Judge: Stephen I. Goorvitch, Case: 21STCV03582, Date: 2023-05-09 Tentative Ruling

Case Number: 21STCV03582    Hearing Date: May 9, 2023    Dept: 39

Adam Hall v. Tesla, Inc.

Case No. 21STCV03582

Petition to Confirm Arbitration Award

Motion to Vacate Arbitration Award

            Plaintiff Adam Hall (“Plaintiff”) filed this action against Tesla, Inc. (“Defendant”) on January 28, 2021, asserting violations of the Song-Beverly Consumer Warranty Act and related claims.  Defendant filed a motion to compel arbitration, following which the parties stipulated to proceed to arbitration.  Defendant then filed a cross-claim in arbitration “aris[ing] out of Plaintiff’s failure to make payments due under the lease agreement that he signed for the Subject Vehicle.”  (Declaration of Soheyl Tahsildoost, ¶ 6.)  Defendant raised two cross-claims.  First, Defendants asserted a claim for breach of contract and sought the amounts owed under the lease, as well as attorney’s fees and costs.  Second, Defendants asserted a claim for conversion under Penal Code section 496(c) and expressly sought attorney’s fees under that statute. 

The arbitration was conducted before Carl B. Pearlston of the American Arbitration Association (“AAA”) in December 2022.  The arbitrator described the complaint as “a welter of deliberate fabrications and misrepresentations.”  (Arbitrator’s Award, p. 2.)  The arbitrator found that Plaintiff attempted to conceal the fact that the vehicle had been in an accident, as the warranty did not cover “any vehicle damage or malfunction directly or indirect caused by . . . [an] accident . . . .”  (Id., p. 1.)  The arbitrator noted that Plaintiff repeatedly maintained that “[t]he vehicle was never in an accident,” which the arbitrator called a “blatant misrepresentation [that] has been consistently repeatedly by [Plaintiff].”  (Ibid.)  The arbitrator noted that Plaintiff misrepresented that he had purchased the vehicle but instead leased the vehicle.  (Id., p. 2.)  The arbitrator found that Tesla had repaired the vehicle sufficiently and referred to Plaintiff as having “falsely accused Tesla and named employees of misrepresentations regarding prior repairs to the vehicle, of refusing to make warranty repairs so as to avoid liability under Song-Beverly and other consumer protection laws, and concealing known defects.”  (Ibid.)  The arbitrator found that “it was [Plaintiff], who misrepresented or lied about the basic facts in his complaint; he alleged purchasing the vehicle for $110,190, and that the vehicle failed to perform on 22 September 2021, omitting the inconvenient fact of the collision in which the vehicle was involved, and that the $10,000 repairs were paid by Geico, the other party’s insurance.”  (Id., p. 4.)  The arbitrator found that Plaintiff “lacked credibility, was evasive, and refused to answer basic, straightforward questions such as whether he contacted Tesla before the end of his lease to turn in the vehicle per the lease agreement.”  (Id., p. 5.)  The arbitrator found that Plaintiff “engaged in outbursts [during the arbitration] calling Tesla employees and other witnesses liars and accused Tesla employees of purposefully tampering with his vehicle in an attempt to injury him.”  (Ibid.) 

The Court found for Defendant, and against Plaintiff, on Plaintiff’s complaint and Defendant’s cross-complaint.  The arbitrator ruled that Plaintiff “shall take nothing” from Defendant.  The arbitrator ordered Plaintiff to pay Defendant a total of $22,583.97 in damages, based upon $21,742.34 owed on the lease and $841.63 to repair the vehicle.  The arbitrator ordered Plaintiff to pay court reporter costs of $3,478.50.  Finally, the arbitrator ordered Plaintiff to pay $35,000 in attorney’s fees.  Defendant seeks to confirm this arbitration award, and Plaintiff seeks to vacate the award of attorney’s fees.

            The Court may vacate an arbitration award of the arbitrators “exceeded their powers” and that “cannot be corrected without affecting the merits” of the decision.  (Code Civ. Proc., § 1286.2, subd. (a)(4).)  Arbitrators do not exceed their powers because of errors of fact or law, or because they assign erroneous reasons for their decision.  (Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1, 28.)  The Court cannot review an award for error of fact or law “even if the error appears on the face of the award and causes substantial injustice.”  (Shahinian v. Cedars-Sinai Med. Ctr. (2011) 194 Cal.App.4th 987, 1000-1001.)  Arbitrators exceed their authority when they order a remedy “not authorized by law” but “do not ordinarily exceed their contractually crated powers simply by reaching an erroneous conclusion on a contested issue of law or fact . . . .”  (Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.Ap.5th 840, 868-869.) 

Plaintiff argues that the arbitrator exceeded his authority because the Song-Beverly Consumer Warranty Act permits attorney’s fees for prevailing plaintiffs, and not prevailing defendants.  The record is clear that the award of attorney’s fees was not based on the Song-Beverly Consumer Warranty Act.  Rather, the arbitrator awarded attorney’s fees based upon Defendant having prevailed on the cross-complaint.  Although the arbitrator did not cite the authority for awarding attorney’s fees, there are two potential grounds for doing so. 

