Judge: Michael P. Linfield, Case: 23STCV19371, Date: 2024-01-10 Tentative Ruling

Case Number: 23STCV19371    Hearing Date: January 10, 2024    Dept: 34

SUBJECT:        Motion to Compel Binding Arbitration

Moving Party: Defendant Tesla, Inc.

Resp. Party:    Plaintiff Rameel Nissan

The Motion to Compel Binding Arbitration is GRANTED.

The Court schedules a post-arbitration status conference for February 26, 2025 at 8:30 am.  The parties are to file a Joint Status Conference Report 5 court days prior to the status conference hearing.

BACKGROUND:

On August 14, 2023, Plaintiff Rameel Nissan filed a Complaint against Defendant Tesla, Inc. on causes of action arising from the Song-Beverly Consumer Warranty Act.

On September 21, 2023, Defendant filed its Motion to Compel Binding Arbitration. In support of its Motion, Defendant concurrently filed: (1) Declaration of Raymond Kim; (2) Declaration of Ali Ameripour; (3) Request for Judicial Notice; and (4) Proposed Order.

On December 28, 2023, Plaintiff filed: (1) Memorandum of Points and Authorities in Opposition (“Opposition”), which included Declaration of Nadia Yashar and Declaration of Rameel Nissan; and (2) Copies of Non-California Authorities Cited in Opposition.

On January 3, 2024, Defendant filed its Reply. Defendant concurrently filed Declaration of Kevin Jay.

ANALYSIS:

I.          Request for Judicial Notice

Defendant requests that the Court take judicial notice of the Complaint filed in this matter.

        The Court DENIES as superfluous judicial notice as to items filed in this matter. Any party that wishes to draw the Court’s attention to a matter filed in this action may simply cite directly to the document by execution and filing date. (See Cal. Rules of Court, rule 3.1110(d).)

II.       Legal Standard

“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 Civ. Proc., § 1281.)

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that 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 makes certain determinations].” (Code Civ. Proc., § 1281.2.)

“Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable. . . . Reasons that would render any contract revocable under state law include fraud, duress, and unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239, citations omitted.)

“The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence the existence of an arbitration agreement.¿The party opposing the petition bears the burden of establishing a defense to the agreement's enforcement by a preponderance of the evidence.¿In determining whether there is a duty to arbitrate, the trial court must, at least to some extent, examine and construe the agreement.” (Tiri, supra, at p. 239.)

III.     Discussion

A.      The Arbitration Agreement

Defendant submits a four-page document titled “Motor Vehicle Order Agreement” (“MVOA”) (Decl. Kim, Exh. 1.) The MVOA includes an “agreement to arbitrate” (“MVOA Arbitration Provision”). (Id. at Exh. 1, p. 3.) According to the Declaration of Raymond Kim, Plaintiff signed this contract by pressing an online button when placing an order for the vehicle. (Decl. Kim, ¶ 4.) Plaintiff has not argued that he did not agree to the MVOA. Defendant meets its initial burden in showing that there is an arbitration provision here.

The following are the relevant portions of the MVOA Arbitration Provision:

“Agreement to Arbitrate.

[¶]

“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 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.”

(Decl. Kim, Exh. 1, p. 3.)

In addition, Defendant submits a seven-page document titled “Retail Installment Sale Contract” (“RISC”). (Decl. Kim, Exh. 2.) The RISC has a section on its first page titled “Agreement to Arbitrate.” (Id. at Exh. 2, p. 1.) This section appears to have an electronic signature only by Plaintiff and not by Defendant. (Ibid.) The last page of the RISC has a section titled “Arbitration Provision” (“RISC Arbitration Provision”). (Id. at Exh. 2, p. 7.) Plaintiff has not argued that he did not agree to the RISC. Defendant meets its initial burden in showing that there is an arbitration provision here.

        The following are the relevant portions of the RISC Arbitration Provision:

“ARBITRATION PROVISION

. . .

“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 CLAS ARBITRATION OF 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. 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 on an individual basis and not as a class action. You expressly waive any right you may have to arbitrate a class action. You may choose the American Arbitration Association, 1633 Broadway, 10th Floor, New York, New York 10019 (www.adr.org), or any other organization to conduct the arbitration subject to our approval. You may get a copy of the rules of an arbitration organization by contacting the organization or visiting its website.

“. . . We will pay your filing, administration, service or case management fee and your arbitrator or hearing fee all up to a maximum of $5000, unless the law or the rules of the chosen arbitration organization require us to pay more. 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. . . .”

(Decl. Kim, Exh. 2, p. 7.)

