Judge: John J. Kralik, Case: 24NNCV01942, Date: 2024-12-06 Tentative Ruling

Case Number: 24NNCV01942    Hearing Date: December 6, 2024    Dept: NCB

Superior Court of California

County of Los Angeles

North Central District

Department B

BACKGROUND

A.    Allegations

Plaintiff Dengcheng Yu (“Plaintiff”) purchased a 2023 Tesla Model Y on January 30, 2023, for which Defendant Tesla Motors, Inc. (“Defendant”) issued a written warranty. On May 31, 2024, Plaintiff filed the Complaint against Defendant, alleging (1) violation of Song-Beverly Act – breach of express warranty; (2) violation of Song-Beverly Act – breach of implied warranty. Plaintiff alleges the vehicle had the following defects at the time of sale: car computer defect; GPS defect; USB port defect; and a defect in the wood trim door. (Compl., ¶ 12-16.) Plaintiff also alleges that Defendant made representations through its authorized repair facility technicians that the vehicle was repaired on multiple occasions. (Ibid.) Plaintiff alleges that Defendant failed to disclose and fraudulently concealed the existence of the defects and its inability to repair the vehicle. (Compl., ¶ 19.)

B.     Motion on Calendar

On July 16, 2024, Defendant filed a motion to compel arbitration.

On November 21, 2024, Plaintiff filed an opposition brief.

As of November 27, 2024, there has been no reply or response.

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. 

A.    Terms of the Arbitration Agreements

Defendant provides a copy of the Motor Vehicle Order Agreement, which includes an agreement to arbitrate. (Kim Decl., Ex. 1 [Order Agreement].) The Order Agreement was entered between Plaintiff and Tesla, Inc. (Order Agreement, at p.1.) The Order Agreement is 6 pages in length. Defendant also provides a copy of the Retail Installment Sale Contract, which includes an agreement to arbitrate. (Kim Decl., Ex. 2 [Retail Installment Sale Contract].) The Retail Installment Sale Contract was entered between Plaintiff and Tesla, Inc. and is 6 pages in length. (Retail Installment Sale Contract, at p.1.)

            Defendant provides the declaration of Raymond Kim, Manager, Business Resolution at Defendant. He states that when Plaintiff ordered the subject vehicle from Defendant on June 27, 2023, Plaintiff agreed to the terms of the Order Agreement, which included the arbitration agreement. (Kim Decl., ¶3.) 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.) Mr. Kim states that customers may opt out of the arbitration agreement within 30 days of execution of the Order Agreement by sending a letter to Defendant, but Plaintiff did not do so.  (Id., ¶7.) 

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.) 

Mr. Kim states that Plaintiff took delivery of the vehicle on or about June 30, 2023, at which time Plaintiff executed a Retail Installment Sale Contract for the purchase of the vehicle on credit, which also contains an arbitration provision. (Id., ¶7; Ex. 2 [Retail Installment Sale Contract].) Page 5 of the Retail Installment Sale Contract provides:

ARBITRATION PROVISION

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. […]

(Retail Installment Sale Contract at p.5.)

            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 agreement is unconscionable, void against public policy, and that Defendant waived the right to arbitrate. 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, whether the agreement is void against public policy, and whether Defendant waived arbitration.

B.     Unconscionability

i. Procedural Unconscionability

First, Plaintiff argues that the arbitration agreement is procedurally unconscionable because Plaintiff, like every other consumer, was required to agree to the terms in the Order Agreement such that Plaintiff had no meaningful opportunity to negotiate the terms, citing Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, The Court disagrees.

Unlike the plaintiff in Gutierrez, who was never offered an opportunity to negotiate, the arbitration agreement here provides: “If you have a concern or dispute, please send a written notice describing it and your desired resolution to resolutions@tesla.com.” (Order Agreement, at p.3.) There is no evidence that the Order Agreement or the arbitration clause were non-negotiable, or that Plaintiff made any attempt to negotiate such terms and was denied. Also, unlike Gutierrez, where the arbitration clause was particularly inconspicuous (printed in eight-point typeface on the opposite side of the signature page), the Order Agreement includes an inconspicuous box with bolded terms “Agreement to Arbitrate” on page 3 of 6. Lastly, unlike Gutierrez, the Order 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.

Plaintiff argues that the 30-day opt out provision does not preclude procedural unconscionability, citing Gentry v. Superior Court (2007) 42 Cal.4th 443. The Court agrees that the opt-out clause does not necessarily sway the analysis one way or the other. (Gentry v. Superior Court (2007) 42 Cal.4th 443, 466-467.) Still, Gentry is distinguishable, as there was evidence that the employer’s pro-arbitration stance likely caused employees to feel pressure to not opt out of the arbitration agreement. (Id. at p. 472.) In contrast, no evidence has been presented that would indicate that Plaintiff felt similar pressure to not opt out of arbitration. Thus, although the op out provision does not insulate the agreement from procedural unconscionability, there is no evidence that Plaintiff did not feel free to opt out, or that Plaintiff was unable to negotiate the terms of the agreement.

