Guaranteed Rate, Inc. v. Faust

[10] 11 UNITED STATES DISTRICT COURT 12 SOUTHERN DISTRICT OF CALIFORNIA [13] 14 GUARANTEED RATE, INC., Case No.: 3:24-cv-00434-W-DEB 15 Claimant, ORDER GRANTING CLAIMANT’S 16 v. PETITION FOR ORDER COMPELLING ARBITRATION 17 RICHARD M. FAUST, [DOC. 1] 18 Respondent. [19] 20 Pending before the Court is Claimant Guaranteed Rate, Inc.’s (“GRI”) petition 21 seeking an Order Compelling Respondent Richard M. Foust to arbitration for the above22 entitled action. ([Doc. 1], Pet. for Order Compelling Arbitration (“Pet.”).) The Court 23 decides the matter on the papers submitted and without oral argument. See Civ. L.R. 24 7.1(d)(1). For the reasons stated below, the Court GRANTS IN PART and DENIES IN 25 PART GRI’s Petition [Doc. 1]. [28] 1 I. BACKGROUND 2 On February 8, 2022, Respondent Richard Faust executed three agreements with 3 Claimant GRI. (Pet. at ¶¶ 7–8.) They each signed and acknowledged the 4 “Compensation, Corporate Objective, and Loan Pricing Schedule” ([Doc. 1-6], at 18–36 5 “Schedule”), the “Retail Sales Compensation Plan and Agreement” ([Doc. 1-5], at 2–13 6 “Plan”), and the “Voluntary Mutual Agreement to Arbitrate Claims” ([Doc. 1-5], at 14– 7 17 “Arbitration Agreement”). 8 First, the Schedule listed the criteria and calculations for earning commissions at 9 GRI, and it set forth the consequences for Mr. Faust if he resigned or otherwise separated 10 from GRI before completing two years of employment. (Schedule at § 4; see [Doc. 7], at 11 4:12–15 “Reply”.) The Schedule also contained a detailed description of the “Sign On 12 Bonus” that Mr. Faust would receive once he satisfied certain eligibility criteria. (Reply 13 at 4:15–17.) Under the Schedule’s terms, GRI agreed to advance Mr. Faust the Sign On 14 Bonus of $1,400,000 in two installments: $700,000.00 on his first eligible payroll date 15 after licensure and $700,000.00 on his fourth eligible payroll date after licensure, subject 16 to certain terms and conditions. (Schedule at § 4; see Pet. at ¶ 14.) Mr. Faust 17 acknowledged that this Sign On Bonus would be subject to full repayment unless and 18 until he was continuously employed by GRI for two years, starting from February 8, 19 2022. (Schedule at § 4; see Pet. at ¶ 15.) He agreed to make such repayment to GRI 20 within ten days of the last day of his employment. (Schedule at § 4; see Pet. at ¶ 16.) 21 Second, the Plan referenced the Schedule and the Arbitration Agreement, stating 22 that “[a]ny disputes relating to this Schedule and the Compensation Terms are subject to 23 the terms of the mutual arbitration agreement between [Mr. Faust] and [GRI], whether set 24 forth in the Employment Terms, Compensation Terms or a separate arbitration agreement 25 which requires [Mr. Faust] to resolve disputes with [GRI] on an individual basis through 26 final and binding arbitration.” (Plan at § VII.) 27 Third, the Arbitration Agreement again established that the parties agreed to 28 “utilize binding arbitration as the sole and exclusive means to resolve all claims (legal or 1 equitable), disputes or controversies arising out of, relating to, or resulting from [Mr. 2 Faust’s] employment with the Company.” (Arbitration Agreement at § 2 [emphasis 3 added].) It then expanded the scope of arbitrable issues by stating that “[e]xcept as 4 provided below, both of the Parties agree that any claim, dispute, or controversy [Mr. 5 Faust] may have against [GRI], or [GRI] may have against [Mr. Faust] will be submitted 6 to and determined exclusively by binding arbitration under the Federal Arbitration Act.” 7 (Id.) The Arbitration Agreement also allowed the arbitrator to “award reasonable fees 8 and costs or any portion thereof to the prevailing party to the same extent a court would 9 be entitled to do so, in accordance with applicable law.” (Arbitration Agreement at § 13.) 