TENTATIVE RULING

Calendar: 9

Date: 4/19/2024

Case No. 24 GDCV00105 Trial Date:  None Set 

Case Name: Toda, et al. v. Tesla Motors, Inc. dba Tesla, Inc.

MOTION TO COMPEL ARBITRATION

Moving Party: Defendant Tesla, Inc.    

Responding Party: Plaintiffs Takahiro Toda and Hanako Toda      

RELIEF REQUESTED:

SUMMARY OF FACTS:

Plaintiffs allege that the vehicle was delivered to plaintiffs with serious defects and nonconformities to warranty and developed other serious defects and nonconformities to warranty including electrical and suspension system defects.    Plaintiffs allege that the defects and nonconformities to warranty manifested themselves within the applicable express warranty period, and that the nonconformities substantially impair the use, value and/or safety of the vehicle.   

The complaint alleges that plaintiffs presented the vehicle for repair of defects relating to a malfunctioning infotainment center, an Automatic Emergency Braking system activating with no obstructions in the vicinity, and a malfunctioning autopilot feature, but that defendant was unable to conform the vehicle to the applicable express warranty after a reasonable number of repair attempts.  

Plaintiff alleges that notwithstanding plaintiff’s entitlement, defendant has failed to promptly replace the new motor vehicle or promptly make restitution in accordance with the Song-Beverly Act. 

ANALYSIS:

Defendant Tesla Motors, Inc. (“Tesla”) brings this motion seeking an order compelling plaintiffs to arbitrate this matter, and an order staying the action pending the outcome of the arbitration.  

CCP § 1281.2, governing orders to arbitrate controversies, provides, in pertinent 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 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 determines that:

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

(b) Grounds exist for rescission of the agreement.” 

“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 plaintiffs 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.”

[Kim Decl., paras. 3-6, Ex. 1, p. 3 of 5, bold in original].  

“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….

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….”

[Kim Decl., paras. 8-13, Ex. 2, Retail Installment Sale Contract, p. 5 of 6, emphasis in original].

As explained by the California Supreme Court in Armendariz, this analysis requires a determination of whether an arbitration agreement is both procedurally and substantively unconscionable.  

“We explained the judicially created doctrine of unconscionability in Scissor-Tail, supra, 28 Cal.3d 807.  Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. (Id. at pp. 817-819.) “The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694 [10 Cal.Rptr. 781].) If the contract is adhesive, the court must then determine whether “other factors are present which, under established legal rules-legislative or judicial-operate to render it [unenforceable].” (Scissor-Tail, supra, 28 Cal.3d at p. 820, fn. omitted.)”

Armendariz, at 113.  

“As explained in A & M Produce Co., supra, 135 Cal.App.3d 473, “unconscionability has both a 'procedural' and a 'substantive' element,” the former focusing on “ 'oppression' ” or “ 'surprise' ” due to unequal bargaining power, the latter on “ 'overly harsh' ” or “ 'one-sided' ” results. (Id. at pp. 486-487.) “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.” (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1533 (Stirlen).) 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.” (15 Williston on Contracts (3d ed. 1972) § 1763A, pp. 226-227; see also A & M Produce Co., supra, 135 Cal.App.3d at p. 487.) 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, at 114, italics in the original. 

Although Amendariz arose in the employment context, its analysis is not limited to that context.  However, unlike in the employment context, where there is a presumption of unequal bargaining power and procedural unconscionability, outside the employment context, the party arguing that an arbitration provision is unconscionable must produce evidence of the parties’ bargaining power and circumstances surrounding the execution of the agreement to show that transaction is tainted with surprise or oppression.  Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1162, 1164-1166.

As an initial matter, it would appear that plaintiffs’ procedural unconscionability argument is premised on the argument that the agreements were included in contracts of adhesion, as plaintiff argues that the purchase involved a pre-printed consumer sales contract presented to plaintiff as a “take it or leave it” agreement, and that plaintiff had no meaningful opportunity to negotiate with Tesla regarding any of the terms, except to reject arbitration of the described sales related claims.  Plaintiffs argue that if they wanted the Model Y vehicle, plaintiffs had to accept the contract as a whole. 

First, plaintiffs have submitted no evidence of this with the opposition. The only evidence submitted is the declaration of counsel, who would have no personal knowledge concerning the negotiations, and who does not address the circumstances of plaintiffs entering into the agreement.   

In any case, plaintiffs’ arguments are belied by the language of the agreement itself, and it does not appear that the agreement could be reasonably viewed as a contract of adhesion, where, as plaintiffs argue, plaintiffs were required to agree to arbitration or forego the opportunity to purchase the vehicle.  Here, the express language of the agreement included in the Order Agreement permitted the purchaser to opt out of the arbitration agreement within 30 days of executing the Agreement by mailing a letter opting out to defendant at a stated address:

“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, 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.”

[Kim Decl., Ex. 1, p. 4].   

