Judge: John J. Kralik, Case: 23GDCV02277, Date: 2024-07-19 Tentative Ruling

Case Number: 23GDCV02277    Hearing Date: July 19, 2024    Dept: NCB

Superior Court of California

County of Los Angeles

North Central District

Department B

BACKGROUND

A.    Allegations

Plaintiff Jie Jiang (“Plaintiff”) alleges that he purchased a 2023 Tesla Model Y on April 13, 2023, for which manufacturer/distributor Defendant Tesla, Inc. d/b/a Tesla Motors, Inc. (“Defendant”) issued a written warranty.  Plaintiff alleges the warranty was not issued by the selling dealership.  Plaintiff alleges the subject vehicle was delivered with serious defects and nonconformities to the warranty and that it developed other serious defects and nonconformities to the warranty including, but not limited to, structural and electrical system defects.  (Compl., ¶10.)  Plaintiff alleges that he first presented the subject vehicle for repairs on May 10, 2023 and reported that the front passenger seat was unable to adjust backward.  (Id., ¶11.)  Plaintiff presented the vehicle again on May 31, 2023 and reported that the back seat squeaked when driving over bumps, the vehicle made a wind-like noise while driving, there was a vibration from the back seat and headliner, and there was a large gap in between the driver side door and the body upon closing.  (Id., ¶12.)  Plaintiff presented the vehicle in June 2023 and again reported back seat squeaking.  (Id., ¶13.) 

The complaint, filed October 26, 2023, alleges causes of action for: (1) violation of Song-Beverly Act – breach of express warranty; (2) violation of Song-Beverly Act – breach of implied warranty; and (3) violation of Song-Beverly Act § 1793.2. 

B.     Motion on Calendar

On November 28, 2023, Defendant filed a motion to compel arbitration.

On July 1, 2024, Plaintiff filed an opposition brief.

On July 5, 2024, Defendant filed a reply brief.

REQUEST FOR JUDICIAL NOTICE

            With the moving papers, Defendant submitted a request for judicial notice of the complaint.  The request is granted.  (Evid. Code, § 452(d).) 

DISCUSSION

            Defendant moves to compel arbitration against Plaintiff and an order to stay the action pending the outcome of the arbitration.

A.    Terms of the Arbitration Agreement

In support of the motion, Defendant provides the declaration of Raymond Kim, Manager, Business Resolution at Defendant.  He states that when Plaintiff ordered the subject vehicle from Defendant on January 23, 2023, Plaintiff agreed to the terms of the Motor Vehicle Order Agreement (“Order Agreement”), which included the arbitration agreement.  (Kim Decl., ¶¶3, 6.)  Mr. Kim states that Plaintiff placed the order by clicking a “Place Order” button on Defendant’s website and that Plaintiff could not have placed an order without clicking the button or authorizing someone to do so on his behalf.  (Id., ¶¶4-5.)  Mr. Kim states that customers may opt out of the arbitration agreement within 30 days of execution of the Order Agreement, but Plaintiff did not do so.  (Id., ¶¶6-7.)  On April 13, 2023, Plaintiff took delivery of the subject vehicle and executed the Retail Installment Sales Contract (“Sales Contract”), which also includes an arbitration provision.  (Id., ¶¶3, 8, 13.)  Mr. Kim states that vehicle buyers like Plaintiff have the opportunity and are expected by Defendant to read the entire Sales Contract.  (Id., ¶9.)  He states that the Sales Contract was made at or near the time of the sale of the subject vehicle.  (Id., ¶11.)  Mr. Kim states that both the Order Agreement and the Sales Contract are available for Plaintiff to view on their mytesla.com account as long as the customer own the vehicle.  (Id., ¶14.) 

The Order Agreement was entered between Plaintiff and Tesla, Inc. and includes an agreement to arbitrate.  (Kim Decl., Ex. 1 [Order Agreement at pp. 2, 3].)  The Order Agreement is only 4 pages in length. Page 3 of the Order Agreement includes a box with the bolded term: “Agreement to Arbitrate.”  It states:

Agreement to Arbitrate.  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. You further agree that any disputes related to the arbitrability of your claims will be decided by the court rather than an arbitrator, notwithstanding AAA rules to the contrary.

