Luis Fernandez v. Sager Automotive Group

TENTATIVE RULING: The motion is DENIED.

The moving party failed to include in the notice of this motion proper notice of the Court’s tentative ruling system as required by Local Rule 2.9. Moving party is directed to immediately provide, by telephone call AND email, the missing notice to opposing party/ies forthwith. The requirements for requesting oral argument under Local Rule 2.9 remain in effect. However, the Court may grant belated requests for oral argument or continuance of hearing, made by any party who represents it did not timely receive the required notice, regardless of whether or not moving party is present at the hearing.

A. PRELIMINARY MATTERS

Defendant Sager Automotive Group (SAG) moves, pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and the California Arbitration Act, Code of Civil Procedure § 1281.2, for an order compelling plaintiff to arbitrate all individual claims against Defendants, to the extent he has any, arising from or associated with his employment with Defendants, including but expressly not limited to the individual claims (including any individual PAGA claims that may hereafter be asserted in this or any other forum) raised by Plaintiff in his Complaint.

A. LEGAL ANALYSIS

1. SAG Carries its Burden of Showing an Agreement to Arbitrate Plaintiff’s Claims

A proceeding to compel arbitration is, in essence, a suit in equity to compel specific performance of a contract. (California Teachers Assn. v. Governing Bd. (1984) 161 Cal.App.3d 393, 399.) On a motion to compel arbitration, supported by prima facie evidence of a written agreement to arbitrate the underlying controversy, the court must determine whether the agreement exists and, if any defense to its enforcement is raised, whether the agreement is enforceable. (Rosenthal v. Great Western Financial Sec.

Corp. (1996) 14 Cal.4th 394, 413.) The moving party bears the burden of proving the existence of the agreement by a preponderance of the evidence. (Ibid.) The opposing party bears the burden of producing evidence of and proving (by a preponderance) any fact necessary to any defense raised. (Ibid.) California law strongly favors arbitration. (Prima Donna Development Corp. v. Wells Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 35 (Prima Donna).)

Defendant presents evidence that, “[a]ll personnel who commence or continue employment with the Company are required to comply with the alternative dispute resolution policy, which includes the mandatory arbitration of employment-related claims.” (Declaration of Lisa Anderson at ¶ 5 (Anderson Decl.).) Exhibit 1 to the Anderson Decl. contains a document titled Applicant Statement and Agreement. That writing contains the arbitration terms upon which the present motion and petition are based (Arbitration Agreement).

Defendant presents evidence that, “Each individual [employee] is made aware of the [alternative dispute resolution] policy and . . . employees who commence or continue work following notice of the dispute resolution policy accept the terms thereof through their conduct in accepting or continuing the accept employment benefits, including but not limited to compensation, under the terms and conditions of their employment . . ..” (Ibid.)

Plaintiff appears to concede the foregoing through the Opposition. Plaintiff further appears to concede that he signed the Arbitration Agreement as part of his employment. (See, e.g., Declaration of Luis Fernandez at ¶ 4 (Fernandez Decl.).)

The scope of the Arbitration Agreement is exceptionally broad, and includes, with expressly enumerated exceptions, “any claims I might have against [SAG] that currently exist or that may arise in the future” as well as “all claims . . . against [SAG] (and any third-party beneficiaries) . . . [including] any and all claims which arise out of the employment context or any other interaction/relationship we had, have or may have in the future.” (Arbitration Agreement at ¶ 4.) The Arbitration Agreement further provides that “Third-party beneficiaries include the Company’s owners, directors, officers, managers, employees, agents, partners, attorneys, sister-companies, subsidiaries, parent companies, joint-venturers, affiliated persons/entities, independent contractors, and parties affiliated with its employee benefit and health plans.

These claims also include any claims arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Company or third-party beneficiaries, whether based on tort, contract, statute, equity or otherwise.” (Ibid.)

Based on the foregoing, the Court finds that SAG has carried its initial burden of proving the existence of an agreement to arbitrate the present dispute

2. The Court Exercises Its Discretion and Declines to Enforce the Arbitration Agreement

Mr. Fernandez argues that the Arbitration Agreement is unenforceable pursuant to the doctrine of unconscionability.

The FAA generally restricts states’ rights to limit the enforceability of arbitration agreements or clauses. (See Prima Donna, supra, 42 Cal.App.5th at 36.) However, “the FAA contains a ‘saving clause,’ which ‘permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.’” (Id., quoting AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.)

