 411,
___ [142 S.Ct. 1708, 1713].) We apply California contract law to interpret the arbitration
provision. (Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1332, review
granted July 19, 2023, S279969 (Ford).) Where, as here, the trial court did not resolve
any factual issues, we exercise our independent judgment to interpret the arbitration
provision. (Id. at p. 1331.)
B. The Manufacturer is Not a Third Party Beneficiary
It is undisputed that the manufacturer is not a party to the contract containing the
arbitration provision at issue here. “The United States Supreme Court has held that a
litigant who is not a party to an arbitration agreement may invoke arbitration under the
[Federal Arbitration Act] if the relevant state contract law allows the litigant to enforce
the agreement.” (Kramer v. Toyota Motor Corp. (9th Cir. 2013) 705 F.3d 1122, 1128.)
A nonparty can enforce a contract as a third party beneficiary if it can demonstrate 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.” (Goonewardene v. ADP, LLC
(2019) 6 Cal.5th 817, 830 (Goonewardene).)

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1. No Benefit to the Manufacturer
The Ninth Circuit recently applied the Goonewardene test to a purchase agreement
for a BMW vehicle in Ngo v. BMW of North America, LLC (9th Cir. 2022) 23 F.4th 942
(Ngo). The arbitration provision in Ngo between the dealership and purchaser applied to
any “claim or dispute, whether in contract, tort, statute, or otherwise (including the
interpretation and scope of this Arbitration Provision, and the arbitrability of the claim 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 do not sign this contract).” (Id. at p. 945.) The agreement further
provided that such a claim “shall, at your or our election, be resolved by neutral, binding
arbitration and not by a court action.” (Ibid.) The contract defined “ ‘you’ as Ngo and
‘we’ as the dealership and its assignee.” (Id. at p. 946.) The Ngo court observed that the
arbitration provision was “pellucid that only three parties may compel arbitration, none of
which is BMW.” (Id. at p. 947.) That language limiting the “right to compel arbitration
to a specific buyer and a specific dealership (and its assignees) means that extraneous
third parties may not compel arbitration.” (Ibid.) The Ngo court concluded the
manufacturer did not benefit from the contract because any “benefit that [manufacturer]
BMW might receive from the clause is peripheral and indirect because it is predicated on
the decisions of others to arbitrate.” (Ibid.; accord Ford, supra, 89 Cal.App.5th at
pp. 1336–1339 [manufacturer not a third party beneficiary of sales contract between
purchaser and dealership].)
We find the Ngo and Ford analyses persuasive. As in those cases, the arbitration
provision here limits the parties who may compel arbitration to Bacon, the dealership,
and the dealership’s assignee. The contract defines references to “ ‘I’, ‘me’ and ‘my’ ” as
referring to the purchaser, and references to “ ‘you’ and ‘your’ ” as referring to the
dealership or its assignee. The agreement provides, “Either you or I may choose to have

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any dispute between us decided by arbitration and not in a court or by jury trial.” It later
provides, “Any Claim shall, at your or my election, be resolved by neutral, binding
arbitration and not by a court action.” Because the manufacturer cannot directly compel
arbitration, it does not benefit from the contract.
We acknowledge that the arbitration provision’s broad description of the subject
matter of arbitrable claims includes claims that could involve the manufacturer. The
provision defines a claim as including “any claim . . . between me and you or
your . . . affiliates, . . . or between me and any third parties if I assert a Claim against such
third parties in connection with a Claim I assert against you.” In this case, the
manufacturer is a third party sued in connection with a claim Bacon asserted against the
dealership. The manufacturer is also an affiliate of assignee “BMW Bank of North
America, a wholly owned subsidiary of BMW Financial Services NA, LLC.” (An
uncontested declaration filed by the manufacturer indicates that BMW Financial Services
NA, LLC is a wholly owned subsidiary of the manufacturer.) But “[w]ho may enforce an
arbitration agreement is a separate matter from the types of disputes the agreement
covers.” (See Ford, supra, 89 Cal.App.5th at p. 1339, review granted, italics omitted.)
We agree with the Ford court that the “parties’ choice of the subject of the disputes they
agree to arbitrate does not evince an intention to benefit nonparties so as to affect who is
entitled to compel arbitration.” (Ibid.)
2. No Motivating Purpose to Benefit the Manufacturer
The second factor asks whether a motivating purpose of the contracting parties
was to benefit the manufacturer. (Goonewardene, supra, 6 Cal.5th at p. 830.) The
Supreme Court explained this factor “clarif[ies] that the contracting parties must have a
motivating purpose to benefit the third party, and not simply knowledge that a benefit to
the third party may follow from the contract.” (Ibid.)
Here, the motivating purpose of the arbitration provision was to empower the
purchaser, the dealership, and the dealership’s assignee to compel arbitration. The

