Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.D.: Claims against Subway for employee sexual abuse move forward, (Feb 14, 2025)

By Seth Abrams, J.D., M.A.

Sufficient facts were alleged to support plausible tort and TVPRA claims at the motion to dismiss phase against the franchisor.

The federal district court in Fargo, North Dakota denied a motion to dismiss all claims related to the sexual abuse of an underage employee at a Subway restaurant. The motion was brought by Subway Worldwide Inc., Doctor’s Associates, LLC, Franchise World Headquarters, LLC, and Subway IP LLC (collectively, the “Subway Defendants.”) Other defendants in the case include three closely related limited liability partnerships: Midwest Subway Development, LLP; GRB Investments, LLP, and GRB Subway Properties, LLP. The court held that the facts were sufficient to support a plausible agency relationship/joint employer liability between the Franchisee Defendants and the Subway Defendants, and a plausible claim against the Subway Defendants under the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 (“TVPRA.”) As a result, the motion to dismiss was denied in its entirety (C.S. v. Subway Worldwide, Inc., No. 3:24-cv-00031-PDW-ARS (D.N.D. Feb. 12, 2025)).

Background. C.S. was a 17-year-old high school student who was employed at a Subway restaurant in Jamestown, North Dakota. At the Subway restaurant, she was supervised by Zeferino Carlos Rangel, a convicted child sex offender. He “repeatedly drugged and sexually assaulted C.S.” Upon disclosure to police by C.S., Rangel was arrested and charged, pleaded guilty, and was sentenced to 25 years in prison.

The court describes this case as “the civil follow up to Rangel’s criminal conviction.” The employee alleged that she reasonably believed that she worked for the Subway Defendants. She also alleged the use of “common tools, procedures, and policies” developed by the Subway Defendants used throughout the country, including the Jamestown Subway. The Subway Defendants and the Franchise Defendants were alleged to act as a “single integrated enterprise,” including “employment practices and procedures, training, and hiring.” Based on the “alleged level of connection, control, and direction between the Subway Defendants and the Franchisee Defendants,” the employee brought eight claims against all the defendants: (1) violation of the TVPRA; (2) negligence; (3) negligent hiring; (4) negligent retention; (5) negligent supervision; (6) assault and battery; (7) sexual assault; (8) false imprisonment. The Subway Defendants moved to dismiss the employee’s claims as related to them.

Agency/joint employer liability. The Subway Defendants moved to dismiss the tort claims because they argued that no allegations were made of actual or ostensible agency or a joint employer relationship. The court disagreed, finding that the complaint alleged that the “Subway Defendants operated, directed, and controlled the Jamestown Subway and the Franchisee Defendants.” It was alleged that the Subway Defendants and the Franchise Defendants acted as a single integrated enterprise. In addition, the Subway Defendants human resource consultants were allegedly involved with the employment practices, policies, and procedures for its franchises, including the Jamestown location. It was also alleged that the employee believed she was employed by the parent company that included the Subway Defendants. The court found a plausible agency relationship between the Franchisee Defendants and the Subway Defendants. It also found the same alleged facts plausibly support the joint employer theory. The court noted that “level of control” between the franchisor and franchisee was a material question of fact that “cannot be resolved at this point in the case.”

TVPRA. In 2008, Congress amended the TVPRA to create a private right of action. To bring a plausible knowing beneficiary claim under the statute, a plaintiff must allege that a defendant “(1) knowingly benefited financially or by receiving anything of value (2) from participation in a venture that defendant ‘knew or should have known has engaged in’ sex trafficking.” At issue here was the alleged indirect liability of the Subway Defendants based on an ostensible agency theory that “the Subway Defendants knew or should have known about the sexual abuse” of the employee. When compared with a recent North Dakota case granting the motion to dismiss the TVPRA claim that only alleged facts “tending to show that the franchisors’ involvement was limited to uniformity and standardization of the brand,” this case presented “a few more substantive facts as to the agency relationship between [the employee], the Franchisee Defendants, and the Subway Defendants.” This included informing the Franchisee Defendants that “she needed help and wanted to transfer locations to get away from Rangel.” She also alleged that the “Subway Defendants exercised significant control over the day-to-day operations of the Jamestown Subway and the Franchisee Defendants.” These alleged facts were sufficient to plead a plausible TVPRA claim against the Subway Defendants.

The Case is No. 3:24-cv-00031-PDW-ARS.

Judge: Welte, P.

Attorneys: Amy E. Boyle (MJSB Employment Justice LLP) for C.S. Nina Greene (Venable LLP) for Subway Worldwide, Inc.

Companies: Subway Worldwide, Inc.

Cases: FranchisingDistribution NorthDakotaNews