Patel et al v. 7-ELEVEN, INC. et al
Filing
203
Judge Nathaniel M. Gorton: MEMORANDUM AND ORDER entered. For the foregoing reasons, defendant 7-Eleven, Inc.'s motion for summary judgment (Docket No. 112 ) is ALLOWED. Plaintiff's motions for summary judgment and class certificatio n (Docket No. 117 , 118 ) are DENIED. The parties are directed to submit a joint status report on defendant's pending counterclaims against plaintiffs and third-party defendants on or before Wednesday, October 19. 2022. So ordered.(Warnock, Douglas)
Case 1:17-cv-11414-NMG Document 203 Filed 09/28/22 Page 1 of 15
United States District Court
District of Massachusetts
Dhananjay Patel, et al.,
Plaintiffs,
v.
7-Eleven, Inc., et al.,
Defendants.
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Civil Action No.
17-11414-NMG
MEMORANDUM & ORDER
GORTON, J.
This case arises from a putative class action brought by
five 7-Eleven, Inc. (“7-Eleven” or “defendant”) franchise store
owners and operators, Dhananjay Patel, Safdar Hussain, Vatsal
Chokshi, Dhaval Patel and Niral Patel (collectively
“plaintiffs”).
Plaintiffs brought this putative class action on
behalf of themselves and a putative class of similarly situated
individuals in the Commonwealth of Massachusetts.
Plaintiffs allege that 7-Eleven (1) misclassified the
franchisees as independent contractors instead of employees in
violation of the Massachusetts Independent Contractor Law, Mass.
Gen. L. c. 149, § 148B (Count I) and (2) has violated the
Massachusetts Wage Act, Mass. Gen. L. c. 149, § 148 (Count II).
Plaintiffs also initially alleged that 7-Eleven violated the
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Massachusetts Minimum Wage Law, Mass. Gen. L. c. 151, §§ 1, 7
(Count III) but voluntarily withdrew that claim in July, 2020.
Pending before the Court on remand from the First Circuit
Court of Appeals are the parties’ cross motions for summary
judgment and plaintiffs’ motion for class certification.
Because this dispute stretches back over five years and has been
the subject of opinions of this Court, the First Circuit Court
of Appeals and the Massachusetts Supreme Judicial Court, only
the relevant background is included below.
I.
Background
A.
The Parties
7-Eleven is a Texas corporation with its principal place of
business in Texas.
It both sells convenience store franchises
and operates its own corporate stores.
There are approximately
160 franchisee-operated 7-Elevens in Massachusetts.
The named plaintiffs own and operate 7-Eleven franchises in
the Commonwealth, where they reside.
Two of the named
plaintiffs, Dhananjay Patel and Sadar Hussain, entered into
franchise agreements directly with 7-Eleven.
The remaining three named plaintiffs entered into franchise
agreements with 7-Eleven on behalf of separate corporate
entities: Niral Patel on behalf of DP Milk Street, Inc., Dhaval
Patel on behalf of DP Tremont Street, Inc., and Vatsal Chokski
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on behalf of both DP Jersey, Inc. and DPNEWTO1, Inc.
These
plaintiffs receive their salaries from the respective corporate
franchisees.
B.
The Franchise Agreements
To establish each franchise location, the plaintiffs
entered into franchise agreements (“the Franchise Agreement”)
with 7-Eleven.
Dhananjay Patel and Sadar Hussain signed these
agreements as individuals while Niral Patel, Dhaval Patel and
Vatsal Chokski executed the agreements on behalf of their
respective corporations.
The Franchise Agreement, which is substantively identical
in all cases, grants franchisees the license and right to
operate a 7-Eleven store.
It outlines in detail the obligations
and covenants that both 7-Eleven and the franchisees agree to
fulfill when an individual purchases a 7-Eleven franchise store.
Section 2 of the Franchise Agreement, for example, provides that
the franchisee agrees “to hold [itself] out to the public as an
independent contractor.”
The franchisee promises to pay several fees to 7-Eleven
both upon execution of the Franchise Agreement and throughout
the franchisor-franchisee relationship.
In Section 3, the
franchisee agrees to pay 7-Eleven a franchise fee, initial
gasoline fee and down payment.
Section 10(a) outlines the “7-3-
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Eleven Charge”, a fee 7-Eleven collects in exchange for
providing the 7-Eleven License.
7-Eleven Charge. You agree to pay us the 7-Eleven
Charge for the License, the Lease and our continuing
services. The 7-Eleven Charge is due and payable each
Collection Period with respect to the Receipts from
the Collection Period at the time the deposit of those
Receipts is due. . . . You may not withhold Receipts
or prevent payment of the 7-Eleven Charge to us on the
grounds of the alleged non-performance or breach of
any of our obligations to provide services to you or
any other obligations to you under this Agreement or
any related agreement.