10 On February 28, 2022, Mr. Faust executed a Promissory Note with GRI. ([Doc. 111 6], at 43–46 “Note”; see Pet. at ¶ 17.) The Note listed much of the same terms as those in 12 the Schedule, but it did not specifically contain an arbitration provision and had an 13 integration clause, stating “[t]his Note sets forth all of the terms and conditions of the 14 agreement between Payee and Borrower concerning the subject matter hereof and any 15 prior oral communications are superseded by this Note.” (Note at § 18 [emphasis 16 added].) 17 In the Note, Mr. Faust continued to acknowledge that the Sign On Bonus (referred 18 to in the Note as the “Principal Amount”) was an advance received “before such money 19 was earned” and that it is subject to repayment “except as specifically set forth below.” 20 (Note at §§ 1–2.) To avoid repayment, Mr. Faust was required to maintain “continuous 21 employment” with GRI for two years. (Id.) However, the Note modified the start date of 22 this two-year period from February 8, 2022, until March 11, 2022. (Id. at § 1.) It also 23 added that GRI agreed to “forgive one eighth (1/8) of the Principal Amount for each full 24 quarter of employment [Respondent] ha[s] completed with [GRI] following the effective 25 date.” (Id. at § 2.) Mr. Faust here agreed to repay the unforgiven portions of the Sign On 26 Bonus, along with any interest, if he otherwise terminated his employment early. (Id. at 27 §§ 1, 6–7, 9.) And he promised to do so within ten days after his last day of employment 28 with GRI. (Id. at § 1.) 1 If Mr. Faust defaulted by failing to repay any unforgiven portion, the Note required 2 him to pay interest “at a rate of 9% per annum from the date of default, or, if such rate of 3 interest may not be collected under applicable law, then at the maximum rate of interest 4 which may be collected from Borrower under applicable law.” (Note at § 7.) Mr. Faust 5 also agreed to reimburse GRI “all costs of collection and enforcement, including 6 reasonable attorney’s fees and court costs in addition to other amounts due.” (Id. at 7 § 12.) 8 On March 10, 2022, Mr. Faust and GRI executed an addendum (“Addendum 1”) to 9 the Plan. ([Doc. 1-6], at 48-49.) In which, Mr. Faust agreed to “be responsible for the 10 full cost of [his] Sales Assistant’s salary and bonuses,” with GRI paying his Sales 11 Assistant through its payroll and reducing Mr. Faust’s compensation accordingly. (Id. at 12 § 2.) 13 Mr. Faust began working as GRI’s Vice President of Mortgage Lending the next 14 day. (Pet. at ¶ 6.) GRI paid Mr. Faust the two installments of the Sign On Bonus on or 15 about March 31, 2022, and May 13, 2022. (Id. at ¶¶ 23–24.) 16 On September 30, 2022, Mr. Faust and GRI executed another addendum to the 17 Plan. ([Doc. 1-6], at 51–52.) Mr. Faust agreed to pay for his Associate Vice President’s 18 non-recoverable draw if the Associate Vice President’s commissions fell below the 19 prevailing minimum wage in any pay period. (Id. at § 3.) Mr. Faust “expressly 20 authorize[d] [GRI] to deduct from [his] commission to cover” this cost. (Id.) 21 On July 27, 2023, Mr. Faust resigned after five full quarters of employment with 22 GRI. (Pet. at ¶ 25.) Pursuant to the Plan and the Note, GRI contends that Mr. Faust only 23 earned $875,000.00 of the Sign On Bonus and must repay $525,000.00. (Id. at ¶ 26.) 24 GRI also alleges damages under the two addendums: (1) $5,898.69 for the amount it paid 25 Mr. Faust’s Sales Assistant pursuant to Addendum 1, and (2) $2,813.98 for the amount it 26 paid Mr. Faust’s Associate Vice President pursuant to Addendum 8. (Id. at ¶¶ 32–39.) 27 GRI attempted to initiate arbitration with Judicate West, but Mr. Faust chose not to 28 retain counsel for the arbitration proceedings. ([Doc. 1-2], at ¶ 3 “O’Connor Decl.”) 1 Judicate West then required GRI to obtain a court order compelling Mr. Faust to 2 participate in arbitration. (Id.) A few months later, GRI filed this petition seeking to 3 compel arbitration and obtain attorneys’ fees and costs. (Pet. at 8:19–24.) 