Ahmad Tamkin, et.al. vs Tesla, Inc.

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Case Name: Ahmad Tamkin et al. v. Tesla, Inc., a Texas Corporation Case No.: 25CV467112

In this Song-Beverly Warranty Act case, defendant Tesla, Inc. (“Tesla”) moves to compel arbitration based on two agreements with plaintiffs Milaan Towing LLC and Ahmad Muneer Tamkin (“Plaintiffs”): (1) the Motor Vehicle Order Agreement (“MVOA”); and (2) the Retail Installment Sales Contract (“RISC”). As an initial matter, the Court notes that Milaan Towing LLC is not a party to the MVOA. The purported “sign-in wrap agreement” is only between Tesla and Ahmad Muneer Tamkin. Tesla maintains the MVOA includes an integration clause and should be considered first.

The integration clause provides: “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 agreement.” (Declaration of Raymond Kim [“Kim Decl.”], Ex. 1 at p. 2.) However, “ ‘an integration clause only covers antecedent and contemporaneous agreements; it does not foreclose the possibility of future agreements.’” (In re Ins. Installment Fee Cases (2012) 211 Cal.App.4th 1395, 1413-1414 [quoting Nakashima v.

State Farm Mut. Auto. Ins. Co. (2007) 141 N.M. 239, 243].) The MVOA was executed on March 31, 2024; whereas, the RISC was signed on April 3, 2024. Thus, the RISC is a later executed agreement and the integration clause of the MVOA does not preclude its application. Since both parties are signatories to the RISC, the Court considers whether Tesla may move to compel arbitration pursuant to this agreement.

Tesla has also failed to attach a screenshot of its order page showing its notice and hyperlink to the MVOA.1 The Court further finds it difficult to evaluate this motion pursuant to the MVOA for this reason. Although Tesla has provided a description of the notice and hyperlink in the Declaration of Raymond Kim, the Court is unable to determine the conspicuousness of the notice and hyperlink at it is displayed on the website. Having considered the language of the RISC and the circumstances of its alleged execution, the court will grant the motion.

Tesla’s request for judicial notice of the complaint in this matter is granted. (Evid. Code, § 452, subd. (d).) LEGAL STANDARD Tesla maintains that the Federal Arbitration Act (“FAA”) governs the arbitration provision based on the language itself and because the agreement affects interstate commerce. The arbitration provision states “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. §§ 1, et seq.) and not by any state law concerning arbitration.” (Kim Decl., Ex. 2 at p. 5.)

Under 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.” (Chiron Corp. v. Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130.) To determine “whether a valid contract to arbitrate exists,” courts apply “ordinary state law principles that govern contract formation.” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1093 [citations omitted]; Ingle v.

Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170.) Code of Civil Procedure section 1281.2 provides: “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate such controversy, the court shall order the petitioner and respondent to arbitrate the controversy if it determines that an agreement to arbitrate the

1 Plaintiffs attach a screenshot of the order page that appears incomplete as it also does not include the notice or

hyperlink to the MVOA. (Declaration of Lillian Lawrence, Ex. A.) Tesla has not offered an alternate screenshot for

the Court’s consideration.

controversy exists, unless it determines that: [¶] The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for rescission of the agreement.” In determining the threshold question of whether an arbitration agreement exists between the parties, the court employs a three-step burden shifting analysis. (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755 (Iyere); Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060.) The party seeking to compel arbitration bears the initial burden of showing an agreement to arbitrate.

If that burden is met, the burden shifts to the opposing party to show a factual dispute regarding the agreement’s existence. If the opposing party does so, then the burden shifts back to the proponent of arbitration to show the existence of a valid agreement by a preponderance of the evidence. (Iyere, supra, 87 Cal.App.5th at p. 755.) ANALYSIS The arbitration provision in the RISC provides, in relevant part: Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, any allegation of waiver of rights under this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, purchase or condition of this Vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action. (Kim Decl., Ex. 2 at p. 5.)

Plaintiffs do not dispute that they signed the RISC when they purchased the vehicle. Plaintiffs signed and acknowledged the following notice of the arbitration provision: “Agreement to Arbitrate. By signing below, you agree that pursuant to the Arbitration Provision on page 5 of this contract, you or we may elect to resolve any dispute by neutral, binding arbitration and not by a court action. See the Arbitration Provision for additional information concerning the agreement to arbitrate.” (Kim Decl., Ex. 2 at p. 1.)

The RISC further drew the arbitration provision to Plaintiffs’ attention through the following disclaimer: “. . . YOU ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES OF THIS CONTRACT, INCLUDING THE ARBITRATION PROVISION ON PAGE 5, BEFORE SIGNING BELOW.”

(Id., Ex. 2 at p. 6.) Plaintiff’s signature on those sections of the RISC indicates express assent to the arbitration provision. (See Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th 748, 777 [“ ‘ “A party’s acceptance of an agreement to arbitrate may be express, as where a party signs the agreement.” ’ ”].) Additionally, Tesla has properly authenticated the RISC and has met its burden of proving the existence of a valid agreement to arbitrate. “The moving party ‘can meet its initial burden by attaching to the [motion or] petition a copy of the arbitration agreement purporting to bear the [opposing party’s] signature.

