When their new $110,000 car arrived from Chicago, it had been repaired and repainted to cover undisclosed damage. The case highlights the difficulty in dealing with the high-end automaker’s secretive arbitration system.

Paul and Debbie Nager are fighting Tesla after discovering that their new car had apparently been damaged and repainted before it was delivered from Chicago. The car now sits in their Overland Park, Kansas, garage.

When Debbie and Paul Nager bought a new Tesla Model S, they expected the $110,000 car to arrive in perfect condition.

The car, which was already built and coming from Chicago, arrived the evening of Dec. 19, 2018, two days late, at their home in Overland Park, Kansas. The couple wondered about the delivery delay, which they say wasn’t explained. Over the harsh winter, they drove the car minimally, mostly keeping it in their garage.

Then, last April, they took the car to a detailer for a ceramic coating. The detailer found paint overspray and sand marks on the rear bumper and flaws on a rear quarter panel.

“He called us up and said this car has been in an accident,” says Paul Nager, a cardiologist, whose mind immediately flashed back to the delivery delay.

Nager says a Tesla employee later confirmed it: “One guy said to us, ‘Yes, there was a little problem in Chicago.’”

The couple complained to Tesla, arguing they’d been tricked into thinking their new car was perfect — when it had been fixed and repainted without anyone telling them.

That was only the beginning of their troubles.

The Nagers demanded a new, undamaged car, which Tesla refused. Then ,Tesla said the Nagers couldn’t sue them because their purchase included an arbitration clause: binding contract language that bars consumers from accessing the civil legal system. They would have to argue their case before a private arbitrator, who would be paid by the company.

In court to escape arbitration

The Nagers are now suing Tesla in federal court in Kansas, arguing that they shouldn’t be forced into arbitration. They say they agreed to buy the car by dealing with a Tesla representative by phone and email and say they were never presented with a contract or arbitration agreement.

A Tesla spokesman declined to comment on the case or about why the couple was sent a car that had been damaged and repaired.

In court, a lawyer representing Tesla argued that by logging into an online Tesla account, the Nagers essentially agreed to arbitration.

But Chief U.S. Magistrate Judge Judge James P. O’Hara, ruling on a motion by Tesla to compel arbitration, ruled Sept. 3 that Tesla hadn’t proven that and that the court case could proceed.

The Nagers say they shouldn’t be bound by a contract they neither signed nor even saw — on paper or online.

“I never pushed a button because I didn’t have a button to push,” Debbie Nager says.

The fine print: You can’t sue

The Nagers’ experience highlights an increasing practice of arbitration clauses in everything from cellphone plans to employment contracts.

“In many of these markets, you don’t really have any option that doesn’t include arbitration,” says Zachary Clopton, a Northwestern University law professor.

Because it’s not part of the judicial system’s public proceedings, arbitration isn’t public. There are several organizations that provide arbitrators who, for a fee, listen to both sides in a dispute and render a decision. Proceedings often happen in private conference rooms, with no public oversight.

Since each matter is handled privately, it’s hard to assemble data or evaluate corporate behavior. So, if, say, a company handles a dozen separate claims of workplace harassment through secret arbitration proceedings, the pattern of harassment might never come to light.

Supporters say arbitration is faster and less expensive than going to court and doesn’t burden the legal system.

Critics say arbitrators who get repeat business from a corporation are more likely to rule against a consumer. A recent analysis of California arbitration cases by two professors at the University of California-Davis found that consumers prevailed 19 to 25 percent of the time when they went up against companies that repeatedly use arbitrators.

Arbitration clauses now ‘ubiquitous’

The Federal Arbitration Act was written in 1925, when arbitration was viewed as a way for businesses to quietly settle disputes outside the court system.

Starting in the 1980s, binding arbitration clauses began creeping into other types of agreements, such as consumer purchases and employment contracts.

The U.S. Supreme Court has repeatedly upheld forced-arbitration clauses, saying they supersede even state laws enacted to protect consumers.

Consumers often are unaware they’ve signed away their rights — especially when “signing” a contract means clicking on an online purchase.

It’s often impossible for consumers to shop around for an alternative that doesn’t contain an arbitration clause, says Remington Gregg, counsel for civil justice and consumer rights for the nonprofit advocacy group Public Citizen.

“They are ubiquitous,” Gregg says. “They are in every kind of contract that you can think of.”

Arbitration clauses vary but typically state the consumer or employee is agreeing to waive their rights to sue in court and instead must take all disputes before a private arbitrator. Often, the language is buried deep inside a contract or online agreement.

And most people don’t realize that, by signing a contract with an arbitration clause, they are agreeing to a process with more narrow rules of evidence, no judge and jury and a limited ability to appeal.

“A lot of people have no idea what that means,” Gregg says. “They just assume that it has all the hallmarks of the civil justice system.”

Legislation would provide choice

To raise awareness, Public Citizen created a “Forced Arbitration Wall of Shame” of companies that use arbitration clauses, including Amazon, Netflix, Starbucks, Uber, Airbnb, Wells Fargo and others.

Change may be coming. The U.S. House of Representatives this month passed the Forced Arbitration Injustice Repeal Act, which is being called the FAIR Act. It would prohibit forced arbitration in employment, consumer or civil rights claims and give consumers the opportunity — post-dispute — to decide whether they want to go before an arbitrator or a judge and jury.

Until there are more protections, Northwestern’s Clopton says state attorneys general should band together on consumer protection and workplace harassment cases to try to even the playing field for individuals who are boxed in by arbitration clauses.

“I think consumers are getting more aware,” Clopton sahys. “But I still think there’s a wide gulf.”

Paul Nager inspects the back of his new Tesla Model S, which he says was delivered with undisclosed damage that had been repaired.

Dave Kaup / Sun-Times

The Nagers say they still hope Tesla will make them whole — without having to go through arbitration or the courts.

“I like Elon Musk,” says Paul Nager, who previously owned a Tesla and has recommended the brand to numerous friends. “I thought he’d never put up with this. If I just call the company … he’ll call me, and life’s gonna be great.”

Now, he says, “I just don’t trust the company.”