The central inquiry in resolving a claim of unconscionability is whether the contract provisions were unconscionable at the time they were made. (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133–1134.) The defense is “inherently fact specific.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 138.) “The burden of proving unconscionability rests upon the party asserting it.” (Id. at 126.) Under the FAA, unconscionability claims are to be resolved by the trial court before enforcing an arbitration agreement. (Id. at 138.)

“A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party.” (OTO, L.L.C. v. Kho, supra, 8 Cal.5th at 125.) Thus, the doctrine of unconscionability has both a procedural and a substantive element. (Ibid.) “‘The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. [Citations.] Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.’ [Citation.]” (Ibid.)

“‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ (Citation.) But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ (Citation.)

In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 abrogated on other grounds by AT&T Mobility LLC v. Concepcion (2010) 563 U.S. 333, [131 S.Ct. 1740, 179 L.Ed.2d 742].)

a. The Circumstances of the Contract’s Formation Created Significant Oppression

For procedural unconscionability, the “pertinent question” is “whether circumstances of the contract’s formation created such oppression or surprise that closer scrutiny of its overall fairness is required.” (OTO, L.L.C. v. Kho, supra, 8 Cal.5th at 126.) “Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.” (Ibid.) “‘The circumstances relevant to establishing oppression include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract was aided by an attorney.’” (Id. at 126-127 quoting Grand Prospect Partners, L.P. v.

Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1348.)

The Court finds that the undisputed circumstances relating to the creation of the Arbitration Agreement weighs in favor of a finding of oppression as to each of the foregoing categories. SAG concedes that the Arbitration Agreement is a contract of adhesion. (See Reply at 4:26.) As discussed above, it is uncontested that Plaintiff was given no opportunity to negotiate the terms governing arbitration of any dispute. Rather, as an employee, Mr. Fernandez, by “commenc[ing] [and] continu[ing] work following notice of the dispute resolution policy accept[ed] the terms thereof through [his] conduct in accepting or continuing [to] accept employment benefits, including but not limited to compensation, under the terms and conditions of their employment . . ..” (Anderson Decl. at ¶ 5.)

It therefore appears that Mr. Fernandez’ only means for avoiding the provisions of the Arbitration Agreement was to decline Defendant’s offer of employment.

The Court finds that the number and substance of the provisions in the Arbitration Agreement renders it significantly complex. (See Arbitration Agreement at §§ 3-14.) Moreover, the language of the Arbitration is often prolix and unnecessarily opaque. For example, the provisions governing the costs of arbitration are so vague and ambiguous that they defy reasonable interpretation. (See, e.g., id. at ¶ 8.) In addition, the paragraphs relating to arbitration are sandwiched between paragraphs relating to matters entirely unrelated thereto. (See id. at ¶¶ 1-2 and 15-17.)

There is no evidence before the Court regarding Mr. Fernandez’ education. There is, however, evidence that, prior to the instant proceedings, Plaintiff had never heard of arbitration. (See Fernandez Decl. at ¶ 6.) It is reasonable to infer, from this evidence, that Mr. Fernandez is without significant legal experience or legal education and that his review of the Arbitration Agreement was not aided by an attorney. Moreover, Plaintiff presents evidence that no one explained to him the nature of the Arbitration Agreement. It is also worth noting that, “the arbitration agreement itself does not explain what arbitration means....” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84.) The foregoing circumstances are consistent with SAG’s evidence that, simply by accepting employment, Plaintiff was agreeing to

the terms of the Arbitration Agreement. In this context, Plaintiff’s review and/or understanding of the terms was, from SAG’s perspective, appears to have been irrelevant.

The Court finds, therefore, that the circumstances of the Arbitration Agreement’s formation warrant close scrutiny of the fairness of its substantive terms.

b. Provisions of the Agreement are Substantively Unconscionable

“Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 246.) “To reiterate, we assess unconscionability with a sliding scale approach. [Citation.] In light of the high degree of procedural unconscionability, even a low degree of substantive unconscionability could render the arbitration agreement unconscionable.” (Carmona v.

Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85.) “Given the lack of choice and the potential disadvantages that even a fair arbitration system can harbor for employees, we must be particularly attuned to claims that employers with superior bargaining power have imposed one-sided, substantively unconscionable terms as part of an arbitration agreement. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 115.)

The Court finds that the Arbitration Agreement is virtually unlimited in scope, encompasses claims unrelated to Plaintiff’s employment, and is unlimited in duration.3 “By signing my name below and/or by accepting and/or continuing employment with the Company, I agree to pursue any claims I might have against the Company that currently exist or that may arise in the future exclusively through binding arbitration.” (Arbitration Agreement at ¶ 3.) “Our agreement to arbitrate includes any and all claims which arise out of the employment context or any other interaction/relationship we had, have or may have in the future.” (Id. at ¶ 4.

