Judge Virginia Keeny, Case Number: 24STCV19250, Date: 2025-01-09 Tentative Ruling

Judge: Virginia Keeny, Case: 24STCV19250, Date: 2025-01-09 Tentative Ruling

All rulings shown here are TENTATIVE ONLY, and thus oral argument WILL be heard. All Counsel are still required to attend.

Case Number: 24STCV19250 Hearing Date: January 9, 2025 Dept: 45

JON ADAM HINZE v. TESLA MOTORS INC., ET al.

MOTION to compel arbitration

Date of Hearing: January 9, 2025 Trial Date: None

Department: 45 Case No.: 24STCV19250

Complaint Filed: August 1, 2024

Moving Party: Defendant Tesla Motors, LLC

Responding Party: Plaintiff Jon Adam Hinze

Notice: Proper

BACKGROUND

Plaintiff Jon Adam Hinze (“Plaintiff”) alleges that Defendant Tesla Motors LLC (“Tesla”) wrongfully terminated his employment after he complained about alleged fraud in the form of senior management overcharging customers. Plaintiff alleges that his supervisor Defendant Justin Barlage (“Barlage”) defamed Plaintiff for his refusal to participate in the fraud.

On August 1, 2024, Plaintiff filed a complaint against Tesla and Barlage (collectively, “Defendants”) alleging (1) Wrongful Termination in Violation of Labor Code section 1102.5 against Tesla; (2) Wrongful Termination in Violation of Labor Code section 6310 against Tesla; (3) Retaliation in Violation of Fair Employment and Housing Act against Tesla; and (4) Defamation Per Se against all Defendants.

On August 29, 2024, Tesla filed its Answer.

On October 29, 2024, Tesla filed the instant Motion to Compel Arbitration.

On December 24, 2024, Plaintiff filed his Opposition.

On January 2, 2025, Tesla filed its Reply.

[Tentative] Ruling

1. Defendant’s Motion to Compel Arbitration is conditionally GRANTED pending an evidentiary hearing on the issue of lack of mutuality and potential severability of the following provision: “you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.” The Parties are ordered to produce the Proprietary Information and Inventions Agreement, if possible.

2. The Court orders arbitration among Tesla and Plaintiff of Plaintiff’s three causes of action solely against Tesla: (1) Wrongful Termination in Violation of Labor Code section 1102.5; (2) Wrongful Termination in Violation of Labor Code section 6310; and (3) Retaliation in Violation of Fair Employment and Housing Act.

3. The Court orders a stay of the instant action as to Plaintiff’s fourth cause of action for Defamation against Tesla and Barlage, pending the outcome of the arbitration proceeding.

LEGAL STANDARD

Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.) “With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

The right to compel arbitration exists unless the court finds that the right has been waived by a party’s conduct, other grounds exist for revocation of the agreement, or where a pending court action arising out of the same transaction creates the possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2(a)-(c).)

ANALYSIS

Request for Judicial Notice

Tesla asks the Court to take judicial notice of 36 orders of other trial courts compelling arbitration of actions against Tesla under similar circumstances. Judicial notice may be taken only of the existence and legal effect of the records of other courts; here, Tesla asks this Court to take judicial notice of the legal reasoning in the records. This is an improper use of judicial notice, as it represents an attempt to sidestep the rule that unpublished cases are non-citable. (Cal. Rules of Court, rule 8.1115(a). Further, the orders of other trial courts on motions to compel arbitration filed by Tesla are not relevant to the determination of this Motion.

Thus, Tesla’s Requests for Judicial Notice Nos. 1-36 are DENIED.

Existence of a Valid Arbitration Agreement

The party moving to compel arbitration must establish the existence of a written arbitration agreement between the parties. (Code of Civ. Proc. § 1281.2.) “With respect to the moving party's burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court. (See Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218; see also Cal. Rules of Court, rule 3.1330 [“A petition to compel arbitration or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference”].) Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges. [Citation]” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Here, Tesla seeks to compel arbitration of Plaintiff’s claims based on an offer of employment letter, containing an arbitration clause (the “Agreement”), signed by Plaintiff on April 20, 2015. (Flesch Decl., Exhibit A.) In support of the existence of an arbitration agreement, Tesla submits evidence of a copy of the offer letter executed by Tesla and Plaintiff on April 20, 2015. (Id.) The offer letter contains provisions obligating Plaintiff to arbitrate any claim or dispute with Tesla. (Id.) The pertinent provision reads:

In addition, to ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration in your city and state of employment conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that:

a. Any claim, dispute, or cause of action must be brought in a party’s individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding; and

b. The arbitrator shall have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and

c. The arbitrator shall not have the authority to consolidate the claims of other employees and shall not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding; and

d. The arbitrator shall issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award; and e. Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a court of law; and f. Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.

