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Alejandro Juarez, Maria Juarez, Luis A. Romero and Maria Portillo, Individually and On Behalf of All v. Jani-King of California

March 4, 2011

ALEJANDRO JUAREZ, MARIA JUAREZ, LUIS A. ROMERO AND MARIA PORTILLO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
PLAINTIFFS,
v.
JANI-KING OF CALIFORNIA, INC., A TEXAS CORPORATION, JANI-KING, INC., A TEXAS CORPORATION, JANI-KING INTERNATIONAL, INC.,
A TEXAS CORPORATION, AND DOES 1 THROUGH 20, INCLUSIVE,
DEFENDANTS.



United States District Court rict of California

ORDER DENYING PLAINTIFFS' MOTION TO CERTIFY THE CLASS

For the Northern Dist

I. INTRODUCTION

Before the Court is an Amended Motion to Certify the Class by Plaintiffs Alejandro Juarez, Maria Juarez, Luis A. Romero, and Maria Portillo ("Plaintiffs"). ECF No. 96 ("Mot."). Defendants Jani-King of California, Inc., Jani-King, Inc., and Jani-King International, Inc. (collectively, "Jani-King") filed an Opposition, and Plaintiffs filed a Reply. ECF Nos. 109 ("Opp'n"), 113 ("Reply"). Pursuant to Civil Local Rule 7-1(b), the Court 27 finds the Motion suitable for determination without oral argument.

For the following reasons, the Court DENIES Plaintiffs' Motion. commercial clients in California and other states. First Amended Complaint, ECF No. 32 ("FAC") ¶ 16. It specializes serving larger commercial clients, including commercial office buildings, 7 healthcare facilities, and retail outlets. ECF Nos. 97-99 ("Pls.' Jani-King's business model involves selling franchises to individuals or entities, who then perform janitorial work for Jani-King's clients. FAC ¶ 20. Jani-King claims to have more than 12 twelve thousand franchisees throughout the United States. See King Franchise Disclosure Document").

franchisees, franchisees pay an Initial Franchise Fee and an Initial Finder's Fee. Id. at 21. Both fees are paid in 18 installments over the life of the franchise agreement, with a down 19 payment due on purchase. Id. In return, Jani-King must offer each 20 franchisee a certain amount of centrally generated business -- the Offering Period." Jani-King Presentation at 5715. The amount of business Jani-King is obligated to offer is proportional to the size of the Initial Finder's Fee paid by the franchisee. Id.

Jani-King offers fifteen franchise plans which are identical in all 26 respects except the amount of initial investment required by the 27 franchisee and the amount of centrally generated business promised 28 by Jani-King. Id. at 5719. These franchise plans range in cost

II. BACKGROUND

A. Factual Background

Jani-King provides cleaning and janitorial services to

Evidence") Vol. 4 Tab T Ex. 10 ("Jani-King Presentation") at 5701. United States District Court For the Northern District of California Jani-King Presentation; Pls.' Evidence Vol. 2 Tab S Ex. 2 ("Jani-14

Under the franchise agreement between Jani-King and its "Initial Business Offering" -- during the franchisee's "Initial from $8,600 to $46,500. Id. 2

3 each franchise agreement designates a specific non-exclusive 4 geographic territory. Id. at 5749. Franchisees agree to clean, 5 interact with clients, and perform other business tasks according 6 to standardized procedures established by Jani-King. For example, 7 franchisees must purchase specific cleaning equipment, carry 8 insurance, and report customer complaints to Jani-King. Id. at

Franchisees do not receive an exclusive territory; rather, 5731-34. Franchisees also solicit clients directly, although they 10 must comply with Jani-King's procedures in doing so. Id. In addition to the two above-mentioned fees, franchisees must pay United States District Court For the Northern District of California Jani-King a number of other fees, including an accounting fee and 13 an advertising fee. See Jani-King Presentation.

performs accounting, data management, and franchise training. Mot. at 5. As a franchiser, Jani-King is subject to California's franchise regulations, as well as the regulations of other states.

