Judge Salvatore Sirna, Case Number: 23PSCV03685, Date: 2024-07-03 Tentative Ruling

Judge: Salvatore Sirna, Case: 23PSCV03685, Date: 2024-07-03 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: 23PSCV03685 Hearing Date: July 3, 2024 Dept: G

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

Respondent: Plaintiff Yuemei Xu

TENTATIVE RULING

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

The case is STAYED pending completion of Arbitration.

BACKGROUND

This is a Song-Beverly action. In September 2021, Plaintiff Yuemei Xu allegedly entered into a warranty contract with Defendant Tesla Motors, Inc. (Tesla) by leasing a 2021 Tesla Model Y. Subsequently, Xu alleges the vehicle presented with mechanical, electrical, and transmission defects.

On November 29, 2023, Xu filed a complaint against Tesla and Does 1-100, alleging (1) breach of implied warranty, (2) breach of express warranty, and (3) violation of the Song-Beverly Consumer Warranty Act.

On April 26, 2024, Tesla filed the present motion. A hearing on the present motion is set for July 3, 2024, along with a case management conference and an informal discovery conference.

ANALYSIS

Tesla moves to compel Xu 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 and a subsequent lease agreement. According to Tesla, when Xu placed an order for the subject vehicle on June 17, 2021, Xu 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 allows individual disputes to be heard in small claims court and gave Xu the option to opt out of the arbitration provision within thirty (30) days of signing the order agreement. (Kim Decl., Ex. 1, p. 3.) When Xu took delivery of the subject vehicle on June 17, 2021, Xu executed a lease agreement that included the same arbitration provision as the order agreement. (Kim Decl., ¶ 3, Ex. 2, p. 3.) Subsequently, Tesla states Xu failed to opt out of the arbitration provision. (Kim Decl., ¶ 7.) While neither arbitration provision states it is governed by the FAA, Tesla argues the FAA applies because the arbitration provisions were part of a transaction evidencing interstate commerce. (Motion, p. 9:23-10:3.) In arguing a vehicle order agreement and lease agreement constitute 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.) Xu does not dispute the applicability of the FAA. Thus, the court finds the FAA is applicable and now addresses Xu’s grounds for opposing enforcement of the arbitration provisions.

Waiver

First, Xu argues Tesla waived the right to compel arbitration. In determining whether waiver has occurred, courts consider “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit’ before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.” (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 964 (Davis), quoting Peterson v. Shearson/American Express, Inc. (10th Cir. 1988) 849 F.2d 464, 467-468.) But in light of the U.S. Supreme Court’s decision in Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708 (Morgan), courts no longer consider the sixth factor looking at prejudice. (Davis, supra, 84 Cal.App.5th at p. 966.)

In this case, Xu argues Tesla’s submission of offer to compromise pursuant to Code of Civil Procedure section 998 is inconsistent with Tesla’s alleged right to arbitration. (Opp., p. 4:1-5:22.) In it, Tesla stated the following:

“If there is a dispute as to legal entitlement and/or the amounts recoverable in paragraphs 1, 2, and 3 above after submission of the itemization and proof of same, Tesla will pay the undisputed amounts to Plaintiff within 30 days of acceptance of this offer. At Plaintiff’s election, Tesla will allow the Court to determine disputed amounts either by motion, bench trial, expedited jury trial under Rule 3.1545 of the Rules of Court, or by reference under Code of Civil Procedure Section 638(a), with Plaintiff choosing the dispute resolution process, and Plaintiff bearing the burden of proof by a preponderance of the evidence for legal entitlement and the damages amount sought.” (Geoulla Decl., Ex. E, ¶ 4.)

