Judge: Lynette Gridiron Winston, Case: 24PSCV02023, Date: 2025-04-16 Tentative Ruling
Case Number: 24PSCV02023 Hearing Date: April 16, 2025 Dept: 6
CASE NAME: She Yi Win, et al. v. Tesla, Inc. d/b/a Tesla Motors, Inc.
Defendant Tesla, Inc.’s Motion to Compel Binding Arbitration
TENTATIVE RULING
The Court GRANTS Defendant’s motion to compel binding arbitration. The Court hereby stays this action pending the completion of the arbitration.
Defendant is ordered to give notice of the Court’s ruling within five calendar days of this order.
BACKGROUND
This is a lemon law case. On June 24, 2024, plaintiffs Shwe Yi Win and Ko Ko Naing (collectively, Plaintiffs) filed this action against defendant Tesla, Inc. d/b/a Tesla Motors, Inc. (Defendant) and Does 1 through 10, alleging causes of action for violation of Song-Beverly Act – breach of express warranty, violation of Song-Beverly Act – breach of implied warranty, and violation of the Song-Beverly Act section 1793.2.
On January 23, 2025, Defendant moved to compel arbitration. On April 2, 2025, Plaintiffs opposed the motion. On April 9, 2025, Defendant replied.
LEGAL STANDARD
Parties may be compelled to arbitrate a dispute upon the court finding that: (1) there was a valid agreement to arbitrate between the parties; and (2) said agreement covers the controversy or controversies in the parties’ dispute.¿(Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.) A party moving to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court¿(1998) 62 Cal.App.4th 348, 356-357.) A party seeking to compel arbitration meets their initial burden of establishing the existence of a valid arbitration agreement by attaching a copy to the motion or setting forth its terms verbatim. (Condee v. Longwood Mgmt. Corp. (2001) 88 Cal.App.4th 215, 218-219 (Condee).)
“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld ‘unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute. [Citation.]’” (Ibid.)
REQUESTS FOR JUDICIAL NOTICE
The Court GRANTS Defendant’s request for judicial notice. (Evid. Code, § 452, subd. (d).) However, the Court takes judicial notice of the foregoing documents only as to “the existence, content and authenticity of public records and other specified documents”; it does not take judicial notice of the truth of the factual matters asserted in those documents. (Dominguez v. Bonta (2022) 87 Cal. App. 5th 389, 400.)
DISCUSSION
FAA v. CAA
“[T]he FAA's procedural provisions do not apply unless the contract contains a choice-of-law clause expressly incorporating them. [T]he question is not whether the parties adopted the CAA’s procedural provisions: The state's procedural statutes apply by default because Congress intended the comparable FAA sections to apply in federal court. The question, therefore, is whether the parties expressly incorporated the FAA’s procedural provisions into their agreements.” (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 345 (Victrola 89), internal citations omitted and italics in original.) “[P]revious cases have held that when an arbitration agreement provides that its ‘enforcement’ shall be governed by California law, the [CAA] governs a party's motion to compel arbitration. It follows that when an agreement provides that its ‘enforcement’ shall be governed by the FAA, the FAA governs a party’s motion to compel arbitration.” (Id. at p. 346.)
The arbitration clauses in neither the Motor Vehicle Order Agreement (Order Agreement) nor the Retail Installment Sale Contract (Sale Contract) contain any language indicating their enforcement is governed by the FAA. (Kim Decl., Ex. 1, p. 10 of pdf, Ex. 2, p. 19 of pdf.) Accordingly, the CAA governs this motion to compel arbitration. (Victrola 89, supra, 46 Cal.App.5th at p. 346.)
Existence of Valid Arbitration Agreements and Covered Claims
Defendant seeks to compel arbitration of Plaintiffs’ claims based on the arbitration clauses in the Order Agreement and Sale Contract. (Kim Decl., Ex. 1, p. 10 of pdf, Ex. 2, p. 19 of pdf.) Having quoted the arbitration clauses and attached the agreements containing those clauses to the moving papers, Defendant has met its initial burden of establishing the existence of an arbitration agreement. (Motion, 4:6-6:21; Condee, supra, 88 Cal.App.4th at p. 218; Cal. Rules of Court, rule 3.1330.) The burden now shifts to Plaintiff to challenge the validity of those arbitration agreements. (Condee, supra, 88 Cal.App.4th at p. 219.)
Plaintiff does not dispute the existence of the arbitration clauses or that they cover Plaintiff’s claims. (See generally, Opp.) Plaintiff instead contends that the arbitration clauses are unenforceable due to unconscionability.
Unconscionability
“[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.) The courts invoke a sliding scale which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Id. at p. 114.) Plaintiffs bear the burden of proving that the provisions at issue are both procedurally and substantively unconscionable. (Mills v. Facility Sols. Grp., Inc. (2022) 84 Cal.App.5th 1035, 1050 [party asserting unconscionability bears the burden of proof].)
Procedural Unconscionability
“Procedural unconscionability focuses on the elements of oppression and surprise. Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice … Surprise involves the extent to which the terms of the bargain are hidden in a prolix printed form drafted by a party in a superior bargaining position.” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469 (Roman), internal quotation marks and citations omitted.)
Defendant preemptively contends the plaintiffs in Sanchez v. Valencia Holding Co. (2015) 61 Cal.4th 899 (Sanchez) signed a preprinted form contract containing an arbitration provision similar to the one at issue in this case, and the California Supreme Court upheld the enforceability of that contract. Defendant contends the arbitration clause in the Sale Contract is prominently displayed.