C.
Procedural Background
In June, 2017, plaintiffs filed this class action in
Massachusetts Superior Court for Middlesex County and in August,
2017, defendant removed the case to this Court on diversity
grounds.
After this Court denied defendant’s motion to dismiss, 7Eleven counterclaimed for: (1) declaratory judgment that the
plaintiffs’ franchise agreements are void (Counterclaim I); (2)
breach of contract (Counterclaim II); and (3) contractual
indemnity (Counterclaim III).
Additionally, 7-Eleven filed
third-party complaints against DPNEWTO1, Inc., DP Tremont
Street, Inc., DP Milk Street, Inc. and DP Jersey, Inc., the four
corporations on behalf of which a named individual plaintiff
signed a Franchise Agreement with 7-Eleven.
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This Court denied
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plaintiffs’ motion to dismiss the counterclaims and the thirdparty complaints in September, 2019.
In March, 2020, both parties filed cross motions for
summary judgment and plaintiffs filed their motion for class
certification.
This Court allowed summary judgment in favor of
defendant, 7-Eleven.
Plaintiffs appealed the summary judgment decision to the
First Circuit Court of Appeals, which certified a question of
law to the Massachusetts Supreme Judicial Court (“the SJC”) in
August, 2021. See Patel v. 7-Eleven, Inc., 8 F.4th 26 (1st Cir.
2021) (“[W]e consider the most prudent approach to be to give
the SJC the first opportunity to weigh in on this issue.”).
The
certified question was:
Whether the three-prong test for independent
contractor status set forth in Mass. Gen. Laws ch. 149
§ 148B applies to the relationship between a
franchisor and its franchisee, where the franchisor
must also comply with the FTC Franchise Rule?
Id.
In March, 2022, the SJC answered the certified question,
explaining that the Massachusetts ICL both applies to the
franchisor-franchisee relationship and does not conflict with
the federal franchisor disclosure requirements in the FTC
Franchise Rule. Patel v. 7-Eleven, Inc., 183 N.E.3d 398 (Mass.
2022).
The First Circuit Court of Appeals then vacated the
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decision of this Court and remanded the case for further
proceedings.
In July, 2022, the parties submitted supplemental briefing
in support of their pending cross motions for summary judgment
and plaintiffs’ motion for class certification.
The deadline
for all remaining discovery is December 30, 2022, and trial is
scheduled to commence in late January, 2023.
II.
Motion for Summary Judgment
A.
Legal Standard
The role of summary judgment is “to pierce the pleadings
and to assess the proof in order to see whether there is a
genuine need for trial.” Mesnick v. Gen. Elec. Co., 950 F.2d
816, 822 (1st Cir. 1991) (quoting Garside v. Osco Drug, Inc.,
895 F.2d 46, 50 (1st Cir. 1990)).
The burden is on the moving
party to show, through the pleadings, discovery and affidavits,
“that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a).
A fact is material if it “might affect the outcome of the
suit under the governing law . . . .” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).
A genuine issue of material
fact exists where the evidence with respect to the material fact
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in dispute “is such that a reasonable jury could return a
verdict for the nonmoving party.” Id.
Once the moving party has satisfied its burden, the burden
shifts to the non-moving party to set forth specific facts
showing that there is a genuine, triable issue. Celotex Corp. v.
Catrett, 477 U.S. 317, 324 (1986).
The Court must view the
entire record in the light most hospitable to the non-moving
party and make all reasonable inferences in that party’s favor.
O'Connor v. Steeves, 994 F.2d 905, 907 (1st Cir. 1993).
If,
after viewing the record in the non-moving party’s favor, the
Court determines that no genuine issue of material fact exists
and that the moving party is entitled to judgment as a matter of
law, then summary judgment is warranted. Celotex Corp., 477 U.S.
at 322-23.
B.
The Massachusetts Independent Contractor Law (“the
Massachusetts ICL”)
Massachusetts considers “an individual performing any
service” for another to be an employee, unless the purported
employer can rebut that presumption. Mass. Gen. L. c. 149,
§ 148B(a).
To do so, the employer must prove the three
conjunctive elements of an independent contractor relationship:
(1) the individual is free from control and direction
in connection with the performance of the service,
both under his contract for the performance of
service and in fact; and
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(2) the service is performed outside the usual course
of the business of the employer; and,
(3) the individual is customarily engaged in an
independently established trade, occupation,
profession or business of the same nature as that
involved in the service performed.
Id. at § 148B(a)(1)-(3) (“the ABC Test”).
If an employer is
unable to satisfy any prong, then the individual is classified
as an employee. Sebago v. Bos. Cab Dispatch, Inc., 28 N.E.3d
1139, 1146 (Mass. 2015).
C.
