Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

 

BACKGROUND 

 

  This case arises from a dispute over an allegedly defective Tesla.  Plaintiff Michael Zahab ordered a new 2022 Tesla Model Y from Tesla, Inc. pursuant to a motor vehicle order agreement (“MVOA”).  (Ex. 1 to Kim Decl.)  Plaintiff could not have placed the order without agreeing to the terms and conditions of the MVOA.  (Kim Decl. ¶¶ 3-4.)   

The MVOA contains an arbitration provision which states that “you [Plaintiff] agree that any dispute arising out of or relating to any aspect of the relationship between you [Plaintiff] and Tesla will not be decided by a judge or jury but instead by a single arbitrator in an arbitration administered by the American Arbitration Association (AAA) under its Consumer Arbitration Rules.”  (Ex. 1 to Kim Decl.)   “Tesla” is defined as “Tesla Inc. and its affiliates,” which would include Defendant Tesla Motor, Inc. (“Tesla”).  (Id.) 

The arbitration agreement allows customers to opt out by sending a letter to Tesla within thirty days of signing the MVOA.  (Id.)  Plaintiff did not opt out.  (Kim Decl. ¶ 5.) 

Plaintiff alleges that his Tesla “contained multiple manufacturer defects, defects in assembly, design defects, and other defects, rendering the vehicle unsafe and making it impossible for Plaintiff to use the vehicle without inconvenience, failure, and mechanical breakdown.”  (Compl. ¶ 12.)  Plaintiff requested Tesla to “release” the car, but Tesla refused.  (Id. ¶ 21.)   

The operative complaint asserts three claims for (1) breach of implied warranty, (2) breach of express warranty, and (3) violation of the Song Beverly Act.   

This hearing is on Tesla’s motion to compel arbitration.  Tesla argues the parties entered into a valid, enforceable arbitration agreement which covers the claims raised by Plaintiff in this case.  Tesla also seeks a stay of the proceedings pending the completion of arbitration.     

LEGAL STANDARD 

The¿Federal Arbitration Act (“FAA”)¿applies to contracts that involve interstate commerce.  (9 U.S.C. §§ 1,¿2).   Automotive sales contracts necessarily involve interstate commerce.  (United States v. Oliver (9th Cir. 1995) 60 F.3d 547, 550; see also Sanchez v. v. Valencia Holding Co. (2015) 61 Cal.4th 899, 906-907 (applying FAA to automotive sales contract).)     

Under the FAA, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration …”.  Moses H. Cone Memorial Hospital v. Mercury Constr. Corp.¿(1983) 460 U.S. 1, 24–25.  This federal policy favoring arbitration preempts any state law impediments to the policy’s fulfillment.  If a state law interferes with the FAA’s purpose of enforcing arbitration agreements according to their terms, the FAA preempts the state law provision, no matter how laudable the state law’s objectives. (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 352.)  Under the¿supremacy clause of the United States Constitution (art. VI, cl. 2), the FAA requires any conflicting state law to give way. (Nitro-Lift Technologies, L. L. C. v. Howard¿(2012) 133 S.Ct. 500, 504). 

However, while the arbitration agreement here is governed by the FAA, the agreement may be enforced via the summary procedures provided by California arbitration law.  (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal. 4th 394, 409-410.)  It is a “general and unassailable proposition . . . that States may establish the rules of procedure governing litigation in their own courts,” even though the controversy is governed by substantive federal law.  (Felder v. Casey¿(1988) 487 U.S. 131, 138.)  By the same token, however, a state procedural rule must give way “if it impedes the uniform application of the federal statute essential to effectuate its purpose, even though the procedure would apply to similar actions arising under state law.” (McCarroll v. L.A. County etc. Carpenters¿(1957) 49 Cal. 2d 45, 61, 62.)   

“We think it plain¿the California procedures for a summary determination of the petition to compel arbitration serve to further, rather than defeat, the enforceability policy of the [FAA.]” ¿(Rosenthal, 14 Cal. 4th at 409.)  Code Civ. Proc. § 1281.2 and¿1290.2¿are neutral as between state and federal law claims for enforcement of arbitration agreements.  (Id.)  “They display no hostility to arbitration as an alternative to litigation; to the contrary, the summary procedure provided, in which the existence and validity of the arbitration agreement is decided by the court in the manner of a motion, is designed to further the use of private arbitration as a means of resolving disputes more quickly and less expensively than through litigation.”  (Id.) 