Also as noted above, Tesla has shown it has no record of plaintiffs exercising this option to opt out.  [Kim Decl., para. 7].   Plaintiffs in opposition do not mention this provision, and do not establish that they were somehow prevented from opting out.  This position is in addition to the fact that plaintiffs do not submit any contrary evidence showing the circumstances of the negotiations, or any evidence at all in this regard, so have not met their burden of establishing that the agreement was entered in circumstances suggesting any modicum of procedural unconscionability.  

Plaintiffs argue that in connection with this contract of adhesion, which the subject agreement decidedly was not, procedural unconscionability can be found to exist because plaintiffs were not provided a copy of the relevant arbitration rules.  The cases cited involved contracts which had been found to be contracts of adhesion, such as employment contracts or consumer contracts which were found to have been offered on a take it or leave it basis, which is not the case here.  

With respect to the argument that the agreement does not attach or incorporate the AAA Rules, it has been held that the fact that AAA Rules were not attached to the agreement is not sufficient surprise to render the arbitration procedurally unconscionable.  Lane v. Francis Capital Management, LLC (2014) 224 Cal.App.4th 676.  In Lane, the Second District found that the trial court had erred in denying a motion to compel arbitration as to certain causes of action on the ground of unconscionability.   The Second District rejected an argument that the failure to attach a copy of referenced AAA Rules was sufficient to establish procedural unconscionability: 

“Here, we conclude the 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. (See Boghos v. Certain Underwriters at Lloyd's of London (2005) 36 Cal.4th 495, 505, fn. 6, 30 Cal.Rptr.3d 787, 115 P.3d 68 [full, up-to-date text of AAA rules is available on AAA's Internet site] ). In addition, Lane—a formerly well-paid professional analyst—does not appear to lack the means or capacity to locate and retrieve a copy of the referenced rules. Finally, the arbitration agreement at issue clearly specified a particular set of AAA rules, and it did not modify those rules in any manner. In the absence of oppression or surprise, we decline to find the failure to attach a copy of the AAA rules rendered the agreement procedurally unconscionable.”

Lane, at 691.  

Here, the case similarly involves Rules easily accessible and here, the availability of the Rules on the internet, with a website, is expressly stated in the Agreement, the Agreement stating, “To learn more about the Rules and how to begin an arbitration, you may call any AAA office or go to www.adr.org.”  [Kim Decl., Ex. 1, p. 4].  The Agreement clearly specifies a particular set of AAA Rules, the “Consumer Arbitration Rules.”  [Id].  It would appear that the failure to attach the Rules themselves in these circumstances, particularly where there is no contract of adhesion, is not sufficient alone to establish procedural unconscionability.  No procedural unconscionability at all has been shown. 

“Substantive unconscionability addresses the fairness of the term in dispute. Substantive unconscionability ‘traditionally involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ ” (Szetela v. Discover Bank, supra, 97 Cal.App.4th at p. 1100, 118 Cal.Rptr.2d 862.)

Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825, 843-844. 

The standard required by Armendariz with respect to substantive unconscionability has been summarized as follows:

"To be lawful under Armendariz, an agreement to arbitrate public policy employment claims must satisfy five requirements.  

(1) The agreement must provide for adequate discovery.

(2)  It must require a written decision allowing limited judicial review.

(3)  The agreement must permit the types of relief that would be available in court.

(4)  It must limit the employee's forum costs.

(5)  Finally, as with all contractual arbitration, an agreement to arbitrate a public policy claim must provide for a neutral arbitrator."

Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 653-654, citations omitted.

The Retail Installment Sale Contract provides, in pertinent part, “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.”  [Kim Decl., Ex. 2, p. 5 of 6].  

The argument is evidently that the agreements allow for a choice of arbitration forum, but only for the party electing to arbitrate.   The agreements do not mention the party electing arbitration, and in one document offers no alternatives.  The Retail Installment Sale Contract imposes this selection on both the defendant and the plaintiffs in this matter (“you or we may choose”), regardless of who elects to arbitrate, and the parties agreed to this choice.  The selection does not appear to give rise to any substantive unconscionability. 

Plaintiffs also argue that substantive unconscionability can be found  because of the arbitration cost provisions.  

These provisions are not set forth in the opposition papers, making it difficult to follow this argument, and arguably failing to meet plaintiffs’ burden to establish the elements of unconscionability. 

In any case, the Order Agreement provides:

“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.”  

[Kim Decl., Ex. 1, p. 3].  

 

The Retail Installment Sale Agreement includes a provision which states: 

“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.”

[Kim Decl., Ex. 2, p. 5] 

In any case, defendant argues that the pertinent provisions concerning the payment of fees do not render the agreements substantively unconscionable under the circumstances here. 

Both sides rely on Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal. 4th 899, in which the California Supreme Court found that the court of appeal had erred in finding an arbitration agreement in connection with a sales contract for an automobile unenforceable as unconscionable.  

