Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 1 of 9
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`UNITED STATES DISTRICT COURT FOR THE
`WESTERN DISTRICT OF TEXAS
`AUSTIN DIVISION
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`JOHN LYNCH, DAXTON
`HARTSFIELD, and SHAWN
`SAKHIZADA, individually and on
`behalf of all others similarly situated,
`Plaintiffs
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`v.
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`TESLA, INC.,
`Defendant
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` Case No. 1:22-cv-00597-RP
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`REPORT AND RECOMMENDATION
`OF THE UNITED STATES MAGISTRATE JUDGE
`
`
`
`TO: THE HONORABLE ROBERT PITMAN
` UNITED STATES DISTRICT JUDGE
`
`Before the Court are Defendant’s Renewed Motion to Dismiss and Compel Individual
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`Arbitration Under Rules 12(b)(1) and 12(b)(3), filed August 2, 2022 (Dkt. 28); Plaintiffs’
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`Opposition to Tesla’s Renewed Motion to Dismiss and Compel Individual Arbitration Under
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`Rules 12(b)(1) and 12(b)(3), filed August 16, 2022 (Dkt. 31); and Defendant’s Reply, filed
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`August 23, 2022 (Dkt. 32).1
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`I. Background
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`Plaintiffs John Lynch, Daxton Hartsfield, and Shawn Sakhizada2 bring this putative class
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`action lawsuit, individually and on behalf of all others similarly situated, against their former
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`1 By Text Order entered August 4, 2022, the District Court referred the Motion to the undersigned
`Magistrate Judge for a report and recommendation, pursuant to 28 U.S.C. § 636(b)(1), Federal Rule of Civil
`Procedure 72, and Rule 1 of Appendix C of the Local Rules of the United States District Court for the
`Western District of Texas.
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`2 Lynch and Hartsfield are Nevada residents who worked at Tesla’s factory in Sparks, Nevada. First
`Amended Class Action Complaint, Dkt. 26 ¶¶ 9-10. Sakhizada is a resident of California who worked at
`Tesla’s store in Palo Alto, California. Id. ¶ 11.
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`1
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`

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`Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 2 of 9
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`employer Tesla, Inc.3 under the Worker Adjustment and Retraining Notification Act, 29 U.S.C.
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`§ 2101, et sq. (the “WARN Act”), and Section 1400 of the California Labor Code. Plaintiffs allege
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`that Tesla violated the WARN Act by failing to provide them and other potential class members
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`with sixty days advance written notice before it terminated their employment in a “mass layoff.”
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`First Amended Complaint, Dkt. 26 ¶ 2. Plaintiffs ask the Court to certify this action as a class
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`action under Federal Rule of Civil Procedure 23 and be designated class representatives. Plaintiffs
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`also seek compensatory damages, attorneys’ fees, and costs.
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`In the instant Motion, Tesla moves to dismiss this lawsuit under Federal Rules of Civil
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`Procedure 12(b)(1) and 12(b)(3)4 and compel this case to arbitration based on the arbitration
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`clauses in Plaintiffs’ employment agreements. Plaintiffs argue that the Court should not enforce
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`the Arbitration Agreements because they are unconscionable under California law.
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`II. Legal Standards
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`Congress enacted the Federal Arbitration Act (“FAA”) in 1925 “in response to widespread
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`judicial hostility to arbitration agreements.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333,
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`339 (2011). Section 2 of the FAA provides, in relevant part:
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`A written provision in any maritime transaction or a contract
`evidencing a transaction involving commerce to settle by arbitration
`a controversy thereafter arising out of such contract or transaction
`. . . shall be valid, irrevocable, and enforceable, save upon such
`grounds as exist at law or in equity for the revocation of any
`contract.
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`9 U.S.C. § 2. The Supreme Court has described this provision as reflecting both a “liberal federal
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`policy favoring arbitration” and the “fundamental principle that arbitration is a matter of contract.”
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`3 Tesla is a public corporation with its principal place of business in Austin, Texas. Id. ¶ 13.