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arbitration provision did not similarly empower the manufacturer. To be sure, the
manufacturer may indirectly benefit from the contract if the dealership or the dealership’s
assignee compel arbitration of a claim that also includes the manufacturer. But such
incidental benefit does not support a finding of motivating purpose. (Accord Ngo, supra,
23 F.4th at pp. 947–948; Ford, supra, 89 Cal.App.5th at p. 1339, review granted.)
3. Objectives of the Contract and Reasonable Expectations of the
Contracting Parties
The third factor asks whether permitting the manufacturer to enforce the contract
is consistent with the objectives of the contract and the reasonable expectations of the
contracting parties. (Goonewardene, supra, 6 Cal.5th at p. 830.) We again agree with
the Ford court, which observed that allowing the manufacturer to “to enforce the
arbitration provision as a third party beneficiary would be inconsistent with the
‘reasonable expectations of the contracting parties’ [citation] where they twice
specifically vested the right of enforcement in the purchaser and the dealer only.” (Ford,
supra, 89 Cal.App.5th at p. 1340, review granted; accord Ngo, supra, 23 F.4th at p. 948.)
In sum, the contract supplies the manufacturer no legal entitlement to arbitration
as a third party beneficiary.
C. Equitable Estoppel
There is a split of authority about whether equitable estoppel allows a car
manufacturer to compel arbitration based on a sales contract between a dealership and a
car buyer. (Compare Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495
(Felisilda) [compelling arbitration] with Ford, supra, 89 Cal.App.5th at p. 1332, review
granted [denying arbitration].) The Supreme Court has granted review of Ford to decide
whether “manufacturers’ express or implied warranties that accompany a vehicle at the
time of sale constitute obligations arising from the sale contract, permitting
manufacturers to enforce an arbitration agreement in the contract pursuant to equitable

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estoppel.” (Ford Motor Warranty Cases (S279969, July 19, 2023) [order granting
review].)
The Felisildas bought a minivan from a dealership, and later sued the dealership
and manufacturer alleging a violation of the Song-Beverly Consumer Warranty Act.
(Felisilda, supra, 53 Cal.App.5th at p. 489.) The dealership successfully moved to
compel arbitration of the Felisildas’ claims against both the dealership and the
manufacturer. The Felisildas then dismissed the dealership from the action, and the
matter proceeded to arbitration between the manufacturer and the Felisildas. (Id. at
pp. 491–492.) On appeal from a judgment confirming an arbitrator’s decision in favor of
the manufacturer, the Felisildas argued that equitable estoppel did not apply. (Id. at
pp. 495–496.)
The Felisilda court observed that a nonsignatory defendant may invoke an
arbitration clause to compel a signatory plaintiff to arbitrate its claims when the
plaintiff’s causes of action are intimately founded in and intertwined with the underlying
contract obligations. (Felisilda, supra, 53 Cal.App.5th at p. 495.) The Felisilda court
noted that the sales contract at issue referred to any claim “ ‘which arises out of or relates
to . . . [the] condition of this vehicle,’ ” and reasoned that the Felisildas’ claim related to
the condition of the car they purchased. (Id. at p. 496, italics omitted.) The court also
reasoned that the “sales contract was the source of the warranties at the heart” of the
Felisildas’ action. (Ibid.) And the court reasoned that the “arbitration provision in this
case provides for arbitration of disputes that include third parties so long as the dispute
pertains to the condition of the vehicle.” (Id. at p. 497.) The court concluded equitable
estoppel precluded the Felisildas from preventing the manufacturer from compelling
arbitration.
Multiple appellate decisions have declined to follow Felisilda. (Ford, supra, 89
Cal.App.5th at p. 1333, review granted; Ngo, supra, 23 F.4th at p. 950; Kielar v. Superior
Court (2023) 94 Cal.App.5th 614, 617.) In Ford, the manufacturer argued it was entitled