Alternatively, the moving party can meet is burden by setting forth the agreement’s provisions in the motion.’ ” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165, internal citations and quotations omitted.) Here, Tesla attached a copy of the RISC signed by Plaintiffs as Exhibit 2 to the Declaration of Raymond Kim. (Kim Decl., Ex. 2.) Tesla has also set forth the terms of the arbitration provision in the motion itself. (Motion to Compel Arbitration at p. 6:6-18.) In any event, “[f]or purposes of a petition to compel arbitration, it is not necessary to follow the normal procedures of authentication.” (Gamboa, supra, 72 Cal.App.5th at pp. 165-166.)

Tesla has shown a valid agreement to arbitrate. The scope of the RISC covers Plaintiffs’ claims. Here, the arbitration provision broadly applies to “[a]ny claim or dispute, whether in contract, tort, statute or otherwise..., between you and us..., which arises out of or relates to your credit application, purchase or condition of this Vehicle, this contract or any resulting transaction or relationship.” (Kim Decl., Ex. 2 at p. 5.) Plaintiffs and Tesla are parties to the transaction. Plaintiffs’ action relates to the condition of the vehicle, namely its electrical system, structure, and interior defects.

That the alleged defects occurred after the parties signed the RISC is ultimately irrelevant because the arbitration provision states it applies to both “this contract” and “any resulting transaction or relationship between the parties.” Plaintiffs’ claim against Tesla is covered by the arbitration provision. Plaintiffs do not truly dispute the existence of an arbitration agreement or that the scope of the agreement covers their claims. Plaintiffs instead maintain the RISC is unconscionable. Unconscionability

Plaintiffs assert that the RISC is unconscionable. The party challenging a contractual arbitration provision bears the burden of proving that it is both procedurally and substantively unconscionable. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (OTO).) This may be done on a sliding scale, where the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required, and vice versa. (Id. at pp. 125-126.) Nevertheless, both must be shown. Procedural unconscionability focuses on oppression or surprise to the “weaker” party based on unequal bargaining power, whereas substantive unconscionability focuses on the terms of the agreement and whether they are overly harsh or one-sided. (OTO, supra, 8 Cal.5th at pp. 125-129.)

Tesla was “under no obligation to highlight the arbitration clause” or required to specifically call the clause to Plaintiffs’ attention. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 914 (Sanchez).) Nevertheless, as demonstrated above, the arbitration provision was called to Plaintiffs’ attention multiple times prior to signing. While on a prolix printed form, the arbitration provision itself was on a separate page in bold and capitalized font. (See cf. Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1250-1251 [noting that procedural unconscionability has been found where the presence of an arbitration provision has not been distinguished through bold lettering, larger font, or capitalization].)

Thus, at most a minimal degree of procedural unconscionability exists. As for substantive unconscionability, the California Supreme Court in Sanchez rejected all of Plaintiffs’ arguments based on a substantially similar agreement. Plaintiffs first argue the class action waiver is substantively unconscionable. However, the Court in Sanchez specifically held that “Concepcion requires enforcement of the class action waiver but does not limit the unconscionability rules applicable to other provisions of the arbitration agreement.” (Sanchez, supra, 61 Cal.4th at p. 907.)

Second, Plaintiffs argue the waiver is one-sided in that it does not prevent Defendant from pursuing judicial remedies against Plaintiffs. However, the Court in Sanchez noted that the agreement does not deprive the court of the power to grant preliminary injunctive relief.

(Sanchez, supra, 61 Cal.4th at p. 922.) The Court also found “nothing unconscionable about exempting the self-help remedy of repossession from arbitration.” (Ibid.) Third, Plaintiffs argue the fee-splitting provision may impose unreasonable costs. The RISC provides “[w]e will pay the filing, administration, service, or case management fee and the arbitrator hearing fee up to a maximum of $5,000 unless the law or rules of the chosen arbitration organization require us to pay more.” (Kim Decl., Ex. 2 at p. 5.)

The Sanchez Court did not find a similar provision requiring the company to pay up to a maximum of $2,500 unconscionable. The Court held that “given the Legislature’s approach to the affordability of consumer arbitration, the provision cannot be held unconscionable absent a showing that appellate fees and costs in fact would be unaffordable or would have a substantial deterrent effect in Sanchez’s case.” (Sanchez, supra, 61 Cal.4th at p. 920.) Likewise, the vehicle here concerns a high-end luxury item.

Plaintiffs do not claim and there is no evidence on the record to suggest that the costs of the fees are unaffordable or would thwart their ability to pursue arbitration. Therefore, the arbitral fee provision here is not unconscionable. Finally, Plaintiffs contend the arbitration provision limits discovery and appeal rights. At the outset, the arbitration provision provides, “DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.” (Kim Decl., Ex. 2 at p. 5.)

However, the arbitration provision also provides that the parties may select the American Arbitration Association or the National Arbitration and Mediation as the arbitral forum. The Second District Court of Appeal in Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1476 noted, “[t]here appears to be no meaningful difference between the scope of discovery approved in Armendariz and that authorized by the AAA employment dispute rules[.]” The Court, thus, concludes reference to the AAA rules is sufficient for finding that the arbitration shall provide for adequate discovery.

Given the low degree of procedural unconscionability and absence of substantive unconscionability, the Court concludes that the RISC is enforceable. Accordingly, the Court

GRANTS the motion to compel arbitration pursuant to the RISC. The entirety of the action is STAYED pending the outcome of arbitration. (Code Civ. Proc. § 1281.4; 9 US.C. § 3.) CONCLUSION The motion to compel arbitration is GRANTED. This action is STAYED in its entirety pending the outcome of arbitration. The Court will prepare the order.

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