Emphasis added.) For example, by the terms of the Arbitration Agreement, if, after the employment relationship ended, Mr. Fernandez were to purchase an automobile from SAG, or have a vehicle serviced by SAG, any dispute relating to that purchase or servicing would fall within the scope of this arbitration agreement.

“We recognize that employment contracts can provide a ‘margin of safety’ that grants extra protection to the party with superior bargaining power if there is a legitimate commercial need for doing so. [Citation.] However, unless the ‘business realities’ that give rise to that special need are explained in the contract itself, they must be factually established.” (Cook v. University of Southern California (2024) 102 Cal.App.5th 312, 324 (Cook).) The Court finds, in the Arbitration Agreement itself, no explanation for the extra protection provided SAG by its scope. SAG does not provide any discussion, explanation, or evidence tending to support any such business realities giving rise to any special need for the breadth of the scope of the Arbitration Agreement.

Moreover, and even more troubling, the Arbitration Agreement requires Mr. Fernandez to arbitrate any claims (again unlimited in scope) against third-party beneficiaries to the Arbitration

3 The only limitations on the scope are express and related to certain employment claims. (See Arbitration Agreement at ¶¶ 3-5.)

Agreement which are defined exclusively as persons affiliated with Defendant. (See id. at ¶ 3-4.) “I understand that this agreement requires me to pursue all claims I bring against the Company (and any third-party beneficiaries) through binding arbitration and requires that the Company submit any claims it has against me to binding arbitration (except for those claims specifically excluded by this agreement).” (Id. at ¶ 4.) The only definition provided for the phrase “thirdparty beneficiaries” is “[t]hird-party beneficiaries include the Company’s owners, directors, officers, managers, employees, agents, partners, attorneys, sister-companies, subsidiaries, parent companies, joint-venturers, affiliated persons/entities, independent contractors, and parties affiliated with its employee benefit and health plans.” (Ibid.)

There is nothing in the Arbitration Agreement, that the Court can find, that would require any of these “third-party beneficiaries” to arbitrate any claims they may have against Mr. Fernandez.

It appears uncontested that Mr. Fernandez worked as a sales associate for SAG. It seems entirely plausible to imagine that Mr. Fernandez, after leaving this employment, might seek employment with another dealership, or affiliate, that falls within the broad category of thirdparty beneficiaries. The third-party beneficiary, pursuant to the terms of the Arbitration Agreement, would have the right to compel Mr. Fernandez to arbitrate any dispute relating to that subsequent employment. Mr. Fernandez would have no corresponding right. Similarly, it is conceivable that Mr. Fernandez could have a claim against a fellow employee of SAG arising entirely outside of their employment. Again, the fellow employee would have the right, pursuant to this Arbitration Agreement to compel Mr. Fernandez to arbitrate such dispute.

“The concern here is not that the arbitration agreement provides ancillary benefits to third parties. The concern is that the agreement provides benefits to broad swaths of third-party beneficiaries only in favor of [the employer] without any showing of justification for this onesided treatment. This confers a benefit on [the employer] and its broadly defined “related entities” that is not mutually afforded to [the employee].” (Cook, supra, 102 Cal.App.5th at 326-327.) “[N]onsignatories may enforce an arbitration agreement against a party to the agreement simply by showing they are intended third party beneficiaries of the arbitration agreement. [Citation.]

Where the agreement requires arbitration of claims against certain classes of third parties, nonsignatories can make ‘a prima facie showing sufficient to allow them to enforce the arbitration clause as third party beneficiaries’ simply by showing they fall within one of the classes of beneficiaries identified by the contract. [Citation.] [¶] Conversely, for [employee] to enforce the arbitration agreement against [employer’s] agents or employees as third party beneficiaries, she would have to show they actually accepted a benefit under the agreement. [Citations.]

It is difficult to imagine how [employee] could carry this burden to compel [employer’s] employees and agents to arbitration unless those specific agents or employees first moved to compel arbitration under the agreement. While it is theoretically possible for [employee] to make this showing, it is unlikely. [Citation.] [¶] The plain language of the arbitration agreement thus provides a significant benefit to [employer’s related entities without any reciprocal benefit to [employee].” (Cook, supra, 102 Cal.App.5th at 328.)

Again, there is no explanation, in the Arbitration Agreement, for this extra protection afforded to SAG and to SAG’s owners, directors, officers, managers, employees, agents, partners, attorneys, sister-companies, subsidiaries, parent companies, joint-venturers, affiliated persons/entities, independent contractors, and parties affiliated with its employee benefit and

health plans. SAG fails, through the moving and reply papers, to suggest any explanation and/or to provide evidence relating thereto.

