Judge: Ralph C. Hofer, Case: 24GDCV00365, Date: 2024-08-30 Tentative Ruling
Case Number: 24GDCV00365 Hearing Date: August 30, 2024 Dept: D
Tentative Ruling
Calendar: 7
Date: 8/30/2024
Case No. 24
GDCV00365 Trial Date:
None Set
Case Name: Mendoza
v. Tesla, Inc. dba Tesla Motors, Inc.
MOTION TO COMPEL ARBITRATION
Moving
Party: Defendant Tesla, Inc. dba Tesla Motors, Inc.
Responding
Party: Plaintiff Hilda Quihuis
Mendoza
RELIEF REQUESTED:
Order compelling
plaintiff to arbitrate plaintiff’s claims and staying this action pending the
outcome of arbitration.
SUMMARY OF FACTS:
Plaintiff
Hilda Quihuis Mendoza alleges that in August of 2022, plaintiffs purchased a
2022 Tesla Model 3, for which defendant Tesla Motors, Inc. issued a written
warranty, pursuant to which defendant agreed to preserve or maintain the
utility or performance of the vehicle or provide compensation if there was a
failure in such utility or performance.
Plaintiff alleges that the vehicle
was delivered to plaintiff with serious defects and nonconformities to warranty
and developed other serious defects and nonconformities to warranty including
electrical, suspension, and structural system defects. Plaintiff alleges 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
plaintiff delivered the vehicle to an authorized Tesla Motors, Inc. repair
facility for repair of the nonconformities, 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 vehicle or promptly make restitution in accordance with the
Song-Beverly Act.
The
complaint alleges 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.
ANALYSIS:
Defendant Tesla Motors, Inc.
(“Tesla”) brings this motion seeking an order compelling plaintiff 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.”
There
is a strong public policy in favor of arbitration of disputes and any doubts
concerning the scope of arbitrable disputes should be resolved in favor of
arbitration. Moncharsh v. Heily &
Blase (1992) 3 Cal.4th 1, 9 (“courts will ‘indulge every intendment to give
effect to such proceedings.’”) (quotation omitted). “[A]rbitration agreements should be liberally
interpreted, and arbitration should be ordered unless the agreement clearly
does not apply to the dispute in question.”
Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186,
1189, quoting Weeks v. Crow (1980) 113 Cal.App.3d 350, 353. See also AT&T Mobility, LLC v.
Concepcion (2011) 563 U.S. 333, 339.
In this case, defendant has
submitted a copy of a Motor Vehicle Order Agreement (Order Agreement)
affiliated with plaintiff’s file, which is authenticated by a Staff Business
Resolution Partner at Tesla, Raymond Kim, and company records, in which Kim explains
that the Order Agreement would not have been in Tesla’s internal system had
plaintiff not electronically executed the Order Agreement. [Kim Decl., paras. 2-8, Ex. 1].
The Order Agreement includes an arbitration
provision. The Order
Agreement is between plaintiff and Tesla, Inc. or its affiliate, and includes
an arbitration agreement which is set off in a box and provides:
“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.
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.
If
you prefer, you may instead take an individual dispute to small claims court.
[Kim
Decl., paras. 2-7, Ex. 1, p. 3, bold in original].
Tesla’s representative also
indicates that plaintiff did not opt out, as Tesla maintains letters in which
its customers opted out of the Agreement to Arbitrate but did not receive any
such letter from plaintiff. [Kim Decl.,
para. 5].
This showing is sufficient to
establish the existence of an agreement to arbitrate between the parties.
As argued in the moving papers,
plaintiff’s claims all are brought under the Song-Beverly Consumer Warranty Act
which creates statutory claims arising out of retail purchases made by
consumers of vehicles, and plaintiffs’ claims on their face arise directly out
of the relationship between plaintiff as purchaser/consumer, and Tesla as the
manufacturer/retailer/warrantor/repair facility, which “relationship” is within
the scope of the arbitration agreement, as the claims in the complaint allege
that this action arises out of the warranty obligations of Tesla, for a vehicle
purchased by plaintiff, for which Tesla issued a written warranty, and for
which implied warranties arose by virtue of the purchase.
It is clear that the current dispute
falls within the terms of the arbitration provision to which the parties
agreed.
The declaration of counsel for
defendant also indicates, “On April 4, 2024, I asked that Plaintiff stipulate
to arbitration. Plaintiff has not yet
agreed to stipulate to arbitration.” [Ameripour Decl., para. 3].
Plaintiff in opposition does not
dispute that plaintiff and defendant are direct parties to the Order Agreement
and its arbitration provision. Plaintiff
in opposition does not argue that the agreement does not by its plain language
apply to the current dispute between plaintiff and defendant.
Plaintiff argues that the
arbitration agreement is not enforceable because it is unconscionable.
To
successfully establish unconscionability, a party must show that an arbitration
agreement was both procedurally and substantively unconscionable. Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 114.
It is the burden of the party attempting to establish the
unconscionability of an arbitration agreement to introduce sufficient evidence
to establish unconscionability. Arguelles-Romero
v. Superior Court (2010, 2nd Dist.) 184 Cal.App.4th
825, 843.
