Berg v. Sunroad Auto, LLC

[6] 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA [9] 10 TRUMAN BERG, an individual, Case No.: 23-cv-01949-DMS-AHG 11 Plaintiff, ORDER GRANTING DEFENDANTS’ 12 v. MOTION TO COMPEL ARBITRATION AND STAY 13 SUNROAD AUTO, LLC d/b/a KEARNY PROCEEDINGS MESA FORD KIA; JULIE FREDERICK; [14] DOES 1-20, inclusive; [15] Defendants. [17] 18 Pending before the Court is Defendants Sunroad Auto, LLC (“Defendant Sunroad 19 Auto”) and Julie Frederick’s motion to compel arbitration (Defendants’ Mot. to Compel 20 Arbitration, (“Defs.’ Mot.”), ECF No. 5.) Plaintiff Truman Berg filed a response in 21 opposition, (Plainitff’s Response in Opposition, (“Pl.’s Opp’n”), ECF No. 6), and 22 Defendants filed a reply. (ECF No. 9.) This case was reassigned to the undersigned on 23 March 30, 2024. (ECF No. 11.) For the following reasons, Defendants’ motion to compel 24 arbitration is granted. 25 I. BACKGROUND 26 In December 2020, Plaintiff Truman Berg was employed to serve as a finance 27 manager at Defendant Sunroad Auto, LLC’s Kearny Mesa Ford Kia dealership in San 28 Diego, California. Defendant Julie Frederick, Sunroad Auto’s Finance Director, was 1 Plaintiff’s direct supervisor. In September 2022, Plaintiff contends he suffered from 2 general illness, fatigue, and rapid weight loss. Plaintiff alleges he immediately reported 3 these symptoms to Defendants and “Defendants began a campaign of discrimination 4 harassment, and retaliation against [him] that included repeated unfounded reprimands, 5 pressuring him to work during medical leave, and forcing him to attend meetings unrelated 6 to his duties.” (Pl.’s Opp’n at 2.) After Plaintiff was diagnosed with Crohn’s Disease, he 7 requested formal medical leave. Plaintiff contends Defendant Sunroad Auto fired him 8 shortly after his request for medical leave and “defamed [him] by lying to employment 9 recruiters and the Employment Development Department of California about Plaintiff’s 10 character and the reasons for his termination.” (Id.) Thus, Plaintiff filed suit against 11 Defendants alleging causes of action under the Americans with Disabilities Act, the Family 12 Medical Leave Act, the California Family Rights Act, the Fair Employment and Housing 13 Act, wrongful discharge in violation of public policy, and defamation. 14 On April 18, 2022, and again on November 30, 2022, while employed by Defendant 15 Sunroad Auto, Plaintiff signed arbitration agreements with Defendant Sunroad Auto in 16 which Mr. Berg agreed to utilize binding arbitration as the sole and exclusive means to 17 resolve all disputes arising out of his employment with Defendant Sunroad Auto. The 18 focus of the instant motion and this Order is the most recent arbitration agreement signed 19 in November of 2022 entitled “Mutual and Voluntary Agreement to Arbitrate Claims.” 20 (Declaration of Bruce Carter, Exhibit 1, (“November 2022 Arbitration Agreement”), ECF 21 No. 5.) The November 2022 arbitration agreement expressly states that it does not 22 supersede the April 2022 agreement, however, it controls to the extent that any of its terms 23 conflict with the prior agreement. (Id.) Thus, Defendants ask the Court to enforce the 24 November 2022 arbitration agreement and stay this action pending completion of 25 arbitration. In response, Plaintiff asks the Court to void both the April 2022 and November 26 2022 arbitration agreements as procedurally and substantively unconscionable. 27 // [28] 1 II. LEGAL STANDARD 2 The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., governs the enforcement 3 of arbitration agreements involving interstate commerce. Am. Express Co. v. Italian Colors 4 Rest., 570 U.S. 228 , 232–33 (2013). “The overarching purpose of the FAA . . . is to ensure 5 the enforcement of arbitration agreements according to their terms so as to facilitate 6 streamlined proceedings.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333 , 344 (2011). 7 “The FAA ‘leaves no place for the exercise of discretion by the district court, but instead 8 mandates that district courts shall direct the parties to proceed to arbitration on issues as to 9 which an arbitration has been signed.’” Kilgore v. KeyBank, Nat. Ass’n., 718 F.3d 1052 , 10 1058 (9th Cir. 2013) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 , 218 11 (1985)). Accordingly, the Court’s role under the FAA is to determine “(1) whether a valid 12 agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the 13 dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th 14 Cir. 2000). If both factors are met, the Court must enforce the arbitration agreement 15 according to its terms. 