Nothing in this agreement is intended to prevent either you or Tesla from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including discrimination and/or retaliation claims filed with the Equal Employment Opportunity Commission and unfair labor practice charges filed with the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for administrative claims.

(Flesch Decl., Ex. A.)

Plaintiff does not contest that he signed the Agreement, declaring that, “[b]ased upon the signature and date which Defendant Tesla has attached to its motion as Exhibit A to the Declaration of Benjamin Flesch, it appears I e-signed this document on that same day.” (Hinze Decl., ¶ 3.)

Thus, Tesla has met its burden to demonstrate the existence of a valid arbitration agreement between Plaintiff and Tesla by presenting a copy of the offer letter containing the arbitration provision to the Court.

Applicability of the Federal Arbitration Act (“FAA”)

“The party seeking to enforce an arbitration agreement has the burden of showing FAA preemption.” (Lane v. Francis Capital Mgmt. LLC (2014) 224 Cal.App.4th 676, 684.) California law provides that parties may expressly designate that any arbitration proceeding should move forward under the FAA's procedural provisions rather than under state procedural law. (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal. 4th 376, 394). Otherwise, the FAA provides for enforcement of arbitration provisions in any “‘contract evidencing a transaction involving commerce.’ (9 USC § 2.)” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 277.) Accordingly, “[t]he party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce[.]” (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 234, [italics added].) Moreover, as noted above, California contract law applies to the validity of the arbitration agreement. (Winter, supra, 166 Cal.App.4th at p. 947.)

Tesla argues that the FAA governs this dispute because the Agreement constitutes a contract involving interstate commerce, and it is well settled that corporations with multi-state business operations are engaged in “commerce” for purposes of the FAA per Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276. In Opposition, Plaintiff does not dispute the application of the FAA and instead cites to the FAA’s authority in determining the validity of the instant agreement. (Opposition, 2:8-13.)

In Giuliano, the FAA’s interstate commerce requirement was met based on an employer’s “undisputed interstate business activities” of operating in California and Arizona, and the interstate nature of the employment contract including business trips outside of California and negotiation of business loans from out-of-state lenders. (Guiliano, supra, 149 Cal.App.4th 1276, 1286-1287.) The Guiliano court found the FAA applicable based on the “broad construction we must give to the phrase ‘evidencing a transaction involving commerce.’” (Id.)

Here, the offer letter containing the arbitration agreement states, “[t]his letter agreement shall be construed and interpreted in accordance with the laws of the State of California.” (Flesch Decl., Ex. A.) The agreement specifically invokes California law rather than the FAA, such that Tesla must prove that the agreement evidences a transaction involving commerce.

Unlike in Guiliano where the employment contract containing the arbitration clause was of an interstate nature due to the employee’s business trips outside of California and negotiation of business loans from out-of-state lenders, Tesla provides no similar evidence indicating that Plaintiff’s employment was of an interstate nature. Tesla merely makes conclusory statements that Plaintiff’s employment contract containing the Agreement “facilitated interstate commerce because Tesla’s business, and Plaintiff’s concomitant job duties, ultimately affected interstate commerce... Plaintiff’s work directly helped to facilitate these transactions in interstate commerce, thereby triggering the application of the FAA to the Arbitration Agreement.” (Motion, 3:14-18.) While Tesla operates in multiple states, it is unclear without further evidence how Plaintiff’s specific employment was of an interstate nature, how the agreement evidences a transaction involving commerce, or how it affected interstate commerce.

Overall, Tesla fails to meet its burden to establish that the FAA governs the Agreement. Thus, California law governs.

Claims Covered by the Agreement

There does not appear to be any dispute that the arbitration clause, by its terms, covers the claims set forth by Plaintiff in the instant case. Aside from exceptions not applicable here, the arbitration clause broadly applies to “any and all disputes, claims, or cause of action, in law or equity, arising from or relating to your employment, or the termination of your employment.” (Flesch Decl., Exh. A.)

