Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Mass.: Jan-Pro franchisees’ claims of “inherently unfair” contracts severely curtailed, (Aug 26, 2014)

By Greg Hammond, J.D.

Seven Jan-Pro unit franchisees were left wanting Friday, when the federal district court in Boston severely reduced their deceptive, misclassification, and wage-law claims to a single unfair contract and alternative unjust enrichment claim. In mostly granting franchisor Jan-Pro Franchising International, Inc.’s (JPI) motion for summary judgment, the federal district court determined that only (1) a question of material fact existed in whether the misrepresentation claim was barred by the statute of limitations, and (2) the unjust enrichment claim should be considered at a later date, dependent on whether an adequate remedy is available at law (DePianti v. Jan-Pro Franchising International, Inc., August 22, 2014, Wolf, M.).

Background. JPI is the top franchisor of a three-tiered system of cleaning franchises. First, the company sells the rights to the “Jan-Pro” name to “regional master franchisees.” Second, regional master franchisees sell the rights to the Jan-Pro name to “unit franchisees,” who provide cleaning services for customers. The franchise agreements between JPI and the regional master franchisees state that the regional franchisees are independent contractors, not agents or fiduciaries of JPI. Likewise, the agreements between the regional franchisees and unit franchisees state that the units are also independent contractors, not agents or employees of the regional master franchisees.

Seven unit franchisees filed a putative class action against JPI, alleging: (1) unfair and deceptive business practices; (2) misclassification as independent contractors; (3) wage-law violations; (4) misrepresentation; (5) quantum meruit; and (6) unjust enrichment. JPI moved to assert a preclusion defense, and moved for summary judgment on all counts. The complaining unit franchisees moved to amend their complaint to add new named plaintiffs, and moved for summary judgment on count II—misclassification as independent contractors.

Motion to amend. The court first considered the unit franchisees’ motion to file a second amended complaint to add new named plaintiffs. However, because the motion was filed nearly 42 months after the established deadline, 33 months after the conclusion of discovery, and 32 months after JPI filed its motion for summary judgment, the court concluded that if the motion were granted, it would prejudice JPI by re-opening discovery, and would disrupt the progress of the already “complicated and long-filed case.” Consequently, the court denied the plaintiff’s motion.

Supplemental answer. Next, the court considered JPI’s motion to file a supplemental answer to the unit franchisees’ complaint, seeking to assert a defense of claim preclusion based on the Georgia Court of Appeals’ (GCA) decision that JPI is not, as a matter of law, a unit franchisee’s employer. The court determined that, unlike the unit franchisees’ motion to amend, JPI’s motion is based on developments that occurred during the pendency of this case, and—in particular—decisions of the GCA and the Massachusetts Supreme Judicial Court. Further, it was determined that JPI’s delay in bringing its motion was limited and did not prejudice plaintiffs. Consequently, the court allowed JPI’s motion to assert a preclusion defense, “in essence because the doctrines concerning preclusion implement important considerations of comity between competent multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication.”

Misclassification and wage-law. The gist of Count II and Count III of the plaintiffs’ complaint was that JPI: (1) misclassified unit franchisee Giovani Depianti, and other plaintiffs, as independent contractors, when—as a matter of law—they were employees; and (2) consequently violated wage statutes applicable to employees. The court disregarded these arguments, however, noting that the GCA’s earlier determination—that “JPI is not Depianti’s employer with respect to the [Misclassification Statute]”—is consistent with Massachusetts law. Consequently, JPI’s motion for summary judgment was granted with regard to the misclassification and wage-law claims.

Deceptive practices and misrepresentation. Counts I and IV of the unit franchisees’ complaint alleges unfair and deceptive business practices under Massachusetts law, and misrepresentation. The plaintiffs’ theory is that JPI was vicariously liable for its regional master franchisee’s conduct. Under Massachusetts law, JPI would be liable for the regional franchisees’ conduct if: (1) the conduct was actionable, and (2) JPI controlled, or had a right to control, the specific actionable policy or practice.

The plaintiffs alleged two misrepresentations: (1) they were misled to believe that sufficient business was available to provide the monthly income promised in their agreements; and (2) they were misled about the number of hours per week that they would be required to service the accounts offered to them. In reviewing the summary judgment record, the court determined that there was no evidence that any misrepresentation was made with regard to the amount of time any cleaning tasks would require. In addition, there was no evidence that JPI had control over or had a right to control the regional franchisee’s decisions regarding plans offered to prospective unit franchisees, as regional franchisees had the “sole responsibility” for selling unit franchisees, and are free to offer plans that deviate from JPI’s standard menu.

The unit franchisees also alleged four unfair or deceptive practices: (1) their cleaning accounts were geographically distant and therefore unreasonably inconvenient; (2) the cleaning accounts were regularly underbid; (3) the cleaning accounts were frequently and unjustifiably taken away; and (4) the contracts with the regional master franchisees were inherently unfair. The first three assertions could not survive the motion for summary judgment, as there was no evidence that JPI had control over the regional franchisees’ relevant policies and practices. However, the “inherently unfair” contract claim survived the motion, as regional franchisees were prohibited—through their franchise agreements with JPI—from making material changes to the standard unit franchisee contract. The issue of whether the “inherently unfair” contract claim is time-barred under the applicable four-year statute of limitations was left to be considered at a later date.

Quantum meruit and unjust enrichment. In support of their quantum meruit and unjust enrichment claims, the unit franchisees argued that by misclassifying them as independent contractors, and improperly requiring them to pay JPI’s ordinary business expenses, the company was unjustly enriched. However, under quantum meruit, the plaintiffs were required to demonstrate that they provided cleaning services with the reasonable expectation of receiving competition from JPI. JPI was entitled to summary judgment on the quantum meruit claim because: (1) the unit franchisees admitted they never contacted JPI, and could therefore not have a reasonable expectation to be compensated by the company; and (2) unit franchisees are not entitled to restitution from JPI merely because of an alleged failure of performance by a regional franchisee.

Conversely, the unjust enrichment claim survived the motion for summary judgment, as there is no requirement that the unit franchisees have a reasonable expectation of compensation by JPI for their services. However, because a claim for unjust enrichment is equitable relief, a determination could be made at a later date regarding whether an adequate remedy is available at law.

The case number is 08-10663-MLW.

Attorneys: Shannon E. Liss-Riordan (Lichten & Liss-Riordan, PC) for Giovani Depianti. Christopher M. Pardo (Constangy, Brooks & Smith, LLP) for Jan-Pro Franchising International, Inc.

Companies: Jan-Pro Franchising International, Inc.

Cases: FranchisingDistribution MassachusettsNews