Judge: Ronald F. Frank, Case: 23TRCV00782, Date: 2023-11-15 Tentative Ruling
Case Number: 23TRCV00782 Hearing Date: November 15, 2023 Dept: 8
Tentative Ruling¿
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HEARING DATE: November
15, 2023¿
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CASE NUMBER: 23TRCV00782
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CASE NAME: Wei Du, et
al. v. Tesla Motors, Inc., et al.
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MOVING PARTY: Defendant, Tesla Motors, Inc.
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RESPONDING PARTY: Plaintiffs,
Wei Du and Yi Chieh Lin
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TRIAL DATE: Not
Set.
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MOTION:¿ (1) Motion to Compel Arbitration
Tentative Rulings: (1) GRANTED.
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I. BACKGROUND¿¿
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A. Factual¿¿
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On March 17, 2023, Plaintiffs,
Wei Du and Yi Chieh (collectively “Plaintiffs”) filed a Complaint against
Defendant, Tesla Motors, Inc., and DOES 1 through 10. The Complaint alleges
causes of action for” (1) Violation of Civil Code § 1793.2(d); (2) Violation of
Civil Code § 1793.2(b); (3) Violation of Civil Code § 1793.2(a)(3); (4) Breach
of Express Written Warranty – Civil Code § 1791.2 (a), Section 1794; (5) )
Breach of the Implied Warranty of Merchantability – Civil Code § 1791.1,
Section 1794.
The Complaint is based on an
April 11, 2022 purchase by Plaintiff of a 2022 Tesla Model X, manufactured
and/or distributed by Defendant, Vehicle Identification Number 7SAXCBE62NF339496.
Plaintiffs allege that they purchased the Vehicle from a person or entity in
the business of manufacturing, distributing, or selling consumer goods at
retail. (Complaint, ¶ 8.) Plaintiffs also allege they received an express
written warranty in which Defendant, Tesla, undertook to preserve or maintain
the utility or performance of the Vehicle or to provide compensation if there
is a failure in utility or performance for a specified period of time.
(Complaint, ¶ 9.) Plaintiffs contend that the warranty provided, in relevant
part, that in the event a defect developed with the Vehicle during the warranty
period, Plaintiffs could deliver the Vehicle for repair services to a repair
shop and the Vehicle would be repaired. (Complaint, ¶ 9.)
After
Plaintiffs took possession of the Vehicle and during the warranty period, the
Vehicle is alleged to have contained or developed defects, that substantially
impair the use, safety, and/or value of the vehicle. (Complaint, ¶ 10.) During
the warranty period, Plaintiff notes the following components, systems of
features that created repair problems: (1) defective body system; (2) Defective
powertrain system; (3) defective safety system; (4) defective electrical
system; (5) defective braking system; (6) defective noise system; and (7) any
additional complaints made by Plaintiffs, whether or not they are contained in
the records or on any repair orders. (Complaint, ¶ 11.)
Plaintiffs
argue that the defects violate the express written warranties issued by
Defendant, as well as the implied warranty of merchantability. (Complaint, ¶
12.) Plaintiffs note that they provided Defendant sufficient opportunity to
service or repair the Vehicle, however, that Tesla was unable and/or failed to
service or repair the Vehicle within a reasonable number of attempts.
(Complaint, ¶¶ 13, 14 .)
Defendant,
Tesla Motors, Inc. (“Tesla”) filed a Motion to Compel Binding Arbitration as
its initial responsive pleading.
B. Procedural¿¿
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On June 12, 2023, Tesla filed a Motion to
Compel Binding Arbitration. On September 27, 2023, Plaintiffs filed an
opposition. On October 11, 2023, Tesla filed a reply brief.
¿II. REQUEST FOR JUDICIAL
NOTICE
Tesla filed a request for this
Court to take judicial notice of the following document in support of their
Motion to Compel Arbitration:
1. Plaintiffs.
Wei Du and Yi Chieh Lin’s Complaint, filed on or about March 17, 2023, a true
and correct copy of which is attached to the Declaration of Ali Ameripour as
Exhibit 2.
The Court grants Tesla’s request
and takes judicial notice of the above document.
III. ANALYSIS
A.
Legal Standard
¿ California Code
of Civil Procedure, Section 1281 provides that “[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.”¿ “California law, like federal law, favors
enforcement of valid arbitration agreements.”¿ (Armendariz v. Foundation
Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.)¿ “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” unless grounds exist not to compel
arbitration.¿ (Code Civ. Proc. § 1281.2.) The Song-Beverly Act
also favors arbitration of Lemon Law disputes with a series of “carrot and
stick” provisions that immunize a warrantors from a species of civil penalty if
they have a certified lemon arbitration program in place. The AAA arbitration provision in Tesla’s
contract is not the pre-litigation lemon arbitration program contemplated by
Song-Beverly, but rather is a litigation diversion provision contemplated by
the Federal Arbitration Act and by the California Arbitration Act. Tesla’s provisions do not indicate that
federal law controls, so this Tentative Ruling will rest on California law.