4 II. LEGAL STANDARD 5 The Federal Arbitration Act (“FAA”) provides: [6] 7 A written provision in any . . . contract evidencing a transaction 8 involving commerce to settle by arbitration a controversy thereafter 9 arising out of such contract or transaction, or the refusal to perform 10 the whole or any part thereof, . . . shall be valid, irrevocable, and 11 enforceable, save upon such grounds as exist at law or in equity for 12 the revocation of any contract. [14] 9 U.S.C. § 2 . 15 “A party seeking to compel arbitration has the burden under the FAA to show 16 (1) the existence of a valid, written agreement to arbitrate; and, if it exists, (2) that the 17 agreement to arbitrate encompasses the dispute at issue.” Ashbey v. Archstone Prop. 18 Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015). “The ‘principal purpose’ of the FAA is 19 to ‘ensur[e] that private arbitration agreements are enforced according to their 20 terms.’” AT&T Mobility LLC v. Concepcion, 563 U.S. 333 , 344 (2011) (quoting Volt 21 Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989)). 22 When ruling on a petition seeking to compel arbitration, the court applies 23 “‘ordinary state-law principles that govern the formation of contracts’ to decide whether 24 an agreement to arbitrate exists.” Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 25 1279, 1283 (9th Cir. 2017) (citation omitted). California law requires contracts to have 26 (1) “[p]arties capable of contracting”; (2) “[t]heir consent”; (3) “[a] lawful object”; and 27 (4) “[a] sufficient cause or consideration.” Cal. Civ. Code § 1550 (West 2024). 28 However, “[i]n keeping with California’s strong public policy in favor of arbitration, any 1 doubts regarding the validity of an arbitration agreement are resolved in favor of 2 arbitration.” Samaniego v. Empire Today, LLC, 205 Cal. App. 4th 1138, 1144 (2012). [3] 4 III. DISCUSSION 5 There is no dispute that Respondent Mr. Faust signed the various agreements that 6 Claimant GRI presented. (See Reply at 2:9–15.) GRI has therefore met its initial burden 7 of proof that the contracts exist by attaching “cop[ies] of the purported arbitration 8 agreement[s] bearing [Mr. Faust’s] signature.” Espejo v. S. Cal. Permanente Med. Grp., [9] 246 Cal. App. 4th 1047, 1060 (2016). The only remaining issue for compelling 10 arbitration is whether the parties consented to an arbitration agreement for this dispute. 11 Mr. Faust asserts that arbitration should not be compelled because the dispute 12 arises from the Note, which does not contain an arbitration provision. ([Doc. 5], “Opp’n” 13 at 2:19–20.) However, Mr. Faust’s arguments are unconvincing for several reasons. 14 First, the Arbitration Agreement explicitly states that Mr. Faust agrees to arbitrate 15 “all claims . . . arising out of, relating to, or resulting from [his] employment [with GRI]” 16 and that “any claim, dispute, or controversy [Mr. Faust] may have against [GRI], or 17 [GRI] may have against [Mr. Faust] will be submitted to and determined exclusively by 18 binding arbitration.” (Arbitration Agreement at § 2 [emphasis added]). And nothing in 19 the Note disclaims this agreement to arbitrate. To the contrary, the money at issue in the 20 Note was the $1,400,000 Sign On Bonus created in the Schedule, which in turn 21 specifically stated that “[a]ny disputes relating to this Schedule and the Compensation 22 Terms are subject to the terms of the mutual arbitration agreement between You [Mr. 23 Faust] and the Company [GRI], whether set forth in the Employment Terms, 24 Compensation Terms[,] or a separate arbitration agreement which requires You [Mr. 25 Faust] to resolve disputes with the Company [GRI] on an individual basis through final 26 and binding arbitration.” (Plan at § VII.) 27 Second, the Note’s provision stating that it is governed by California law does not 28 exclude the prospect of arbitration. Indeed, the Arbitration Agreement itself specifically 1 states that the “law of California will apply” to the “arbitration” proceedings. 