Arguments of the Parties
7-Eleven argues that the Massachusetts ICL does not apply
because (1) plaintiffs cannot meet the threshold inquiry that
franchisees perform services for 7-Eleven because 7-Eleven in
fact provides services to the franchisees in exchange for
payment and (2) 7-Eleven is not the direct employer of Dhaval
Patel, Niral Patel or Vatsal Chokshi because their separate
corporate entities signed Franchise Agreements with 7-Eleven and
thus 7-Eleven is, at a minimum, not liable for any alleged
misclassification as to those plaintiffs.
Furthermore, 7-Eleven
contends that plaintiffs have not incurred any Wage Act damages
because the SJC deemed franchise fees legal in Patel v. 7Eleven, Inc., 183 N.E.3d 398 (Mass. 2022).
Plaintiffs respond that (1) the Massachusetts ICL applies
because plaintiffs do perform services for 7-Eleven, (2) the
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existence of plaintiffs’ corporations does not render the
Massachusetts ICL inapplicable and (3) the SJC opinion in Patel
does not invalidate plaintiffs’ Wage Act claim.
D.
Application
1.
Resolving the Services Inquiry on Summary Judgment
As an initial matter, 7-Eleven again reiterates in its
supplemental briefing that plaintiffs do not provide services to
it, and thus cannot meet the threshold inquiry for the
Massachusetts ICL to apply, while plaintiffs, not surprisingly,
dispute that contention.
The threshold inquiry to determine if an individual is
deemed an employee under the Massachusetts ICL is whether the
“individual perform[s] any service” for the alleged employer.
Mass. Gen. L. c. 149, § 148B(a).
“Service” is construed
liberally to effectuate the remedial purpose of the statute in
“protect[ing] employees from being deprived of the benefits
enjoyed by employees through their misclassification.” Somers v.
Converged Access, Inc., 911 N.E.2d 739, 749 (Mass. 2009).
This Court initially declined to enter summary judgment for
defendant on this ground after considering (1) plaintiffs’
argument that the services inquiry is a low threshold issue, (2)
the competing allegations and various contractual obligations of
both parties and (3) the language of the Franchise Agreement.
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The SJC has, however, provided additional guidance on the
threshold inquiry when it resolved the First Circuit’s certified
question in this matter. See Patel, 183 N.E.3d at 411.
The SJC
explained:
This threshold is not satisfied merely because a
relationship between the parties benefits their mutual
economic interests. Nor is required compliance with
Federal or State regulatory obligations enough, in
isolation, to satisfy this threshold inquiry.
Id. (citing Jinks v. Credico (USA) LLC, 177 N.E.3d 509, 515-16
(Mass. 2021); Sebago, 28 N.E.3d at 1147-48).
This additional
guidance is instructive in analyzing whether plaintiffs have
satisfied their burden of demonstrating that they do in fact
perform services for 7-Eleven. See Patel, 183 N.E.3d at 404
(“Once the individual has shown the performance of services for
the putative employer, the alleged employer may rebut the
presumption by establishing [the ABC test] by a preponderance of
the evidence.”).
With this guidance in mind, this Court will
proceed to analyze the record to determine if plaintiffs can
satisfy the threshold inquiry.
2.
Whether Plaintiffs Perform “Services” for 7-Eleven
7-Eleven continues to assert that the plaintiff franchisees
pay it, the franchisor, for the provision of services.
It
denies the suggestion that 7-Eleven pays the plaintiffs for any
services.
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Both parties rely upon the obligations outlined in the
Franchise Agreement to bolster their services inquiry arguments.
Plaintiffs contend that the covenants in the Franchise Agreement
constitute services that they perform for 7-Eleven.
For
example, plaintiffs discuss Section 19 of the Franchise
Agreement, in which they promise to work full time in the store,
operate the store 24 hours a day, record inventory sales, wear
approved uniforms and use the 7-Eleven payroll system.
Plaintiffs also refer to certain financial obligations outlined
in Section 12, such as preparing and submitting a cash report
and depositing receipts, as services performed for 7-Eleven.
In
response, defendant stresses that these contractual obligations
are not, on their own, services performed for an employer within
the meaning of the Massachusetts ICL.
Rather, defendant cites Sebago for the proposition that
services are obligations performed by employees in exchange for
payment.
In Sebago, the SJC held that the plaintiff taxi
drivers did perform a service for the defendant radio
associations, because the radio associations paid the taxi
drivers when they redeemed their passengers’ vouchers that were
purchased from the radio association. 28 N.E.3d at 1149.
In the
case at bar, however, 7-Eleven does not pay the franchisees for
the performance of any alleged obligations.
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In fact, the
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opposite is true, because 7-Eleven actually provides the
franchisees with services in exchange for franchise fees.
