Judge Ronald F. Frank, Case Number: 23TRCV01667, Date: 2024-01-16 Tentative Ruling

The Complaint is based on a November 19, 2018 purchase by Plaintiff of a 2018 Tesla Model 3, manufactured and/or distributed by Defendant, with corresponding Vehicle Identification Number 5YJ3E1EB7JF111887. Plaintiff alleges she purchased the Vehicle from a person or entity in the business of manufacturing, distributing, or selling consumer goods at retail. (Complaint, ¶ 8.) Plaintiff also asserts that she 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.) Plaintiff contends that the warranty provided, in relevant part, that in the event a defect developed with the Vehicle during the warranty period, Plaintiff could deliver the Vehicle for repair services to a repair shop and the Vehicle would be repaired. (Complaint, ¶ 9.)

After Plaintiff 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 breaking system; (6) defective noise system; and (7) any additional complaints made by Plaintiff, whether or not they are contained in the records or on any repair orders. (Complaint, ¶ 11.)

Plaintiff argues that the defects violate the express written warranties issued by Defendant, as well as the implied warranty of merchantability. (Complaint, ¶ 12.) Plaintiffs note that she 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.

On July 19, 2023, Tesla filed a Motion to Compel Binding Arbitration. On January 2, 2024, Plaintiff filed an opposition. On January 8, 2024, 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:

Plaintiff ESTHER SHINYOUNG LEE’s Complaint, filed on or about May 25, 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.

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).¿ ¿¿

Discussion

Existence of Arbitration Agreement

Here, the parties agree that there was a written agreement, the Motor Vehicle Purchase Agreement (“MVPA”), that included an arbitration agreements. However, Plaintiffs asserts in their opposition, that Plaintiff’s claims are independent from the order purchase agreement, that the motion to compel arbitration is an adhesion contract and is unconscionable; argues this Court should strike the provision requiring AAA as arbitrators to ensure a fair and unbiased arbitration process.

Here, the Arbitration Agreement in the MVPA 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. 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 3.)

Further, Tesla points to the section of the MVPA that contains a 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 Plaintiff.

Applicability 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. Plaintiff’s reliance is misplaced. In Ochoa, the Second 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. Regardless of the appellate district’s analysis of the equitable estoppel exception, both Felisilda and Ochoa 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. As such, Plaintiff’s reliance on the nonsignatory exception case of Ochoa is 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. Tesla is a signatory on the contract with Plaintiff. No exception to a rule regarding non-signatories is needed or even relevant here.

Enforcement of Arbitration Clause

In its motion to compel arbitration, Tesla asserts that Arbitration Agreements exist in their MVPA. Tesla has also presented evidence that Plaintiffs failed to opt out of the MVPA’s arbitration provision, which Tesla allows by way of a consumer sending a letter to Tesla stating that intention. Plaintiff also does not dispute having signed the agreement. 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 between you and Tesla, Inc. and its affiliates.” (Kim Decl., Exhibit 1, p. 3.) 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, namely, because such arguments rely on inapplicable case law. As such, this Court finds that on the face of the agreement made between the parties, the Arbitration clause is enforceable.

Unconscionability

Plaintiff next argue that in their opposition that the contract drafted by Tesla is one of adhesion and is unconscionable and/or otherwise revocable. Unconscionability is 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, Plaintiff has 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 MVPA is adhesive and therefore procedurally unconscionable. Plaintiff bases her arguments on the fact that a Order Agreement is a ‘take it or leave it’ contract that gave Plaintiff no meaningful opportunity to negotiate or discuss any of the terms outlined in the Agreements. In Plaintiff’s unconscionability argument, she 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 riles 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, Plaintiff attempts 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 Plaintiff, the adhesive nature of the arbitration agreements arguably flows in part from the digital nature of the Agreement. A Tesla buyer must click on the hyperlink to visualize the arbitration agreements, and if they did so on the screen would appear five pages of an easy-to-read document with prominently displayed agreement with distinctive border on page three (3) of the MVPA. 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, Plaintiff argues 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.)

Plaintiff argues that by requiring her to submit any and all disputes solely through AAA under its Consumer Arbitration Rules, Defendant exploits the vulnerability of Plaintiff, 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 Plaintiff fails 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.

Lastly, Plaintiff argues that although the arbitration provision includes a link to www.adr.org, it provides no other guidance regarding how to access the rules, or obtain any crucial information regarding about their application, how these rules differ from a civil forum, whether there are other rules, among other essential details. Based on this, Plaintiff concludes 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 Plaintiff 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 other Song-Beverly cases 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.