Roberts v. C.R. England, Inc.

Citations: 827 F. Supp. 2d 1078; 2011 U.S. Dist. LEXIS 134839; 2011 WL 5863962Docket: C 11-2586 CW

Court: District Court, N.D. California; November 22, 2011; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs Charles Roberts and Kenneth McKay filed a putative class action against Defendants C.R. England, Inc., Opportunity Leasing, Inc., and Horizon Truck Sales and Leasing, LLC, alleging violations of California, Utah, and Indiana laws, along with the Federal Telemarketing and Consumer Fraud and Abuse Prevention Act. Each plaintiff signed two contracts, including a mandatory forum selection clause designating Utah as the required venue. Defendants moved to dismiss the action based on Federal Rules of Civil Procedure for lack of subject matter jurisdiction and improper venue, and also sought to dismiss Plaintiffs' claim under the California Franchise Investment Law (CFIL). The Court granted Defendants' motion to dismiss the CFIL claim with leave to amend, deferring its decision on the venue transfer. If the Plaintiffs successfully amend their CFIL claim, the motion to transfer will be denied; otherwise, a transfer will be appropriate. The complaint alleges that Defendants fraudulently induced the plaintiffs into purchasing a business opportunity involving a driver training program, which they financed through a high-interest loan. The training included discussions on employment opportunities and income comparisons related to the Driving Opportunity.

Defendants' representatives encouraged trainees, including Roberts and McKay, to purchase the Driving Opportunity instead of seeking employment with C.R. England. After obtaining their commercial driver's licenses, they completed approximately ninety days of practical training as "back up drivers" for C.R. England, finishing "Phase I" and "Phase II." Following this, they underwent additional training in Salt Lake City, where they were formally offered the Driving Opportunity, detailed in a document describing an Independent Contractor Program. This program promised career advancement, the ability to lease a truck without upfront costs, competitive pay, priority dispatch, and support. 

Roberts and McKay claimed that the program's description included fraudulent income projections and concealed high failure rates associated with the Driving Opportunity. During post-Phase II training, they were informed that no employment positions were available unless they first purchased the Driving Opportunity for at least six months. After agreeing to the purchase, they received the Driving Opportunity contracts, specifically the Independent Contractor Operating Agreement (ICOA) and Truck Leasing Agreement. The Plaintiffs asserted that these contracts constituted a sale of business opportunities or franchises under relevant laws. The ICOA outlines that the contractor must lease and operate the truck for C.R. England without any guarantee of minimum use or revenue by C.R. England. The contractor has the discretion to refuse specific shipments and is not obligated to purchase products or services from C.R. England as a condition of the agreement.

Contractors under the ICOA have defined "Financial, Managerial, and Operating Responsibilities," which encompass: (1) hiring and supervising workers in line with C.R. England’s safety policies; (2) managing the contractor's truck, including maintenance decisions; (3) determining travel routes and refueling stops; (4) scheduling work hours and rest periods; (5) handling freight loading and unloading unless assumed by the shipper or consignee; (6) covering all operating expenses, including wages and vehicle supplies; and (7) installing compatible communications equipment in leased trucks at the contractor's expense. C.R. England maintains "exclusive possession, control, and use" of the truck throughout the ICOA, with provisions for alternative uses upon request. Roberts and McKay allege that Horizon is an alter ego of C.R. England, which designated Horizon for truck leasing to contractors. They signed Truck Leasing Agreements with Opportunity Leasing, Inc., operating as Horizon Truck Sales and Leasing.

In the motion to dismiss Roberts' and McKay's CFIL claim, it is stated that a complaint must provide a "short and plain statement" of the claim per Fed. R. Civ. P. 8(a). Dismissal is warranted only if the complaint fails to give fair notice of a legally cognizable claim (Bell Atl. Corp. v. Twombly). Courts must accept material allegations as true and favor the plaintiff unless they are legal conclusions or merely conclusory statements (Ashcroft v. Iqbal). If dismissal occurs, the court typically allows amendment unless it would be futile (Cook, Perkiss, Liehe, Inc. v. N. Cal. Collection Serv. Inc.). The potential for amendment is assessed based on whether it could fix the dismissal issue without contradicting original allegations (Reddy v. Litton Indus. Inc.). Documents attached to the complaint can be considered in evaluating a Rule 12(b)(6) motion (Durning v. First Boston Corp).

Under the California Franchise Investment Law (CFIL), a "Franchise" is defined as a contractual agreement granting a franchisee the right to conduct business under a franchisor's prescribed marketing plan, which is associated with the franchisor's trademarks, and requires payment of a franchise fee. Relevant case law, such as East Wind Express v. Airborne Freight Corporation, illustrates that a franchisee must actively offer, sell, or distribute goods or services to customers, which was not the case for East Wind, as it only provided services to Airborne and did not engage directly with end customers. Similarly, in Lads Trucking Company v. Sears, Roebuck and Co., the court ruled that a delivery arrangement did not constitute a franchise because there was no customer relationship where Lads was responsible for the quality of services. 