Based on this language and the absence of any language invoking Tesla’s right to have disputes resolved in binding arbitration, Xu argues waiver applies. (Opp., p. 4:17-5:9.) While the Court agrees that the language of Tesla’s offer to compromise is inconsistent with invoking its right to arbitration, this alone is insufficient to establish waiver. In cases where waiver has been found, the party seeking to compel arbitration often engaged in protracted motion practice and discovery before seeking to compel arbitration. (See Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1452; Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1099-1100.) Xu does not point to any other actions by Tesla that were inconsistent with Tesla’s right to arbitration. Nor does Xu point to any authority that holds the language of a Section 998 offer alone is sufficient to establish waiver. Therefore, the court does not find persuasive Xu argument in this regard.

Xu also argues Tesla engaged in unreasonable delay before filing the present motion. (Opp., p. 5:24-7:11.) Xu served a prelitigation demand for restitution on September 6, 2023 (Geoulla Decl., Ex. B) and commenced the present action on November 29, 2023, while Tesla filed the present motion on April 26, 2024. The court notes, however, that Tesla first appeared in this action and filed its answer on April 5, 2024, which included the right to arbitration as the twenty-second affirmative defense. (Answer, p. 8:24-9:2.)

Based on these facts and in absence of any facts demonstrating Tesla substantially invoked litigation machinery, the court does not find Tesla waived its right to arbitration.

Standing

Xu next contends Tesla lacks standing to compel arbitration pursuant to the lease agreement on the grounds that Tesla surrendered and assigned its rights to Tesla Finance LLC (Tesla Finance). (Opp., p. 7:15-8:9.) In paragraph seventeen of the lease agreement, it states “[w]e intend to assign this lease to Tesla Lease Trust. Tesla Finance LLC helped arrange this lease and will service it.” (Kim Decl., Ex. 2, ¶ 17.) The lease agreement also states, however, “[a]ny sale of the vehicle and assignment of this lease will not be considered to change materially your duties, burden, or risk under this lease.” (Kim Decl., Ex. 2, ¶ 35.) Furthermore, the arbitration provision in the lease agreement is not limited to the lease agreement. Instead, it applies to any dispute arising out of Xu’s relationship with Tesla, Inc. and its affiliates. Thus, Tesla’s assignment of the lease did not materially change Xu’s duty to arbitrate any dispute arising out of Xu’s relationship with Tesla. Since the court finds Tesla has standing to enforce the arbitration provision in the lease agreement, the court need not address Xu’s alternative arguments regarding Tesla’s standing or the validity of the order agreement.

Applicability of Arbitration Provision

Last, Xu maintains Xu’s Song-Beverly claims do not arise out of the lease agreement but instead arise out of Tesla’s alleged failure to repair the vehicle. (Opp., p. 11:18-13:2.) This argument requires the court to ignore the plain language of the arbitration provision which applies to “any dispute arising out of or relating to any aspect of the relationship between [Xu] and Tesla” and “includes claims arising before this Agreement, such as claims related to statements about [Telsa’s] products.” (Kim Decl., Ex. 2, p. 3.) The court declines to ignore the plain language of the arbitration provision.

Xu also maintains that such broad applicability would lead to absurd results. (Opp., p. 11:32-12:9.) The court disagrees. In interpreting an agreement, the Court is “guided by the language used and construe[s] the intention of the parties to have been in accordance with their agreement.” (Pierce v. Merrill (1900) 128 Cal. 464, 472.) “[C]ourts will not rewrite contracts to relieve parties from bad deals nor make better deals for parties than they negotiated for themselves.” (Series AGI West Linn of Appian Group Investors DE, LLC v. Eves (2013) 217 Cal.App.4th 156, 164.)

Here, Xu not only agreed to the broad applicability of this arbitration provision when Xu entered into the lease agreement for the subject vehicle but Xu also failed to take advantage of the option to opt out or to reject the provision within thirty (30) days of signing the lease agreement. Thus, the court finds Xu’s objections without merit and contrary to the basic rules of contractual interpretation.

Accordingly, Tesla has established the existence of an applicable arbitration provision and Xu failed to demonstrate an applicable defense to its enforcement.

Therefore, the Court GRANTS Tesla’s motion.

CONCLUSION

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

The case is STAYED pending completion of Arbitration.