Judge Lisa K. Sepe-Wiesenfeld, Case Number: 24SMCV02610, Date: 2024-10-10 Tentative Ruling

Judge: Lisa K. Sepe-Wiesenfeld, Case: 24SMCV02610, Date: 2024-10-10 Tentative Ruling

Case Number: 24SMCV02610 Hearing Date: October 10, 2024 Dept: N

TENTATIVE ORDER

Defendant Lucid Group USA, Inc.’s Petition to Compel Arbitration and Stay Proceedings is GRANTED.

The proceedings are hereby STAYED pending the outcome of arbitration.

Defendant Lucid Group USA, Inc. to give notice.

REASONING

Defendant Lucid Group USA, Inc. (“Defendant”) moves to compel Plaintiff Jonathan Zepp (“Plaintiff”) to submit to arbitration on the ground that Plaintiff entered into a Purchase Agreement, wherein he agreed to arbitrate all claims relating to the condition of the 2022 Lucid Air vehicle at issue in this action. Defendant argues that the contract includes a valid arbitration provision, Plaintiff did not opt out of the arbitration provision, and Plaintiff’s claims fall within the scope of the arbitration provision. Plaintiff opposes the motion on the ground that the arbitration clause is unconscionable.

“[I]n considering a . . . petition to compel arbitration, a trial court must make the preliminary determinations whether there is an agreement to arbitrate and whether the petitioner is a party to that agreement (or can otherwise enforce the agreement).” (M & M Foods, Inc. v. Pac. Am. Fish Co. (2011) 196 Cal.App.4th 554, 559; see also Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284 [“petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence”].) In deciding a petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine whether plaintiff’s claims are covered by the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The burden then shifts to the opposing party to prove, by a preponderance of evidence, a defense to enforcement of the agreement. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.)

Code of Civil Procedure section 1281 states, “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” Code of Civil Procedure section 1281.2 provides, in relevant part:

On 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 to arbitrate the controversy exists, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for the revocation of the agreement.

(c) A party to the arbitration is also a party to a pending court action or special proceeding with a third party . . . .

“The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract.” (Engineers & Architects Association v. Community Development Department (1994) 30 Cal.App.4th 644, 653.) General principles of contract law determine whether the parties have entered a binding agreement to arbitrate. (Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 640-641 [“The existence of a valid agreement to arbitrate involves general contract principles”].)

Here, Plaintiff entered into a Purchase Agreement with an arbitration provision stating, in part, as follows:

11. Disputes, Arbitration, Waiver of Jury Demand

If either you or we have a dispute, the party raising the dispute will send a written notice of the dispute to the other, along with the requested resolution. You can send your request to us at disputes@lucidmotors.com. If a dispute is not resolved within 60 days, you and we agree that any dispute or claim between you and us or relating in any way to this Agreement will be resolved by binding arbitration, rather than in court, except that either you or we may assert claims in small claims court if the claims qualify. . . . Claims arising out of or relating to the validity, application, scope, enforceability, or interpretation of this provision (the “Arbitration Agreement”) shall also be decided by an arbitrator and will be governed by the Federal Arbitration Act, 9 U.S.C § 1 et seq. (“FAA”). . . .

We also both agree that you or we may bring suit in court to: 1) enjoin infringement or other misuse of intellectual property rights; 2) file bankruptcy; 3) enforce a security interest in the Vehicle by repossession; 4) take legal action in court enforce the arbitrator’s decision; or 5) request that a court review whether the arbitrator exceeded the authority granted by this Arbitration Agreement. . . .

Opt-Out: You may opt-out of the Arbitration Agreement, within 60 days from the date you accept this Agreement, by sending an email to Optout@LucidMotors.com from the email associated with your order with “Arbitration Opt-Out” in the subject line and indicating your request to optout of the arbitration provision in the body of the email.

(Mot., Hupman Decl. ¶ 3, Ex. A, at ¶ 11.) Plaintiff does not dispute that he signed this agreement. Instead, Plaintiff argues that the arbitration agreement is unconscionable.

At the outset, Plaintiff contends that unconscionability is an issue to be decided by the Court, while Defendant argues that the arbitrator decides issues of unconscionability. Again, the agreement expressly provided that “[c]laims arising out of or relating to the validity, application, scope, enforceability, or interpretation of this provision (the ‘Arbitration Agreement’) shall also be decided by an arbitrator.” (Mot., Hupman Decl. ¶ 3, Ex. A, at ¶ 11.) The question of who decides issues of arbitrability is described as follows:

Parties may agree to have an arbitrator decide not only the merits of a particular dispute but also gateway questions of arbitrability, such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy. But courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.

This is a heightened standard that pertains to the parties’ manifestation of intent, not the agreement’s validity. That is because the question of who would decide gateway questions like the unconscionability of an arbitration provision is not one that the parties would likely focus upon in contracting, and the default expectancy is that the court would decide the matter. Although parties are free to authorize arbitrators to resolve such questions, courts will not conclude that they have done so based on silence or ambiguity in their agreement, because doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide. The “clear and unmistakable” test applies under both the FAA and California law.