16 A federal court “applies ordinary state-law principles that govern the formation of 17 contracts’ to decide whether an agreement to arbitrate exists.” First Options of Chi., Inc. 18 v. Kaplan, 514 U.S. 938, 944 (1995). Thus, “[l]ike other contracts, arbitration agreements 19 can be invalidated for fraud, duress or unconscionability.” Chavarria v. Ralphs Grocery 20 Co., 733 F.3d 916, 921 (9th Cir. 2013) (citing Concepcion, 563 U.S. at 339). 21 III. DISCUSSION 22 A. Valid Agreement to Arbitrate 23 As set out above, the first issue under the FAA is whether there is a valid agreement 24 to arbitrate. Plaintiff does not dispute that he signed both the April 2022 and November 25 2022 arbitration agreements with Defendant Sunroad Auto providing that arbitration is the 26 sole and exclusive remedy for disputes relating to Plaintiff’s employment and termination 27 of employment. As stated above, however, the focus of the instant motion and this [28] 1 accompanying Order is the most recent November 2022 arbitration agreement. The 2 November 2022 arbitration agreement expressly states that it applies to both Defendant 3 Sunroad Auto and its managers, employees, and agents, including Plaintiff’s direct 4 supervisor, Defendant Julie Fredericks. Plaintiff does not dispute that all claims arising 5 from this lawsuit are covered by the arbitration agreement. Thus, the November 2022 6 agreement demonstrates the existence of a valid agreement to arbitrate. 7 “Once it is established that a valid agreement to arbitrate exists, the burden shifts to 8 the party seeking to avoid arbitration to show that the agreement should not be enforced.” 9 Yeomans v. World Fin. Grp. Ins. Agency, Inc., No. 19-CV-00792-EMC, 2020 WL 10 5500453, at *5 (N.D. Cal. Sept. 11, 2020) (citing Green Tree Fin. Corp.-Alabama v. 11 Randolph, 531 U.S. 79, 92 (2000)). Here, Plaintiff contends the arbitration agreement is 12 unenforceable under California law because it is procedurally and substantively 13 unconscionable. 14 B. Unconscionability 15 “Under California law, a contract must be both procedurally and substantively 16 unconscionable to be rendered invalid.” Chavarria, 733 F.3d at 922 (citing Armendariz v. 17 Found. Health Psychare Servs., Inc., 24 Cal. 4th 83, 99 (2000)). “To establish this defense, 18 the party opposing arbitration must demonstrate procedural and substantive 19 unconscionability, but both ‘need not be present in the same degree. Instead, a sliding scale 20 exists such that ‘the more substantively oppressive the contract term, the less evidence of 21 procedural unconscionability is required to come to the conclusion that the term is 22 unenforceable and vice versa.’” Lim v. TForce Logistics, LLC, 8 F.4th 992 , 1000 (9th Cir. 23 2021) (quoting Sanchez v. Valencia Holding Co., 61 Cal. 4th 899, 910 (2015)). [26] 27 1 For the reasons discussed in this Order, the Court finds the November 2022 arbitration agreement to be a valid and enforceable arbitration agreement covering the claims in dispute. Thus, the Court need not [28] 1 i. Procedural Unconscionability 2 “Procedural unconscionability concerns the manner in which the contract was 3 negotiated and the respective circumstances of the parties at that time, focusing on the level 4 of oppression and surprise involved in the agreement.” Chavarria, 733 F.3d at 922 . 5 “Oppression addresses the weaker party’s absence of choice and unequal bargaining power 6 that results in ‘no real negotiation.’” Id. (quoting A & M Produce Co. v. FMC Corp., 135 7 Cal. App. 3d 473 , 486 (1982)). “Oppression can be established ‘by showing the contract 8 was one of adhesion or by showing from ‘the totality of circumstances surrounding the 9 negotiation and formation of the contract’ that it was oppressive.’” Lim, 8 F.4th at 1000 10 (quoting Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal. App. 4th 11 1332, 1348 (2015)). “Surprise involves the extent to which the contract clearly discloses 12 its terms as well as the reasonable expectations of the weaker party.” Chavarria, 733 F.3d 13 at 922 (citing Parada v. Super. Ct., 176 Cal. App. 4th 1554, 1571 (2009)). “To establish 14 procedural unconscionability, Plaintiff must demonstrate that he was surprised by some 15 aspect of the agreement, or that his consent to its terms was obtained under coercion or 16 duress.” Lang v. Skytap, Inc., 347 F. Supp.3d 420, 427 (N.D. Cal. 2018). 