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`4 The Fifth Circuit “has not decided whether Rule 12(b)(1) or 12(b)(3) is the proper vehicle for a motion to
`dismiss based on an arbitration provision.” McDonnel Grp., L.L.C. v. Great Lakes Ins. SE, UK Branch,
`923 F.3d 427, 430 n.5 (5th Cir. 2019) (quoting Noble Drilling Servs., Inc. v. Certex USA, Inc., 620 F.3d
`469, 472 n.3 (5th Cir. 2010)).
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`2
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`Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 3 of 9
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`AT&T Mobility, 563 U.S. at 339. “In line with these principles, courts must place arbitration
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`agreements on an equal footing with other contracts, and enforce them according to their terms.”
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`Id. (citations omitted). Other than those for workers engaged in transportation, employment
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`contracts are covered by the FAA. E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289 (2002).
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`Parties may agree to have an arbitrator decide not only the merits of a particular dispute but
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`also gateway questions of arbitrability, such as whether the parties have agreed to arbitrate or
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`whether their agreement covers a particular controversy. Henry Schein, Inc. v. Archer & White
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`Sales, Inc., 139 S. Ct. 524, 529 (2019). An “agreement to arbitrate a gateway issue is simply an
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`additional, antecedent agreement the party seeking arbitration asks the federal court to enforce,
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`and the FAA operates on this additional arbitration agreement just as it does on any other.” Rent-
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`A-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010). Thus, “parties may delegate threshold
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`arbitrability questions to the arbitrator, so long as the parties’ agreement does so by ‘clear and
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`unmistakable’ evidence.” Henry Schein, 139 S. Ct. at 530 (quoting First Options of Chicago, Inc.
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`v. Kaplan, 514 U.S. 938, 944 (1995)).
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`Courts apply a two-step analysis to determine whether parties should be compelled to arbitrate
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`a dispute.
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`The first is contract formation—whether the parties entered into any
`arbitration agreement at all. The second involves contract
`interpretation to determine whether this claim is covered by the
`arbitration agreement. Ordinarily both steps are questions for the
`court. But where the arbitration agreement contains a delegation
`clause giving the arbitrator the primary power to rule on the
`arbitrability of a specific claim, the analysis changes.
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`Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201 (5th Cir. 2016) (citations omitted). In the
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`latter case, “the court asks only whether there is a valid delegation clause. If there is, then the
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`arbitrator decides whether the claim is arbitrable.” In re Willis, 944 F.3d 577, 579 (5th Cir. 2019).
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`3
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`Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 4 of 9
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`“If there is a delegation clause, the motion to compel arbitration should be granted in almost all
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`cases.” Kubala, 830 F.3d at 202.
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`Like other contracts, arbitration agreements may be invalidated by generally applicable
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`contract defenses, such as fraud, duress, or unconscionability. Rent-A-Center, 561 U.S. at 66. The
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`party seeking to invalidate an arbitration agreement bears the burden of establishing its invalidity.
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`Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 297 (5th Cir. 2004).
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`In this case, the Court’s analysis begins and ends with the determination that the parties have
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`III. Analysis
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`entered into a valid delegation clause. Willis, 944 F.3d at 579.
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`A. Arbitrability
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`When they were hired, Plaintiffs Lynch and Hartsfield agreed to the following arbitration
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`provision, which was contained in their offer letters (the “Employment Agreements”):
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`[Y]ou 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:
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`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
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`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
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`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
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`d. The arbitrator shall issue a written arbitration decision including
`the arbitrator’s essential findings and conclusions and a
`statement of the award; and
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`4
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`Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 5 of 9
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`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
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`f. Tesla shall pay all fees in excess of those which would be
`required if the dispute was decided in a court of law.
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`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.
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`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.
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`***
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`This letter agreement shall be construed and interpreted in accordance with the laws
`of the State of California.
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`***
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`If you choose to accept our offer under the terms described above, please indicate
`your acceptance, by signing below and returning it to me prior to June 19, 2017 [for
`Lynch; August 31, 2017 for Hartsfield] after which date this offer will expire.
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`Dkt. 28-1 at 11-12, 20-21. Plaintiff Sakhizada agreed to a substantially similar provision in his
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`Employment Agreement. Id. at 28-30.
