Judge: Ronald F. Frank, Case: 23TRCV02214, Date: 2024-04-04 Tentative Ruling
Case Number: 23TRCV02214 Hearing Date: April 4, 2024 Dept: 8
Tentative Ruling¿
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HEARING DATE: April 4, 2024¿
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CASE NUMBER: 23TRCV02214
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CASE NAME: Mark Korshak v.
Tesla Motors, Inc., et al.
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MOVING PARTY: Defendant,
Tesla Motors, Inc.
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RESPONDING PARTY: Plaintiff, Mark Korshak
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TRIAL DATE: Not
Set.
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MOTION:¿ (1) Motion to Compel Arbitration
Tentative Rulings: (1) GRANTED. Civil action stayed until completion of
arbitration and arbitration status conference set for February 6, 2025, 8:30
a.m.
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I. BACKGROUND¿¿
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A. Factual¿¿
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On July 10, 2023, Plaintiff,
Mark Korshak (“Plaintiff”) 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 a
May 1, 2022 purchase by Plaintiff of a 2022 Tesla Model Y, manufactured and/or
distributed by Defendant, with corresponding Vehicle Identification Number 7SAYGDEF4NF515081.
Plaintiff notes he purchased the Vehicle from a person or entity in the
business of manufacturing, distributing, or selling consumer goods at retail.
(Complaint, ¶ 8.) Plaintiff also notes he received an express written warranty
in which Defendant, Tesla, undertook to preserve or maintain the utility of
performance of the Vehicle or to provide compensation If there is a failure in
utility or performance of the Vehicle or to provide compensation if there is a
failure in utility or performance for a specific 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
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.)
Plaintiff
argues that the defects violate the express written warranties issued by
Defendant, as well as the implied warranty of merchantability. (Complaint, ¶
12.) Plaintiff notes 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 October 27, 2023, Tesla filed a Motion to Compel
Binding Arbitration. On March 21, 2024, Plaintiff filed an opposition. On March
27, 2024, Tesla filed a reply brief.
II. REQUEST FOR JUDICIAL
NOTICE
In addition to filing Tesla’s Motion to Compel
Arbitration, Tesla also filed a request for this Court to take Judicial Notice
of the following document:
1. Plaintiff
Mark Korshak’s Complaint, filed on or about July 10, 2023, a true and correct
copy of which is attached to the Declaration of Ali Ameripour as Exhibit “3.”
This Court GRANTS Tesla’s request
and takes judicial notice of the above.
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 were two written
agreements, the Retail Installment Sales Contract (“RISC”), and the Order
Agreement, that included an arbitration agreement. However, Plaintiff asserts
in his opposition, that the Purchase Agreement supersedes the Order Agreement,
and thus cannot bind the parties to the RISC. Plaintiff further argues that the
RISC is unconscionable, and that this Court should strike the provision
requiring AAA as arbitrators to ensure a fair and unbiased arbitration process.
Here, the Order Agreement contained an arbitration
agreement, which stated:
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 3.)
Further,
the RISC contained an arbitration agreement, that read:
“ARBITRATION PROVISION” and
“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.
2. IF A DISPUTE IS ARBITRATED, YOU
WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS
MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO CLASS
ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.
3. DISCOVERY AND RIGHTS TO APPEAL
IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS
THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.
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. […]
(Kim Decl.,
Exhibit 2, page 5.)
Further, Tesla points to the section of the Order Agreement
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.
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. Plaintiff’s reliance is misplaced. In Ochoa,
the Second District first 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 to the contract with Plaintiff. 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 and 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. 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. Further, this Court is not
persuaded, and is confused at Plaintiff’s arguments regarding the superseding
of the Order Agreement and the RISC. Not only does Plaintiff’s 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
he RISC conflict.
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.
d. 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 Order Agreement is adhesive and therefore procedurally
unconscionable. Plaintiff bases his arguments on the fact that the 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, he 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, 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 non-drafting
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 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 finds that there is procedural unconscionability here, but it 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 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.
This Court does not find it
necessary to strike the provision requiring AAA as arbitrators. The Court finds
the substantive unconscionability aspect of this arbitration agreement to be
low, which coupled with the low procedural unconscionability fails to meet
Plaintiff’s burden of establishing that the arbitration agreement cannot be
enforced.
IV. CONCLUSION¿¿
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For the foregoing reasons, Defendant’s
Motion to Compel Arbitration is GRANTED.
Tesla is ordered to give
notice and to pay its initial fee to the arbitration forum within 30 days. The Court set a hearing on an arbitration
status conference 10 months out, on February 6, 2024 at 8:30 a.m. Proceedings in this civil action are stayed
until further order of the Court.
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