Defendant renders the following services: both initial and
ongoing training programs, including access to the 7-Eleven
Operations Manual (Section 4), the grant of a license to operate
the 7-Eleven store at the specified location (Section 7),
bookkeeping records and payroll software (Section 12), store
audits (Section 14), maintenance of 7-Eleven equipment and
performance of store repairs (Section 20) and advertising
services (Section 22).
Per Section 15, 7-Eleven also
procure[s] the initial inventory [for the
franchisees,] help[s] [them] clean and stock the store
[and] provide[s] other services to prepare the store
to open for business.
In return for such services, plaintiffs pay 7-Eleven a
franchise fee and down payment (Section 3) and pursuant to
Section 10 of the Franchise Agreement, they “agree to pay [7Eleven] the 7-Eleven Charge for the License, the Lease and [7Eleven’s] continuing services.”
As this Court previously found,
7-Eleven does not pay the plaintiffs for anything.
7-Eleven does not pay franchisees a salary. Instead,
franchisees may withdraw weekly or monthly “draws”
from the store’s gross profit minus the 7-Eleven
Charge and store expenses.
Patel v. 7-Eleven, Inc., 485 F. Supp. 3d 299, 303-04 (D. Mass.
2020).
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The Court remains unconvinced that the plaintiffs’
contractual obligations outlined in the Franchise Agreement
alone are enough to constitute services under the Massachusetts
ICL.
The record demonstrates that they are not paid for any
services performed for 7-Eleven.
In contrast, the franchisees
pay franchise fees to 7-Eleven in exchange for a variety of
services to support the franchisee.
3.
Plaintiffs’ Revenue Argument
Plaintiffs suggest that because the revenue flowing to 7Eleven is directly dependent on their stores’ revenue, they
provide services to 7-Eleven.
That theory was, however,
rejected by the SJC twice in the past year, both in Patel and
Jinks.
In Jinks,
the plaintiffs urge[d] that an entity is an
individual’s employer so long as the individual is
“performing any service” from which the entity derives
an economic benefit [and the SJC remarked that it
already] rejected such an approach in Depianti v. JanPro Franchising.
177 N.E.3d at 515-16 (citing 990 N.E.2d 1054 (Mass. 2013)).
Further, in Patel, the SJC reiterated that the services
threshold is not met “merely because a relationship between the
parties benefits their mutual economic interests.” 183 N.E.3d at
411.
Plaintiffs and 7-Eleven do have mutual economic interests,
as both profit from the franchise stores’ revenue.
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That mutual
Case 1:17-cv-11414-NMG Document 203 Filed 09/28/22 Page 14 of 15
interest is not, however, sufficient to establish that
plaintiffs perform services for 7-Eleven.
The SJC insisted in Patel that
nothing in the independent contractor statute
prohibits legitimate franchise relationships among
independent entities that are not created to evade
employment obligations under the wage statutes.
183 N.E.3d at 411 (citing An Advisory from the Attorney
General’s Fair Labor Division on M.G.L. c. 149 § 148B 2008/1,
https://www.mass.gov/ doc/an-advisory-from-the-attorneygenerals-fair-labor-division-on-mgl-c-149-s-148b20081/download).
Here, 7-Eleven’s mutual economic interests
with the plaintiff franchisees in the stores’ sales and revenue
are inherent in legitimate franchise relationships.
The
Franchise Agreement sets forth a legitimate franchise
relationship between 7-Eleven and the individual plaintiffs who
operate their own stores.
The Massachusetts ICL does not
prohibit those relationships, and thus, the mere fact that the
parties share economic interest does not imply that plaintiffs
perform services for 7-Eleven.
The Court, thus, rejects the notion that plaintiffs perform
services for 7-Eleven.
The franchisees, who pay franchisor 7-
Eleven for a plethora of services, are merely fulfilling their
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contractual obligations.
The Court will, therefore, allow
summary judgment in defendant’s favor on both remaining counts.
Having so concluded, plaintiffs’ motions for summary
judgment on 7-Eleven’s liability for misclassification and class
certification will be denied.
7-Eleven’s counterclaims and
third-party claims for (1) declaratory judgment that the various
franchise agreements are void; (2) breach of contract; and (3)
contractual indemnity are not the subject of any summary
judgment motion and, therefore, remain pending.
ORDER
For the foregoing reasons, defendant 7-Eleven, Inc.’s
motion for summary judgment (Docket No. 112) is ALLOWED.
Plaintiffs’ motions for summary judgment and class certification
(Docket Nos. 117, 118) are DENIED.
The parties are directed to submit a joint status report on
defendant’s pending counterclaims against plaintiffs and thirdparty defendants on or before Wednesday, October 19, 2022.
So ordered.
/s/ Nathaniel M. Gorton
Nathaniel M. Gorton
United States District Judge
Dated September 28, 2022
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