To initiate the arbitration, you will pay the filing fee directly to AAA and we will pay all subsequent AAA fees for the arbitration, except you are responsible for your own attorney, expert, and other witness fees and costs unless otherwise provided by law. If you prevail on any claim, we will reimburse you your filing fee. The arbitration 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 plaintiff 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, 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.

(Order Agreement at p.3.) 

            The Sales Contract includes an “ARBITRATION PROVISION” on page 5.  It states:

ARBITRATION PROVISION

PLEASE REVIEW - IMPORTANT - AFFECTS YOUR LEGAL RIGHTS

1. EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN YOU AND 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, any allegation of waiver of rights under 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. If federal law provides that a claim or dispute is not subject to binding arbitration, this Arbitration Provision shall not apply to such claim or dispute. Any claim or dispute is to be arbitrated by a single arbitrator only on an individual basis and not as a plaintiff in a collective or representative action, or a class representative or member of a class on any class claim. The arbitrator may not preside over a consolidated, representative, class, collective, injunctive, or private attorney general action. You expressly waive any right you may have to arbitrate a consolidated, representative, class, collective, injunctive, or private attorney general action.

You or we may choose the American Arbitration Association (www.adr.org) or National Arbitration and Mediation (www.namadr.com) as the arbitration organization to conduct the arbitration. If you and we agree, you or we may choose a different arbitration organization. You may get a copy of the rules of an arbitration organization by contacting the organization or visiting its website.

Arbitrators shall be attorneys or retired judges and shall be selected pursuant to the applicable rules. The arbitrator shall apply governing substantive law and the applicable statute of limitations. The arbitration hearing shall be conducted in the federal district in which you reside unless the Seller-Creditor is a party to the claim or dispute, in which case the hearing will be held in the federal district where this transaction was originated. We will pay the filing, administration, service, or case management fee and the arbitrator or hearing fee up to a maximum of $5,000, unless the law or the rules of the chosen arbitration organization require us to pay more. You and we will pay the filing, administration, service, or case management fee and the arbitrator or hearing fee over $5,000 in accordance with the rules and procedures of the chosen arbitration organization. The amount we pay may be reimbursed in whole or in part by decision of the arbitrator if the arbitrator finds that any of your claims is frivolous under applicable law. Each party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law. If the chosen arbitration organization's rules conflict with this Arbitration Provision, then the provisions of this Arbitration Provision shall control. Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.) and not by any state law concerning arbitration. Any award by the arbitrator shall be in writing and will be final and binding on all parties, subject to any limited right to appeal under the Federal Arbitration Act.

…

This Arbitration Provision shall survive any termination, payoff or transfer of this contract. If any part of this Arbitration Provision, other than waivers of class rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable. You agree that you expressly waive any right you may have for a claim or dispute to be resolved on a class basis in court or in arbitration. If a court or arbitrator finds that this class arbitration waiver is unenforceable for any reason with respect to a claim or dispute in which class allegations have been made, the rest of this Arbitration Provision shall also be unenforceable.

(Sales Contract at p.5.) 

Accordingly, the Court finds there is an enforceable agreement to arbitrate the claims asserted in the complaint and the scope of the arbitration provisions are sufficiently broad to cover the claims in this action between Plaintiff and Defendant.  Thus, the motion to compel arbitration is granted.

            In the opposition brief, Plaintiff does not raise any arguments regarding the existence of the arbitration agreement, whether he signed the agreement, or the scope of the arbitration agreement.  Rather, he argues that the arbitration provision is unconscionable. 

            As the parties do not dispute the existence or scope of the arbitration agreement, the Court will discuss whether the terms of the arbitration agreement are unconscionable. 

B.     Unconscionability

            Plaintiff argues that the arbitration agreement is procedurally unconscionable because the Order Agreement was a pre-printed consumer sales contract that was presented to Plaintiff on a “take it or leave it” basis (contract of adhesion), such that Plaintiff had no meaningful opportunity to negotiate with Defendant about the terms.  However, the Order Agreement’s arbitration agreement expressly allowed Plaintiff 30 days after signing the arbitration agreement to opt out of the arbitration provision by sending a written letter to Defendant.  As such, this particular term was not a contract of adhesion.  Further, there is no evidence that the arbitration clauses in the Order Agreement or the Sales Contract were non-negotiable or that Plaintiff made any attempt to negotiate such terms and was denied.  (See Bolanos v. Khalatian (1991) 231 Cal.App.3d 1586 [holding that arbitration agreement was enforceable because the plaintiff’s declaration did not say that she could not read or understand the agreement and because she did not offer any evidence that she was forced or tricked into signing the agreement].) Plaintiff has not provided a declaration stating that he attempted to ask questions about or negotiate the terms of the arbitration agreement in the Order Agreement or the Sales Contract and that he was denied such requests.