In opposition, Plaintiffs contend the arbitration clause in the Sale Contract is procedurally unconscionable as the Sale Contract is a preprinted consumer sales contract, and Plaintiffs had no meaningful opportunity to negotiate with Defendant regarding any of its terms except to opt out of the arbitration provision. Plaintiffs contend Defendant failed to provide Plaintiffs with a copy of the relevant arbitration rules or even advise which rules would be chosen. Plaintiffs also contend Sanchez does not really apply because the California Supreme Court determined that the arbitration agreement was procedurally but not substantively unconscionable, and ordered arbitration on that basis.
In reply, Defendant contends the arbitration provision in the Order Agreement provides the consumer with a unilateral option to opt out of arbitration, and therefore was not an adhesion contract. Defendant contends that it would still not be unconscionable even if it did not have an opt-out provision. Defendant contends Plaintiffs’ decision to purchase the vehicle per the arbitration provision in the Order Agreement was made of Plaintiffs’ own volition. Defendant cites Sanchez for the proposition that the California Supreme Court has already rejected Plaintiffs’ “take-it-or-leave-it” argument in alleging procedural unconscionability. Defendant also contends that the purported failure to include the entire set of rules for the American Arbitration Association is unavailing because they are easily accessible on the Internet and Plaintiffs do not lack capacity or means to retrieve them, plus the failure to provide such rules does not matter when those rules are not challenged.
The Court does not find Plaintiff has adequately demonstrated procedural unconscionability here. First, Plaintiff’s arguments regarding the contract being presented on a take-it-or-leave-it basis, lack of meaningful opportunity to negotiate, and failure to provide a copy of the relevant arbitration rules, are not supported by the evidence. The declaration Plaintiff submitted does not mention anything to support these arguments. (See generally, Jiang Decl.) Also, even if the arbitration clause in the Sale Contract is an adhesion contract, that by itself is not dispositive. (See Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1470; Sanchez, supra, 61 Cal.4th at pp. 913-914.) Defendant also correctly notes that it was not obligated to highlight or call the arbitration language in the arbitration clause to Plaintiffs’ attention, and even then the arbitration language is prominently displayed in the Sale Contract. (See ibid.; Kim Decl., Ex. 2, p. 19 of pdf.)
Second, the California Supreme Court in Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237 clarified that the failure to attach a copy of the arbitration rules is only an issue when the plaintiff is challenging the arbitration rules themselves. (Id. at p. 1246.) The California Supreme Court found that the defendant’s failure to attach a copy of the arbitration rules did not constitute procedural unconscionability because the plaintiff challenged only the arbitration agreement, not the arbitration rules. (Ibid.) Plaintiffs similarly fail to challenge the arbitration rules here. (See Opp., 4:17-5:25.)
Third, the Court notes that Plaintiffs’ opposition does not contend the arbitration clause in the Order Agreement is unconscionable, which would provide a separate basis for compelling arbitration of Plaintiffs’ claims. (See Opp., 2:14-18.)
Therefore, the Court finds Plaintiff has not adequately demonstrated procedural unconscionability.
Substantive Unconscionability
“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results, that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner.” (Roman, supra, 172 Cal.App.4th at pp. 1469-1470, internal quotation marks and citations omitted.)
Defendant preemptively contends that the arbitration provision of the Sale Contract is not substantively unconscionable because it does not require the consumer to advance fees, as the provision requires Defendant to pay Plaintiffs’ filing, administration, service, case management, arbitrator or hearing fee up to $5,000, unless the law or the rules of the chosen arbitration organization require Defendant to pay more. Defendant also contends that the FAA preempts any state law holding that the class-action waiver is unconscionable.
In opposition, Plaintiffs contend that the arbitration clause in the Sale Contract is unconscionable because it allows for a choice of arbitration forum, but only for the party electing to arbitrate. Plaintiff also contends the arbitration-cost provision of the arbitration agreement is substantively unconscionable because it serves to benefit the more financially capable manufacturer and discourages or prevents buyers from seeking to enforce their legal rights.
In reply, Defendant contends the arbitration provision is not one-sided at all, as it states it covers any dispute between the parties and applies to both sides. Defendant contends Plaintiffs fail to point to anything specific in the arbitration provision, but appear to instead take issue with arbitration in general without any supporting authority. Defendant contends case law makes clear that arbitration provisions are valid and enforceable with respect to Song-Beverly Act claims like this. Defendant contends numerous California courts have enforced provisions similar to this one which states the American Arbitration Association will administer the arbitration under its Consumer Arbitration Rules.
The Court finds Plaintiffs’ arguments unavailing. The arbitration provision in the Sale Contract does not say that the party electing arbitration gets to choose the arbitration organization or its applicable rules, but merely provides that either party may choose the American Arbitration Association or National Arbitration and Mediation, or, if both parties agree, a different organization altogether. (Kim Decl., Ex. 2, p. 19 of pdf.) The arbitration provision also provides that Defendant 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 forum require Defendant to pay more, and that the parties will share costs over $5,000 per the applicable organization’s arbitration rules. (Kim Decl., Ex. 2, p. 19 of pdf.) The Court does not find these terms substantively unconscionable.
Also, as noted above, Plaintiffs’ opposition does not contend the arbitration clause in the Order Agreement is unconscionable, which would provide a separate basis for compelling arbitration of Plaintiffs’ claims. (See Opp., 2:14-18.)
Based on the foregoing, the Court does not find the arbitration clause in the Sale Contract substantively unconscionable. The Court therefore GRANTS the motion to compel arbitration.
CONCLUSION
The Court GRANTS Defendant’s motion to compel binding arbitration. The Court hereby stays this action pending the completion of the arbitration.
Defendant is ordered to give notice of the Court’s ruling within five calendar days of this order.