Judge: Frank M. Tavelman, Case: 23BBCV02952, Date: 2024-04-26 Tentative Ruling

Case Number: 23BBCV02952    Hearing Date: April 26, 2024    Dept: A

LOS ANGELES SUPERIOR COURT

NORTH CENTRAL DISTRICT - BURBANK

DEPARTMENT A

MOTION TO COMPEL ARBITRATION

NOTICE:

The Court is not requesting oral argument on this matter.  Pursuant to California Rules of Court, Rule 3.1308(a)(1) notice of intent to appear is required.  Unless the Court directs argument in the Tentative Ruling, no argument will be permitted unless a “party notifies all other parties and the court by 4:00 p.m. on the court day before the hearing of the party’s intention to appear and argue.  The tentative ruling will become the ruling of the court if no notice of intent to appear is received.”  

Notice may be given either by email at BurDeptA@LACourt.org or by telephone at (818) 260-8412.

ALLEGATIONS: 

Armen Elvis Sahakian (Plaintiff) filed suit against Tesla, Inc. (Tesla). Plaintiff alleges Tesla violated certain provisions of Civil Code § 1791.2, commonly known as the Song Beverly Act.

Tesla now moves to compel Plaintiff’s claims to arbitration. Plaintiff opposes the motion and Tesla replies.

ANALYSIS: 

I.                    LEGAL STANDARD 

C.C.P. § 1281.2 states: “[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement arbitrate the controversy exists.”

A party seeking to compel arbitration has the initial burden to prove, by a preponderance of the evidence, the existence of a valid and enforceable arbitration agreement. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) If the moving party has met its initial burden, then the burden shifts to respondents to prove the falsity or unenforceability of the arbitration agreement. (Id.) 

II.                 MERITS

Existence of Agreement

Plaintiff does not dispute that a valid arbitration agreement exists between himself and Tesla. It appears that there are two arbitration provisions accompanying Tesla’s motion to compel. The first arbitration agreement is contained in the Motor Vehicle Order Agreement (MVOA). Tesla states that Plaintiff, as with everyone else who purchases a vehicle from Tesla online, signed and submitted a MVOA as part of the online ordering process. (Kim Decl. ¶ 4, Exh. 1.) Plaintiff does not dispute that he signed this agreement as part of his purchase. The arbitration provision in the MOVO reads as follows:

Please carefully read this provision, which applies to any dispute between you and Tesla, Inc. and its affiliates, (together “Tesla”). If you have a concern or dispute, please send a written notice describing it and your desired resolution to resolutions@tesla.com. If not resolved within 60 days, you agree that any dispute arising out of or relating to any aspect of the relationship between you 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. This includes claims arising before this Agreement, such as claims related to statements about our products. We will pay all AAA fees for any arbitration, which will be held in the city or county of your residence. To learn more about the Rules and how to begin an arbitration, you may call any AAA office or go to www.adr.org. The arbitrator may only resolve disputes between you and Tesla, and may not consolidate claims without the consent of all parties. The arbitrator cannot hear class or representative claims or requests for relief on behalf of others purchasing or leasing Tesla vehicles. In other words, you and Tesla may bring claims against the other only in your or its individual capacity and not as a plaintiffs or class member in any class or representative action. If a court or arbitrator decides that any part of this agreement to arbitrate cannot be enforced as to a particular claim for relief or remedy, then that claim or remedy (and only that claim or remedy) must be brought in court and any other claims must be arbitrated.

If you prefer, you may instead take an individual dispute to small claims court. 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, 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.

Plaintiff also appears to have executed a Lease Agreement (Lease) shortly before delivery of the vehicle. (Kim Decl. ¶ 8, Exh. 2.) The Lease contains an arbitration agreement which appears to be identical to that in the MVOA. Plaintiff also does not dispute having signed this agreement.

As Tesla has demonstrated the existence of a valid agreement, the burden therefore shifts to Plaintiff to demonstrate the falsity or unenforceability of the agreement. Plaintiff’s opposition contends that the agreement in the MVOA is unenforceable as it is both procedurally and substantively unconscionable.