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.
The Court
further explained the analysis as follows:
“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 plaintiff’s procedural unconscionability argument is premised on
the argument that the arbitration agreement was included in a contract 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. Plaintiff argues that if plaintiff
wanted the Model 3 vehicle, plaintiff had to accept the contract as a whole.
First, plaintiff has submitted no
evidence of this proposition 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 plaintiff
entering into the agreement. [See Enav
Decl.]
In any case, plaintiff’s 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
plaintiff argues, plaintiff was required to agree to arbitration or forego the
opportunity to purchase the vehicle. As
pointed out by defendant, 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 Order 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., paras. 2-7, Ex. 1, p. 3, bold in original].
Also as noted above, Tesla has
shown it has no record of plaintiffs exercising this option to opt out. [Kim Decl., para. 5]. Plaintiff in opposition does not mention
this provision and does not establish that plaintiff was somehow prevented from
opting out. This situation is in
addition to the fact that plaintiff does not submit any contrary evidence
showing the circumstances of the negotiations, or any evidence at all in this
regard, so plaintiff has not met her burden of establishing that the agreement
was entered in circumstances suggesting any modicum of procedural
unconscionability.
Plaintiff argues that in connection
with this contract of adhesion, which the subject agreement decidedly was not,
procedural unconscionability can be found to exist because plaintiff was 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. 3]. The agreement clearly specifies a particular
set of AAA Rules, the “Consumer Arbitration Rules.” [Id]. It
is clear 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.
As noted
above, and as conceded in the opposition, to establish unconscionability, both
procedural and substantive unconscionability must be established. Since no procedural unconscionability is
established here, the unconscionability argument fails, and the agreement is
enforceable despite such an argument.
With
respect to substantive unconscionability, the Second District has summarized
substantive unconscionability as follows:
“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.
Plaintiff
argues that the arbitration provision here is substantively unconscionable
because it allows for a choice of arbitration forum, but only for the party
electing to arbitrate, as here Tesla may “elect” both to arbitrate in the first
place and choose the forum and choose the Rules. It is not clear on what language plaintiff
bases this argument, and there is no evidentiary citation to any language
permitting Tesla to “elect” arbitration, the forum, or the Rules, without
permitting plaintiff to do so. On the
contrary, the agreement here does not include the term “elect,” but requires
both parties to proceed by arbitration with the AAA:
“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.
[Kim Decl., paras. 2-7, Ex. 1, p. 3, bold in original].
The agreement imposes the selection
to arbitrate, the AAA forum and the AAA rules on both defendant and plaintiff
in this matter, who agreed to this choice, with plaintiff not exercising plaintiff’s
option to opt out. The actual agreement
sought to be enforced here 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. The Order Agreement
provides, “We will pay all AAA fees for any arbitration which will be held in
the city or county of your residence.”
[Kim Decl., Ex. 1, p. 3].
It is not clear how this provision,
in which defendant assumes responsibility for all AAA fees, could possibly be
viewed as unconscionable or lacking in neutrality.
In any case, defendant argues that
the provisions of this particular agreement are more consumer friendly than
those upheld in case law as not raising substantive unconscionability.
Both sides rely on Sanchez v. Valencia
Holding Co., LLC (2015) 61 Cal. 4th 899, in which the Calfornia
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 the arbitration agreement included an express opt out
provision. This contract term 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, and 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, the Order
Agreement does not appear to require the consumer to pay any costs at all. The agreement also adopts the Rules of the
American Arbitration Association, so that any ambiguity about “all” fees
defendant agrees to pay would be subject to the fee and costs provisions of the
AAA Rules, which the Court in Sanchez had noted were proper. As discussed above, this is the provision
which the parties agreed to have applied in the absence of opting out.
In addition, this case is very
similar to Sanchez, as the vehicle in question is a high-end luxury item. Moreover, as in Sanchez, plaintiff in
this case has also failed to submit any evidence which would suggest that any
potential cost of arbitration fees and costs would be unaffordable to
plaintiff. In the absence of such
evidence, the provision cannot be found unconscionable.
In sum, there has been no sufficient
evidence submitted to establish that the arbitration agreement is substantively
unconscionable here, and the motion is not denied on this ground.
Plaintiff, in fact, appears to anticipate
that the motion will be granted, but indicates that if the court finds that
plaintiff must arbitrate his claims, then plaintiff elects to arbitrate at JAMS
rather than AAA.
There is no contractual provision or
legal authority presented by plaintiff permitting plaintiff to make such an
election, or authorizing this court to impose on the parties an arbitration
forum to which they did not agree.
Again, the arbitration agreement in the Order Agreement expressly states
that the parties “agree that any
dispute arising out of or relating to any aspect of the relationship between”
them “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.”
[Kim Decl., Ex. 1, p. 3].
At
the hearing, the court will hear from the parties regarding any willingness to
stipulate to such a change.
In the absence of a stipulation, the
agreement to arbitrate in the Order Agreement controls here, and that agreement
was to submit the matter to arbitration with the AAA, which agreement the court
applies here.
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 Motors, 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 plaintiff
Hilda Quihuis Mendoza and defendant Tesla Motors, 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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