Berg v. Sunroad Auto, LLC et al

Filing 12

ORDER Granting Defendants' Motion To Compel Arbitration And Stay Proceedings 5 . Signed by Chief District Judge Dana M. Sabraw on 6/3/2024. (ddf)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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TRUMAN BERG, an individual,

Case No.: 23-cv-01949-DMS-AHG
Plaintiff,

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v.

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SUNROAD AUTO, LLC d/b/a KEARNY
MESA FORD KIA; JULIE FREDERICK;
DOES 1-20, inclusive;

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ORDER GRANTING DEFENDANTS’
MOTION TO COMPEL
ARBITRATION AND STAY
PROCEEDINGS

Defendants.

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Pending before the Court is Defendants Sunroad Auto, LLC (“Defendant Sunroad

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Auto”) and Julie Frederick’s motion to compel arbitration (Defendants’ Mot. to Compel

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Arbitration, (“Defs.’ Mot.”), ECF No. 5.) Plaintiff Truman Berg filed a response in

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opposition, (Plainitff’s Response in Opposition, (“Pl.’s Opp’n”), ECF No. 6), and

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Defendants filed a reply. (ECF No. 9.) This case was reassigned to the undersigned on

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March 30, 2024. (ECF No. 11.) For the following reasons, Defendants’ motion to compel

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arbitration is granted.

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I.
BACKGROUND
In December 2020, Plaintiff Truman Berg was employed to serve as a finance

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manager at Defendant Sunroad Auto, LLC’s Kearny Mesa Ford Kia dealership in San

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Diego, California. Defendant Julie Frederick, Sunroad Auto’s Finance Director, was
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Plaintiff’s direct supervisor. In September 2022, Plaintiff contends he suffered from

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general illness, fatigue, and rapid weight loss. Plaintiff alleges he immediately reported

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these symptoms to Defendants and “Defendants began a campaign of discrimination

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harassment, and retaliation against [him] that included repeated unfounded reprimands,

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pressuring him to work during medical leave, and forcing him to attend meetings unrelated

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to his duties.” (Pl.’s Opp’n at 2.) After Plaintiff was diagnosed with Crohn’s Disease, he

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requested formal medical leave. Plaintiff contends Defendant Sunroad Auto fired him

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shortly after his request for medical leave and “defamed [him] by lying to employment

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recruiters and the Employment Development Department of California about Plaintiff’s

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character and the reasons for his termination.” (Id.) Thus, Plaintiff filed suit against

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Defendants alleging causes of action under the Americans with Disabilities Act, the Family

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Medical Leave Act, the California Family Rights Act, the Fair Employment and Housing

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Act, wrongful discharge in violation of public policy, and defamation.

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On April 18, 2022, and again on November 30, 2022, while employed by Defendant

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Sunroad Auto, Plaintiff signed arbitration agreements with Defendant Sunroad Auto in

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which Mr. Berg agreed to utilize binding arbitration as the sole and exclusive means to

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resolve all disputes arising out of his employment with Defendant Sunroad Auto. The

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focus of the instant motion and this Order is the most recent arbitration agreement signed

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in November of 2022 entitled “Mutual and Voluntary Agreement to Arbitrate Claims.”

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(Declaration of Bruce Carter, Exhibit 1, (“November 2022 Arbitration Agreement”), ECF

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No. 5.) The November 2022 arbitration agreement expressly states that it does not

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supersede the April 2022 agreement, however, it controls to the extent that any of its terms

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conflict with the prior agreement. (Id.) Thus, Defendants ask the Court to enforce the

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November 2022 arbitration agreement and stay this action pending completion of

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arbitration. In response, Plaintiff asks the Court to void both the April 2022 and November

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2022 arbitration agreements as procedurally and substantively unconscionable.

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//

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II. LEGAL STANDARD

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The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., governs the enforcement

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of arbitration agreements involving interstate commerce. Am. Express Co. v. Italian Colors

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Rest., 570 U.S. 228, 232–33 (2013). “The overarching purpose of the FAA . . . is to ensure

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the enforcement of arbitration agreements according to their terms so as to facilitate

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streamlined proceedings.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011).

