Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—SDNY: Car Service Driver Time-Barred from Asserting NY Franchise Act Claims Against Company After Firing, (Feb 25, 2013)

By E. Darius Sturmer, J.D.

An individual who worked as a black car driver for a car service in New York by the name of SUK Inc. was time-barred from asserting New York Franchise Sales Act against the company stemming from his alleged coercion into signing a franchise agreement without gaining the benefit of the franchise documents required by law, the federal district court in New York City has decided (Kim v. SUK Inc., February 22, 2013, Carter, A.). Claims under the Employees Retirement Insurance Security Act of 1974 were not similarly untimely, though, and appeared to state a claim. Therefore, the defendants’ partial motion to dismiss was granted in part and denied in part.

The plaintiff claimed that despite being forced under threat of termination to sign an unknown document in 2004 that turned out to be the franchise agreement at issue, he did not receive the franchising documents until 2010 when he was fired. Thus, he asserted, he had not received or gotten to review a franchise prospectus or financial disclosure document prior to signing the franchise agreement and had also been required to pay SUK and the other defendants (SUK’s principal and another SUK employee) $10,000 for the cost of a franchise fee without receiving those franchise documents. He alleged that his firing for violation of dress code and mishandling of a client’s payment was pretext, and that he was really fired because of his efforts to engage in labor organizing over working conditions.

Franchise law timeliness. While an argument by the driver that the statute of limitations for his franchising claims did not begin to run until his discovery of the fraud related to the franchise agreement was rejected, the court found that the limitations period did not necessarily commence on the date of the agreement’s execution. The limitation period generally runs from the transaction constituting the violation.

In this case, however, the time of the violations of New York General Business Law Article 33 Secs. 683 (disclosure requirements) and 687 (fraudulent and unlawful practices) was the date of the franchise sale in 2004, when the defendants allegedly failed to provide the required franchise documents. The complaint made no claim that the driver made his required franchise fee payment after March 2009, the only way he could satisfy the statute of limitations.

ERISA claim. Regarding the ERISA claims, the court noted that the plaintiff’s complaint alleged harassment prior to his termination, and alleges that such behavior was in response to "rightful labor organizing activity” by the driver and his coworkers. Taken in conjunction with the reference in his opposition brief to 29 U.S.C. 1140 (ERISA § 510) prohibiting interference with protected rights, the plaintiff adequately provided a statutory basis for his ERISA claim.

Furthermore, the ERISA claim was timely, in the court’s view. The plaintiff did not base his ERISA claim on his misclassification as an independent contractor. Instead, he appeared to argue that because he did not renew the purported franchise agreement, he was reclassified as an employee (assuming he was ever legitimately classified as a franchisee) starting in 2007, a classification that was in effect when he was terminated in 2010. Thus, the harassment and termination implicated his rights as an employee under ERISA, the court said.

The statute of limitations being two years “from the time of the unlawful discriminatory practice, here, the time [the plaintiff] was allegedly fired for attempting to engage in labor organizing activity as a SUK employee,” timeliness of the ERISA claim depended on when in 2010 the plaintiff was harassed and fired. Therefore, the plaintiff was granted leave to amend his complaint to allege a more specific date on which he was apprised that he was being fired.

The case is No. 12-Civ. 1557 (ALC).

Companies: SUK Inc.

Attorneys: Hyosung Jonathon Bidol-Lee for June-Il Kim. Chad Lathrop Edgar (Dawn M. Cardi & Associates) for SUK Incorporated.

Cases: FranchisingDistribution NewYorkNews