Judge: Ronald F. Frank, Case: 23TRCV02017, Date: 2023-12-18 Tentative Ruling
Case Number: 23TRCV02017 Hearing Date: December 18, 2023 Dept: 8
Tentative Ruling¿
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HEARING DATE: December
15, 2023¿
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CASE NUMBER: 23TRCV02017
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CASE NAME: Hannah
Ramthun; Maximillian Irogbele. v. Tesla Motors, Inc., et al.
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MOVING PARTY: Defendant, Tesla Motors, Inc.
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RESPONDING PARTY: Plaintiffs,
Hannah Ramthun and Maximillian Irogbele
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TRIAL DATE: Not
Set.
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MOTION:¿ (1) Motion to Compel Arbitration
Tentative Rulings: (1) GRANTED. And the
litigation is stayed, subject to periodic arbitration status conferences.
I. BACKGROUND¿¿
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A. Factual¿¿
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On June 21, 2023, Plaintiffs,
Hannah Ramthun and Maximillian Irogbele (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; and (5) Breach of the Implied Warranty of Merchantability –
Civil Code § 1791.1, Section 1794.
The Complaint is based on an
December 31, 2022 purchase by Plaintiff of a 2023 Tesla Model S, manufactured
and/or distributed by Defendant, with corresponding Vehicle Identification
Number 5YJSA1E59PF501450. Plaintiffs note 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 note
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 breaking 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 August 8, 2023, Tesla filed a Motion to
Compel Arbitration. On December 5, 2023, Plaintiffs filed an opposition. To
date, no reply brief has been filed.
¿II. 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”) and
the Purchase Agreement (“RISC”), that included an arbitration agreements.
However, Plaintiffs assert that the Order Agreement, and is arbitration clause,
do not bind, and are not intended to bind the parties’ purchase relationship
because it is superseded by the RISC. Plaintiffs also assert in their
opposition, 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; and that
their claims are independent from the order and purchase agreements.
Here, the Arbitration Agreement in the RISC
provides:
“Any claim or dispute, whether in
contract, tort, statute or otherwise (including the interpretation and scope of
this Arbitration Provision, and the arbitrability of the claim or dispute),
between you and us or our employees, agents, successors or assigns, which
arises out of or relates to your credit application, purchase or condition of
this vehicle, this contract or any resulting transaction or relationship
(including any such relationship with third parties who do not sign this
contract) shall, at your or our election, be resolved by neutral, binding
arbitration and not by a court action.”
(Declaration of Raymond Kim (“Kim Decl.”), Exhibit B, Sales
Contract, p. 5.) Further, Tesla notes that the Order Agreement 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 Plaintiffs. (Kim Decl.,
¶ 4.)
b. 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. Plaintiffs’ 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, Plaintiffs’ 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 Plaintiffs. No exception to a rule regarding
non-signatories is needed or even relevant here.
c.
Enforcement of Arbitration Clause
In its motion to
compel arbitration, Tesla asserts that Arbitration Agreements exist in their RISC.
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., ¶
2, Exhibit A – Order Agreement, p.4.) Plaintiff also does not dispute having
signed the agreement. (Opp., p. 3.) Further, the Court is not persuaded, and is
confused at Plaintiff’s arguments regarding the superseding of the Order
Agreement and the RISC. Not only does Plaintiffs’ argument lack any authority
whatsoever, but Plaintiff fails to persuade the Court that the contracts
conflict. Here, the Court does not find that the Order Agreement and the RISC
conflict.
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] and…Tesla.” (Kim Decl.,
Exhibit B, Sales Contract, p. 5.) 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.
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 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, 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 a 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 Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899.
However, the facts of Sanchez are not inherently analogous to the facts
here. In Sanchez, the contract at issue was printed on a single page
which was the standard 8 ½ inches wide but a scroll-like 26 inches long. The
paper was covered in different provisions which were printed on the front and
the back, but only the front of the paper had signature blocks. (Id. at
908.) The arbitration agreement was hiding on the back at the bottom, as far
away from notice as it could possibly be. (Ibid.) The Sanchez Court found procedural
unconscionability there. (Id. at 913-915.) 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 and RISC. A Tesla buyer must click on the hyperlink to
visualize the arbitration agreements, and if they did so on the screen would appear
several pieces of normal-size paper with normal printing and margins. The
arbitration clause in the Order Agreement is located squarely in the middle of
the agreement (i.e., page 3 of 6). Further, the Arbitration Agreement in the
RISC is similarly easy to read, in normal size font, on page 5 of 6. 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.) Further, from the evidence before
the Court the entire purchase transaction was conducted virtually and was
initiated by Plaintiff on line, lessening the potential problem of a virtual
arbitration provision because the purchase application, vehicle order, and
related documents were all reviewed and approved on line.
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.
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 ow 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 other arbitration agreements in Song-Beverly
cases to be unconscionable, such findings have been on a much stronger showing
than Plaintiffs have made here.
This
Court 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. As such, 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 the parties certain discovery procedures.
Further, 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.
This Court does not find it
necessary to strike the provision requiring AAA as arbitrators.
IV. CONCLUSION¿¿
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For the foregoing reasons, Defendant’s Motion to Compel Arbitration is GRANTED. This litigation is ordered to be stayed,
subject to periodic arbitration status conferences.
Tesla is ordered to give
notice.¿¿¿¿
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