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“The FAA ‘leaves no place for the exercise of discretion by the district court, but instead

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mandates that district courts shall direct the parties to proceed to arbitration on issues as to

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which an arbitration has been signed.’” Kilgore v. KeyBank, Nat. Ass’n., 718 F.3d 1052,

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1058 (9th Cir. 2013) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218

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(1985)). Accordingly, the Court’s role under the FAA is to determine “(1) whether a valid

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agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the

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dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th

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Cir. 2000). If both factors are met, the Court must enforce the arbitration agreement

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according to its terms.

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A federal court “applies ordinary state-law principles that govern the formation of

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contracts’ to decide whether an agreement to arbitrate exists.” First Options of Chi., Inc.

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v. Kaplan, 514 U.S. 938, 944 (1995). Thus, “[l]ike other contracts, arbitration agreements

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can be invalidated for fraud, duress or unconscionability.” Chavarria v. Ralphs Grocery

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Co., 733 F.3d 916, 921 (9th Cir. 2013) (citing Concepcion, 563 U.S. at 339).

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III. DISCUSSION
A. Valid Agreement to Arbitrate

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As set out above, the first issue under the FAA is whether there is a valid agreement

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to arbitrate. Plaintiff does not dispute that he signed both the April 2022 and November

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2022 arbitration agreements with Defendant Sunroad Auto providing that arbitration is the

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sole and exclusive remedy for disputes relating to Plaintiff’s employment and termination

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of employment. As stated above, however, the focus of the instant motion and this

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accompanying Order is the most recent November 2022 arbitration agreement.1 The

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November 2022 arbitration agreement expressly states that it applies to both Defendant

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Sunroad Auto and its managers, employees, and agents, including Plaintiff’s direct

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supervisor, Defendant Julie Fredericks. Plaintiff does not dispute that all claims arising

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from this lawsuit are covered by the arbitration agreement. Thus, the November 2022

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agreement demonstrates the existence of a valid agreement to arbitrate.

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“Once it is established that a valid agreement to arbitrate exists, the burden shifts to

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the party seeking to avoid arbitration to show that the agreement should not be enforced.”

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Yeomans v. World Fin. Grp. Ins. Agency, Inc., No. 19-CV-00792-EMC, 2020 WL

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5500453, at *5 (N.D. Cal. Sept. 11, 2020) (citing Green Tree Fin. Corp.-Alabama v.

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Randolph, 531 U.S. 79, 92 (2000)). Here, Plaintiff contends the arbitration agreement is

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unenforceable under California law because it is procedurally and substantively

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unconscionable.

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B. Unconscionability

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“Under California law, a contract must be both procedurally and substantively

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unconscionable to be rendered invalid.” Chavarria, 733 F.3d at 922 (citing Armendariz v.

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Found. Health Psychare Servs., Inc., 24 Cal. 4th 83, 99 (2000)). “To establish this defense,

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the party opposing arbitration must demonstrate procedural and substantive

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unconscionability, but both ‘need not be present in the same degree. Instead, a sliding scale

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exists such that ‘the more substantively oppressive the contract term, the less evidence of

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procedural unconscionability is required to come to the conclusion that the term is

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unenforceable and vice versa.’” Lim v. TForce Logistics, LLC, 8 F.4th 992, 1000 (9th Cir.

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2021) (quoting Sanchez v. Valencia Holding Co., 61 Cal. 4th 899, 910 (2015)).

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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
address Plaintiff’s arguments as they pertain to the April 2022 arbitration agreement.
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i. Procedural Unconscionability

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“Procedural unconscionability concerns the manner in which the contract was

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negotiated and the respective circumstances of the parties at that time, focusing on the level

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of oppression and surprise involved in the agreement.” Chavarria, 733 F.3d at 922.

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“Oppression addresses the weaker party’s absence of choice and unequal bargaining power

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that results in ‘no real negotiation.’” Id. (quoting A & M Produce Co. v. FMC Corp., 135

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Cal. App. 3d 473, 486 (1982)). “Oppression can be established ‘by showing the contract

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was one of adhesion or by showing from ‘the totality of circumstances surrounding the

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negotiation and formation of the contract’ that it was oppressive.’” Lim, 8 F.4th at 1000

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(quoting Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal. App. 4th

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1332, 1348 (2015)). “Surprise involves the extent to which the contract clearly discloses

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its terms as well as the reasonable expectations of the weaker party.” Chavarria, 733 F.3d

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at 922 (citing Parada v. Super. Ct., 176 Cal. App. 4th 1554, 1571 (2009)). “To establish

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procedural unconscionability, Plaintiff must demonstrate that he was surprised by some

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aspect of the agreement, or that his consent to its terms was obtained under coercion or

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duress.” Lang v. Skytap, Inc., 347 F. Supp.3d 420, 427 (N.D. Cal. 2018).

