Judge Christian R. Gullon, Case Number: 24PSCV00762, Date: 2024-06-27 Tentative Ruling

Judge: Christian R. Gullon, Case: 24PSCV00762, Date: 2024-06-27 Tentative Ruling

The Court may change tentative rulings at any time. Therefore, attorneys are advised to check this website to determine if any changes or updates have been made to the tentative ruling.

Counsel may submit on the tentative rulings by calling the clerk in Dept. O at 909-802-1126 before 8:30 the morning of the hearing. Submission on the tentative does not bind the court to adopt the tentative ruling at the hearing should the opposing party appear and convince the court of further modification during oral argument.

The Tentative Ruling is not an invitation, nor an opportunity, to file any further documents relative to the hearing in question. No such filing will be considered by the Court in the absence of permission first obtained following ex-parte application therefore.

On March 13, 2024, Plaintiff filed suit against Tesla, Inc. Dba Tesla Motors, Inc. for violations of the SBA.

Defendant moves to compel arbitration based upon two agreements that Plaintiff signed relating to the vehicle: (1) the Order Agreement, the terms of which Plaintiff agreed to when he placed their order for the Vehicle online, and (2) the Sale Contract, which Plaintiff signed just prior to delivery. (Motion p. 3.) Both agreements require that this matter be submitted to binding arbitration.

The Order Agreement, which is a six-page document that contains terms and conditions, contains an arbitration agreement on the third page. That agreement reads, in relevant part:

Agreement to Arbitrate. Please carefully read this provision, which applies to any dispute between you and Tesla, Inc. and its affiliates, (together “Tesla”)…. You may opt out of arbitration within 30 days after signing this Agreement by sending a letter to: Tesla, Inc.; P.O. Box 15430; Fremont, CA 94539-7970, stating your name, Order Number or Vehicle Identification Number, and intent to opt out of the arbitration provision. If you do not opt out, this agreement to arbitrate overrides any different arbitration agreement between us, including any arbitration agreement in a lease or finance contract. (Motion p. 5, citing Order Agreement, Kim Decl., Ex. 1.)

ARBITRATION PROVISION” and “PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS” 1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL. 2. IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS. 3. DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION. 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) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action. […] (Kim Decl., Ex. 2, p. 19 of 21 of PDF, emphasis added.)

Here, Plaintiff’s claims fall squarely within the scope of the arbitration clauses. First, the claims—warranty violations— arise out of Tesla’s manufacture of the Vehicle, the sale of the Vehicle to Plaintiff by Tesla, Tesla warranting the Vehicle, and Tesla’s repairs to the Vehicle, all of which arise out of and relate to the purchase and condition of the Vehicle, as well as the relationship between the parties. (Motion pp. 7-8.)

In opposition, Plaintiff argues that the arbitration agreements are both procedurally and unconscionable. The court disagrees.

Procedural unconscionability concerns the manner in which the contract was negotiated and the respective circumstances of the parties at that time, focusing on the level of oppression and surprise involved in the agreement. (Kinney v. United Healthcare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.

Plaintiff argues that the purchase was a pre-printed consumer sales contract qualifies as an adhesion contract and that Plaintiff had no meaningful opportunity to negotiate with Tesla regarding any of the terms. (Opp. p. 5.)

However, for one, Plaintiff has not provided an analysis that this is an adhesion contract, especially given that Plaintiff had the freely exercisable option of opting-out of the agreement to arbitrate. (Reply p. 3:22-25.) Furthermore, even if an adhesion contract, the Supreme Court of California in Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899 explained that “Although the contract was standardized, ‘no presumption is warranted that Plaintiff had no choice or power to negotiate as to the terms of their purchase agreement or that they could not obtain comparable or superior terms.” (Id. at p. 931.) Similarly, here, Plaintiff was not forced to purchase the subject vehicle and could have decided to purchase another vehicle elsewhere that was not subject to the instant agreement.

To the extent that Plaintiff argues that Plaintiff lacked bargaining power, he does so conclusively without providing facts.