Defenses to Enforcement - Unconscionability

The burden now shifts to Plaintiff to establish that the Agreement is unenforceable. Plaintiff argues that the Agreement is unenforceable due to unconscionability. Under California law, an arbitration agreement must be in some measure both procedurally and substantively unconscionable in order for the agreement to be unenforceable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114; De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 982.) “But they need not be present in the same degree. . . . [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, supra, 24 Cal.4th at p. 114.) “The party resisting arbitration bears the burden of proving unconscionability.” (Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev., 55 Cal.4th 223, 247.)

Procedural Unconscionability

Plaintiff argues that the Agreement is tainted with a high level of procedural unconscionability because it is an adhesion contract, and the arbitration provision constituted unfair surprise.

Procedural unconscionability “addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power.” (Pinnacle, supra, 55 Cal.4th 223, 246.) A contract of adhesion typically denotes a standardized contract imposed and drafted by the party of superior bargaining strength which relegates to the subscribing party only the opportunity to adhere to the contract or reject it. (Armendariz, supra, 24 Cal.4th at 113.) The adhesive nature of a contract is one factor that the courts may consider in determining the degree of procedural unconscionability. (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 fn.4.)

Here, the agreement was presented on a take-it-or-leave-it basis, illustrating the adhesive nature of the contract. (Armendariz, supra, 24 Cal.4th at p. 115; Carmona, supra, 226 Cal.App.4th at p. 84, fn.4). A prospective employee, like Plaintiff, could reasonably believe that the arbitration clause in the offer letter was a condition of employment, which would be rescinded if they chose not to sign the Agreement. (“The Agreement containing that clause was adhesive in that it was imposed on respondent ‘as a condition of employment’ and with ‘no opportunity to negotiate.’” Subcontracting Concepts (CT), LLC v. De Melo (2019) 34 Cal. App. 5th 201, 211, citing Armendariz, supra, 24 Cal.4th at p. 115 [“in the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement”].) Further, Tesla, a large company, imposed and drafted the Agreement with sophistication and superior bargaining power compared to Plaintiff, their prospective employee, who had no legal representative and limited sophistication as to legal documents.

The foregoing indicates moderate oppression based on an inequality of bargaining power and an absence of meaningful choice.

As to Plaintiff’s argument of unfair surprise, the terms of the agreement were somewhat hidden in the document as there was no clear heading separating the arbitration provisions from the other provisions of the offer letter. In other cases, no surprise was found where the arbitration clause was clearly delineated by a heading. (Pinnacle, supra, 55 Cal.4th 223 at p. 247, fn. 12 (finding no surprise as arbitration provisions “appear in a separate article under a bold, capitalized, and underlined caption titled ‘ARTICLE XVIII CONSTRUCTION DISPUTES’”); Bigler v. Harker School (2013) 213 Cal.App.4th 727, 737 (finding no surprise where arbitration clause was “located at the top of the second page in a two-page document with the heading ‘Arbitration’ in boldfaced font”); Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1165 (finding no surprise where arbitration provision “was printed on a separate page” with “‘Arbitration Addendum’ at the top,” and “was signed separately”).

However, the first paragraph of the arbitration provision contains the following language in bold:

(Flesch Decl., Ex. A.)

This bolded language is not a heading, but it is not necessarily hidden in “the same small print as the letter with no headings, boldface, italicized, or otherwise emphasized text” as Plaintiff argues. (Motion, pp. 6-7.) Plaintiff includes a footnote conceding that “[i]n the instant employment offer, there is boldface and italics embedded in the text.” Additionally, the offer letter is only five pages long, such that the language likely did not get lost in a lengthy document. Thus, Plaintiff was sufficiently put on notice of the arbitration clause such that there was no unfair surprise.

Plaintiff also argues that the agreement is unconscionable as it makes reference to other sources such as the JAMS rules without providing a method to access and review such rules or specifying which rules therein would govern. However, no increased showing of procedural unconscionability is found where an arbitration agreement set forth rules that would govern arbitration, but a copy of the rules was not provided. (See Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246.) Although Tesla did not provide a copy of “the current rules of JAMS for employment disputes,” the Agreement clearly specified which rules would govern the dispute. Thus, there is no increased showing of procedural unconscionability on this basis.

Overall, there is a moderate showing of procedural unconscionability. In the employment context, “[a]lthough procedural unconscionability alone does not invalidate a contract, its existence requires courts to closely scrutinize the substantive terms ‘to ensure they are not manifestly unfair or one-sided.’ [Citation.]” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 130.)