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“A procedural unconscionability analysis ‘begins with an inquiry into whether the

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contract is one of adhesion.’” OTO, L.L.C. v. Kho, 8 Cal. 5th 111, 126 (2019) (quoting

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Armendariz, 24 Cal. 4th at 113). “An adhesive contract is standardized, generally on a

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preprinted form, and offered by the party with superior bargaining power ‘on a take-it-or-

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leave-it basis.’” Id. (quoting Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 1245 (2016)).

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Plaintiff contends the November 2022 arbitration agreement is a contract of adhesion

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because the agreement was drafted by Plaintiff’s employer, a party with superior

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bargaining party, and it was presented on a “take it or leave it” basis as Plaintiff did not

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have an opportunity to negotiate the terms. “It is well settled that adhesion contracts in the

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employment context, that is, those contracts offered to employees on a take-it-or-leave-it

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basis, typically contain some aspects of procedural unconscionability.” Serpa v. Cal.

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Surety Investigations, Inc., 215 Cal. App. 4th 695, 704 (2013). However, it is also well
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settled that “unless one’s employment is conditioned on the signing of an adhesion contract

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without negotiation, then the degree of procedural unconscionability is low.” Taylor v.

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Eclipse Senior Living, Inc., Case No. 20-cv-190-LAB (WVG), 2022 WL 1004560 at *4

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(S.D. Cal. April 4, 2022) (citing Poublon v. CH Robinson Co., 846 F.3d 1251, 1260 (9th

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Cir. 2017)). Thus, the analysis turns on whether Plaintiff’s employment was conditioned

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on singing the arbitration agreement.

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Defendants argue Plaintiff’s employment was not contingent upon signing the

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arbitration agreement for it is a voluntary, not mandatory agreement. Defendants note the

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agreement is entitled “MUTUAL AND VOLUNTARY AGREEMENT TO

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ARBITRATE CLAIMS” placed at the top of the page in capital letters, bolded, and

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underlined. (November 2022 Arbitration Agreement at 1). The agreement states “I

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understand the Company has proposed this arbitration agreement to me and I have the right

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to accept or reject it.” (Id.) The agreement further states “I understand the Company does

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not retaliate or discriminate against applicants or employees who refuse to consent to

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arbitration.” (Id.) The agreement concludes with “I VOLUNTARILY AGREE AND

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ASSENT TO THE TERMS OF THIS AGREEMENT” placed in a larger bolded font

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and all capital letters. (Id. at 2.) Although Plaintiff contends, he believed his employment

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was conditional upon signing the agreement, the plain language of the contract states

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otherwise. Because the arbitration agreement clearly states that Plaintiff may opt out of

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the agreement and maintain his employment with Defendant Sunroad Auto, the Court does

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not find the agreement to be an adhesion contract. See Cir. City Stores, Inc. v. Ahmed, 283

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F.3d 1198, 1199 (9th Cir. 2002) (finding that a voluntary arbitration agreement in which

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the plaintiff had an opportunity to opt out of the arbitration provision “lacks the necessary

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element of procedural unconscionability”).

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“In the absence of an adhesion contract, the oppression aspect of procedural

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unconscionability can be established by the totality of the circumstances surrounding the

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negotiation and formation of the contract.” Grand Prospect Partners, L.P., 232 Cal. App.

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4th at 1348. Plaintiff contends Defendants “relied on highly oppressive tactics to secure
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Mr. Berg’s signature on the documents.” (Pl.’s Opp’n at 8.) Specifically, Plaintiff alleges

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that Defendants did not give him time to review the documents or consult an attorney

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before signing the arbitration agreement. Plaintiff further alleges that Defendants did not

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explain the terms of the agreement, nor did they provide him with a copy of the rules of

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the proposed arbitration. The Court is convinced that these circumstances amount to a

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minimal level of oppression. See Grand Prospect Partners, L.P., 232 Cal. App. 4th at 1348

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(“The circumstances relevant to establishing oppression include, but are not limited to (1)

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the amount of time the party is given to consider the proposed contract; (2) the amount and

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type of pressure exerted on the party to sign the proposed contract; (3) the length of the

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proposed contract and the length and complexity of the challenged provision; (4) the

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education and experience of the party; and (5) whether the party's review of the proposed

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contract was aided by an attorney.”) (citing Ajamian v. CantorCO2e, L.P., 203 Cal. App.