The Court agrees with Mr. Fernandez that the foregoing attributes of the Arbitration Agreement are overly harsh, one-sided, unfair, and therefore render the Arbitration Agreement substantively unconscionable pursuant to the holding in Cook, discussed above.

c. The Unconscionable Provisions Permeate the Agreement and are Not Severable

SAG argues that this Court is required to sever any provisions it deems unconscionable.

“If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.” (Civil Code § 1670.5.)

SAG contends that, “[i]n this case, the provisions alleged to be substantively unconscionable are collateral to the main purpose of the agreement: the agreed-upon speedy resolution of disputes between Plaintiff and Defendant arising from Plaintiff’s employment.” (Reply at 11:9-12.)

The Court disagrees with SAG as to both assertions ((1) that the provisions alleged to be substantively unconscionable are collateral to the main purpose of the agreement and (2) that the purpose of the agreement is to resolve only disputes between Plaintiff and Defendant arising from Plaintiff’s employment). Again, the Arbitration Agreement was a contract of adhesion. It was written by SAG and presented to Mr. Fernandez with no opportunity to negotiate or suggest changes. In this context, had SAG intended to draft an agreement that was limited to “resolution of disputes between Plaintiff and Defendant arising from Plaintiff’s employment,” it could have. As discussed above, it did not.

“‘An unconscionable contractual term may be severed and the resulting agreement enforced, unless the agreement is permeated by an unlawful purpose, or severance would require a court to augment the agreement with additional terms. [Citation.]’ [Citation.] Severance may be properly denied when the agreement contains more than one unconscionable provision, and ‘“there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement.” [Citation.]’ [Citation.]” (Cook, supra, 102 Cal.App.5th at 328-329.)

The Court finds that the central purpose of the Arbitration Agreement, as drafted, is not simply to provide a speedy resolution of disputes between Mr. Fernandez and SAG arising from Mr. Fernandez’ employment. Rather, the central purpose of the Arbitration Agreement is to obligate Mr. Fernandez to arbitrate any and all claims, arising at any time and relating to any matter, that Mr. Fernandez has against SAG and/or any one or more of SAG’s “owners, directors, officers, managers, employees, agents, partners, attorneys, sister-companies, subsidiaries, parent companies, joint-venturers, affiliated persons/entities, independent

contractors, and parties affiliated with its employee benefit and health plans,” while obligating only SAG, but not any of the foregoing “third-party beneficiaries,” to arbitrate their own claims against Mr. Fernandez. The overly harsh and one-sided consequence of the Arbitration Agreement arises from those provisions defining the scope of disputes subject to arbitration and the parties subject thereto. It does not appear controversial to suggest that the central purpose of any arbitration agreement is defined by those of its provisions defining the scope of claims to arbitrated thereunder, and identification of the parties thereto. For this reason, the Court finds that the overly harsh and unfair advantage to SAG arising under the terms of the Arbitration Agreement permeate the entirety thereof.

The Court does not find that it can eliminate this unfair advantage – by, for example, converting the Arbitration Agreement into one whose central purpose is “the speedy resolution of disputes between Plaintiff and Defendant arising from Plaintiff's employment” – merely by severing one or more collateral provisions from the Arbitration Agreement. Rather, in order to accomplish the foregoing, the Court would be forced to redraft those provisions relating to the agreement’s scope and to the identification of the parties subject to and covered thereby.

Moreover, doing so would amount to a windfall for SAG. Again, given the adhesive nature of the agreement, SAG had every opportunity to draft precisely the arbitration agreement it desired. Having drafted it in a fashion that provided SAG and its third-party beneficiaries with significant potential unfair advantage, it now asks the Court to tailor the agreement to fit only those claims now asserted by Mr. Fernandez – those arising out of the employment relationship. To do so would constitute a windfall to SAG.

The Court finds that the overly harsh and one-sided scheme created by these provisions at the heart of the Arbitration Agreement, particularly in the context of the significant oppression characterizing the Arbitration Agreement’s formation, “indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 124.)

Based on the foregoing, the Court elects to exercise its discretion and not enforce the Arbitration Agreement. (See Civil Code § 1670.5.)

** at 11:30 a.m. ** Mark Andrews v. Richard Rockwell et al 24CV000304

DEFENDANT ENTERPRISE RENT-A-CAR CO. OF SAN FRANCISCO, LLC’S MOTION TO STRIKE THE FIRST AMENDED COMPLAINT AND DEMURRER

TENTATIVE RULING: The Anti-SLAPP motion is GRANTED. The Demurrer is therefore MOOT.

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