Reported / Citable
Background
Abhishek Srivastava leased a new 2024 BMW iX from a Fremont dealership. He alleged that the vehicle had charging and starting problems, became inoperable, and presented a risk of a thermal event or fire. After repair attempts failed, he sued BMW of North America under California’s Song-Beverly Consumer Warranty Act, commonly known as the lemon law.
BMW did not sign the lease as the dealer did, but the lease’s arbitration provision expressly extended enforcement rights to the vehicle’s manufacturer and covered disputes involving the vehicle’s condition and warranties. BMW moved to compel arbitration. The trial court denied the motion after concluding BMW could not enforce the agreement as a third-party beneficiary, and therefore did not decide Srivastava’s argument that the clause delegating threshold questions to the arbitrator was unconscionable.
The Court’s Holding
The Sixth District reversed. It held that BMW satisfied California’s three requirements for third-party-beneficiary enforcement: the contract was intended to benefit BMW, allowing enforcement furthered the contract’s purpose, and the contracting parties contemplated that BMW could enforce the promise. The express reference to the manufacturer distinguished this lease from decisions involving sales contracts that neither named the manufacturer nor contemplated arbitration of warranty claims against it.
The court also held that the lemon-law claims fell within the clause’s broad coverage. They arose from the vehicle’s condition and warranties, subjects specifically included in the arbitration provision. Because Srivastava conceded BMW’s reading was at least plausible, ordinary rules favoring arbitration required treating the dispute as within the clause.
The appellate court did not order immediate arbitration. It remanded for the trial court to decide whether the delegation clause—the provision assigning gateway questions such as arbitrability to the arbitrator—is unconscionable and therefore unenforceable. The court expressed no view on that unresolved issue.
Key Takeaways
- A nonsignatory vehicle manufacturer may compel arbitration when a lease expressly names manufacturers as third-party beneficiaries with enforcement rights.
- The precise contract language matters; cases involving agreements that do not mention the manufacturer may not control.
- Warranty and vehicle-condition language can bring Song-Beverly claims within a lease’s arbitration scope.
- A delegation clause does not escape judicial review when a party specifically argues that the delegation provision itself is unconscionable.
- On remand, the trial court must decide unconscionability before determining who resolves the remaining arbitration questions.
Why It Matters
The decision gives automakers and consumer counsel a contract-specific roadmap in California lemon-law cases. Expressly identifying the manufacturer and warranty disputes can be enough to overcome the recurring objection that an automaker did not sign the dealership’s lease.
But the ruling is not a blanket endorsement of manufacturer arbitration. Consumer lawyers can still challenge the formation or enforceability of a delegation clause, while businesses should draft any delegation language clearly and assess whether the agreement’s presentation and terms create procedural or substantive unconscionability.