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`As stated, parties may agree to delegate threshold arbitrability questions to the arbitrator, if
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`they do so by “clear and unmistakable’ evidence.” Henry Schein, 139 S. Ct. at 530. The
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`Fifth Circuit has held that an arbitration agreement “need not contain an express delegation clause
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`to meet this standard; rather, an arbitration agreement that incorporates the AAA Rules or JAMS
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`Rules ‘presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.’”
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`Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274, 279 (5th Cir. 2019) (opinion on
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`remand) (quoting Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675
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`(5th Cir. 2012)), cert. denied, 141 S. Ct. 656 (2021); accord Cooper v. WestEnd Cap. Mgmt.,
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`5
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`Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 6 of 9
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`L.L.C., 832 F.3d 534, 546 (5th Cir. 2016) (holding that express adoption of JAMS Rules “presents
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`clear and unmistakable evidence that the parties agreed to arbitrate arbitrability”).
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`The Arbitration Agreements here expressly incorporate the JAMS Rules, stating that any
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`dispute will be “conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc.
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`(‘JAMS’), or its successors, under the then current rules of JAMS for employment disputes.”
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`Dkt. 28-1 at 11, 20, 28. JAMS Employment Arbitration Rule 11(b) contains a delegation clause
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`granting the arbitrator the power to resolve any dispute regarding arbitrability:
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`Jurisdictional and arbitrability disputes, including disputes over the
`formation, existence, validity, interpretation or scope of the
`agreement under which Arbitration is sought, and who are proper
`Parties to the Arbitration, shall be submitted to and ruled on by the
`Arbitrator. The Arbitrator has the authority to determine jurisdiction
`and arbitrability issues as a preliminary matter.5
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`The express adoption of this rule “presents clear and unmistakable evidence that the parties agreed
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`to arbitrate arbitrability.” Cooper, 832 F.3d at 546. Because the arbitration clauses here expressly
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`incorporate the JAMS Rules and those rules delegate arbitrability disputes to the arbitrator, there
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`is clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.
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`B. Unconscionability
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`Plaintiffs do not dispute that they signed and executed the Employment Agreements containing
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`the arbitration clauses, or that their claims fall within the Arbitration Agreements. Instead,
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`Plaintiffs argue that the Arbitration Agreements are unenforceable under Section 2 of the FAA
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`because they are procedurally and substantively unconscionable under California law.
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`Specifically, Plaintiffs argue that the Arbitration Agreements are unconscionable because they
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`(1) were “included in contracts of adhesion,” Dkt. 31 at 14; (2) referred to the JAMS Rules but
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`5 https://www.jamsadr.com/rules-employment-arbitration/english#Rule-11.
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`6
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`Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 7 of 9
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`failed to provide Plaintiffs with copies of those rules; (3) required the arbitration proceedings to
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`be confidential which gives employers an unfair advantage; and (4) are not completely bilateral.
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`Plaintiffs’ unconscionability claims concern not whether an agreement has been formed
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`between them and Defendant, but the enforceability of the Arbitration Agreements. Those claims,
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`therefore, are for the arbitrator to decide. Lopez v. Cintas Corp., 47 F.4th ----, 2022 WL 3753256,
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`at *4 (5th Cir. 2022) (“If a party opposing arbitration contests the validity of the contract, that goes
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`to the arbitrator; if the party contests the existence of a contract, it stays with us.”); Bowles v.
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`OneMain Fin. Grp., L.L.C., 954 F.3d 722, 725 (5th Cir. 2020) (“If the existence of an arbitration
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`contract between parties is challenged, the challenge is always for the courts to decide. Once the
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`arbitration contract itself has been established, however, then whether that contract may be
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`enforced for or against the parties in the particular case is for an arbitrator to decide.”).
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`In determining whether a challenge is to formation itself or to subsequent enforcement, courts
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`should apply state law principles of contract. Bowles, 954 F.3d at 725. Under California law,
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`procedural and substantive unconscionability challenges go to whether the arbitration agreement
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`should be enforced or is valid, not whether the agreement to arbitrate itself was formed. See, e.g.,
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`Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 1241 (Cal. 2016) (“In this case, we are once again
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`asked to determine the enforceability of an arbitration agreement under the law of
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`unconscionability.”); Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal. App.