17 “A procedural unconscionability analysis ‘begins with an inquiry into whether the 18 contract is one of adhesion.’” OTO, L.L.C. v. Kho, 8 Cal. 5th 111, 126 (2019) (quoting 19 Armendariz, 24 Cal. 4th at 113 ). “An adhesive contract is standardized, generally on a 20 preprinted form, and offered by the party with superior bargaining power ‘on a take-it-or21 leave-it basis.’” Id. (quoting Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 1245 (2016)). 22 Plaintiff contends the November 2022 arbitration agreement is a contract of adhesion 23 because the agreement was drafted by Plaintiff’s employer, a party with superior 24 bargaining party, and it was presented on a “take it or leave it” basis as Plaintiff did not 25 have an opportunity to negotiate the terms. “It is well settled that adhesion contracts in the 26 employment context, that is, those contracts offered to employees on a take-it-or-leave-it 27 basis, typically contain some aspects of procedural unconscionability.” Serpa v. Cal. 28 Surety Investigations, Inc., 215 Cal. App. 4th 695, 704 (2013). However, it is also well 1 settled that “unless one’s employment is conditioned on the signing of an adhesion contract 2 without negotiation, then the degree of procedural unconscionability is low.” Taylor v. 3 Eclipse Senior Living, Inc., Case No. 20-cv-190-LAB (WVG), 2022 WL 1004560 at *4 4 (S.D. Cal. April 4, 2022) (citing Poublon v. CH Robinson Co., 846 F.3d 1251, 1260 (9th 5 Cir. 2017)). Thus, the analysis turns on whether Plaintiff’s employment was conditioned 6 on singing the arbitration agreement. 7 Defendants argue Plaintiff’s employment was not contingent upon signing the 8 arbitration agreement for it is a voluntary, not mandatory agreement. Defendants note the 9 agreement is entitled “MUTUAL AND VOLUNTARY AGREEMENT TO 10 ARBITRATE CLAIMS” placed at the top of the page in capital letters, bolded, and 11 underlined. (November 2022 Arbitration Agreement at 1). The agreement states “I 12 understand the Company has proposed this arbitration agreement to me and I have the right 13 to accept or reject it.” (Id.) The agreement further states “I understand the Company does 14 not retaliate or discriminate against applicants or employees who refuse to consent to 15 arbitration.” (Id.) The agreement concludes with “I VOLUNTARILY AGREE AND 16 ASSENT TO THE TERMS OF THIS AGREEMENT” placed in a larger bolded font 17 and all capital letters. (Id. at 2.) Although Plaintiff contends, he believed his employment 18 was conditional upon signing the agreement, the plain language of the contract states 19 otherwise. Because the arbitration agreement clearly states that Plaintiff may opt out of 20 the agreement and maintain his employment with Defendant Sunroad Auto, the Court does 21 not find the agreement to be an adhesion contract. See Cir. City Stores, Inc. v. Ahmed, 283 22 F.3d 1198, 1199 (9th Cir. 2002) (finding that a voluntary arbitration agreement in which 23 the plaintiff had an opportunity to opt out of the arbitration provision “lacks the necessary 24 element of procedural unconscionability”). 25 “In the absence of an adhesion contract, the oppression aspect of procedural 26 unconscionability can be established by the totality of the circumstances surrounding the 27 negotiation and formation of the contract.” Grand Prospect Partners, L.P., 232 Cal. App. 28 4th at 1348. Plaintiff contends Defendants “relied on highly oppressive tactics to secure 1 Mr. Berg’s signature on the documents.” (Pl.’s Opp’n at 8.) Specifically, Plaintiff alleges 2 that Defendants did not give him time to review the documents or consult an attorney 3 before signing the arbitration agreement. Plaintiff further alleges that Defendants did not 4 explain the terms of the agreement, nor did they provide him with a copy of the rules of 5 the proposed arbitration. The Court is convinced that these circumstances amount to a 6 minimal level of oppression. See Grand Prospect Partners, L.P., 232 Cal. App. 4th at 1348 7 (“The circumstances relevant to establishing oppression include, but are not limited to (1) 8 the amount of time the party is given to consider the proposed contract; (2) the amount and 9 type of pressure exerted on the party to sign the proposed contract; (3) the length of the 10 proposed contract and the length and complexity of the challenged provision; (4) the 11 education and experience of the party; and (5) whether the party's review of the proposed 12 contract was aided by an attorney.”) (citing Ajamian v. CantorCO2e, L.P., 203 Cal. App. 13 4th 771, 796 (2012)). However, the Court is not convinced that the circumstances of the 14 negotiation necessitate a finding that the contract is “unduly oppressive” or “so one-sided 15 as to shock the conscience” as is required to find a contract procedurally unconscionable. 