B.      The Parties’ Arguments

Defendant moves the Court to compel arbitration of Plaintiff’s claims and stay the case pending the outcome of arbitration. (Motion, pp. 12:25–28, 13:1–2.)

        Defendant argues: (1) that Plaintiff’s claims fall within the scope of the MVOA Arbitration Provision and the RISC Arbitration Provision; (2) that the Federal Arbitration Act (FAA) and the California Arbitration Act (CAA) require compliance with Plaintiff’s agreements to arbitrate; (3) that arbitration should be compelled under the MVOA, but if not then it should be compelled under the RISC; and (4) that Plaintiff’s claims should be stayed pending arbitration. (Motion, pp. 6:24, 8:10–11, 12:12–13, 12:19.)

        Plaintiff opposes the Motion, arguing: (1) that the RISC Arbitration Provision is both procedurally and substantively unconscionable; (2) that the Court may not compel arbitration with a nonparty under any of various doctrines; (3) that federal district courts have repeatedly held that warrantors have no independent right to enforce a dealer’s clause; (4) that Plaintiff is not equitably estopped from refusing arbitration; (5) that equitable estoppel does not enable a nonsignatory warrantor to use a non-party dealer’s purchase agreement to compel signatory consumers to arbitrate warranties claims; (6) that Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 did not hold that third-party nonsignatories could invoke arbitration; (7) that the FAA does not apply because the RISC does not involve interstate commerce; and (8) that public policy does not favor arbitration. (Opposition, pp. 4:24, 5:3, 5:17–19, 14:1–2, 14:16, 16:1–2, 16:10–11, 17:1–2, 18:16.)

        In its Reply, Defendant argues: (1) that “Tesla, Inc.” and “Tesla Motors Inc.” are the same entity; (2) that the Opposition does not address the MVOA or the MVOA Arbitration Provision; (3) that Plaintiff’s arguments rely entirely on irrelevant case law as Defendant is the direct contracting party; (4) that the MVOA Arbitration Provision is neither procedurally nor substantively unconscionable; (5) that the Song-Beverly Consumer Warranty Act does not prohibit arbitration; and (6) that the FAA applies here. (Reply, pp. 1:11, 1:24–25, 2:7–8, 2:27, 3:8, 4:14, 5:7–8.)

C.      Discussion of Arguments (Except Unconscionability)

Defendant has the better of most of the arguments.

The Court finds that “Tesla, Inc.” and “Tesla Motors, Inc.” are the same entity. (Decl. Jay, ¶ 3.) Thus, Defendant is one of the Parties to the MVOA and the RISC. Plaintiff’s arguments regarding nonsignatories are therefore inapposite.

Further, these contracts involve vehicles that are both sold across state lines and travel across state lines. Unlike certain contracts that are excepted from coverage by the FAA, the Court is unaware of any such exception for these vehicles. (See, for example, Garrido v. Air Liquide Indus. U.S. LP (2015) 241 Cal.App.4th 833, 837–840, considering transportation worker’s employment agreement that was exempted from coverage by the FAA.) Thus, as these contracts involve interstate commerce, these arbitration provisions are covered by the FAA.

Finally, it is not the public policy of California that arbitration agreements are disfavored. Rather, “[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 Civ. Proc., § 1281.)

        The Court will therefore consider whether the MVOA Arbitration Provision and the RISC Arbitration Provision are unenforceable on the basis of unconscionability.

D.     Unconscionability

1.      Legal Standard

“Agreements to arbitrate may be invalidated if they are found to be unconscionable.” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 713, citations omitted.)

“Unconscionability consists of both procedural and substantive elements. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. (Pinnacle Museum Tower Ass’n v. Pinnacle Mkt. Dev. (US), LLC (2012) 55 Cal.4th 223, 246, citations omitted.)

“‘The prevailing view is that [procedural 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.’ But they need not be present in the same degree. ‘Essentially a sliding scale is invoked 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.’ In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa. (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 114, [cleaned up], italics in original, abrogated in part on other grounds by AT&T Mobility LLC v. Concepcion (2010) 565 U.S. 333.).)

“The party resisting arbitration bears the burden of proving unconscionability.” (Pinnacle, supra, 55 Cal.4th at p. 247, citation omitted.)

“Moreover, courts are required to determine the unconscionability of the contract ‘at the time it was made.’” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 920, quoting Civ. Code, § 1670.5.)

“Unconscionability is ultimately a question of law.” (Patterson v. ITT Consumer Fin. Corp. (1993) 14 Cal.App.4th 1659, 1663, citation omitted.)

2.      Procedural Unconscionability

a.       Legal Standard

“[P]rocedural unconscionability requires oppression or surprise. Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.” (Pinnacle, supra, 55 Cal.4th at p. 247 [cleaned up].)

