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

Filing 44


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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

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