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4th 771, 796 (2012)). However, the Court is not convinced that the circumstances of the

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negotiation necessitate a finding that the contract is “unduly oppressive” or “so one-sided

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as to shock the conscience” as is required to find a contract procedurally unconscionable.

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Grand Prospect Partners, L.P., 232 Cal. App. 4th at 1348. The contract was two pages

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long, written in clear and unambiguous language, and even went so far as to underline,

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bold, and capitalize the important portions of the agreement.

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Additionally, because the “contract clearly disclose[d] its terms as well as the

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reasonable expectations of the weaker party,” it cannot be said that Plaintiff was or

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reasonably should have been surprised by the terms of the agreement. Chavarria, 733 F.3d

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916 at 922. Plaintiff has not met his burden of proving procedural unconscionability for

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the text of the arbitration agreement combined with California’s preference of enforcing

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arbitration agreements weigh in favor of enforcing the agreement as written. OTO, L.L.C.,

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8 Cal. 5th at 125, 129 (“California law strongly favors arbitration. . . Arbitration contracts

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are vigorously enforced out of respect for the parties’ mutual and voluntary agreement to

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resolve disputes by this alternative means.”) Additionally, even if the Court were to find

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the contract to be procedurally unconscionable, “the finding of procedural
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unconscionability alone is not enough, to deny a motion to compel arbitration” for Plaintiff

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must establish “significant substantive unfairness to avoid arbitration.” MacClelland v.

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Cellco Partnership, 609 F. Supp. 3d 1024, 1033 (N.D. Cal. 2022). Because the degree of

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procedural unconscionability is minimal at best, “the agreement is unenforceable only if

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the degree of substantive unconscionability is high.” Doston v. Amgen, Inc., 181 Cal. App.

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4th 975, 982 (2010).

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ii. Substantive Unconscionability

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“Substantive unconscionability pertains to the fairness of an agreement's actual

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terms and to assessments of whether they are overly harsh or one-sided.” Lane v. Francis

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Capital Management LLC, 224 Cal. App. 4th 676, 692 (2014). Plaintiff contends the

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arbitration agreement is substantively unconscionable for three reasons: (1) the April 2022

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agreement unfairly subjects Plaintiff to significant arbitration fees and expenses; (2) the

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April 2022 agreement inappropriately precludes tolling of the applicable statutes of

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limitations; and (3) the April 2022 agreement imposes prejudicial confidentiality

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requirements. However, each of Plaintiff’s arguments pertains only to the April 2022

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agreement and not the November 2022 agreement. Plaintiff fails to argue that the

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November 2022 arbitration agreement is substantively unconscionable.

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Prospect Partners, L.P., 232 Cal. App. 4th at 1348 (“The party challenging the validity of

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a contract or contractual provision bears the burden of proving unconscionability.”) Thus,

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the Court need not address Plaintiff’s arguments as they pertain to the April 2022

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arbitration agreement. For the reasons discussed above, the Court finds the November

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2022 agreement to be a valid and enforceable arbitration agreement. Accordingly, the

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Court GRANTS Defendants’ motion to compel arbitration, enforces the November 2022

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arbitration agreement, and stays the case pending arbitration. See Smith v. Spizzirri, 144

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S. Ct. 1173, 1178 (2024) (“When a district court finds that a lawsuit involves an arbitrable

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dispute, and a party requests a stay pending arbitration, § 3 of the FAA compels the court

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to stay the proceeding.”)

See Grand

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IV. CONCLUSION AND ORDER

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For the foregoing reasons, Defendants’ Sunroad Auto and Julie Frederick’s motion

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to compel arbitration is GRANTED. The Court stays the litigation to permit arbitration of

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Plaintiffs’

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arbitration proceedings, the parties shall jointly submit a report advising the Court of the

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outcome of the arbitration and request to dismiss the relevant counts or vacate the stay.

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claims.

Within

fourteen

(14)

days

of

the

completion

of

the

IT IS SO ORDERED.
Dated: June 3, 2024

____________________________
Hon. Dana M. Sabraw, Chief Judge
United States District Court

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