Disclosure Document ("FDD") disclosing, among other things, its 20 litigation history, its business experience, the fees the 21 franchisee is required to pay under the agreement, and the 22 estimated total investment that the franchisee must make to open 23 the franchise. Cal. Corp. Code § 31114; Cal. Code. Regs. tit. X, § Plaintiffs are four individuals who purchased franchises from Jani-King and have performed janitorial work under the Jani-King 27 franchise agreement. FAC ¶ 2. Alejandro and Maria Juarez jointly 28 purchased a Plan "D" franchise for $13,500. Pls.' Ev. Vol. 1 Tabs

In addition to centralized bidding, Jani-King centrally It must provide each prospective franchisee with a Franchise 310.114.1. 25

A ¶ 5, B ¶ 5. Maria Portillo and Luis A. Romero both purchased Plan "C" franchises for $12,000. Id. Tabs C ¶ 4, D ¶ 4. fluency in English and no formal education, and that they were "induced by Jani-King with promises of guaranteed income and 6 entrepreneurial opportunity" to purchase the franchises. FAC ¶¶ 2, In their FAC, Plaintiffs claim that they have limited or no

22. Plaintiffs allege that the "franchise contracts are replete 8 with unconscionable terms of which Plaintiffs and others have no 9 understanding, and the enforcement of which creates a cycle of debt 10 for Plaintiffs and others from which they cannot free themselves."

Id. ¶ 2. 12

United States District Court For the Northern District of California Plaintiffs bring fourteen claims against Jani-King. Six 13 claims allege violations of California's Labor Code ("Plaintiffs' Labor Code claims"). These claims rely on a singular theory of 15 liability: that Jani-King's franchise system is a "scheme to evade 16 responsibility for janitorial workers' wages and job benefits by 17 purporting to hire them indirectly (through the 'franchises') as 'independent contractors' while, in fact, retaining control over 19 the work that Plaintiffs and other janitorial workers perform."

Id. ¶ 3. Plaintiffs argue that Jani-King so tightly controls and 21 oversees the janitorial work done by its franchisees as to create 22 an employer-employee relationship between Jani-King and the 23 franchisees, triggering the numerous employee protections provided 24 by California's Labor Code, such as payment of overtime wages, 25 payment of California's minimum wage, and itemized wage statements.

Plaintiffs bring two claims concerning the standard franchise agreement between Jani-King and the franchisees: Plaintiffs allege Id. ¶¶ 3, 193-220. 27 breach of contract and breach of California's covenant of good 2 faith and fair dealing ("Plaintiffs' good faith claim"). Id.

Under the standard Jani-King franchise agreement, Jani-King is 4 obligated to offer each franchisee a certain dollar amount of 5 cleaning accounts to service; Plaintiffs allege that Jani-King has 6 breached the franchise agreement by failing to satisfy this 7 requirement. Id. ¶ 182. Plaintiffs also allege that Jani-King 8 breached the covenant of good faith and fair dealing by adopting 9 practices to frustrate franchisees' ability to receive the benefits 10 under the agreement. Id. Plaintiffs allege that Jani-King offers cleaning accounts to franchisees without giving the franchisees the 12 opportunity to review them and determine whether accepting the 13 account would be profitable, and that it takes away accounts from 14 franchisees at will, making these offers illusory. Mot. at 9.

Plaintiffs also allege that Jani-King breaches this covenant by 16 bidding so competitively on cleaning accounts that "after all the Jani-King fees and the costs of doing business . . . are taken into 18 account, class members are deprived of any profit from the 19 accounts." Id.

Four claims involve alleged representations or omissions made by Jani-King to would-be franchisees ("Plaintiffs' fraud claims").

These causes of action are: violation of sections 31201 and 31202 23 of California's Corporations Code (prohibiting the making of any 24 untrue statement of material fact or omission of material fact 25 during the offer or sale of a franchise contract and prohibiting 26 persons from willfully making an untrue statement or omitting a 27 material statement that must be disclosed in writing, 28 respectively); deceit by intentional misrepresentation; deceit by

United States District Court For the Northern District of California negligent misrepresentation; and deceit by concealment. See FAC. California's Unfair Competition Law by engaging in unlawful, 4 unfair, or fraudulent acts ("Plaintiffs' UCL claim"). See FAC.

This action was removed from California Superior Court by Jani-King on July 30, 2009. ECF No. 1. The Court granted Jani-8

October 5, 2009. ECF No. 25. On November 4, 2009, Plaintiffs 10 filed their FAC, which Jani-King answered. ECF No. 35.