“There
is no public policy favoring arbitration of disputes which the parties have not
agreed to arbitrate.” (Engineers & Architects Assn. v. Community
Development Dept.¿(1994) 30 Cal.App.4th 644, 653.) Nevertheless, the strong
public policy promoting private arbitration of civil disputes gives rise to a
presumption in favor of arbitrability and compels the Court to construe
liberally the terms of the arbitration agreement. (Vianna v. Doctors’
Management Co.¿(1994) 27 Cal.App.4th 1186, 1189).¿ ¿¿
B.
Discussion
a. Existence of Arbitration Agreement
Here, the parties agree that there was a
written agreement, the Motor Vehicle Order Agreement (“Order Agreement”), that
included an arbitration provision. However, Plaintiffs assert in their
opposition that the motion to compel arbitration is an adhesion contract and is
unconscionable, argue that this Court should strike the provision requiring AAA
as arbitrators to ensure a fair and unbiased arbitration process, and argue that
their claims are independent from the order and purchase agreements.
Here, the Arbitration provision in the
Order Agreement provides, emphases added:
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 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,
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.
(Declaration of Raymond Kim (“Kim Decl.”),
Ex. 1 to page 4.)
Tesla’s moving papers note that the Order
Agreement contains the emphasized 30-day opt-out provision, enabling a Tesla
purchaser or lessee to send a letter to Tesla within 30 days expressing the
customer’s desire to reject arbitration for matters embraced by the Order
Agreement arbitration provision. The Kim
declaration in support of the motion indicates Tesla did not receive any
opt-out letter from Plaintiffs. Plaintiffs
do not contend they timely opted out.
b. Inapplicability of Ochoa v. Ford
Motor Co.
Generally, only signatories to an
arbitration agreement may enforce it. (Rowe v. Exline (2007) 153
Cal.App.4th 1276, 1284.) However, there are several exceptions to the
nonsignatory enforcement rule. (Bouton v. USAA Cas. Ins. Co. (2008)
167 Cal.App.4th 412, 424.) In their opposition brief, Plaintiffs rely in part on the recent
Second District nonsignatory exception case of Ochoa vs. Ford, also
cited as Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, review
granted 7/19/23. Plaintiffs’ reliance is
misplaced. In Ochoa, the Second District converged from the First
District in Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486 as to the equitable
estoppel exception to the general rule that nonsignatory parties to an
arbitration agreement cannot compel a signatory party to arbitrate a suit filed
in the court system. The Court is
mindful that in Lemon Law cases where a selling or leasing dealership had an
arbitration provision in a purchase or lease contract that a non-signatory
manufacturer seeks to enforce, the better reasoned cases are in accord with Ochoa. See, e.g., Yeh v. Superior Court of Contra
Costa County (2023) 95 Cal.App.5th 264, 272; Kielar v. Superior Court
(2023) 94 Cal.App.5th 614, 620; Montemayor v. Ford Motor Co. (2023) 92
Cal.App.5th 958, 971.
Regardless
of the appellate district’s analysis of the equitable estoppel exception, Felisilda and Ochoa (as well as Yeh, Kielar
and Montemayor) discuss a manufacturer’s ability to enforce an
arbitration provision given to the buyer by the selling dealership as
opposed to the manufacturer’s own arbitration agreement. This case is distinguishably different. Here,
Tesla is not only the manufacturer, but also sells its vehicles directly to the
consumer. Tesla is one of the
signatories to the arbitration agreements at issue and does not have
third-party dealerships that handle the ordering and selling of its vehicles.
Plaintiffs’ reliance on the nonsignatory exception case of Ochoa is thus
unavailing. Because Tesla does not use third-party dealerships to order
and sell their vehicles, and because they directly contract and sell their
vehicles to consumers, there is no nonsignatory seeking to enforce a dealer’s
arbitration agreement.
c.
Enforcement of Arbitration Clause
In its motion to
compel arbitration, Tesla asserts that an Arbitration Agreement exists in their
Order Agreement. Tesla has also presented evidence that Plaintiffs failed to
opt out of the Order Agreement’s arbitration provision, which Tesla allows by
way of a consumer sending a letter to Tesla stating that intention, as well as
choosing to sign the RISC prior to the delivery of their vehicle. (Kim Decl., ¶
5, Exhibit 1 – Order Agreement, p.4.) Plaintiff also does not dispute having
signed the agreement. (Opp., p. 3.) The Court finds that Plaintiffs signed the
arbitration agreements and that the proffered arbitration agreement exists.