Substantive Unconscionability

Plaintiff argues that the Agreement is permeated with a high level of substantive unconscionability because the Agreement prevents an arbitrator from awarding public injunctive relief, the agreement allows Tesla to make unilateral changes, and the agreement provides a carve-out for claims which Tesla is most likely to bring.

An agreement is substantively unconscionable if it imposes terms that are “overly harsh,” “unduly oppressive,” “unreasonably favorable,” or “so one-sided as to ‘shock the conscience.’” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 910-911.) “All of these formulations point to the central idea that unconscionability doctrine is concerned not with ‘a simple old-fashioned bad bargain’ [citation], but with terms that are ‘unreasonably favorable to the more powerful party.’ [Citation.]” (Id. at p. 911.) “These include ‘terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the nondrafting party, or unreasonably and unexpectedly harsh terms having to do with price or other central aspects of the transaction.’ ” (Id.)

First, Plaintiff argues that the Agreement is unconscionable because it prevents an arbitrator from awarding public injunctive relief. Plaintiff has alleged Retaliation in Violation of the Fair Employment and Housing Act (“FEHA”). Plaintiff cites Vaughn v. Tesla, Inc. (2023) 87 Cal.App.5th 208, which held that trial courts must refuse to enforce a contractual waiver of a plaintiff’s right to seek a public injunction under FEHA. “[A]n arbitration agreement waiving a statutory right to seek a public injunction ‘in any forum’ is invalid as ‘contrary to California public policy’ because it ‘would seriously compromise the public purposes the statute[ was] intended to serve.’” (Id. at p. 227, quoting McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 952, 961.)

The arbitration agreement at issue in Vaughn provided that, “Any claim, dispute, or cause of action must be brought in a party's individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding ... The arbitrator shall not have the authority to ... award relief to a group or class of employees in one arbitration proceeding.” (Vaughn, supra, 87 Cal.App.5th at p. 228.) The Vaughn court found that “because the Arbitration Provision provided for resolution of all covered disputes in arbitration, but prohibits an arbitrator from granting nonindividual relief, the provision does waive Plaintiffs’ right to seek a public injunction ‘in any forum.’” (Id.)

The Agreement at issue here states that, “Any claim, dispute, or cause of action must be brought in a party's individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding ... The arbitrator shall not have the authority to ... award relief to a group or class of employees in one arbitration proceeding.” (Flesch Decl., Ex. A.)

“Injunctive relief is available in a FEHA action.” (Vaughn, supra, 87 Cal.App.5th at p. 229.) Plaintiff alleges Retaliation under FEHA against Tesla and Barlage and may seek public injunctive relief at some point. The Vaughn provisions and the provisions in the instant Agreement have the exact same wording and legal effect. Accordingly, the Agreement here, as in Vaughn, waives Plaintiff’s right to seek a public injunction in any forum. Thus, the provision is unconscionable and unenforceable.

Tesla argues in Reply that Vaughn is not applicable here because Plaintiff has not alleged any representative claims and has not sought public injunctive relief. However, Vaughn makes clear that “an arbitration agreement that precludes a plaintiff from pursuing public injunctive relief in any forum is invalid and unenforceable as a matter of state law,” making no mention of a requirement that the plaintiff be actually seeking such relief in order to invalidate that provision of the agreement. (Vaughn, supra, 87 Cal.App.5th at p. 228.) California's rule against contractual waivers of the right to seek a public injunction clearly applies here, regardless of whether Plaintiff has alleged any representative claims or sought public injunctive relief. Considering all of the above, the provision in the Agreement prohibiting such relief is unenforceable.

Second, Plaintiff argues that the Agreement is unconscionable because it allows Tesla to make unilateral changes to the Agreement. Plaintiff takes issue with two clauses in the Agreement: “Your duties, responsibilities, job title, and work location may be changed at any time by Tesla.” and “This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla.” (Flesch Decl., Exh. A.) In support of this argument, Plaintiff cites to a federal case, Ramirez-Baker v. Beazer Homes, Inc., (2008) 636 F.Supp.2d 1008, which is not binding on this Court. Thus, Plaintiff has failed to meet their burden on this argument.

Finally, Plaintiff argues that the Agreement is unconscionable because it lacks mutuality by providing a carve-out for claims which Tesla is most likely to bring. The provision at issue states, “you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.” (Flesch Decl., Ex. A.)