In Sanchez, the Court found that the sales contract had been conceded by defendant dealership to have been adhesive in nature, which the Court found was “sufficient to establish some degree of procedural unconscionability.”   Sanchez, at 915.  However, the dealership in that case did not dispute that the contract was adhesive and did not contend that the consumer “could have opted out of the arbitration agreement or that he could have negotiated a sales contract without an arbitration agreement.”  Sanchez, at 914.  These facts are in contrast to this case, where there is no dealership conceding the contract was adhesive, and the arbitration agreement included an express opt out provision.   This circumstance reinforces the absence of a sufficient showing of any procedural unconscionability here.  

With respect to substantive unconscionability, the Court addressed an argument that the arbitration provision was substantively unconscionable because it provided that the dealership would advance the car buyer’s filing, administrative, service and other fees “up to a maximum of $2,500, which may be reimbursed,” at the arbitrator’s discretion.  The provision also provided that in case of an appeal, the appealing party would be responsible for fees and costs subject to a final determination by the arbitrating panel of a fair apportionment of costs.  Sanchez, at 918.  The Court noted that the court of appeal had contrasted this arbitral scheme with the American Arbitration Association rules, which do not require consumers to front arbitration fees, and concluded that the requirement that an appealing party pay the filing fee and arbitration costs of both parties in advance put an unduly harsh burden on the buyer.   Sanchez, at 918. 

The Court reviewed this conclusion in light of decisions arising in the context of mandatory employment arbitration of unwaivable statutory rights, and the special concerns accompanying employment contracts, and contrasted it with the law applicable in the context of consumer arbitration agreements, particularly those involving consumers seeking a new vehicle.  The Court noted that in this context, legislation had been enacted to address fees and costs in consumer arbitration, which provided for waiver of fees for indigent consumers, requiring such consumers to establish eligibility for a waiver under the statutory provisions.  The Court of appeal concluded:

“But given the Legislature's approach to the affordability of consumer arbitration, the provision cannot be held unconscionable absent a showing that appellate fees and costs in fact would be unaffordable or would have a substantial deterrent effect in Sanchez's case. (See Gutierrez, supra, 114 Cal.App.4th at pp. 90–91).”

Sanchez, at 921.   

The Court, in applying the rule to the case before it, concluded:

“The dispute in this case concerns a high-end luxury item. Sanchez does not claim, and no evidence in the record suggests, that the cost of appellate arbitration filing fees were unaffordable for him, such that it would thwart his ability to take an appeal in the limited circumstances where such appeal is available. We therefore conclude on the record before us that the arbitral appeal fee provision is not unconscionable.”

Sanchez, at 921.  

In this case, first, it appears that the Order Agreement defaults to the fee and costs provisions of the American Arbitration Association, which the Court in Sanchez had noted were proper.  In any case, as discussed above, this provision is expressly subject to an opt out option, which plaintiffs chose not to exercise.     

In addition, even if the Retail Installment Sale Agreement provision were to be applied, limiting the fees and costs to $5,000, and not directly addressing costs on appeal, this case is very similar to Sanchez, as the vehicle in question is a high-end luxury item.  Defendant argues that the Sanchez case involved a used Mercedes-Benz purchased for approximately $53,498.60, in 2008.  Sanchez, at 907.   Defendant argues that this is less than the sale price of plaintiffs’ new Tesla vehicle here, which the Retail Installment Sale Contract reflects was purchased for a total sale price of $87,145.24.  [Ex. 2, p. 1].  It does appear that this case similarly involves a transaction involving a “high-end luxury item,” and, as in Sanchez, plaintiffs in this case have also failed to submit any evidence which would suggest that the cost of arbitration fees and costs would be unaffordable to plaintiffs.  Sanchez, at 921.  In the absence of such evidence, the provision cannot be found unconscionable. 

Defendant seeks that the court stay the action pending the outcome of the arbitration. 

Under CCP § 1281.4, where the court has ordered arbitration of a controversy in an action, the court:

“shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate, or until such earlier time as the court specifies.”  

The action is ordered stayed. 

RULING:  

Defendant Tesla, Inc.’s Motion to Compel Binding Arbitration is GRANTED.

The Court finds that an agreement to arbitrate the controversy exists, that there is no showing that there has been any waiver of the right to compel arbitration, and no showing that the agreement has been rescinded or that grounds exist for rescission of the agreement.  

The Court orders plaintiffs Takahiro Toda and Hanako Toda and defendant Tesla, Inc. to arbitrate this matter according to the Agreement to Arbitrate included in the Motor Vehicle Order Agreement between the parties.   

The Court further orders pursuant to CCP § 1281.4 that this action shall be stayed until an arbitration has been had according to this order.

UNOPPOSED Request for Judicial Notice in Support of Defendant Tesla Motors, Inc.’s Motion to Compel Binding Arbitration is GRANTED. 

DEPARTMENT D IS CONTINUING TO CONDUCT AND ENCOURAGE 

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