The
Complaint alleges various statutory violations for alleged vehicle defects. The
Court further notes that the Arbitration Agreement applies to, “any dispute
arising out of or relating to any aspect of the relationship between
[Plaintiffs] ad Tesla.” (Kim Decl.,
Exhibit 1, Sales Contract, p. 4.) The Court finds that the claims in
Plaintiffs’ Complaint are covered within the scope of the arbitration
agreement. The Court disagrees with Plaintiffs’ arguments that Plaintiffs’
claims do not arise out of the agreement, because such arguments rely on
inapplicable case law from non-signatory Lemon Law cases. As such, this Court
finds that on the face of the agreement made between the parties, the
Arbitration clause is prima facie enforceable.
d. Unconscionability
Plaintiffs next argue that in their
opposition that the contract drafted by Tesla is one of adhesion and is
unconscionable and/or otherwise revocable.
Unconscionability can be a valid
defense to a petition to compel arbitration. (Sonic-Calabasas A, Inc. v.
Moreno (2013) 57 Cal.4th 1109, 1143.) State law governs the
“unconscionability” defense. (Doctor’s Assocs., Inc. v. Casarotto (1996)
517 US 681, 687.) The core concern of the unconscionability doctrine is the
“absence of meaningful choice on the part of one of the parties together with
contract terms which are unreasonably favorable to the other party.” (Sonic-Calabasas,
supra, 57 Cal.4th at 1145.) The unconscionability doctrine ensures that
contracts—particularly contracts of adhesion—do not impose terms that have been
variously described as overly harsh, unduly oppressive, so one-sided as to
shock the conscience, or unfairly one-sided. (Id.) Here, Plaintiffs have not identified any
overly harsh or unduly oppressive provisions, other than depriving them of the
court system to resolve their dispute without any other option. The Court finds that such a deprivation,
without much more, is not overly harsh, unduly oppressive, nor shocking of the
conscience.
“The procedural element of unconscionability focuses on
whether the contract is one of adhesion. (Armendariz, supra, 24
Cal.4th at p. 113; Mercuro v. Superior Court, supra, 96
Cal.App.4th at p. 174.) Procedural unconscionability focuses on whether there
is “oppression” arising from an inequality of bargaining power or “surprise”
arising from buried terms in a complex printed form. (Armendariz, supra,
24 Cal.4th at p. 114; Mercuro v. Superior Court, supra, 96 Cal.App.4th
at p. 174.) The substantive element addresses the existence of overly harsh or
one-sided terms. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064,
1071 [130 Cal.Rptr.2d 892, 63 P.3d 979]; Armendariz, supra, 24
Cal.4th at p. 114.) An agreement to arbitrate is unenforceable only if both the
procedural and substantive elements are satisfied. (Armendariz, supra,
24 Cal.4th at p. 113; Mercuro v. Superior Court, supra, 96
Cal.App.4th at p. 174.) However, Armendariz held, “[T]he 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 p. 114; see also Kinney
v. United HealthCare Services, Inc., supra, 70 Cal.App.4th at p. 1329.).” McManus
v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 87.)
Procedural Unconscionability
Plaintiffs
argue that the Order Agreements are adhesive and therefore procedurally
unconscionable. Plaintiffs base their arguments on the fact that an Order
Agreement is a ‘take it or leave it’ contract that gave Plaintiffs no meaningful
opportunity to negotiate or discuss any of the terms outlined in the Order
Agreements. In Plaintiffs’ unconscionability argument, they reference the case
of Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77. In Gutierrez,
a plaintiff entered into an automobile lease agreement with the defendant, an
automobile dealer. The plaintiff subsequently sued the dealer over alleged
fraud in the transaction, and the adhesive agreement contained an inconspicuous
arbitration clause. (Id. at 83-84.) There, based on the AAA rules in
effect at the time the defendant moved to compel arbitration, the Plaintiff
would have had to pay $8,000 in administrative fees to initiate arbitration. (Id.
at 90-91.) The Gutierrez Court held that “where a consumer enters into
an adhesive contract that mandates arbitration, it is unconscionable to
condition that process on the consumer posting fees he or she cannot pay.” (Id.
at 89-90.)