            Plaintiff also argues that there is procedural unconscionability because Defendant failed to disclose relevant arbitration rules. However, the arbitration agreement stated that the American Arbitration Association (“AAA”) would be the chosen arbitrator and that rules may be found by calling the AAA office or going on the www.adr.org website.  The failure to attach or provide the AAA 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. 

ii. Substantive Unconscionability

First, Plaintiff argues that the arbitration agreement is substantively unconscionable because the requirement that Plaintiff arbitrate via Consumer Rules under the AAA precludes adequate discovery. Specifically, Plaintiff asserts that AAA Rule-22 does not expressly allow for written discovery or depositions, which precludes plaintiff adequate discovery to vindicate his statutory rights under Song-Beverly and Magnuson Moss, citing to Davis v. Kozak (2020) 53 Cal.App.5th 897, 911. However, Davis is not analogous. There, the arbitration agreement provided for discovery different than that allowed under the AAA rules. (Id. at 911-912.) Davis also noted that where the arbitrator can permit discovery on a showing of need, the arbitration agreement is not substantively unconscionable. (Id. at 911.) Here, AAA Rule 22 permits additional discovery if “an arbitrator determines further information exchange is needed to provide for a fundamentally fair process.” Moreover, Davis is distinguishable because it involved an employment dispute which is factually complex and is often determined by testimony of multiple percipient witnesses. In contrast, this is a simple lemon law case.

Second, Plaintiff argues that the arbitration agreement is substantively unconscionable because the inadequate discovery in AAA arbitration will prevent Plaintiff from vindicating Statutory Rights under Song-Beverly, again citing Davis, supra, 53 Cal.App.5th 897. As stated above, Davis is distinguishable from the present case. Here, AAA Rule 22 permits additional discovery on a showing of need and there is no evidence that Plaintiff will be prevented from vindicating his rights. Accordingly, there is no indication of substantive unconscionability.

In sum, the Court does not find procedural or substantive unconscionability.

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C.      Void Against Public Policy

Plaintiff argues that the arbitration agreement contravenes Plaintiff’s substantive rights under Civ. Code § 1790.1 and thus is void and unenforceable as against public policy, citing Rheinhart v. Nissan North America Inc. (2023) 92 Cal.App.5th 1016. The Court disagrees. The arbitration agreement does not affect Plaintiff’s substantive right to seek relief under the Song-Beverly Act. In Rheinhart, the court held that the release signed by plaintiff (that released the defendant from all claims of every kind, whether currently known or unknown, and whether arising in the past or present which relate to the plaintiff’s car) contravened the plaintiff’s right to elect the Song Beverly Act’s substantive remedies of replacement or restitution and was void as it violates public policy. (Rheinhart v. Nissan North America Inc. (2023) 92 Cal.App.5th 1016, 1020-21.) In contrast, this case does not involve a release. There is no evidence that the arbitration provision limits the causes of action or remedies available under the Song Beverly Act. Accordingly, the Court finds that the agreement is enforceable.

D.    Waiver

Lastly, Plaintiff argues that Defendant waived its right to arbitration by failing to compel arbitration within 30 days after service of the Complaint, citing Hoover v. American Income Life Ins. Co. (2012) 206 Cal. App.4th 1193, 1203. The Court disagrees. In Hoover, arbitration was not pursued for almost a full year, and the party seeking to compel arbitration conducted litigation in a style inconsistent with the right to arbitrate. (Id. at p. 1205.) In sharp contrast, here, the Complaint was filed on May 31, 2024, and Defendant filed a motion to compel arbitration less than two months later on July 16, 2024. The Court does not find that Defendant’s delay was unreasonable. Also, unlike Hoover, Defendant has not conducted any litigation inconsistent with the right to arbitrate.

The Court also finds Plaintiff’s reliance on Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443 and Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331 to be misplaced. In Adolph, the defendant delayed seeking arbitration by six months, engaged in discovery, and did not produce the arbitration agreement until after the second demurrer—which substantially impaired plaintiff's ability to obtain the cost savings provided by arbitration. (Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1451-1452.) Similarly, in Augusta, there was extensive discovery, and the defendant sought arbitration over six months after the complaint was filed. (Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331, 338-342.) In contrast, here no discovery has been conducted, there is no indication that Defendant acted inconsistently with the right to arbitrate, the delay was less than two months, and there is no evidence that Plaintiff would suffer prejudice. Accordingly, the Court does not find that Defendant waived the right to arbitration.

CONCLUSION AND ORDER

            Defendant Tesla Motors, Inc.’s motion to compel arbitration is granted.  The action shall be stayed pending the outcome of the arbitration. (Code Civ. Proc. §1281.4.) A Post Arbitration Status Conference is set on October 14, 2025, at 8:30 a.m.

Defendant shall give notice of this order. 

DATED:  December 6, 2024                                                  ___________________________

                                                                                          John J. Kralik

                                                                                          Judge of the Superior Court