Procedural Unconscionability

Procedural unconscionability focuses on the oppression or surprise due to unequal bargaining power between the parties generally demonstrated by a contract of adhesion which is “imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1280-1281 [internal quotations omitted].) Here, Plaintiff argues that the MVOA is procedurally unconscionable because it is a contract of adhesion which left Plaintiff no choice but to accept if he wanted a vehicle from Tesla.  

When a contract is an adhesion contract, imposed and drafted by the party with superior bargaining power, the adhesive nature of the contract is evidence of some degree of procedural unconscionability. (Sanchez v Carmax Auto Superstores Cal., LLC (2014) 224 CA 4th 398, 403.) However, this fact alone is insufficient to make an agreement unconscionable. (Diaz v Sohnen Enters. (2019) 34 CA 5th 126, 132.) When there is no other indication of oppression or surprise, the degree of procedural unconscionability of an adhesion agreement is low, and it will be enforceable unless the degree of substantive unconscionability is high. (Ajamian v CantorCo2e, L.P. (2012) 203 CA 4th 771, 796.)

Here, the contract between Plaintiff and Tesla may be considered one of adhesion; however, while Plaintiff may be obligated to sign it without negotiation, Plaintiff also has the right to subsequently opt out of the agreement up to 30 days afterwards. The MVOA is presented electronically and without meaningful opportunity to bargain the terms, only allowing a potential buyer to consent via agreeing to the terms and conditions. (Kim Decl. ¶ 4.) Regardless, the Court finds the MVOA is devoid of the other factors which would result in a high degree of procedural unconscionability. As the court in Ajamian made clear, there must be other showings of oppression or surprise by Plaintiff.

The Court finds it useful to contrast the agreement here with one cited by Plaintiff, Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899. Plaintiff references Sanchez as supporting their argument for procedural unconscionability, but the Court finds Sanchez to be factually inapposite. In Sanchez, the contract at issue was printed on a single page which was 26 inches long. (Sanchez supra, 61 Cal.4th. at 908.) The contract was covered in different provisions which were printed on the front and the back, but only the front had signature blocks. (Id.) The arbitration agreement was located on the back at the bottom, as far away from notice as it could possibly be. (Id.) Here, the link to the MVOA was presented in bold font on the order page and displayed via hyperlink. (Kim Decl. ¶ 4.) The MVOA itself is presented as an electronic document with the arbitration provisions clearly marked in the center of the document. (Kim Decl. Exh. 1, p. 3.) The arbitration provision is further highlighted by virtue of being surrounded by a box and having its heading bolded. (Id.)

While Plaintiff is correct that the MVOA is a contract of adhesion, the Court finds this fact only demonstrates a slight amount of procedural unconscionability. Accordingly, Plaintiff must demonstrate substantial substantive unconscionability in order to defeat Tesla’s motion.

Substantive Unconscionability

Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to an assessment of whether these terms are overly harsh or one-sided. (OTO, L.L.C. v. Kho supra at 129.) A term is not substantively unconscionable when it merely gives one party a greater benefit; instead, it must be so one-sided as to “shock the conscience.” (Pinnacle Museum Tower Ass'n v Pinnacle Mktg. Dev. (US), LLC (2012) 55 CA 4th 223, 246.)

Plaintiff argues that the arbitration provisions require AAA with no alternative and therefore are substantively unconscionable. An arbitration agreement is generally enforceable, if it (1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require the parties to pay unreasonable costs and fees as a condition of access to an arbitration forum. (See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.)

Plaintiff’s argues that by requiring him to submit to the AAA rules, the agreement inherently favors Tesla. Plaintiff states that the AAA rules (1) do not provide choice of an arbitrator and (2) provide for inadequate discovery. Plaintiff’s argument particularly focuses on AAA Rules Rule 22, which limit discovery and preclude the taking of any depositions. (See Oppo. Exh. A.)