First, Defendant was entitled to attorney’s fees under Penal Code section 496(c).  Defendant asserted this cross-claim; Defendant expressly requested attorney’s fees; and Defendant prevailed on this claim.  The arbitrator found that Plaintiff had converted the vehicle by keeping it after the expiration of the lease and engaging in extortionate conduct.  Specifically, the arbitrator found that Plaintiff “demonstrated an unwillingness to work with Telsa to coordinate the pickup.”  (Arbitrator’s Award, p. 5.)  The arbitrator found that Plaintiff “threatened to hold the vehicle hostage” and that “the vehicle was recovered by Tesla on 2 December 2022, over a month after the end of [Plaintiff’s] lease.”  (Ibid.) 

            The arbitrator did not lack authority to order attorney’s fees because Penal Code section 496(c) expressly states that any person injured by a violation of the statute may bring an action and recover “costs of suit, and reasonable attorney’s fees.”  (Pen. Code, § 496(c).)  Rather, Plaintiff’s counsel argues that there is no evidence the vehicle was “stolen,” as required by section 496(c).  Not only does Plaintiff’s counsel interpret section 496 too narrowly, the Court cannot vacate an arbitration award based upon an alleged misinterpretation of the statute.  Nor can the Court vacate an arbitration award based upon the sufficiency of the evidence supporting an arbitrator’s finding.  (See Moncharsh, supra, 3 Cal.4th at p. 11.) 

Second, and of lesser import, Defendant was entitled to recover attorney’s fees under the contract.  Defendant asserted a cross-claim for breach of contract in order to recover the remaining amounts owed on the lease and to cover damage to the vehicle.  The arbitrator found that Plaintiff “was consistently a month behind on payments throughout his lease term until he stopped paying altogether in or around August of 2021.”  (Arbitrator’s Award, p. 4.)  Defendant argues that it was entitled to attorney’s fees under Paragraph #32 of the lease agreement, which authorizes Defendant to “do anything to protect our interest in the vehicle” in the event of default including to “sue you for damages or to get the vehicle back and/or charge you for amounts we spend taking these actions.”  Plaintiff argues that the arbitrator exceeded his authority in relying on this provision, but the law is clear that attorney’s fees may be awarded based upon a contractual provision. 

Plaintiff argues that the provision at issue did not permit attorney’s fees, but the arbitrator’s interpretation of the contractual provision is not a basis to vacate the arbitration award.  “[W]here an arbitrator’s [grant or] denial of fees to a prevailing party rests on the arbitrator’s interpretation of a contractual provision within the scope of the issues submitted for binding arbitration, the arbitrator has not exceeded his or her powers.”  (Moshonov v. Walsh (2000) 22 Cal.4th 771, 773, citations and internal alterations omitted.)  Defendant’s cross-complaint stemmed from the lease, and the arbitrator was entitled to interpret the lease.  Plaintiff merely identifies a potential error of law, which does not provide a basis to vacate the award of attorney’s fees.

            In his reply brief, Plaintiff argues: “Tesla is further not entitled to any attorney’s fees and costs because there was never any showing that the amounts were reasonable.”  As an initial matter, Plaintiff’s counsel never raised this argument in his motion, notwithstanding that he could have done so.  The Court does not consider new arguments in the reply brief.  (See, e.g., San Diego Watercrafts, Inc. v. Wells Fargo Bank, N.A. (2002) 102 Cal.App.4th 308, 312-313.)  The Court finds that Plaintiff has waived this argument.  The Court also finds that Plaintiff’s counsel has engaged in “sandbagging” and gamesmanship by waiting to raise this argument in the reply brief.  The Court finds no procedural injustice in refusing to consider Plaintiff’s new argument because the award of $35,000 in attorney’s fees is reasonable on its face.  This Court has handled countless “lemon law” cases and has awarded comparable amounts to plaintiffs’ lawyers for cases involving significantly less litigation.  Regardless, the remedy would be to vacate the award and remand to the issue back to the arbitrator for determination of the amount, which may include additional fees for additional litigation.  (See DiMarco v. Chaney (2019) 31 Cal.App.4th 1809, 1815-1817.) 

            The Court is troubled by this record demonstrating that Plaintiff made material misrepresentations throughout this litigation and engaged in abusive behavior.  However, the Court has no authority to impose sanctions for conduct occurring before the arbitrator.  (See Optimal Markets, Inc. v. Salant (2013) 221 Cal.App.4th 912, 925.)  Although the Court has an ethical obligation to take corrective action with respect to attorneys, per Canon 3D(2) of the California Code of Judicial Ethics, it is unclear based upon this record whether Plaintiff’s counsel knew that his client was lying about the collision.  The Court defers to the arbitrator whether a referral to the California State Bar Association would be appropriate.

            Based upon the foregoing, the Court rules as follows:

            1.         The Court grants Defendants’ petition to confirm the arbitration award.

            2.         The Court denies Plaintiff’s motion to vacate the arbitration award.

            3.         The Court enters a judgment for Defendants, and against Plaintiff, consistently with the arbitrator’s award.