“An arbitration agreement need not ‘mandate the arbitration of all claims between the parties. [Citation] However, if an agreement singles out certain claims for arbitration, there must be ‘mutuality.’ [Citation] The agreement cannot require ‘one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences.’” (Ramirez v. Charter Commc'ns, Inc (2024) 16 Cal.5th 478, 495, citing Armendariz, supra, 24 Cal.4th at p. 120.)

In Ramirez, the Supreme Court of California held that an employment arbitration agreement lacked mutuality as it excluded claims more likely to be employer-initiated, specifically claims related to intellectual property rights and severance or noncompete agreements, and claims for equitable relief related to unfair competition or the disclosure of trade secrets or confidential information. (See Ramirez, supra, 16 Cal. 5th at p. 498.)

Like the Ramirez agreement’s exclusion of claims related to intellectual property rights and disclosure of trade secrets or confidential information, the Agreement here excludes any issue or dispute arising under the Proprietary Information and Inventions Agreement, which would seemingly be claims related to intellectual property rights, trade secrets, and confidential information. However, the scope of the Proprietary Information and Inventions Agreement is unclear as neither party submits it in evidence. Plaintiff declares that Tesla did not provide him with the Proprietary Information and Inventions Agreement. (Hinze Decl., ¶ 6.) Tesla does not confirm or deny the existence of the Proprietary Information and Inventions Agreement, stating in Reply that “none of these referenced documents are in evidence and Plaintiff argues that because he does not have a copy of them, that they do not exist.” (Reply, 3:26-27.) As such, the Court can only speculate as to which claims are excluded under the Agreement.

In the event that the Proprietary Information and Inventions Agreement comprises claims related to intellectual property rights and disclosure of trade secrets or confidential information, exclusion from the Agreement of such claims that Tesla is most likely to bring would evidence a lack of mutuality and resulting substantive unconscionability.

In Reply, Tesla argues that so long as there is “at least some reasonable justification” for the scope of the arbitration clause, based on “business realities,” the scope of the clause will not render an agreement unconscionable per Armendariz, supra, 24 Cal.4th at 117. Tesla fails to offer a reasonable justification for the scope of the arbitration clause based on business realities.

However, as the burden on this issue is Plaintiff’s, Plaintiff’s failure to submit the Proprietary Information and Inventions Agreement in evidence precludes this Court from making findings based on its scope and potential lack of mutuality at this time. Thus, Plaintiff fails to establish substantive unconscionability for lack of mutuality on this basis.

However, the Court finds that an evidentiary hearing on this issue is appropriate as Tesla, the author of the purported Proprietary Information and Inventions Agreement, is likely to be in possession of it. Thus, the Court reserves the ruling on the issue of lack of mutuality and potential severability of the provision stating, “you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration,” pending an evidentiary hearing on the same.

Overall, there is a moderate degree of substantive unconscionability based on the Agreement’s purported waiver of Plaintiff’s right to seek a public injunction in any forum.

Severability

A court has discretion to refuse to enforce an arbitration agreement if the agreement is permeated by unconscionability by containing more than one unlawful provision and the court cannot remove the unconscionability without reforming the contract. (Ramirez v. Charter Commc'ns, Inc. (2024) 16 Cal.5th 478, 547; Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 398 (judge had discretion to deny severing, as to agreement having fee provision conflicting with FEHA, and injunction exemption favoring employer), disapproved on other grounds by Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1248.) “When an arbitration agreement is ‘permeated’ by unconscionability the decision whether to sever the objectionable clauses or refuse to compel arbitration is within the trial court's exercise of discretion.” (Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1149.)

In Reply, Tesla argues that in the event the Court finds a provision to be unconscionable, such provision may be severed pursuant to the terms of the Agreement rather than invalidating the entire agreement citing Armendariz, 24 Cal.4th at p. 124 (if “the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate”).

Here, the clause in the present Agreement stating that “The arbitrator shall not have the authority to . . . fashion a proceeding as a class or collective action to award relief to a group or class of employees in one arbitration proceeding. . .” is invalid and unenforceable under California law as it precludes Plaintiff from pursuing public injunctive relief in any forum. (Flesch Decl., Exh. A.) Thus, the Court orders this clause severed from the Agreement to cure the unconscionability. Upon severance, the Court finds the Agreement enforceable.

Claims Against Non-Signatory Defendant Barlage

“Nonsignatories of arbitration agreements may be bound by the agreement under ordinary contract and agency principles.” (Comer v. Micor, Inc. (2006) 436 F.3d 1098, 1101.) “The nonsignatory bears the burden to establish he or she is a party to the arbitration agreement/provision covering the dispute. (Jones v. Jacobson (2011) 195 Cal. App. 4th 1, 15.)