In the current context, Roberts and McKay argue that their agreement with C.R. England qualifies them as franchisees, asserting they purchased the right to sell transportation services. However, defendants contend that this agreement does not meet the CFIL's franchise criteria. The statute does not explicitly state that one offering services to another cannot be a franchisee, which leads to ambiguity regarding the legislative intent. The absence of specification in the CFIL, compared to the more defined federal Business Opportunity Rule, suggests that the legislature did not intend to classify many independent contractor relationships as franchises. Therefore, extending the CFIL's definition to include the arrangement in question lacks legislative support.

The definition of a franchise includes a requirement that the franchisee's business operation must be substantially associated with the franchisor's trademark or commercial symbols. In previous cases, such as Lads and East Wind, courts ruled that mere use of trademarks or logos was insufficient to meet this requirement. Roberts and McKay claim their business was associated with C.R. England's trademarks, citing their use of branded trucks and a Truck Leasing Agreement that restricts modifications to the trucks. However, the court indicated that these facts do not satisfy the legal standard set forth in Lads and East Wind.

Additionally, the plaintiffs assert they paid a franchise fee through various operational expenses but these payments resemble ordinary business costs and do not qualify as a franchise fee under legal precedent, as noted in Thueson v. U-Haul International Inc. Consequently, the court determined that Roberts and McKay did not adequately allege their status as franchisees under the California Franchise Investment Law (CFIL), leading to the dismissal of their CFIL claim, although they are granted leave to amend.

Regarding the enforceability of forum selection clauses in the ICOA and Truck Leasing Agreement, Roberts and McKay argue these should not be enforced. Under M/S Bremen v. Zapata Off-Shore Co., such clauses are generally valid unless the challenging party demonstrates that enforcement would be unreasonable or unjust, or that the clause is invalid due to fraud or overreaching. They assert the clause should be disregarded based on fraud and strong public policy, referencing California’s Business and Professions Code section 20040.5, which protects franchisees. However, the court noted that Roberts and McKay have not established they purchased a franchise, and allegations of fraud must specifically relate to the forum selection clause itself, not the contract broadly. Defendants cite Afram Carriers, Inc. v. Moeykens, emphasizing that federal courts will only disregard a clause if it was obtained unlawfully.

Afram Carriers involved a family dispute following a father's workplace death, where the Fifth Circuit determined that evidence of the overall settlement's unreasonableness did not demonstrate that the forum selection clause was the result of fraud or overreaching. Similarly, in Richards v. Lloyd's of London, the Ninth Circuit dismissed fraud claims that pertained to the entire contract rather than the forum selection clause itself, leading to enforcement of the clause. In the current case, Roberts and McKay lacked notice of the forum selection clauses in their contracts until after their training, arguing that they would incur significant costs if they rejected the agreements. However, this argument was deemed related to the contract as a whole, not the forum clause specifically, thus not invalidating its enforceability. The forum selection clause also met the fairness standards established in Carnival Cruise Lines, where notice and opportunity to reject were present. Defendants' principal business location in Utah, coupled with Roberts and McKay's training in Salt Lake City, further supported this enforceability. The case was distinguished from other precedents, indicating that unless a CFIL claim is properly alleged, the forum selection clauses in the ICOA and Truck Leasing Agreement would necessitate transferring the case to Utah. Additionally, even if the clauses were unenforceable, a transfer under Title 28 U.S.C. 1404(a) would still be appropriate for convenience and fairness, with courts evaluating various factors such as negotiation location, familiarity with governing law, and parties' contacts with the forum.

The presence of a forum selection clause is a significant factor in the court's analysis under 28 U.S.C. § 1404(a), but the public policy of the forum state is equally important, though not determinative. The movant must demonstrate a strong case for transfer due to inconvenience. In this case, transferring the case to Utah is supported by multiple factors. The first factor favors Utah because the relevant agreements were signed there. The fourth factor also leans towards Utah due to the defendants' greater contacts with that state, despite the plaintiffs residing in California. The sixth factor supports transfer based on litigation costs, as Utah is more centrally located for the nationwide class of drivers being represented. The plaintiffs' choice of forum in California is given reduced deference since they seek class representation, and one plaintiff resides outside the district. The second and fifth factors are neutral, as no state shows a clear advantage regarding familiarity with the laws governing the case. Factors related to witness attendance and access to evidence are also neutral, given modern technology's role in document exchange. Ultimately, the defendants have met their burden to justify transferring the case to Utah, contingent upon the plaintiffs successfully alleging a cognizable California Fair Employment and Housing Act (CFIL) claim. The court grants the motion to dismiss this claim with leave to amend and establishes a timeline for the plaintiffs to submit an amended complaint, followed by a response and potential motion to dismiss from the defendants. The court will decide on the motion to transfer after assessing the amended CFIL claim. Additionally, it notes that the registration for Opportunity Leasing, Inc. in Utah expired in 2008 due to the creation of a different entity.