To the extent that Plaintiff argues that arbitration agreement is unconscionable because it does not include the entire set of rules for the American Arbitration Association, Plaintiff does not provide adequate cases. For example, Plaintiff cites to Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138 and Harper v. Ultimo (2003) 113 Cal.App.4th 1402 for its proposition that procedural unconscionability found to exist because plaintiffs were not provided with a copy of the arbitration rules referenced in the clause. But that case was disapproved of in Wallace v. Red Bull Distributing Co. (2013) 958 F.Supp.2d 811, 823. “These cases, however, set out stricter rules for arbitration agreements than those that apply to other types of contracts…Because the FAA preempts rules that treat incorporation by reference in arbitration agreements differently than in contracts generally, [plaintiff] has failed to show that the incorporation by reference in the [] Agreement is procedurally unconscionable.” Even if there is some procedural unconscionability, the failure to attack the AAA rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability. (See Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 690, 691.)[1]

Therefore, the court finds minimal showing of procedural unconscionability. With a minimal degree of procedural, applying the sliding scale approach, Plaintiff must next establish a large degree of substantive unconscionability for the court to refuse to enforce a contract under the doctrine of unconscionability. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 247.)

Substantive unconscionability exists when the terms of the contract are unduly harsh, oppressive, or one-sided and outside the expectations of non-drafting party. (Sanchez, supra, 61 Cal.4th at 911.)

Here, aside from citing cases, Plaintiff seemingly argues that the arbitration provision is substantively unconscionable because binding arbitration in and of itself is unconscionable. (See also Reply p. 4.) Subscribing to Plaintiff’s position would have this court violate federal law (and state law) which allows for arbitration. As discussed by Defendant, Sanchez, supra, and Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 make clear that arbitration provision is valid and enforceable with respect to Song-Beverly claims such as this, and Plaintiff has not provided a single case that has held otherwise. (Reply p. 4.) In fact, as aptly noted by Defendant, per Plaintiff’s own cited authority to Chavarria v. Ralphs Grocery Co. (9th Cir. 2013) 733 F.3d 916, 923—which held that the agreement to arbitrate in that matter was unconscionable because it did not allow for a neutral selection process as to the actual arbitrator, not the arbitration organization—here, the arbitration provision does allow for the parties to utilize AAA as an arbitration organization, which utilizes a neutral arbitrator selection process.

Therefore, the court finds minimal if any showing of substantive unconscionability.

In opposition, Plaintiff states that if Plaintiff must arbitrate their claims, then Plaintiff elects to arbitrate at JAMS rather than AAA. (Opp. p. 9:6-7.) However, as noted in Reply, the FAA and CAA both require that arbitrator selection clauses be enforced according to their terms. (9 U.S.C. § 5 [“If in the agreement provision be made for a method of naming or appointing an arbitrator … such method shall be followed.”]; Code Civ. Proc. § 1281.6 [“If the arbitration agreement provides a method of appointing an arbitrator, that method shall be followed.” (Reply pp. 4-5.)

Therefore, the court compels arbitration but denies selection of JAMS because arbitration clause provided for AAA.

Based on the foregoing, as the claims brought forth in Plaintiff’s Complaint are subject to binding arbitration and the agreements are not unconscionable, the motion is granted; the action is stayed pending outcome of arbitration.[2]

[1] And it would not affect substantive unconscionability. (See Nguyen v. Applied Medical Resources Corp. (2016) Cal.App.5th 232, 249, citing Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246 [“[H]er challenge concerns only matters that were clearly delineated in the agreement she signed. Forever 21's failure to attach the AAA rules therefore does not affect our consideration of Baltazar's claims of substantive unconscionability. The same applies here. Plaintiff does not claim anything was hidden in the AAA rules. Rather, she contests only matters related to the agreement itself. Therefore, following Baltazar, the failure to attach the applicable AAA rules did not increase the procedural unconscionability of the application or its arbitration provision.”].)

[2] A proposed order has been filed.