Judge: Upinder S. Kalra, Case: 22STCV11211, Date: 2022-08-05 Tentative Ruling

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Case Number: 22STCV11211    Hearing Date: August 5, 2022    Dept: 51

Tentative Ruling

Judge Upinder S. Kalra, Department 51

HEARING DATE:   August 5, 2022                                               

CASE NAME:            Shawn P. Pauli v. Tesla, Inc.

CASE NO.:                22STCV11211

DEFENDANT’S MOTION TO COMPEL ARBITRATION

MOVING PARTY: Defendant Tesla, Inc.

RESPONDING PARTY(S): Plaintiff Shawn P. Pauli

REQUESTED RELIEF:

1.      An order compelling the Plaintiff into arbitration

2.      An order staying the proceedings

TENTATIVE RULING:

1.      Motion to Compel Arbitration is GRANTED.

2.      Request for Stay of the Proceedings is GRANTED.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff Shawn P. Pauli (“Plaintiff”) filed a complaint against Defendant Tesla, Inc. d/b/a Tesla Motors, Inc., and Does 1 through 10 “Defendants”) on April 1, 2022. The complaint alleged four causes of action based on violations under the Song-Beverly Act. Plaintiff alleges that he entered into a warranty contact with Defendant for the Subject Vehicle. During that warranty period, the Subject Vehicle presented nonconformities and defects, which substantially impaired the use of the Vehicle.

The current Motion to Compel Arbitration was filed on May 10, 2022. The Opposition was filed on July 25, 2022. The Defendant’s reply was filed on July 29, 2022.

Service:

The proofs of service provided by both the Plaintiff and Defendant indicate that the motions were served via email as agreed to by the parties.

LEGAL STANDARD

Both the CAA and the FAA “are driven by a strong public policy of enforcing arbitration agreements.” (Weiler v. Marcus & Millichap Real Estate Investment Services, Inc. (2018) 22 Cal.App.5th 970, 979.)

Code of Civil Procedure section 1281.2 provides, in relevant part:

On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists… 

(Code Civ. Proc. § 1281.2.)

Section 2 of the FAA provides: “A written provision in ... a contract ... to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

(9 U.S.C. § 2.”)

“Thus, a court generally must compel arbitration in accordance with the agreement when requested by one of the parties. (Code Civ. Proc., § 1281.2; 9 U.S.C. § 2.)” (Ibid.)

Judicial Notice:

Defendant requests the Court to take judicial notice of the following document:

1.     Plaintiff Shawn P. Pauli’s Complaint, filed on or about April 1, 2022.

The Court may take judicial notice of the existence of the records, but not the truth of matters asserted in such records. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565). As a result, although the court may take judicial notice that the documents exists, the Court may not take judicial notice of the truth of the facts in the documents.

            Additionally, Evidence Code only allows the Court to take judicial notice of certain types of documents. The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).) The Evidence Code does not allow the Court to take judicial notice of discovery responses or parts of cases, such as depositions.

The request for judicial notice is GRANTED, as the document is a court document under Evid. Code § 452(d).

ANALYSIS:

Defendant moves to compel the Plaintiff to arbitration.

1.      Existence of Arbitration Agreement:

In determining the enforceability of an arbitration agreement, the court considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue.”  (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961 (Omar).)   

A.    Agreement Between Parties:

“Arbitration is a product of contract.  Parties are not required to arbitrate their disagreements unless they have agreed to do so.  [Citation.]  A contract to arbitrate will not be inferred absent a ‘clear agreement.’  [Citation.]  When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation.  [Citation.]  In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact.  [Citation.]”  (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1092-1093 (Davis).)   

In support of its motion, Defendant submits a copy of the Motor Vehicle Order Agreement (“MVOA”) attached to the Declaration of Raymond Kim, a Staff Business Resolution Partner at TESLA, Inc. The Agreement contains the arbitration provision, which provides 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.

(Dec. Kim, Ex. 1).

Plaintiff does not deny that he signed the Contract. As such, Defendant meets its initial burden to demonstrate the existence of an arbitration agreement between the parties.

B.     Claims Fall Within Scope of Arbitration Clause

Once it is determined that a valid arbitration agreement exists, the burden shifts to the opposing party to “prove by a preponderance of the evidence any defense to the petition.” (Lacayo v. Catalina Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257, review denied (Nov. 13, 2019)).

Defendant contends that the claims raised in Plaintiff’s complaint fall within the scope of the arbitration agreement. Specifically, the express terms of the Agreement state that “any dispute arising out of or relating to any aspect of the relationship between you and Tesla” are subject to arbitration. Since Plaintiff’s complaint alleges breaches of express and implied warranties, the Plaintiff’s claims necessarily arise out of the “relationship between” Plaintiff and Tesla. Plaintiff argues that the warranty claims arise independent of the Agreement, by operation of law, under the provisions of the Song Beverly Act, and thus are not bound by any arbitration clause contained within the Agreement. Plaintiff relies principally on Krotin v. Porsche Cars North America, Inc. (1995) 38 Cal.App.4th 294 (Krotin).

