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Tesla's Direct Sales Business Model Enables the Company to Avert Class-Action Lawsuits

January 04, 2023

According to a news report published on, Tesla's sales contracts may prevent Tesla owners from pursuing class-action lawsuits. The New York Times reported that Tesla has an easier time trying to force customers into arbitration since the company sells its cars directly to consumers. Until recently, a class-action lawsuit filed by Tesla customers would disclose additional information about Tesla's self-driving technology. Tesla's AutoPilot has been the center of several government crash investigations because of numerous deadly accidents.

However, Tesla attorneys launched a legal maneuver that permits the company to sidestep the type of "attention-grabbing lawsuits" that other automakers commonly deal with. Telsa attorneys asked a judge to move the accident cases to an arbitrator so that the case would be heard in private. Tesla's maneuver might succeed since there was a contractual provision that the Tesla customers agreed to at the point of sale that moved lawsuits against Tesla into arbitration.

According to the sales contract, any disputes between Tesla and Tesla owners "will not be decided by a judge or jury but instead by a single arbitrator." This typically means that Tesla owners who have a claim against Tesla must forfeit their constitutional right to a jury trial, and their cases must be heard by an arbitrator who is paid by Tesla. Arbitration clauses are usually hidden within the contract's fine print. According to the news report, forced arbitration is very uncommon in the car industry.

Auto manufacturers typically sell their motor vehicles through dealerships and typically do not have an immediate contractual relationship with their customers.

Arbitration is one way that companies can avoid costly litigation. Arbitration also helps to relieve the overburdened civil court system. However, in recent years, arbitration has been used to help corporations, while consumers are left with little recourse. Arbitration clauses typically prevent people with complaints from uniting together in class-action lawsuits to reduce legal fees, expert witness fees, attorneys fees, and so forth.

Cynthia Estlund, a New York University law professor, believes that arbitration is a legal "black hole" that helps corporations make claims disappear. 

The benefit of class action lawsuits is that many people who have the same complaint is that they can collectively share the costs of pursuing lawsuits. This makes filing a small claim more feasible.

Some consumer advocates, like Shannon Liss-Riordan, believe that arbitration is like "a get-out-of-jail-free card" for corporations. According to the Boston labor lawyer who is representing Tesla employees who were terminated without adequate notice. A federal judge dismissed that employee class-action lawsuit in Texas. The judge agreed with Tesla's defense attorneys' argument that the workers had signed a legally binding arbitration agreement. 

Another class-action lawsuit filed against Tesla alleges Telsa grossly exaggerated the capabilities of its AutoPilot technology. That case was filed in federal court in California. One plaintiff in the class action lawsuit stated that he paid an additional $8,000 for the self-driving software when he purchased his Tesla Model S. The Plaintiffs allege that the self-driving technology never provided the autonomous driving experience as promised by Tesla CEO Elon Musk. Moreover, the AutoPilot software has been blamed for causing numerous deadly accidents, the lawsuit claims.

Tesla attorneys argue that Tesla customers were aware that the self-driving performance depended upon "future advances in technology." Tesla filed a motion to require the complainants to pursue their cases separately through arbitration. The judge presiding over the case has not ruled on Tesla's motion. However, the U.S. Supreme Court has granted corporations broad authorization to force customers into arbitration.

Tesla buyers who want to opt-out of arbitration in order to preserve their legal right to a jury trial must send a letter to Tesla within a month of purchasing a Tesla motor vehicle. However, not many customers are cognizant of that option.

Were you or a loved one harmed by a defective Tesla? Protect your legal rights by calling Montlick Injury Attorneys Nationwide, 24/7, at 1-800-LAW-NEED (1-800-529-6333), or simply dial #WIN (#946) from your mobile phone or use our Free 24-hour live chatOur Lawyers are here to listen, understand your situation, and advise you. Please visit our Montlick Injury Attorneys reviews to see what our clients have to say about our commitment to exceptional service.


Category: Auto Accidents

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All information provided by our blogs is general in nature and should not be relied upon as legal advice. Consult a Montlick attorney for details about your unique situation.