As concerns discovery limitations, the Court finds that limiting discovery is not inherently unconscionable. While it is true that California courts have recognized that “adequate” discovery is indispensable for the vindication of statutory claims (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 715), “adequate” does not mean “unfettered” or unlimited. (Armendariz, supra, 24 Cal.4th at pp. 105-106; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 184; Torrecillas v. Fitness International, LLC (2020) 52 Cal.App.5th 85.) Plaintiff’s primary contention is that he will not be able to vindicate his statutory claims without conducting depositions of Tesla employees. Plaintiff argues that deposition of Tesla’s service technicians is needed to determine (1) Tesla’s process for restitution to buyers, (2) Tesla’s repurchase policies, (3) if there was any independent investigation of the Subject Vehicle, (4) if there were safety recalls, (5) the repair history of the Subject Vehicle, and (6) Tesla’s knowledge pertaining to defects. Having reviewed these categories, it appears that much of the information could be obtained through written discovery, which Rule22 permits. Plaintiff presents no argument as to why this information must be obtained through deposition, when most if not all of these matters could be attested to by documentary evidence.

Further, the Court finds that the limitation on discovery and the restriction on the ability to choose an arbitrator are not substantively unconscionable because they apply equally to both sides. If the AAA rules prohibited only Plaintiff from choosing an arbitrator or from participating in discovery, such rules would indeed be so one-sided as to shock the conscience. However, the AAA rules are binding on both parties to the MVOA, restricting Tesla’s access to discovery and ability to choose an arbitrator equally.  

Lastly, the Court finds Plaintiff’s argument that the AAA rules inherently favor Tesla unpersuasive. An arbitration agreement is unconscionable unless there is a modicum of bilaterality in the arbitration remedy; parties are free to contract for asymmetrical remedies and arbitration clauses of varying scope, but the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself. (Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 854.) A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be so one-sided as to shock the conscience. (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 692 [internal citation omitted].)

Here, the Court does not find any advantage conferred on Tesla to be so one-sided as to shock the conscience. Tesla presumably included the AAA arbitration provision because it was in some way preferable to them. The same is true of almost every arbitration agreement. A party would not seek to arbitrate claims if the arbitration process was not in some way preferable to a full court trial. Plaintiff’s logic would indicate that any arbitration agreement which elects the AAA is substantively unconscionable, which is clearly not the case.  Unlike other arbitration agreements with substantively problematic provisions, the Tesla agreement does not require Plaintiff to travel to another state to arbitrate, does not apply the law of any state besides California, does not contain its own internal statute of limitations, does not require Plaintiff to advance the costs of the arbitrator, and does not contain a limitation of remedies provision preventing Plaintiff from obtaining a refund or a civil penalty or their attorney’s fees if they prevail. Those types of provisions, where present, raise the substantive unconscionability level above the Court's threshold for finding an arbitration agreement unenforceable.

Conclusion

The Court finds that Tesla has provided adequate evidence of a valid arbitration agreement between itself and Plaintiff. While Plaintiff has shown a modicum of procedural unconscionability, via a contract of adhesion, he has not shown the substantial substantive unconscionability required to avoid enforcement of the agreement.

Accordingly, the motion to compel arbitration is GRANTED.  

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RULING:

In the event the parties submit on this tentative ruling, or a party requests a signed order or the court in its discretion elects to sign a formal order, the following form will be either electronically signed or signed in hard copy and entered into the court’s records. 

ORDER 

Tesla Inc.’s Motion to Compel Arbitration came on regularly for hearing on April 26, 2024, with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows: 

THE MOTION TO COMPEL ARBITRATION IS GRANTED.

THE COURT SETS A STATUS CONFERENCE RE ARBITRATION FOR JANUARY 8, 2025 AT 9:00 A.M.

UNLESS ALL PARTIES WAIVE NOTICE, TESLA TO GIVE NOTICE.  

IT IS SO ORDERED. 

DATE:  April 26, 2024                            _______________________________ 

                                                                        F.M. TAVELMAN, Judge 

Superior Court of California 

County of Los Angeles