2 (Arbitration Agreement at § 16.) 3 Third, the Note’s references to “suits brought for collection,” “other judicial 4 proceeding[s],” and “court costs” do not abrogate the prior arbitration agreements. (See 5 Note at § 12.) In Fuentes v. Empire Nissan, Inc., the court upheld an arbitration 6 agreement even though a later agreement specified review by “any court of competent 7 jurisdiction” and the parties’ “consent[ed] to judicial modification” of overly broad terms. [8] 90 Cal. App. 5th 919 , 932 (2023) (holding that “[i]n light of [California]’s strong policy 9 favoring arbitration, the reasonable interpretation of [these terms] preserves mutuality 10 and arbitration.”). The Fuentes court recognized that a reasonable interpretation of 11 “judicial” includes the actions of arbitrators, who do “‘judicial’ work in an arbitration 12 setting.” Id. Similarly, the Note’s reference to “judicial proceeding[s]” cannot be 13 reasonably interpreted as to invalidate the applicability of the Arbitration Agreement. 14 Fourth, the Note’s integration clause does not exclude the past arbitration 15 agreements. (Note at § 18.) In Jenks v. DLA Piper Rudnick Gray Cary U.S. LLP, the 16 court held that an integration clause explicitly limited to “the subject matter hereof” did 17 not terminate a prior arbitration provision. 243 Cal. App. 4th 1, 15 (2015) (ruling that a 18 contract with an integration clause but with no arbitration provision did not abrogate a 19 prior arbitration agreement because the “subject matter” of the later agreement did not 20 involve dispute resolution); see also Oxford Preparatory Acad. v. Edlighten Learning 21 Sols., 34 Cal. App. 5th 605, 612 (2019) (holding that “a superseding agreement silent on 22 dispute resolution” did not overrule an arbitration clause in an earlier contract). Here, the 23 Note’s integration clause is also limited to “the subject matter hereof,” and it is silent on 24 dispute resolution. (Note at § 18.) Arbitration is not part of the “subject matter” 25 referenced by the integration clause, which instead relates only to the terms of the Sign 26 On Bonus. See Jenks, 243 Cal. App. 4th at 15 . The integration clause therefore does not 27 exclude the dispute resolution process set forth in the prior arbitration agreements. Any [28] 1 || disputes arising from the Note must be subject to arbitration, and the Court grants GRI’s 2 || petition compelling arbitration. 3 In its Petition, GRI also seeks an award of “‘attorneys’ fees and costs.” (Pet. at 4 ||8:19-24.) The Plan states that GRI “may recover from [Mr. Faust] its attorneys’ fees and 5 || costs relating to any action to enforce, defend and/or prosecute this Agreement,” and the 6 || Note contains a similar provision as well. (Plan at § IX; Note at § 12.) However, the 7 || Arbitration Agreement also states that “[t]he arbitrator may award reasonable fees and 8 || costs or any portion thereof to the prevailing party to the same extent a court would be 9 || entitled to do so.” (Arbitration Agreement at § 13.) Whether GRI is the “prevailing 10 || party” and is successful in “enforc[ing]” its agreements remain to be seen and are left to 11 || the arbitrator. Pursuant to its agreements, GRI must enforce its claims in arbitration and 12 should seek attorneys’ fees and costs from the arbitrator. The Court denies GRI’s 13 petition for attorneys’ fees and costs. 14 ||TV. CONCLUSION AND ORDER 15 For the foregoing reasons, Claimant GRI’s Petition for Order Compelling 16 || Arbitration [Doc. 1] is GRANTED IN PART and DENIED IN PART. Respondent 17 Richard M. Faust must submit to arbitration for claims against him arising out of his 18 ||employment with GRI. GRI is not entitled to attorneys’ fees and costs from this Court, 19 it must seek such relief from the arbitrator. [20] 21 IT IS SO ORDERED. 22 Dated: September 19, 2024 \ 23 pe Lor 24 Hn. 1 omas J. Whelan 5 United States District Judge