Defendant argues that “as the moving party opposing arbitration, Plaintiff bears the burden of proving that the Arbitration Agreement cannot be interpreted to cover the claims alleged in this Action” citing Efund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1321. (Motion, 5:23-24.) However, Efund establishes the burden for proving which claims are covered by an arbitration agreement, not which parties are bound by the agreement. Plaintiff correctly points out that the burden for establishing that a nonsignatory is a party to an arbitration agreement lies with the nonsignatory. As the nonsignatory Defendant Barlage has not yet appeared in this case and makes no argument here, Barlage’s burden to establish their right to invoke the Agreement has not been met. Thus, the Agreement is not binding on Defendant Barlage, a non-signatory.

Risk of Conflicting Rulings

Code of Civil Procedure section 1281.2 states:

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, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for the revocation of the agreement.

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . .

(CCP §1281.2.)

“[A] trial court must decide whether section 1281.2(c) applies based only on the three conditions identified in that subdivision.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 978.) The last paragraph of section 1281.2 sets forth four options available to the Court when the Court makes a finding that there is a possibility of conflicting rulings:

If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c), the court

(1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding;

(2) may order intervention or joinder as to all or only certain issues;

(3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or

(4) may stay arbitration pending the outcome of the court action or special proceeding.

(CCP § 1281.2.)

“Section 1281.2(c)'s primary purpose is to avoid conflicting rulings, not further judicial economy.” (Acquire II, Ltd., supra, 213 Cal.App.4th at p.978; see also Whaley v. Sony Computer Entertainment America, Inc. (2004) 121 Cal.App.4th 479, 488 [“the statute was intended primarily to prevent conflicting rulings resulting from arbitration proceedings and other related litigation arising out of the same transaction.”].)

Here, Plaintiff alleges three causes of action solely against Tesla: (1) Wrongful Termination in Violation of Labor Code section 1102.5; (2) Wrongful Termination in Violation of Labor Code section 6310; and (3) Retaliation in Violation of Fair Employment and Housing Act.) Plaintiff also alleges the fourth cause of action, Defamation Per Se, jointly against Tesla and Barlage.

Tesla, a party to the arbitration agreement, is also a party to the instant pending court action with a third-party non-signatory, Barlage. The Defamation claim against Tesla that is subject to arbitration arises out of the same transaction or series of related transactions as the non-arbitrable Defamation claim against Barlage. Tesla and Barlage’s alleged liability under the Defamation claim is based on same series of events that took place during Plaintiff’s employment, specifically Plaintiff’s complaints about fraud and management’s response to such complaints. There is also a possibility of conflicting rulings on a common issue of law or fact as the arbitrator could find that Barlage never made defamatory statements to Tesla and Tesla did not repeat such statements, while the Court could find that Barlage did in fact make defamatory statements to Tesla and Tesla did in fact repeat such statements. Therefore, there is a possibility of conflicting rulings should the Court enforce the Agreement binding only Tesla and Plaintiff.

Accordingly, the Court orders arbitration among Tesla and Plaintiff, the parties who have agreed to arbitration, of Plaintiff’s three causes of action solely against Tesla (1) Wrongful Termination in Violation of Labor Code section 1102.5; (2) Wrongful Termination in Violation of Labor Code section 6310; and (3) Retaliation in Violation of Fair Employment and Housing Act.) The Court stays the instant action as to Plaintiff’s fourth cause of action for Defamation against Tesla and Barlage pending the outcome of the arbitration proceeding.

CONCLUSION

Defendant’s Motion to Compel Arbitration is conditionally GRANTED pending an evidentiary hearing on the issue of lack of mutuality and potential severability of the following provision: “you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.” The Parties are ordered to produce the Proprietary Information and Inventions Agreement, if possible, and to provide supplemental briefs of no more than 5 pages addressing how this agreement should affect the court’s evaluation of the motion to compel arbitration.

The Court orders arbitration among Tesla and Plaintiff of Plaintiff’s three causes of action solely against Tesla: (1) Wrongful Termination in Violation of Labor Code section 1102.5; (2) Wrongful Termination in Violation of Labor Code section 6310; and (3) Retaliation in Violation of Fair Employment and Housing Act.

The Court orders a stay of the instant action as to Plaintiff’s fourth cause of action for Defamation against Tesla and Barlage, pending the outcome of the arbitration proceeding.

Moving party to give notice.