At the January 22, 2010 status conference, the Court

12 bifurcated discovery, with discovery relating to class 13 certification commencing immediately and merits discovery beginning 14 if and once the Court certified the class. ECF No. 40. On July 8, 2010, Jani-King sought leave from the Court to file a counterclaim 16 against Plaintiffs Alejandro and Maria Juarez ("the Juarezes"), 17 which the Court granted. ECF Nos. 47, 112. 18 seeking termination of their Jani-King franchise, the Juarezes 20 formed a competing cleaning firm, Nano's Janitors, and induced Jani-King customers to terminate their cleaning agreements and 22 transfer their business to the competing firm. ECF No. 115 ("Defs.' Countercl."). Jani-King brings action for breach of 24 contract, tortious interference with contract, and tortious 25 interference with prospective economic advantage. Id. 26

Certify the Class. ECF No. 52. The Court denied this motion, 28 ruling that it violated Civil Local Rule 7-4(b)'s page limit, and

Finally, Plaintiffs allege that Jani-King violated

B. Procedural Background

King's motion to dismiss certain claims in the Initial Complaint on United States District Court For the Northern District of California

In its counterclaim, Jani-King alleges that without first

On July 16, 2010, Plaintiffs filed their first Motion to instructed Plaintiffs to refile their motion in conformity with the 2 local rules. ECF No. 93. Plaintiffs now bring the present motion, 3 and move to certify the following class under Rule 23(a) and (b)(3) 4 of the Federal Rules of Civil Procedure: 5 within the State of California at any time from June 22, 2005 up to and through the time of judgment.

All persons who have performed janitorial work on cleaning accounts as Jani-King "franchisees" Mot. at 1. 9

10 class certification for eight. Plaintiffs seek certification for five of their six Labor Code claims: failure to pay a minimum wage 12 in violation of California Labor Code §§ 1182.11-1182.13, 1194(a), 1194.2, 1197 and Wage Order 5-2001; failure to provide accurate 14 itemized wage statements and maintain adequate records in violation 15 of California Labor Code §§ 1182.11-1182.13, 1194(a), 1194.2, 1197 16 and Wage Order 5-2001; failure to indemnify employees for expenses 17 in violation of California Labor Code § 2802; unlawful deductions 18 from wages in violation of California Labor Code § 221; and 19 compelling employees to patronize in violation of California Labor Code § 450. FAC ¶¶ 200-20. Plaintiffs seek certification of their 21 good faith claim, but not their breach of contract claim; their 22 concealment claim, but not their other fraud claims; and their UCL 23 claim. Id. 24

In opposing Plaintiffs' Motion, Jani-King argues that class

25 treatment is improper because individual issues predominate over 26 common issues, individual actions are superior to class action, the 27 named Plaintiffs are inadequate class representatives, and the 28 named Plaintiffs' claims are not typical of the class. See Opp'n. Of the fourteen claims stated in the FAC, Plaintiffs seek United States District Court For the Northern District of California

III. LEGAL STANDARD

Federal Rule of Civil Procedure 23(a) provides four requirements for class certification: (1) numerosity ("the class is so numerous that joinder of all members is impracticable"); (2) 5 commonality ("there are questions of law or fact common to the 6 class"); (3) typicality ("the claims or defenses of the 7 representative parties are typical of the claims or defenses of the 8 class"); and (4) adequacy of representation ("the representative 9 parties will fairly and adequately protect the interests of the 10 class"). Fed. R. Civ. P. 23(a). In addition, the court must also find that the requirements of Rule 23(b)(1), (b)(2), or (b)(3) are 12 satisfied. Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 580 (9th Cir. 2010). Rule 23(b)(3) requires a finding by the court "that 14 questions of law or fact common to class members predominate over 15 any questions affecting only individual members, and that a class 16 action is superior to other available methods for fairly and 17 efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3). Courts refer to the requirements of Rule 23(b)(3) as its "predominance" and "superiority" requirements. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 615 (1997). 21 22 United States District Court For the Northern District of California

IV. DISCUSSION

In its Opposition, Jani-King does not contest that numerosity or commonality is satisfied for these claims, and Jani-King makes only a brief challenge to Rule 23(a)'s typicality requirement. See Opp'n. Rather, Jani-King focuses on two main arguments. Jani-King 27 argues that the named Plaintiffs cannot adequately represent the 28 proposed class because their experiences are atypical of the class as a whole and because there are fundamental potential conflicts of 2 interest within the proposed class. Jani-King also argues that Plaintiffs' claims cannot be ...


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