Yeh v. Tesla, Inc.

Background

Henry Yeh and his infant son, G.Y., brought a proposed class action against Tesla, Inc. They alleged that cameras in Yeh’s Tesla vehicle recorded highly private images and videos and that Tesla employees improperly accessed or shared such footage. Their claims included intrusion upon seclusion, violation of California’s constitutional privacy right, violations of California’s Unfair Competition Law and Consumer Legal Remedies Act, negligence, breach of contract, negligent and intentional misrepresentation, unjust enrichment, and violation of the right of publicity. Some claims were brought only by Yeh, while the remaining claims were brought by both Yeh and G.Y.

Tesla moved to compel arbitration on an individual basis. It relied primarily on an arbitration provision in the online Motor Vehicle Order Agreement that Yeh accepted when ordering his Model Y. The agreement stated that disputes would be decided by a single arbitrator, barred class and representative proceedings, and allowed the customer to opt out within 30 days. Tesla asserted that Yeh did not opt out. A later Retail Installment Sale Contract also contained an arbitration provision and class waiver, although the court resolved the motion based on the Order Agreement. Tesla argued that G.Y. was also bound under equitable estoppel, a legal doctrine that can prevent someone from avoiding contract obligations when fairness requires enforcement against that person.

Yeh’s and G.Y.’s arguments

Plaintiffs conceded that Yeh agreed to the Order Agreement and did not opt out. They argued that the Order Agreement displaced the arbitration provision in the later financing contract. They also argued that the Order Agreement was procedurally unconscionable because it was presented on a take-it-or-leave-it basis and substantively unconscionable because it allegedly waived the right to seek public injunctive relief under California law. Plaintiffs further argued that G.Y. was not bound because he did not sign the agreement, the parent-child relationship did not justify arbitration for this vehicle purchase, and a minor may disaffirm contracts entered into on the minor’s behalf.

Court’s analysis

The court held that Tesla presented evidence that Yeh accepted the Order Agreement during the online ordering process. The court also noted that Yeh did not dispute entering the agreement or failing to opt out.

The Order Agreement incorporated the American Arbitration Association’s rules. Those rules give an arbitrator authority to decide questions about the existence, scope, validity, and arbitrability of the arbitration agreement. The court concluded that this incorporation clearly and unmistakably delegated arbitrability questions to the arbitrator. As a result, the court did not decide Yeh’s unconscionability defense; it held that the arbitrator must decide that defense. The court concluded that Yeh’s claims were subject to arbitration.

The court separately considered G.Y.’s claims because he was not a signatory to the agreement. It explained that California law can, in some circumstances, bind a nonsignatory based on a preexisting relationship and fairness. The court found that Yeh bought the vehicle while expecting his first child and alleged that privacy protection for his family was part of the reason for the purchase. It also found that G.Y.’s jointly asserted claims were closely intertwined with Yeh’s claims and relied in part on Yeh’s understanding of Tesla’s privacy policy. The court therefore concluded that it would be inequitable to allow G.Y. to litigate those claims outside arbitration. It rejected the argument that G.Y.’s status as a minor allowed him to avoid the arbitration obligation while retaining the benefits connected to the agreement.

Disposition

The court granted Tesla’s motion to compel arbitration as to the claims of both Yeh and G.Y. The claims were ordered to proceed in arbitration on an individual basis rather than as a class action. The court directed the plaintiffs to file a joint statement about the status of their claims within seven days after the arbitration proceedings conclude, and the clerk was directed to administratively close the case. The opinion did not decide whether Tesla actually violated the plaintiffs’ privacy rights or otherwise resolve the underlying claims on their merits.