            Plaintiff also argues that the arbitration agreement did not include a copy of the relevant arbitration rules.  However, the Order Agreement’s arbitration agreement stated that the American Arbitration Association would be the chosen arbitrator and that rules may be found by calling the AAA office or going on the www.adr.org website.  Similarly, the Sales Contract’s arbitration provision directs Plaintiff to contact AAA or National Arbitration and Mediation or visit their websites for the arbitration rules.  The failure to attach or provide the AAA and/or NAM rules to the arbitration agreement is not, in itself, a sufficient ground to support a finding of procedural unconscionability.  For example, in Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 690, the Court of Appeal concluded: “[T]he failure to attach a copy of the AAA rules did not render the agreement procedurally unconscionable. There could be no surprise, as the arbitration rules referenced in the agreement were easily accessible to the parties—the AAA rules are available on the Internet.”

            Thus, there are no indications of procedural unconscionability. 

            Plaintiff argues that the arbitration agreement is substantively unconscionable because the clause allows for a choice of the arbitration forum only for the party “electing” to arbitrate.  Plaintiff argues that Defendant has elected the forum and rules for the arbitration, citing to Chavarria v. Ralphs (9th Cir. 2013) 733 F.3d 916 (“Even if it were the case that Ralphs' policy does not guarantee that Ralphs will always be the party with the final selection, the selection process is not one designed to produce a true neutral in any individual case.”).  (Opp. at p.6.)  Part of the issue in Chavarria was that the arbitration selection provision would always produce an arbitrator proposed by Ralphs and that the provision precluded institutional arbitration administrators like AAA or JAMS which had established rules and procedures to select a neutral arbitrator.  Here, Defendant’s arbitration agreement does not preclude the selection of neutral arbitrators at qualified institutions like AAA or JAMS. 

            Plaintiff also argues that the arbitration cost provision is substantively unconscionable and would impose prohibitive costs on Plaintiff.  However, the arbitration agreement in the Order Agreement states: “To initiate the arbitration, you will pay the filing fee directly to AAA and we will pay all subsequent AAA fees for the arbitration, except you are responsible for your own attorney, expert, and other witness fees and costs unless otherwise provided by law. If you prevail on any claim, we will reimburse you your filing fee. The arbitration will be held in the city or county of your residence.”  (Order Agreement at p.3.)  As such, it is unclear how the arbitration cost provision in the Order Agreement is unconscionable. 

            The Sales Contract states in relevant part:

We will pay the filing, administration, service, or case management fee and the arbitrator or hearing fee up to a maximum of $5,000, unless the law or the rules of the chosen arbitration organization require us to pay more. You and we will pay the filing, administration, service, or case management fee and the arbitrator or hearing fee over $5,000 in accordance with the rules and procedures of the chosen arbitration organization. The amount we pay may be reimbursed in whole or in part by decision of the arbitrator if the arbitrator finds that any of your claims is frivolous under applicable law. Each party shall be responsible for its own attorney, expert and other fees, unless awarded by the arbitrator under applicable law.

(Sales Contract at p.5.)  The Sales Contract contemplates Defendant paying fees up to $5,000 and then the parties splitting any arbitration fees over $5,000 in accordance with the rules and procedures of the chosen arbitration organization.  The provision does not require Plaintiff to “pay all costs above $5,000” as argued by Plaintiff in the opposition brief.  (Opp. at p.7.)  The Court does not find this provision to be substantively unconscionable. 

            As there are no indications of procedural or substantive unconscionability, the motion to compel arbitration is granted. 

CONCLUSION AND ORDER

            Defendant Tesla, Inc.’s motion to compel arbitration is granted.  The action shall be stayed pending the outcome of the arbitration.

The Case Management Conference set for August 7, 2024 is vacated.  The Court sets a Status Conference re: Status of Arbitration for January 15, 2025 at 8:30 a.m.

Defendant shall give notice of this order. 

DATED:  July 19, 2024                                                          ___________________________

                                                                                          John J. Kralik

                                                                                          Judge of the Superior Court