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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


United States District Court rict of California


For the Northern Dist


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


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


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


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 established with common proof, and 4 thus individual issues predominate and class treatment is inferior 5 to individual actions. Id. at 5-24. 6 7

1. Motions to File Documents Under Seal

Plaintiffs filed an administrative motion to file documents

10 under seal in support of their Motion, which the Court granted on October 18, 2010. ECF No. 104. Jani-King also filed an 12 administrative motion to file documents in opposition under seal. ECF No. 108. Having reviewed Jani-King's unopposed administrative 14 motion and the relevant documents, the Court GRANTS Jani-King's 15 motion with respect to the following exhibits: 16 of Eileen Hunter ("Hunter") in Support of Jani-King's

Opposition; and

A. Preliminary Matters

United States District Court For the Northern District of California * Exhibits IV-A through VII of Exhibit 6 to the Declaration and General Order 62 and e-file these documents under seal according to the procedures outlined on the ECF website.

While neither party raises specific evidentiary objections in 25 their briefs, Jani-King takes issue with Plaintiffs' reliance on 26 the declarations of twelve Jani-King franchisees. Opp'n at 4.

Jani-King alleges that the parties agreed that a randomly selected 28 sample of ten percent of the putative class would represent the

* Exhibits 29, 30, and 31 to the Hunter Declaration.

Plaintiffs and Jani-King must comply with Civil Local Rule 79-

2. Evidentiary Issues

class. Id. Jani-King argues that Plaintiffs ignored this random 2 sample, and have instead relied on "hand-picked declarations" from 3 a handful of franchisees as common proof. Id. These declarations 4 are nearly identical in wording. See Pls.' Ev. Vol. 1 Tabs A-D, F-M ("Franchisees' Decls."). Jani-King argues that these 6 declarations do not prove common experiences because they are not 7 representative of the class as a whole, because they rely on 8 indefinite terms like "sometimes" and "often," and because the 9 declarants' deposition testimony conflicts with their declarations.

Opp'n at 4. Plaintiffs do not directly respond to this challenge in their Reply.

The Court finds merit in Jani-King's arguments. These twelve declarations -- hand-picked by Plaintiffs, written in vague 14 language, short on factual assertions, and contradicted by 15 deposition testimony -- do not provide a trustworthy representation 16 of the class as a whole. As such, the Court accepts these 17 declarations for what they are -- the statements of twelve 18 franchisees within a putative class of nearly two thousand --19 rather than a reliable representation of the class as a whole. 20

United States District Court For the Northern District of California

B. Numerosity

Rule 23(a)(1) provides that a class action may be maintained only if "the class is so numerous that joinder of all parties is 23 impracticable." Fed. R. Civ. P. 23(a)(1). However, "impracticable" does not mean impossible; it refers only to the 25 difficulty or inconvenience of joining all members of the class.

Harris v. Palm Springs Alpine Estates, Inc., 329 F.2d 909, 913-14 (9th Cir. 1964). Plaintiffs claim that at least nineteen hundred persons fall within the class description, and Defendants do not dispute this. Mot. at 6; see Opp'n. The Court thus finds the numerosity requirement to be satisfied.

Rule 23(a)(2) requires that there be "questions of law or fact common to the class." Fed. R. Civ. P. 23(a)(2). The commonality 7 requirement must be "construed permissively." Hanlon v. Chrysler

C. Commonality

Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). "All questions of fact 9 and law need not be common to satisfy the rule. The existence of 10 shared legal issues with divergent factual predicates is sufficient, as is a common core of salient facts coupled with 12 disparate legal remedies within the class." Id. "The commonality 13 test is qualitative rather than quantitative -- one significant 14 issue common to the class may be sufficient to warrant 15 certification." Dukes, 603 F.3d at 599 (internal quotations 16 omitted).

Code claims because Jani-King's liability "rests primarily on whether Jani-King lawfully treats class members as independent 20 contractors rather than employees." Mot. at 8. Plaintiffs argue that commonality is satisfied as to their good faith claim because Jani-King's relationship with its franchisees is governed substantially by standardized agreements and policy manuals. Id.

