Judge: Salvatore Sirna, Case: 23PSCV02981, Date: 2024-05-28 Tentative Ruling

The Court may change tentative rulings at any time. Therefore, counsel are advised to check this website periodically to determine whether any changes or updates have been made to the tentative ruling. Counsel may submit on a tentative ruling by calling the clerk in Department G at (909) 802-1104 prior to 8:30 a.m. the morning of the hearing.

Case Number: 23PSCV02981    Hearing Date: May 28, 2024    Dept: G

Defendant Tesla Motors, Inc.’s Motion to Compel Binding Arbitration

Respondent: Plaintiff Michael Soliman

TENTATIVE RULING

Defendant Tesla Motors, Inc.’s Motion to Compel Binding Arbitration is GRANTED.

The action is STAYED pending completion of binding arbitration between the parties.

BACKGROUND

This is a lemon law action. In February 2019, Plaintiff Michael Soliman allegedly entered into a warranty contract with Defendant Tesla Motors, Inc. (Tesla) by acquiring a certified pre-owned 2015 Tesla Model S 85. Subsequently, Soliman alleges the vehicle presented with serious defects in its electrical and body systems.

On September 27, 2023, Soliman filed a complaint against Tesla and Does 1-20, alleging (1) breach of express warranty and (2) breach of implied warranty.

On February 28, 2024, Tesla filed the present motion. A hearing on the present motion is set for May 28, 2024, along with a case management conference.

ANALYSIS

Tesla moves to compel Soliman to binding arbitration pursuant to an arbitration agreement. For the following reasons, the Court GRANTS Tesla’s motion.

Legal Standard

“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.” (Code Civ. Proc., § 1281.) The court must grant a petition to compel arbitration unless it finds no written agreement to arbitrate exists, the right to compel arbitration has been waived, grounds exist for revocation of the agreement, or litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues. (Code Civ. Proc., § 1281.2.) A petition to compel arbitration functions as a motion. (Code Civ. Proc., § 1290.2.)

In a motion or petition to compel arbitration, “the moving party bears the burden of producing ‘prima facie evidence of a written agreement to arbitrate the controversy.’” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165 (Gamboa).) Once the court finds an arbitration agreement exists, the party opposing arbitration bears the burden of establishing a defense to enforcement by preponderance of the evidence. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) In interpreting an arbitration agreement, courts apply the same principles used to interpret contractual provisions with the fundamental goal of giving effect to the parties’ mutual intentions and applying contractual language if clear and explicit. (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 177.) Because public policy strongly favors arbitration, “any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hosp. v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.)

The Federal Arbitration Act (FAA) applies to contracts that involve interstate commerce (9 U.S.C. §§ 1, 2), but since arbitration is a matter of contract, the FAA also applies if stated in the agreement.  (See Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355.) Pursuant to the FAA, the court’s role “is limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” (Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc. (2019) 44 Cal.App.5th 834, 840, quoting U.S. ex rel. Welch v. My Left Foot Children’s Therapy, LLC (9th Cir. 2017) 871 F.3d 791, 796.)

Discussion

In this case, Tesla argues the present action is subject to an arbitration provision that was included in an order agreement. According to Tesla, when Soliman placed an order for the subject vehicle on February 16, 2019, Soliman agreed to the terms of a Motor Vehicle Order Agreement. (Kim Decl., ¶ 3.) The third page of the order agreement included an agreement to arbitrate which stated as follows in relevant part:

“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.” (Kim Decl., Ex. 1, p. 3.)

The agreement also allowed individual disputes to be heard in small claims court and gave Soliman the option to opt out of the arbitration provision within thirty days of signing the order agreement. (Kim Decl., Ex. 1, p. 3.) Subsequently, Tesla states Soliman failed to opt out of the arbitration provision. (Kim Decl., ¶ 5.) While the arbitration provision does not state it is governed by the FAA, Tesla argues the FAA applies because the arbitration provision was part of a transaction evidencing interstate commerce. (Motion, p. 8:3-10.) In arguing a vehicle order agreement constitutes interstate commerce, Tesla points to United States v. Oliver (9th Cir. 1995) 60 F.3d 547, where the Ninth Circuit noted cars are “instrumentalities of commerce.” (Id., at p. 550.) In opposition, Soliman does not dispute or even mention the applicability of the FAA. Therefore, the Court finds the FAA is applicable.

In opposition, Soliman first argues Tesla cannot enforce the arbitration provision because it was not a signatory to the order agreement. (Opp., p. 2:28-3:7.) Soliman points out that while the present action is against Tesla Motors, Inc., the order agreement was between Soliman and Tesla, Inc. (Kim Decl., Ex. 1, p. 2.) But in a supplemental declaration by Tesla’s senior corporate counsel, Tesla establishes that Tesla, Inc. and Tesla Motors, Inc. are the same entity and that Tesla, Inc. does business in California as Tesla Motors, Inc. (Jay Decl., ¶ 3)

Next, Soliman contends the arbitration provision does not flow from the sale of the vehicle as it was included in an order agreement as opposed to a purchase agreement. (Opp., p. 1:19-2:13.) Soliman also contends that the order agreement was superseded by a purchase agreement. (Opp., p. 3:10-5:4.) Soliman’s first contention fails as the arbitration provision explicitly states, “this agreement to arbitrate overrides any different arbitration agreement between us, including any arbitration agreement in a lease or finance contract.” (Kim Decl., Ex. 1, p. 3.) And to the extent Soliman suggests a subsequent purchase agreement has superseded the subject arbitration provision, Soliman failed to include any evidence of the existence or terms of such an agreement.

Last, Soliman maintains Soliman’s claims bear no connection to the order agreement because Tesla’s alleged warranty obligations arose outside the order agreement. (Opp., 10:19-11:1, 11:20-12:6.) But again, this argument requires the Court to ignore the language of the arbitration provision which applies to “any dispute arising out of or relating to any aspect of the relationship between [Soliman] and Tesla” and “includes claims arising before this Agreement, such as claims related to statements about [Telsa’s] products.” (Kim Decl., Ex. 1, p. 3.) Accordingly, the court finds Tesla adequately established the existence of an applicable arbitration provision that is governed by the FAA.  The burden now shifts to Soliman to establish any defenses to the enforcement of the subject provision. In opposition, Soliman argues the arbitration provision is unconscionable.

Pursuant to both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable” including “fraud, duress, and unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.) “‘[U]nconscionability 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.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, quoting A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 486-487.) While both elements must be present to prevent enforcement, courts evaluate them as a sliding scale in that “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.” (Ibid.)

As to procedural unconscionability, Soliman argues the arbitration provision is a contract of adhesion. (Opp., p. 6:22-7:11.) But the plain text of the arbitration provision contradicts Soliman’s argument. In fact, the arbitration provision specifically allowed Soliman to unilaterally reject the arbitration provision within thirty (30) days of entering into the order agreement. (Kim Decl., Ex. 1, p. 3.) Thus, the court finds the arbitration provision was not an adhesion contract since Soliman had the option to reject it without rejecting the entire order agreement. Further, Soliman does not point to any other instance of procedural unconscionability.  Therefore, the court concludes that Soliman cannot establish the arbitration provision is unconscionable. (Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1167 [declining to consider substantive unconscionability when procedural unconscionability is nonexistent].)

In light of Soliman’s failure to establish a defense to the enforcement of the arbitration provision at issue, the court GRANTS Tesla’s motion.

CONCLUSION

Based on the foregoing, Tesla’s motion to compel arbitration is GRANTED.

The action is STAYED pending completion of binding arbitration between the parties.