Courts have held that there are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.

(Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th 748, 772-773, quotation marks, brackets, citations omitted.)

The Court finds that the language of the Purchase Agreement makes clear that the parties intended to delegate all issues to the arbitrator, including issues of unconscionability, with the language that “[c]laims arising out of or relating to the validity, application, scope, enforceability, or interpretation of this provision (the ‘Arbitration Agreement’) shall also be decided by an arbitrator.” (Mot., Hupman Decl. ¶ 3, Ex. A, at ¶ 11.) The provision meets the first prerequisite for a delegation clause to be effective, i.e., the language of the clause is clear and unmistakable. The second requirement is that the delegation clause cannot “be revocable under state contract defenses such as fraud, duress, or unconscionability.” (Mendoza v. Trans Valley Transport, supra, 75 Cal.App.5th at p. 773.)

As to unconscionability, it is axiomatic that “a party opposing the petition [to compel arbitration] bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. [] In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.” (Giuliano v. Inland Empire Personnel, Inc., supra, 149 Cal.App.4th at p. 1284.) “Courts analyze the unconscionability standard in Civil Code section 1670.5 as invoking elements of procedural and substantive unconscionability.” (McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 87 (McManus).) “The procedural element of unconscionability focuses on whether the contract is one of adhesion” and “whether there is oppression arising from an inequality of bargaining power or surprise arising from buried terms in a complex printed form.” (Ibid., quotation marks omitted.) “The substantive element addresses the existence of overly harsh or one-sided terms.” (Ibid.) “An agreement to arbitrate is unenforceable only if both the procedural and substantive elements are satisfied.” (Ibid.)

“Procedural unconscionability pertains to the making of the agreement; it focuses on the oppression that arises from unequal bargaining power and the surprise to the weaker party that results from hidden terms or the lack of informed choice.” (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.) An arbitration provision is substantively unconscionable where the provision “does not fall within the reasonable expectations of the weaker or ‘adhering’ party,” is “unduly oppressive,” or has “overly harsh or one-sided” terms. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113-114 (Armendariz); McManus, supra, 109 Cal.App.4th at p. 87.) “An arbitration agreement is lawful 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 assenting party] to pay either unreasonable costs or any arbitrators fees or expenses as a condition of access to the arbitration forum.” (Armendariz, supra, 24 Cal.4th at p. 102, quotation marks omitted.)

Plaintiff argues that the agreement is procedurally unconscionable because it was a preprinted consumer sales contract presented to Plaintiff on a “take it or leave it” basis, such that Plaintiff had no meaningful opportunity to negotiate the terms. This argument is not well taken. First, the agreement included an opt-out provision, but Plaintiff provides no evidence that he attempted to opt out of the arbitration agreement. Second, presentation of an arbitration agreement on a “take it or leave it” basis, even in an employment context, does not automatically render the agreement procedurally unconscionable; Plaintiff must also show that there was no opportunity for meaningful negotiation or that he was subjected to oppressive tactics that forced him to sign the agreement. (See Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1127 [“a compulsory predispute arbitration agreement is not rendered unenforceable just because it is required as a condition of employment or offered on a ‘take it or leave it’ basis”].) Notably, Plaintiff makes no argument that he was not given the agreement to review and study before purchasing the vehicle, and there is no evidence that anyone exerted pressure on Plaintiff. Further, the agreement is relatively short, in a normal sized typeface, with headings making clear that the agreement was one to arbitrate claims.

Plaintiff also argues that the failure to provide a copy of the relevant arbitration rules or stating which rules would be chosen is improper. This is belied by the agreement, which states that “[u]nless otherwise agreed, the arbitration will be conducted by the American Arbitration Association (‘AAA’),” and “[t]he arbitration must be conducted in accordance with AAA’s Consumer Arbitration Rules, which are available at www.adr.org or by calling the AAA at 800-778-7879.” (Mot., Hupman Decl. ¶ 3, Ex. A, at ¶ 11.)

As to substantive unconscionability, Plaintiff argues that the clause only allows for a choice of arbitration forum for the party electing to arbitrate. The agreement expressly provides that AAA is the forum “unless otherwise agreed” (Mot., Hupman Decl. ¶ 3, Ex. A, at ¶ 11), and there is no evidence that Plaintiff asked to arbitrate in JAMS but that the request was rejected. Insofar as Plaintiff argues that the agreement will result in a biased arbitration in favor of Defendant, the agreement expressly provides for the appointment of a neutral arbitrator. (Mot., Hupman Decl. ¶ 3, Ex. A, at ¶ 11.) Plaintiff also argues that the agreement requires the consumer to pay all costs above $5,000, which improperly prevents a buyer from seeking to enforce his legal rights. There is no such provision in the agreement, and even if there were, Plaintiff provides no evidence to support his argument that any costs would be prohibitive based on his ability or inability to pay.

For these reasons, Defendant Lucid Group USA, Inc.’s Petition to Compel Arbitration and Stay Proceedings is GRANTED. The proceedings are hereby STAYED pending the outcome of arbitration.