As with federal law, under California¿law,¿public policy favors arbitration as an efficient and less expensive means of resolving private disputes.  (Moncharsh¿v.¿Heily¿&¿Blase¿(1992) 3 Cal.4th 1, 8-9;¿AT&T Mobility LLC v. Concepcion,¿563 U.S. at 339.)¿ To further that policy, Code Civ. Proc. §1281.2 requires a trial court to enforce a written arbitration agreement unless it finds (1) no written agreement to arbitrate exists, (2) the right to compel arbitration has been waived, (3) grounds exist for rescission of the agreement or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues.    

When seeking to compel arbitration, the initial burden lies with the moving party to demonstrate the existence of a valid arbitration agreement by a preponderance of evidence.¿ (Ruiz v. Moss Bros. Auto Group (2014) 232 Cal.App.4th 836, 841-42; Gamboa v. Northeast Community Clinic (2021), 72 Cal.App.5th 158, 164-65.)¿ It is sufficient for the moving party to produce a copy of the arbitration agreement or set forth the agreement’s provisions.¿ (Gamboa, 72 Cal.App.5th at 165.)¿ The burden then shifts to the opposing party to prove by a preponderance of evidence any defense to enforcement of the contract or the arbitration clause.¿ (Ruiz, 232 Cal.App.4th at 842; Gamboa, 72 Cal.App.5th at 165.)  The trial court then weighs all the evidence submitted and uses its discretion to make a final determination.¿ (Id.)¿ “California law, like [federal law], reflects a strong policy favoring arbitration agreements[.]”¿ (Wagner Const. Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 31 (internal quotations omitted).)  

If the court orders arbitration, then the court shall stay the action until arbitration is completed.¿ (See Code Civ. Proc., § 1281.4.)  

DISCUSSION 

Existence of an Agreement 

In ruling on a motion to compel arbitration, the Court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law  help guide the court in making this determination. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541; Victoria v. Superior Court (1985) 40 Cal. 3d 734, 835.)¿¿  

Although “[t]he law favors contracts for arbitration of disputes between parties” (Player v. Geo. M. Brewster & Son, Inc. (1971) 18 Cal.App.3d 526, 534), “there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate[.]” (Weeks v. Crow (1980) 113 Cal. App. 3d 350, 353..)¿ “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” (AT&T Technologies v. Communications Workers (1986) 475 U.S. 643, 648 (citations and internal quotations omitted); see also Sparks v. Vista Del Mar Child & Family Services (2012) 207 Cal.App.4th 1511, 1518¿(“Because arbitration is a contractual matter, a party that has not agreed to arbitrate a controversy cannot be compelled to do so”).)¿¿¿¿¿¿¿  

Tesla has met its burden to show that an arbitration agreement exists.  The MVOA requires arbitration of “any dispute arising out of or relating to any aspect of the relationship between you [Plaintiff] and Tesla”.  (Ex. 1 to Kim Decl.)  Plaintiff agreed to the terms and conditions of the MVOA by clicking on the “Place Order” button.  (Kim Decl. ¶ 4.)  He also electronically signed the agreement.  (Id.)   

Courts have enforced similar “clickwrap” agreements.  “Clickwrap” is an agreement “in which an internet user accepts a website’s terms of use by clicking an ‘I agree’ or ‘I accept’ button, with a link to the agreement readily available.”  (Sellers v. JustAnswer LLC (2021) 73 Cal. App. 5th 444, 463 (internal quotation marks omitted). “[C]ourts have routinely found clickwrap agreements enforceable.”  (Berman v. Freedom Fin. Network, LLC (9th Cir. 2022) 30 F.4th 849, 856.)   

As with any other contract, however, “clickwrap” agreements must be supported by mutual assent.  (Sellers, 73 Cal. App. 5th at 461.)  “[I]n order to establish mutual assent for the valid formation of an internet contract, a provider must first establish the contractual terms were presented to the consumer in a manner that made it apparent the consumer was assenting to those very terms when checking a box or clicking on a button.”  (Id.) 

Here, Plaintiff placed the order for his Tesla by clicking a Place Order button on Tesla’s website.  (Kim Decl. ¶ 4.)  Prior to placing the order, Plaintiff would be advised that he was agreeing to the MVOA’s terms and conditions.  (Id.)  There would be a hyperlink to the MVOA’s terms and conditions that Plaintiff could click on and read prior to proceeding with the order.  (Id.)  If a customer clicks on the hyperlink, a new window would open revealing the MVOA.  (Id.)   On these facts, the Court concludes that “the contractual terms were presented to the consumer in a manner that made it apparent the consumer was assenting to those very terms when checking” the box next to the link to the Terms and Conditions.  (Sellers, 73 Cal. App. 5th at 461; cf. Adibzadeh v. Best Buy Co. Inc., No. 20-cv-06257-JSW, 2021 U.S. Dist. LEXIS 193421, 2021 WL 4440313, at *6 (N.D. Cal. Mar. 2, 2021) (concluding users were afforded reasonably conspicuous notice where they were required to “agree to the website’s terms and conditions before they [could] proceed, and the terms and conditions [were] offset in a blue[], hyperlinked text”).) 