The Court agrees that the type of language found in the arbitration agreement is broad and covers the allegations contained within the complaint. Plaintiff’s reliance on Krotin is misplaced. Krotin had nothing to do with arbitration agreements let alone the scope of arbitration agreements. Instead, in Krotin, the issue was instructional error.  While the UCC requires that a consumer make a request for repurchase within a reasonable time,  the Song-Beverly Act does not require that a consumer make a “reasonable time” demand of the manufacturer to trigger the manufacturer’s repurchase duty. (Id. at pp. 301-302.) Accordingly, the Krotin court held it was error to instruct the jury on such a requirement. (Id. at pp. 302-303.) Here, in sum, Plaintiff has failed to present evidence demonstrating that the Agreement does not implicate the allegations in their complaint and that violations of the Song-Beverly Act fall outside of the purview of this agreement as a matter of law. Accordingly, this Court concludes that the arbitration agreement is valid and covers the claims raised by Plaintiff in their complaint.

2.      Unconscionability

In Armendariz, the California Supreme Court stated that when determining whether an arbitration agreement was unconscionable, there is both a procedural and a substantive element. (Armendariz v. Foundation Health Psychcare Service, Inc. (2000) 24 Cal.4^th 82, 114).

a.       Procedural Unconscionability

In determining whether an agreement is procedurally unconscionable, courts begin by looking at factors of surprise and oppression. Oppression is an “inequality of bargaining power, when one party has no real power to negotiate or a meaningful choice. Surprise occurs when the allegedly unconscionable provision is hidden.” (Carmona v. Lincoln Millennium Car Wash, Inc.(2014) 226 Cal.App.4th 74, 84.) Examples of contracts that are procedural unconscionable are contracts of adhesions, which is a “standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Armendariz ,supra, 24 Cal.4th at p.113).

Plaintiff contends this is a contract of adhesion because the agreement was a “take it or leave it” and there was no opportunity for negotiating the terms of the agreement. Sanchez v. Valencia Holding Co., LLC. (2015) 61 Cal.4th 899 (Sanchez) too involved an automobile sales contract. There, our Supreme Court determined that “the adhesive nature of the contract is sufficient to establish some degree of procedural unconscionability. Yet ‘a finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.’” (Id. at p. 915).) Here, the agreement has an express opt out provision. The agreement states “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.” Thus, it was not a take or leave type of contract. On the contrary, Plaintiff had a reasonable opportunity, 30 days, in which to consider and opt out of the arbitration clause. Significantly, the ability to opt out of the arbitration agreement negates any inference of surprise or oppression. As such the agreement is not procedurally unconscionable.

b.      Substantive Unconscionability

“Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85). Plaintiff argues that this agreement is substantively unconscionable because it requires the dispute to be submitted to AAA, resolved under AAA rules, which limit discovery, and does not disclose what those rules are or where to find them.

Plaintiff’s position is unavailing. First, Plaintiff provides no authority that limiting arbitrators to AAA is unconscionable, nor can they. On the contrary, numerous authorities acknowledges AAA as a nationally recognized association of independent arbitrators. Second, there is nothing inherently unconscionable about AAA rules. While the discovery rules may not be as expansive as in a court of law, discovery is allowed and enforced and the arbitrator has authority “ ‘ “to order such discovery, by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration.” ’ ” (Lane v. Francis Capital LLC (2014) 224 Cal.App.4th 676, 694 (Lane); SEE Rules attached to as Exhibit 1, Dec. Law.) Third, while failure to attach rules could be a factor in finding procedural unconscionability if it was truly a surprise, as the court in Lane noted, “there could be no surprise” when the rules are easily accessed by the Internet. (Id. at p. 691.) Here, the online agreement even had a link that would directly take you to the AAA site where the rules are easily accessed. (Dec. Kim ¶4). In sum, the agreement was not unfair or overly harsh to render it substantively unconscionable.

Plaintiff alternatively requests that the AAA provision be struck from the arbitration, as the discovery rights are limited. This request is denied, for the reasons indicated above.

The lack of procedural unconscionability coupled with the lack of substantive unconscionability, renders the arbitration agreement valid and, therefore, enforceable.

Stay of the Proceedings:

CCP § 1281.4 provides the following:

If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.

Here, the Defendant has requested a stay of the proceeding. The arbitration agreement is valid, and the Plaintiff is compelled to undergo arbitration. Therefore, a stay of the proceedings is required.

Conclusion:

            For the foregoing reasons, the Court decides the pending motion as follows:

The Motion to Compel Arbitration is GRANTED.

Request for a Stay on the Proceedings is GRANTED.

Action is stayed and an OSC Re status of arbitration and/or dismissal is set for March 1, 2023, at 8:30 a.m. in Dept. 51

Moving party is to give notice.

IT IS SO ORDERED.

Dated:             August 5, 2022                        ___________________________                                                                                                                  Upinder S. Kalra

                                                                                    Judge of the Superior Court