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to compel arbitration based on sales contracts between the plaintiffs and dealerships
under the doctrine of equitable estoppel. (Ford, supra, at p. 1332.) The Ford court
disagreed with the three bases for Felisilda’s conclusion that equitable estoppel applied.
First, the Ford court observed that the language defining the subject matter of arbitrable
claims did not equitably estop the plaintiffs from asserting that a third party had no right
to compel arbitration. (Ford, supra, at p. 1334 [“That the Felisilda plaintiffs and the
dealer agreed in their sale contract to arbitrate disputes between them about the condition
of the vehicle does not equitably estop the plaintiffs from asserting [the manufacturer]
has no right to demand arbitration.”].) Second, the Ford court found that the sales
contract was not the source of the warranties that formed the basis of the plaintiffs’
warranty claims because “manufacturer vehicle warranties that accompany the sale of
motor vehicles without regard to the terms of the sale contract between the purchaser and
the dealer are independent of the sale contract.” (Ford, supra, at p. 1334; see also id. at
p. 1335 [noting that “California law does not treat manufacturer warranties imposed
outside the four corners of a retail sale contract as part of the sale contract”].) Third, the
Ford court found that a reference to third parties in the arbitration clause did not act as
consent by the purchaser to arbitrate claims with third party nonsignatories because the
language delineated the “subject matter of claims the purchasers and dealers agreed to
arbitrate,” not the parties who could compel arbitration. (Id. at p. 1335.) The Ford court
concluded that because no plaintiff alleged manufacturer violations of the sales contracts’
express terms and their allegations about warranties were independent from the sales
contracts, equitable estoppel did not apply. (Id. at p. 1336.)
We find Ford persuasive. As in Ford, Bacon by his lawsuit does not attempt to
enforce the sales contract’s substantive terms against the manufacturer. He alleges
violations of consumer protection statutes and violations of warranties that exist
independent of the sales contract. The sales contract made clear that any written
warranty was separate from the sales contract and that the dealership was “not offering

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any express warranties unless you have given a warranty to me.” Equitable estoppel does
not apply.
The manufacturer’s arguments to the contrary have been considered and rejected
by Ford and other decisions. The manufacturer cites the California Commercial Code
and argues that Bacon’s “claims for breach of the express and implied warranties are
intimately founded in and intertwined with the Agreement.” We agree with Ford that the
warranty claims are not intertwined with the sales contract because “manufacturer vehicle
warranties that accompany the sale of motor vehicles without regard to the terms of the
sale contract between the purchaser and the dealer are independent of the sale contract.”
(Ford, supra, 89 Cal.App.5th at p. 1334, review granted.) The manufacturer argues the
arbitration provision at issue here supports equitable estoppel because it “expressly
envisions arbitration of claims involving the assignees and affiliates of both the
[dealership] and [dealership’s] assignees.” But the language the manufacturer cites
pertains to the subject matter of arbitrable claims, not the parties who may compel
arbitration. (See Ford, at p. 1335.) The manufacturer argues Bacon’s “claims directly
derive from, and depend upon, the Agreement containing the arbitration provision to
which Bacon agreed.” The Ninth Circuit rejected a similar argument in Ngo, where the
court observed it is the retail sale, “not the purchase agreement, that gives a plaintiff
standing to bring claims under the Song-Beverly Act.” (Ngo, supra, 23 F.4th at p. 950.)
We agree with that analysis.
III. DISPOSITION
The judgment is reversed and the matter remanded with instructions to enter a new
order denying defendant BMW of North America, LLC’s motion to compel arbitration.
Bacon is awarded his costs on appeal. (Cal. Rules of Court, rule 8.278(a).)

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____________________________
LIE, J.
WE CONCUR:
_____________________________________
BAMATTRE-MANOUKIAN, ACTING P.J.
_____________________________________
WILSON, J.
Bacon v. BMW of Northern California LLC
H050174

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