Roberts et al v. C.R. England, Inc. et al

Filing 44

ORDER GRANTING DEFENDANTS' 18 MOTION TO DISMISS PLAINTIFFS' CLAIM UNDER THE CALIFORNIA FRANCHISE INVESTMENT LAW AND MOTION TO TRANSFER VENUE. Signed by Judge Claudia Wilken on 1/25/2012. (ndr, COURT STAFF) (Filed on 1/25/2012)

1

IN THE UNITED STATES DISTRICT COURT

2

FOR THE NORTHERN DISTRICT OF CALIFORNIA

3
4
5
6

CHARLES ROBERTS, an individual;
and KENNETH MCKAY, an individual,
on behalf of themselves and
others similarly situated,
Plaintiffs,

7
8
9

United States District Court
For the Northern District of California

10
11

v.
C.R. ENGLAND, INC., a Utah
corporation; OPPORTUNITY LEASING,
INC., a Utah corporation; and
HORIZON TRUCK SALES AND LEASING,
LLC., a Utah Limited Liability
Corporation,

12
13

No. C 11-2586 CW
ORDER GRANTING
DEFENDANTS' MOTION
TO DISMISS
PLAINTIFFS' CLAIM
UNDER THE
CALIFORNIA
FRANCHISE
INVESTMENT LAW AND
MOTION TO TRANSFER
VENUE (Docket Nos.
18 and 40)

Defendants.
________________________________/

14
15

Plaintiffs Charles Roberts and Kenneth McKay have brought a

16

putative class action against Defendants C.R. England, Inc.,

17

Opportunity Leasing, Inc. and Horizon Truck Sales and Leasing,

18

LLC, on behalf of themselves and others similarly situated.

19

Previously, Defendants moved to dismiss Plaintiffs' claim for

20

violation of the California Franchise Investment Law (CFIL), for

21
failure to state a claim, and moved to transfer the case to the
22
23

District of Utah, pursuant to Title 28 U.S.C. §§ 1404(a) and

24

1406(a).

25

dismissed Plaintiffs' CFIL claim, with leave to amend, and

26

deferred ruling on Defendants' motion to transfer.

27

stated that the transfer of the case would be contingent upon the

28

Docket No. 18.

On November 22, 2011, the Court

The Court

1

ability of Plaintiffs to amend their complaint to state a

2

cognizable CFIL claim.

3

Amended Complaint and Defendants moved to dismiss the amended CFIL

4

claim.

5

submission on the papers.

6

Docket No. 40.

Subsequently, Plaintiffs filed a Second

The Court has taken the motion under
Having considered all of the parties'

submissions, the Court GRANTS Defendants' motion to dismiss and

7
transfers the action to the District of Utah.
8
LEGAL STANDARD

9

United States District Court
For the Northern District of California

10

A complaint must contain a “short and plain statement of the

11

claim showing that the pleader is entitled to relief.”

Fed. R.

12

Civ. P. 8(a).

13

state a claim, dismissal is appropriate only when the complaint

14

does not give the defendant fair notice of a legally cognizable

On a motion under Rule 12(b)(6) for failure to

15
claim and the grounds on which it rests.

Bell Atl. Corp. v.

16
Twombly, 550 U.S. 544, 555 (2007).

In considering whether the

17
18

complaint is sufficient to state a claim, the court will take all

19

material allegations as true and construe them in the light most

20

favorable to the plaintiff.

21

896, 898 (9th Cir. 1986).

22

to legal conclusions; “threadbare recitals of the elements of a

23

NL Indus., Inc. v. Kaplan, 792 F.2d

However, this principle is inapplicable

cause of action, supported by mere conclusory statements,” are not

24
taken as true.

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009)

25
26

(citing Twombly, 550 U.S. at 555).

27
28
2

1

DISCUSSION

2

The Court previously dismissed Plaintiffs' CFIL claim for

3

failure to allege a franchise within the meaning of the statute.