Here, Plaintiffs attempt to draw an
analogy to Gutierrez, by claiming that the take it or leave it contract
was adhesive, and consequently procedurally unconscionable. However, the
contract in Gutierrez was not found to be unconscionable because it
was adhesive. In fact, the Gutierrez court noted that “simply because a
provision within a contract of adhesion is not read or understood by the
nondrafting party does not justify a refusal to enforce it.” (Id. at
88.) Instead, the Court reasoned that the unbargained-for term may only be
denied enforcement if it is also substantively unreasonable. (Ibid.) Here, although not specifically argued by Plaintiffs, the
adhesive nature of the arbitration agreements arguably flows in part from the
digital nature of the Order Agreement. A
Tesla buyer must click on the hyperlink to visualize the arbitration
agreements, and if they did so on the screen would appear four pages of an
easy-to-read document with prominently displayed agreement with distinctive
border on page three (3) of the order agreement. When there is no other indication of
oppression other than the adhesive aspect of an agreement, the degree of
procedural unconscionability is low. (Serpa v. California Surety
Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.)
As such,
this Court find that the procedural unconscionability is low.
Substantive Unconscionability
Next, Plaintiffs argue that the
arbitration provisions require AAA with no alternative and therefore are
substantively unconscionable. An arbitration agreement is generally enforceable, 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 parties to
pay unreasonable costs and fees as a condition of access to an arbitration forum.
(See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24
Cal.4th 83, 102.)
Plaintiffs
argue that by requiring Plaintiffs to submit any and all disputes solely
through AAA under its Consumer Arbitration Rules, Defendant exploits the
vulnerability of Plaintiffs, and also undermines and “impairs the integrity of
the bargaining process.” For example, as noted by Plaintiff, under the
AAA Rules, parties have severely limited discovery, including a lack of any
depositions. (See AAA Rules, R-22.) Further, beyond a very ambiguous
description of the exchange of information (i.e., “specific documents and other
information”), the AAA rules state: “No other exchange of information beyond
what is provided for in section (a) above is contemplated under these rules,
unless an arbitrator determines further information exchange is needed to
provide for a fundamentally fair process.” What Plaintiffs fail to
acknowledge is that these discovery limitations apply equally to both
sides. Tesla also will be deprived of
the right to take depositions but it will be required to exchange specific
documents and, on application to the arbitrator, both sides may be required to
exchange other information such as exchanging expert reports. The AAA rules also permit the arbitrating
parties to apply to the arbitrator for the ability to take depositions, such as
one deposition per side not to exceed a specified number of hours with the
deposition costs to be awarded tot eh prevailing party.
Lastly, Plaintiffs argue that although the
arbitration provision includes a link to www.adr.org, it provides no other
guidance regarding how to search for the rules, or any information regarding
how the rules are applied, how these rules differ from a civil forum, whether
there are other rules, etc.. Based on this, Plaintiffs conclude that the
provision is substantively unconscionable. The Court disagrees. Unlike other arbitration agreements with
substantively problematic provisions, the Tesla arbitration agreement does not
require Plaintiff to travel to another state to arbitrate, does not apply the
law of any state besides California, does not contain its own internal statute
of limitations, does not require Plaintiff to advance the costs of the arbitrator,
and does not contain a limitation of remedies provision preventing Plaintiffs
from obtaining a refund or a civil penalty or their attorneys fees if they
prevail. Those types of provisions where
present raise the substantive unconscionability level above the Court’s
threshold for finding an arbitration agreement unenforceable. While this Court has found arbitration
agreements in a Song-Beverly case to be unconscionable, such findings have been
on a much stronger showing than Plaintiffs have made here.
In
its reply brief, Tesla notes that AAA’s Consumer Arbitration Rules
(“CAR”) do allow for the exchange of information between the parties, pursuant
to Rule 22 of the CAR. (Exhibit 1, Second Ameripour Decl.) As such, Tesla
argues that for a simple lemon law case such as this, AAA's Consumer
Arbitration Rules are more than sufficient, as there is nothing in the
Song-Beverly Act that guarantees certain discovery. Further, Tesla asserts that
there is nothing that states that the discovery that is conducted in an
arbitration has to be the same as that which is conducted when a case proceeds
in a California Superior Court. Indeed,
one of the reasons both federal and California law favor enforcement of
arbitration agreements is the cost savings and perceived time savings to the
parties in a dispute resolution system that manages transaction costs.
This Court does not find it
necessary to strike the provision requiring AAA as arbitrators. There is no showing that AAA as distinguished
from the Better Business Bureau, JAMS, or other arbitral forum is biased in its
processing of lemon law cases.
IV. CONCLUSION¿¿
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For the foregoing reasons, Defendant’s Motion to Compel Arbitration is GRANTED.
Tesla is ordered to give
notice.¿¿¿¿