16 Grand Prospect Partners, L.P., 232 Cal. App. 4th at 1348 . The contract was two pages 17 long, written in clear and unambiguous language, and even went so far as to underline, 18 bold, and capitalize the important portions of the agreement. 19 Additionally, because the “contract clearly disclose[d] its terms as well as the 20 reasonable expectations of the weaker party,” it cannot be said that Plaintiff was or 21 reasonably should have been surprised by the terms of the agreement. Chavarria, 733 F.3d 22 916 at 922. Plaintiff has not met his burden of proving procedural unconscionability for 23 the text of the arbitration agreement combined with California’s preference of enforcing 24 arbitration agreements weigh in favor of enforcing the agreement as written. OTO, L.L.C., [25] 8 Cal. 5th at 125, 129 (“California law strongly favors arbitration. . . Arbitration contracts 26 are vigorously enforced out of respect for the parties’ mutual and voluntary agreement to 27 resolve disputes by this alternative means.”) Additionally, even if the Court were to find 28 the contract to be procedurally unconscionable, “the finding of procedural 1 unconscionability alone is not enough, to deny a motion to compel arbitration” for Plaintiff 2 must establish “significant substantive unfairness to avoid arbitration.” MacClelland v. 3 Cellco Partnership, 609 F. Supp. 3d 1024 , 1033 (N.D. Cal. 2022). Because the degree of 4 procedural unconscionability is minimal at best, “the agreement is unenforceable only if 5 the degree of substantive unconscionability is high.” Doston v. Amgen, Inc., 181 Cal. App. 6 4th 975, 982 (2010). 7 ii. Substantive Unconscionability 8 “Substantive unconscionability pertains to the fairness of an agreement's actual 9 terms and to assessments of whether they are overly harsh or one-sided.” Lane v. Francis 10 Capital Management LLC, 224 Cal. App. 4th 676, 692 (2014). Plaintiff contends the 11 arbitration agreement is substantively unconscionable for three reasons: (1) the April 2022 12 agreement unfairly subjects Plaintiff to significant arbitration fees and expenses; (2) the 13 April 2022 agreement inappropriately precludes tolling of the applicable statutes of 14 limitations; and (3) the April 2022 agreement imposes prejudicial confidentiality 15 requirements. However, each of Plaintiff’s arguments pertains only to the April 2022 16 agreement and not the November 2022 agreement. Plaintiff fails to argue that the 17 November 2022 arbitration agreement is substantively unconscionable. See Grand 18 Prospect Partners, L.P., 232 Cal. App. 4th at 1348 (“The party challenging the validity of 19 a contract or contractual provision bears the burden of proving unconscionability.”) Thus, 20 the Court need not address Plaintiff’s arguments as they pertain to the April 2022 21 arbitration agreement. For the reasons discussed above, the Court finds the November 22 2022 agreement to be a valid and enforceable arbitration agreement. Accordingly, the 23 Court GRANTS Defendants’ motion to compel arbitration, enforces the November 2022 24 arbitration agreement, and stays the case pending arbitration. See Smith v. Spizzirri, 144 25 S. Ct. 1173 , 1178 (2024) (“When a district court finds that a lawsuit involves an arbitrable 26 dispute, and a party requests a stay pending arbitration, § 3 of the FAA compels the court 27 to stay the proceeding.”) [28] 1 IV. CONCLUSION AND ORDER 2 For the foregoing reasons, Defendants’ Sunroad Auto and Julie Frederick’s motion 3 to compel arbitration is GRANTED. The Court stays the litigation to permit arbitration of 4 Plaintiffs’ claims. Within fourteen (14) days of the completion of the 5 arbitration proceedings, the parties shall jointly submit a report advising the Court of the 6 outcome of the arbitration and request to dismiss the relevant counts or vacate the stay. 7 IT IS SO ORDERED. 8 Dated: June 3, 2024 ____________________________ 9 Hon. Dana M. Sabraw, Chief Judge United States District Court