4

Under the CFIL,

5
6
7
8
9

United States District Court
For the Northern District of California

10
11
12
13
14
15

(a) “Franchise” means a contract or agreement, either
expressed or implied, whether oral or written, between two or
more persons by which:
(1) A franchisee is granted the right to engage in the
business of offering, selling or distributing goods or
services under a marketing plan or system prescribed in
substantial part by a franchisor; and
(2) The operation of the franchisee's business pursuant
to such plan or system is substantially associated with
the franchisor's trademark, service mark, trade name,
logotype, advertising or other commercial symbol
designating the franchisor or its affiliate; and
(3) The franchisee is required to pay, directly or
indirectly, a franchise fee.
Cal. Corp. Code § 31005.

The Court determined that Plaintiffs'

First Amended Complaint did not meet the three requirements

16
necessary to allege a franchise.

Namely, the complaint failed to

17
18

allege that Plaintiffs were granted the right to engage in a

19

franchise business, that the operation of Plaintiffs' business was

20

substantially associated with C.R. England's trademark or other

21

business symbols, and that Plaintiffs paid a franchise fee.

22
23

With regard to the first requirement, Plaintiffs' earlier
complaint alleged that they had purchased a right to sell

24
transportation services to C.R. England by entering into the
25
Independent Contractor Operating Agreement (ICOA) and the Horizon
26
27

Truck Sales and Leasing Vehicle Lease Agreement (Truck Leasing

28

Agreement).

The Second Amended Complaint, however, alleges that
3

1

Plaintiffs were granted the right to offer, sell and distribute

2

services to C.R. England and "third party customers whose goods

3

were being picked-up, loaded, transported, unloaded, and

4

delivered."

5

granted the right to engage in a business offering, selling,

6

2AC at ¶ 95.

Plaintiffs alleged that they were

and/or distributing big rig truck driving, labor, transport, pick-

7
up, delivery, loading, unloading, and other related services to
8
9

United States District Court
For the Northern District of California

10
11

third party customers with C.R. England acting as an intermediary.
Id.
Plaintiffs argue that because of the amended allegations,

12

Lads Trucking Company v. Sears, Roebuck and Co., 666 F. Supp.

13

1418, 1420 (C.D. Cal. 1987), and East Wind Express v. Airborne

14

Freight Corporation, 95 Wash. App. 98 (1999), no longer apply to

15
the case.

East Wind and Lads are analogous to this case because

16
both cases pertained to alleged franchise businesses involving the
17
18

defendants' contracts with the plaintiffs for truck delivery

19

services.

20

interpreted the definition of a franchise under Washington's

21

franchise law statute, which mirrors the CFIL.

22

100-101.

23

In East Wind, the Washington State Court of Appeals

95 Wash. App. at

Airborne conducted a nation-wide delivery service for

packages from pick-up point to destination.

After the packages

24
were picked up, they were delivered to a sorting facility and then
25
26

routed to an ultimate destination station.

Airborne used company

27

employees or independent contractors to deliver the packages from

28

the destination station to its customers, billed the customers and
4

1

was responsible for the package from pick-up to ultimate

2

destination.

3

of packages it carried per day.

4

Wind was not a franchisee because it did not offer, sell, or

5

distribute transportation services to the customers who shipped

6

Airborne paid East Wind based on the average number

goods with Airborne.

The court determined that East

Id. at 105.

The customers were the

7
customers of Airborne, not of East Wind.

Id. at 104.

8
9

Similarly, in Lads Trucking Company v. Sears, Roebuck and

United States District Court
For the Northern District of California

10

Co., 666 F. Supp. 1418, 1420 (C.D. Cal. 1987), the plaintiff

11

contracted with Sears to deliver goods purchased by Sears

12

customers to their homes, and was indirectly required to pay a

13

monthly charge exacted for parking their trucks on Sears property.