“The procedural element of an unconscionable contract generally takes the form of a contract of adhesion . . . .” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.)

        “Absent unusual circumstances, a contract offered on a take-it-or-leave-it is deemed adhesive, and a commercial transaction conditioned on a party’s acceptance of such a contract is deemed procedurally unconscionable.” (Vasquez v. Greene Motors, Inc. (2013) 214 Cal.App.4th 1172, 1184.)

b.       Discussion

Plaintiff argues that the RISC Arbitration Provision is procedurally unconscionable. Plaintiff does not make a specific argument about the MVOA Arbitration Provision.

        Defendant disagrees.

        The Court agrees with Plaintiff’s argument.

        Both the MVOA Arbitration Provision and the RISC Arbitration Provision are clearly classic take-it-or-leave-it contracts of adhesion. Defendant did not give Plaintiff a meaningful choice or opportunity to negotiate the documents.

        The Court finds that both the MVOA Arbitration Provision and the RISC Arbitration Provision to be procedurally unconscionable. 

3.      Substantive Unconscionability

a.       Legal Standard

“Substantive unconscionability focuses on overly harsh or one-sided results. In assessing substantive unconscionability, the paramount consideration is mutuality.” (Fitz, supra, 118 Cal.App.4th at p. 723 [cleaned up].)

b.       Discussion

Plaintiff argues that the RISC Arbitration Provision is substantively unconscionable, pointing to: (1) the clause that allows Plaintiff or Defendant to invoke arbitration instead of a court or jury trial; (2) the clause that gives up the right to class representation; and (3) the clause that limits discovery. (Opposition, p. 5:10–12.)

Plaintiff does not make a specific argument regarding the MVOA Arbitration Provision.

        Notably, Plaintiff also argues that “[u]nder Song-Beverly, Plaintiff may not be forced into binding arbitration, may elect to be a class member if such circumstance arises, and is entitled to have all fees, costs, and expenses (including attorney and expert fees) paid by the Defendant manufacturer. Therefore, the arbitration provision is in direct contradiction to Song-Beverly and, as such, is substantively unconscionable.” (Opposition, p. 5:12–16, emphasis in original.) This argument lacks citations, and much of it misstates the law.

        Defendant disagrees, citing a variety of cases. (Reply, pp. 2–7.)

        Defendant has the better argument here.

        It is a given that the whole point of an arbitration provision is to compel arbitration. While this Court might agree that arbitration on the whole tends to produce overly harsh and one-sided results against consumers and in favor of car manufacturers, both California and federal law favors arbitration.

Moreover, the California Supreme Court has explicitly held that they are allowed by the FAA, which preempts state refusals to enforce such waivers on grounds of public policy or unconscionability. (Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, 359–360, overruled on other grounds by Viking River Cruises, Inc. v. Moriana (2022) 142 S. Ct. 1906, 1924–1925.)

Finally, as to limits on discovery, Courts of Appeal seem to be divided.  Some have upheld arbitration provisions that limit the right of discovery to one deposition, with further depositions allowable by a showing of need. (See, for example, Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 982–985.) This is because the Court must “assume that the arbitrator will operate in a reasonable manner in conformity with the law.” (Ibid.)

However, other Courts of Appeal have noted that such a provision can add to the substantive unconscionability of an arbitration agreement. (See, for example, Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 118–119 [“Nevertheless, considered against the backdrop of the other indisputably unconscionable provisions, the limitations on discovery do, in our view, compound the one-sidedness of the arbitration agreement.”].)

Here, the limitations on depositions are likely to have overly harsh or one-sided results. However, alone, they do not rise to the level of finding either the MVOA Arbitration Provision or the RISC Arbitration Provision to be substantively unconscionable. Since Plaintiff has not requested that the Court sever this clause, the Court does not consider such relief at this time.

Under Armendariz and its progeny, the Court cannot find that the MVOA Arbitration Provision or the RISC Arbitration Provision are unconscionable without finding that they are both procedurally and substantively unconscionable. Further, even if the Court were to find that the RISC Arbitration Agreement was unconscionable, Plaintiff has not argued that the MVOA Arbitration Provision is also substantively unconscionable.  Either arbitration agreement, standing alone, is sufficient to compel arbitration. Thus, Plaintiff does not meet his subsequent burden to show a defense to the arbitration provisions.

IV.      Conclusion

The Motion to Compel Binding Arbitration is GRANTED.

        The Court schedules a post-arbitration status conference for February 26, 2025 at 8:30 am.  The parties are to file a Joint Status Conference Report 5 court days prior to the status conference hearing.