Arbitrability of Claims     

The arbitration agreement is broad enough to cover Plaintiff’s suit regarding a defective Tesla.  The MVOA requires arbitration of “any dispute arising out of or relating to any aspect of the relationship between you [Plaintiff] and Tesla.”  (Ex. 1 to Kim Decl.)  Plaintiff’s claims arise out of Tesla’s manufacture of the car, the sale of the car to Plaintiff by Tesla, Tesla warranting the car, and Tesla’s repairs to the car, all of which arise out of and relate to the relationship between the parties.   

Unconscionability  

The Court must next consider whether the MVOA is unconscionable.  Unconscionability generally includes the absence of meaningful choice on the part of one of the parties together with contract terms that unreasonably favor the other party. (Carboni v. Arrospide (1991) 2 Cal.App.4th 76, 82-83.)  Unconscionability has both a ‘procedural’ and a ‘substantive’ element.” (A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 486.)  An agreement to arbitrate is unenforceable only if both procedural and substantive unconscionability is shown. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1533.)   

Procedural unconscionability focuses on whether there is “oppression” arising from an inequality of bargaining power or “surprise” arising from buried terms in a complex printed form. (Id. at 1280.)  Substantive unconscionability addresses the existence of overly harsh or one-sided terms. (Id.)   

Plaintiff has the burden of proving both procedural and substantive unconscionability. (Crippen v. Central Valley RV Outlet. Inc. (2004) 124 Cal.App.4th 1159, 1165).  Both, however, need not be present to the same degree.  A sliding scale is applied so that the “more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1317; see also A & M Produce Co., 135 Cal.App.3d at 486.)   
Here, the contract is adhesive because it was offered on a “take it or leave it” basis, and while Plaintiff was given an opportunity to opt out, an opt out provision does not insulate an arbitration agreement from a finding of procedural unconscionability.  (Gentry v. Superior Court (2007) 42 Cal.4th 443, 470 (arbitration agreement had a degree of procedural unconscionability even though there was a 30 day opt out provision).)   

However, even if adhesive, the showing of procedural unconscionability is slight given the language of the arbitration agreement was not buried in a complex form.  The MVOA is only five pages long, and the arbitration agreement is prominently displayed with a distinctive border on page 3 of the Order Agreement.  The heading of the section (“Agreement to Arbitrate”) is also in bold.  

There is also nothing to infer a great disparity of bargaining power.  “In general, nothing prevents purchasers of … vehicles from bargaining with dealers, even though dealers use form contracts[.]”  (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 931.)  “Although the contract is 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.)  Plaintiff was not forced to buy his car and could have decided to buy another car elsewhere that did not have an arbitration provision.   

In any event, “a finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.” (Gentry, 42 Cal.4th at 469.)   We now address whether the MVOA is substantively unconscionable. 

In order to find an agreement substantively unconscionable, it must be so “one-sided as to shock the conscience.”  (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 246.)  Here, the MVOA is not so one-sided as to shock the conscience.  Under the MVOA, both parties have the right to demand arbitration.  (Ex. 1 to Kim Decl.)  The arbitration is to be administered under AAA’s rules, which courts have found to be neutral and fair.  (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1126-1127.)  AAA Rules allow for a neutral arbitration selection process.  The agreement also provides that Tesla will “pay all AAA fees for any arbitration, which will be held in the city or county of your [Plaintiff’s] residence.”  (Ex. 1 to Kim Decl.)   

In sum, the Court finds no substantive unconscionability.  Accordingly, the arbitration agreement is enforceable. 

Stay of Proceedings 

Code Civ. Proc. §1281.4 provides that if the court has ordered the arbitration of a controversy, it “shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.”  Pursuant to Section 1281.4, therefore, the Court stays this action pending conclusion of the arbitration proceedings.    

 

CONCLUSION 

For the foregoing reasons, the Court GRANTS Defendant Tesla Motors, Inc.’s motion to compel arbitration and for a stay.   

DATED: January 22, 2025 ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court