14

The court determined that this was not a franchise, explaining

15
that the "[franchise] arrangement presupposes the establishment of
16
a business relationship between the franchise and his customer so
17
18

that the latter looks to the franchisee in matters of complaint

19

for quality of product, etc."

20

Id.

Although Plaintiffs allege that they engaged in a franchise

21

business by virtue of the services they offered and distributed to

22

third party customers, Gentis v. Safeguard Business Systems, Inc.,

23

60 Cal. App. 4th 1294 (1998), and Kim v. Servosnax, Inc., 10 Cal.

24
App. 4th 1346 (1992), cases upon which they rely, do not establish
25
26
27

that such business relationships support the existence of a
franchise under the CFIL.

Contrary to Plaintiffs' suggestion,

28
5

1

neither case undermines Lads or East Wind.

2

also distinguishable from the present action.

3

Gentis and Kim are

In Gentis, distributors of recordkeeping systems and office

4

products were found to have engaged in a franchise relationship

5

under the CFIL because they offered and distributed goods and

6

services under the defendant's marketing plan.

60 Cal. App. 4th

7
at 1304-05.

Unlike this case, the plaintiffs offered the

8
9

defendant's goods and services for sale by, among other things,

United States District Court
For the Northern District of California

10

contacting existing customers and recruiting new business, calling

11

on customers to demonstrate products, solving customers' problems,

12

and soliciting orders for goods subject to the defendant's

13

approval.

14

distributed the defendant's goods to customers.

Id. at 1302.

In addition, the plaintiffs directly
Id.

The court

15
affirmed that the plaintiffs offered and distributed the
16
defendant's goods and services within the meaning of the CFIL,
17
18

even though the plaintiffs lacked the authority to enter into

19

binding sales contracts.

20

Here, however, there are no allegations that Plaintiffs had a

21

comparable relationship with third party customers.

22

allege that they broke down pallets at the request of third party

23

Plaintiffs

customers and "provided a variety of services directly to third

24
party customers and often acted at the customers' direction to
25
26

meet the customers' needs."

2AC at ¶ 98.

However, such

27

allegations are not akin to the specific activities found in

28

Gentis where the plaintiffs actively cultivated customer
6

1

relationships and, in this way, offered and distributed services

2

and goods to third party customers within the meaning of the CFIL.

3

According to the amended allegations, the third party customers in

4

this case remain C.R. England's customers, and C.R. England

5

remains Plaintiffs' principal customer.

6

Kim, 10 Cal. App. 4th at 1346, is even less persuasive than

7
Gentis, with regard to the first prong of the CFIL.

There, the

8
9

court grappled solely with the issue of whether the plaintiff's

United States District Court
For the Northern District of California

10

business was substantially associated with the defendant's

11

trademark.

12

defendant corporation, which contracted with owners of office

13

complexes to establish and operate on-site cafeterias.

14

defendant entered into a contract with a company called Nicolet

Id. at 1353.

The plaintiff was a licensee of the

After the

15
Magnetic Corporation to operate a cafeteria, the defendant sold
16
the license to the plaintiff to operate the cafeteria.

Plaintiffs

17
18

accurately point out that the court found "two levels of

19

customers"--Nicolet and the actual patrons of the cafeteria.

20

However, neither tier of customer relationship identified in Kim

21

suffices to establish that Plaintiffs in this case have alleged a

22

franchise relationship under the CFIL.

23

Finally, Plaintiffs' citations to the prior version of the

24
Federal Trade Commission's Franchise Rule, 16 C.F.R. § 436.2
25
26

(2004), and amendments to the federal regulation that have yet to

27

become effective are not persuasive.

28

prior order, the text of the CFIL does not indicate that the
7

As noted in the Court's

1

California legislature intended the statute to cover a business

2

agreement that appears to be an independent contractor

3

arrangement.

4

history to establish that the state legislature sought to extend

5

the CFIL in the manner they argue.

