Tesla’s Arbitration Agreement Can Hurt Your Lemon Law Case

Tesla is one of the trendiest luxury car brands on the market – even for being such a young company. They sold a record-breaking 367,500 vehicles in 2019, meaning that there are over one million of these electric vehicles on the road today. However, there have been some major issues with Tesla lemon law arbitration cases that consumers need to be aware of.

There have been numerous reports of major mechanical defects with Tesla in the past, including (but not limited to):

  • Issues related to Autopilot feature malfunctions
  • Takata airbag recall
  • Electrical issues with door openers and touch screen malfunctions
  • Autopark feature problems
  • Fit and finish issues with the Model 3

While some of these Tesla lemon law arbitration cases were settled for payouts of up to $127,000, many other consumers have faced drawn-out legal battles against the manufacturer. Tesla is notoriously difficult to deal with, but there is another reason why filing a claim for a defective Tesla can be quite risky.

In the Tesla Motor Vehicle Order Agreement (which every vehicle owner signs at purchase), there is a sneaky clause which many people never even notice. This clause states that consumers cannot file a lemon law case in court if issues with the vehicle are not fixed within the first 60 days of ownership.


If it is past this 60-day limit, the consumer’s only option is to present the issues before state-sponsored arbitrators – who are billed as a neutral party. So, if the defects are not resolved after just two months, then you as the owner essentially void the ability to take your claim before a judge and lose your constitutional right to a jury trial.

However, you have the option to opt out of this agreement after 30 days following the purchase. In this post, as an experienced Tesla lemon law attorney, I want to discuss why you absolutely need to opt out of this shady clause!

What is Arbitration?

Now, what is the issue with arbitration versus going to court?

At first glance, arbitration can seem like a great compromise since your claim is resolved out of court for a much cheaper price – or at least that’s what the manufacturer tries to tell you. They will claim it commonly speeds up the process.

However, there are a lot of risks for the consumer when they choose this route – and generally, it is best to avoid lemon law arbitration.

One of the main reasons why arbitration can be a bad idea is because the individual arbitrator or panel may not be as unbiased as one would hope. In some scenarios, arbitrators are actually sponsored by the manufacturer. Such was the case with an arbitration firm in 2009, which claimed to be independent but was actually owned by a hedge fund that worked with auto manufacturers.

This practice is extremely illegal and typically uncommon.

Tesla can use the American Arbitration Association for all cases. This is a private company panel of arbitrators which handle numerous types of business disputes for individuals and organizations. Since this organization is private company, the panel may, or may not be that neutral of a party. However, this does not guarantee that they will side with you over the powerful manufacturer.

Another reason why arbitration can be risky is because you will lose your constitutional right to a jury to decide your matter. The California lemon law was created for California citizens, with their unique experiences and circumstances, to determine what constitutes a “lemon” under California law. In an arbitration, one person decides such matters. This person is not guaranteed to be someone with similar life experiences. In many California lemon law Tesla cases, they are not—typically arbitrators are retired judges or lawyers at the end of their legal careers. Moreover, you lose very crucial rights our courts guarantee, for example extensive discovery into documents the defendant is hiding, deposition testimony under penalty of perjury, of its witness, and the very important right to appeal if you lose.

Finally, this sneaky clause also makes it impossible for consumers to sue the manufacturer for additional issues. Such was the case for Debbie and Paul Nager with their $110,000 Tesla Model S.

The Nagers noticed some issues with the paint on the bumpers and discovered that their new vehicle had actually been in an accident during the delivery process without their knowledge. The Nagers contacted Tesla and requested a replacement – which the manufacturer refused.

Unfortunately, Nagers soon found out they were unable to pursue legal action against Tesla – apart from taking the case before an arbitration panel, thanks to the sneaky Tesla lemon law arbitration clause. According to the purchase contract, they could only request a panel to review their case and they were unable to sue the manufacturer for false advertising.

Sadly, such is the case for many Tesla owners who discover defects or issues with their vehicle while it is still under the warranty period.

What is the Forced Arbitration Injustice Repeal Act?

A proposed legislation in the US Congress, the Forced Arbitration Injustice Repeal Act of 2019, also called the FAIR ACT, when passed will bring forced arbitration clauses in consumer, antitrust, employment, and civil rights cases.

It would prohibit businesses like Tesla from including forced arbitration clauses in their purchase contracts. This legislation is critical because it will be applicable on the federal level. While California already has several consumer protection laws in place, this legislation will give consumers an added advantage to assert their right to a fair court trial after a dispute occurs.

How is Tesla’s Arbitration Agreement a Danger to Your Lemon Law Case?

Unfortunately, a Tesla lemon law arbitration case oftentimes ends in getting less-than-desirable results. You may not receive the full dollar amount of compensation that you rightfully deserve – or you could lose your lemon law case altogether. Arbitrators are not on your side and choosing this option can ruin your chances of having a strong lemon law case.

Your chances of winning increase significantly when you hire a specialized Tesla lemon law lawyer to handle your claim. This way – even if you do go to court – you’ve got an expert on your side 100% of the way. Your Tesla lemon law attorney will present all of the facts before a judge and jury, and seek out the highest compensation.

Plus, according to the California lemon law, the manufacturer is required to cover all court costs and legal fees if the you win your claim.

If you are a Tesla owner or you are considering purchasing this vehicle, you should know that you do have options.

Why Do You Need to Opt-Out?

There is an option in the fine print of the Owner Agreement contract which allows the buyer to opt out of the arbitration clause – as long as they do this within 30 days after their purchase. This means that you can take your California lemon law Tesla case to court as long as the vehicle is still covered by the manufacturer’s warranty, and you will not be required to go through arbitration.

It is important that Tesla vehicle owners understand their option here and cover their backs in the case that they are sold a lemon. Remember, your vehicle may be deemed a lemon at any point while it’s under warranty – which goes far beyond 30 or 60 days.

To opt out of this arbitration clause, you must send a letter to Tesla stating your name, the vehicle identification number, and your intent to “opt out of the arbitration provision.”

This will allow you the option to hire a Tesla lemon law lawyer and seek fair compensation if needed to file a claim – should you have any issues with your Tesla during the warranty period.


Manufacturers will stop at nothing to keep money in their pockets – including stooping to sneaky contract clauses preventing consumers from filing lemon law claims. Thankfully, you do have options if you act in time.

You can trust our team of California lemon law attorneys at Cline APC to fight for you against even the most difficult manufacturers. We have worked with many clients and have helped them receive full buybacks for their lemon vehicles.

Reach out to us today for a free case evaluation to get you started.

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