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`4th 1332, 1347 (Cal Ct. App. 2015) (“The party challenging the validity of a contract or a
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`contractual provision bears the burden of proving unconscionability.”); see also Nagrampa v.
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`MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006) (“It
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`is well-established
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`that
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`unconscionability is a generally applicable contract defense, which may render an arbitration
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`provision unenforceable.”); Cade Norde v. Center for Autism & Related Disorders, LLC, No. 22-
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`7
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`Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 8 of 9
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`CV-00639-DMR, 2022 WL 4227274, at *4 (N.D. Cal. Aug. 22, 2022) (noting that
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`unconscionability challenge went to enforceability of arbitration provision, not its existence).
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`Under California law, Plaintiffs’ unconscionability challenges are challenges to enforcement
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`of the Employment Agreements, not their formation. Plaintiffs’ challenges therefore must be
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`resolved by an arbitrator. Cf. Lopez, 2022 WL 3753256, at *4 (“Because unconscionability under
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`Texas law is a challenge to the validity, not the existence, of a contract, that challenge must be
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`resolved by an arbitrator.”); Bowles, 954 F.3d at 728 (holding that plaintiff’s unconscionability
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`challenges to arbitration provision under Mississippi law went to enforceability and must be
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`referred to arbitrator).
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`Plaintiffs raise no challenge to the Arbitration Agreements other than unconscionability.
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`Accordingly, Tesla’s Motion to Compel Arbitration should be granted.
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`C. Dismissal is Appropriate
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`The FAA provides that, once a court determines that a motion to compel arbitration should be
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`granted, it should “stay the trial of the action until such arbitration has been had in accordance with
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`the terms of the agreement.” 9 U.S.C. § 3. The Fifth Circuit, however, has held that dismissal,
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`rather than a stay pending arbitration, is proper “when all of the issues raised in the district court
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`must be submitted to arbitration.” Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164
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`(5th Cir. 1992); see also Griggs v. S.G.E. Mgmt., L.L.C., 905 F.3d 835, 839 (5th Cir. 2018) (“Some
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`circuits have held that district courts must stay a case when all claims are submitted to arbitration,
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`but this circuit allows district courts to dismiss such claims outright.”); Adam Techs. Int’l S.A. de
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`C.V. v. Sutherland Global Servs., Inc., 729 F.3d 443, 447 n.1 (5th Cir. 2013) (“Although Section 3
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`of the Federal Arbitration Act directs district courts to stay pending arbitration, we are bound by
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`our precedent which states that dismissal is appropriate ‘when all of the issues raised in the district
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`8
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`Case 1:22-cv-00597-RP Document 37 Filed 09/26/22 Page 9 of 9
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`court must be submitted to arbitration.’”) (quoting Alford, 975 F.2d at 1164)). As all issues
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`Plaintiffs have raised herein must be referred to arbitration, the Court recommends dismissal of
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`this action.
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`IV. Recommendation
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`Based on the foregoing, the undersigned Magistrate Judge RECOMMENDS that the
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`District Court GRANT Defendant’s Renewed Motion to Dismiss and Compel Individual
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`Arbitration (Dkt. 28) and DISMISS Plaintiffs’ First Amended Complaint without prejudice.
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`The Court FURTHER ORDERS that the Clerk remove this case from the Magistrate Court’s
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`docket and RETURN it to the docket of the Honorable Robert Pitman.
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`V. Warnings
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`The parties may file objections to this Report and Recommendation. A party filing objections
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`must specifically identify those findings or recommendations to which objections are being made.
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`The District Court need not consider frivolous, conclusive, or general objections. See Battle v.
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`United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987). A party’s failure to file written
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`objections to the proposed findings and recommendations contained in this Report within fourteen
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`(14) days after the party is served with a copy of the Report shall bar that party from de novo
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`review by the District Court of the proposed findings and recommendations in the Report and,
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`except on grounds of plain error, shall bar the party from appellate review of unobjected-to
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`proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C.
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`§ 636(b)(1); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass’n,
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`79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
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`SIGNED on September 26, 2022.
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` SUSAN HIGHTOWER
` UNITED STATES MAGISTRATE JUDGE
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`9
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