6

Plaintiffs have not pointed to relevant legislative

Although the case law calls

for the liberal construction of the definition of a franchise

7
under the CFIL, see, e.g., Gentis, 60 Cal. App. 4th at 1298-99,
8
9

the statute is not without limits.

United States District Court
For the Northern District of California

10

In sum, Plaintiffs have failed to claim that they were

11

granted a right to offer or distribute services or goods to

12

customers, as necessary to allege the first element in the

13

definition of a franchise under the CFIL.

14

The second element in the definition of a franchise requires

15
that the operation of the franchisee's business pursuant to the
16
franchisor's system is substantially associated with the
17
18

franchisor's trademark or other commercial symbols.

19

the Court held that, under East Wind and Lads, the allegation that

20

Plaintiffs' truck and trailer were required to be emblazoned with

21

C.R. England's commercial symbols is insufficient to allege a

22

business substantially associated with C.R. England's trademark.

23

Previously

In the second amended complaint, Plaintiff further allege that

24
C.R. England required them always to identify themselves as
25
26

drivers for C.R. England in their communications with customers.

27

2AC at ¶ 109.

Plaintiffs further allege that they followed the

28

policy in every interaction with customers, guards at facility
8

1

gates, internal dispatchers, warehousemen, and managers inside

2

customer premises.

3

selected C.R. England to deliver services in partnership with

4

Plaintiffs based on the association drawn between Plaintiffs and

5

the name and goodwill attributed to C.R. England.

6

Id.

Finally, Plaintiffs claim that customers

Id. at 111-12.

Under Kim, the case upon which Plaintiffs rely most heavily,

7
such allegations are inadequate.

In Kim, the plaintiff franchisee

8
9

operated a cafeteria pursuant to a license agreement with the

United States District Court
For the Northern District of California

10

defendant, selling food items to patrons who paid the plaintiff

11

directly.

12

"intimately associated" with the defendant "in the mind" of

13

Nicolet, the location owner, and the association benefited the

14

plaintiff franchisee.

The court found that the plaintiff franchisee was

10 Cal. App. 4th at 1355, 1357.

This

15
action, however, is distinguishable because Plaintiffs did not
16
directly sell their services to patrons and C.R. England did not
17
18

deliver a "captive umbrella customer" to Plaintiffs.

19

The third and final element of a franchise under the CFIL

20

requires that a franchisee must pay, directly or indirectly, a

21

franchise fee.

22

the payment of substantial amounts in the form of a truck rental

23

The Second Amended Complaint adds allegations of

fee, a variable mileage fee, a general reserve fee held in an

24
escrow account, a fee for a mobile communication terminal, and
25
26

insurance and insurance administrative fees.

However, even if

27

Plaintiffs have now alleged the payment of a franchise fee, their

28

Second Amended Complaint does not adequately allege the first and
9

1

second elements required for a franchise under the CFIL.

2

Therefore, Plaintiffs have not alleged a franchise under the CFIL.

3

CONCLUSION

4
5
6

Defendants' second motion to dismiss Plaintiffs' CFIL claim
is GRANTED and the claim is dismissed without leave to amend.
Because Plaintiffs have failed to allege a franchise under the

7
CFIL, Jones v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir.
8
9

2000), does not bar enforcement of the forum selection clauses in

United States District Court
For the Northern District of California

10

the ICOA and Truck Leasing Agreement, and the transfer of this

11

action to the District of Utah is required under 28 U.S.C.

12

§ 1406(a).

13

demonstrate that transferring this case to Utah is warranted,

14

pursuant to 28 U.S.C. § 1404(a).

Defendants have also met their substantial burden to

The Clerk shall transfer the

15
file to the District of Utah.
16
IT IS SO ORDERED.
17
18
19
20

Dated: 1/25/2012

CLAUDIA WILKEN
United States District Judge

21
22
23
24
25
26
27
28
10