Plaintiffs assert that their concealment claim is common to the class because it arises from "standardized and scripted disclosures about the details of purchasing and owning a franchise and thus are made to all class members." Id. at 9. Finally, Plaintiffs contend that their UCL claim is common to the class. They allege that United States District Court For the Northern District of California Plaintiffs argue that commonality is satisfied for their Labor classifying the franchisees as independent contractors rather than 2 employees serves as a predicate unlawful act, and that the non-3 compete provision in the franchise agreements and the allegedly 4 excessive franchise fees also serve as predicate unfair acts. Id. 5 at 11. Jani-King does not dispute that the commonality requirement 6 is satisfied. See Opp'n. commonality inquiry, the Court finds the commonality requirement to 9 be satisfied.

Because Jani-King's arguments against typicality and adequacy of representation are tightly woven, the Court addresses both requirements together.

be "typical of the claims . . . of the class." Fed. R. Civ. P. 23(a)(3). "Under the rule's permissive standards, representative 17 claims are 'typical' if they are reasonably co-extensive with those 18 of absent class members; they need not be substantially identical."

Hanlon, 150 F.3d at 1020. Rule 23 "does not require the named 20 plaintiffs to be identically situated with all other class members.

It is enough if their situations share a common issue of law or 22 fact and are sufficiently parallel to insure a vigorous and full 23 presentation of all claims for relief." Cal. Rural Legal Assist.,

Rule 23(a)'s commonality and typicality requirements "tend to 26 merge" in practice. Gen. Tel. Co. of the Southwest v. Falcon, 457

"Commonality examines the relationship of facts and legal issues In light of the evidence and the permissive nature of the D. Typicality and Adequacy of Representation

United States District Court For the Northern District of California Rule 23(a)(3) requires that the representative parties' claims Inc. v. Legal Servs. Corp., 917 F.2d 1171, 1175 (9th Cir. 1990).

U.S. 147, 157 n.13 (1982). However, they serve different purposes:

common to class members, while typicality focuses on the 2 relationship of facts and issues between the class and its 3 representatives." Dukes, 603 F.3d at 613 n.37. 4

parties will fairly and adequately protect the interests of the 6 class." Fed. R. Civ. P. 23(a)(4). "Adequate representation Rule 23(a)(4) requires a showing that "the representative 'depends on the qualifications of counsel for the representatives, 8 an absence of antagonism, a sharing of interests between 9 representatives and absentees, and the unlikelihood that the suit 10 is collusive.'" Crawford v. Honig, 37 F.3d 485, 487 (9th Cir. 1994) (quoting Brown v. Ticor Title Ins. Co., 982 F.2d 386, 390

United States District Court For the Northern District of California (9th Cir. 1992). "This factor requires: (1) that the proposed 13 representative Plaintiffs do not have conflicts of interest with 14 the proposed class, and (2) that Plaintiffs are represented by 15 qualified and competent counsel." Dukes, 603 F.3d at 614. class claims "arise out of Jani-King's standardized policies and 18 procedures" and "Plaintiffs and the class are thus in a materially 19 identical position vis-A-vis Jani-King with respect to those 20 practices." Mot. at 12-13. Plaintiffs contend that both elements 21 of Rule 23(a)(4) are satisfied, alleging that "both the class and 22 the named Plaintiffs share an interest in requiring Jani-King to 23 operate in compliance with California law" and that Plaintiffs' 24 counsel has "extensive expertise in prosecuting complex cases and 25 the resources to represent the class effectively." Id. at 13. experiences are not typical of the class, arguing that "each 28 owner's claim arises out of events unique to that owner." Opp'n at Plaintiffs argue that typicality is satisfied because all Jani-King counters that the named Plaintiffs' claims and 25. Jani-King argues that the Juarezes are inadequate 2 representatives because they are subject to counterclaims and lack 3 credibility. Id. at 23-34. Jani-King additionally argues that the 4 class cannot be adequately represented because "[t]here is a 5 conflict of interest between owners who manage multiple employees 6 and owners who mostly perform the labor themselves." Id. at 23-24.

fail for three reasons. First, the named Plaintiffs' experiences 9 as Jani-King franchisees do not appear to be typical of the class. Plaintiffs still bring fourteen claims. Among these claims are

The Court finds that the typicality and adequacy requirements While Plaintiffs seek certification of eight claims, named United States District Court For the Northern District of California Plaintiffs' allegations that Jani-King representatives made oral 13 promises regarding the profitability of the franchises, which

14; see Franchisees' Decls. Plaintiffs' FAC makes numerous 16 references to the fact that the named Plaintiffs were not native English speakers and had little or no fluency in English. The FAC 18 provides a compelling narrative: Jani-King entered into franchise 19 agreements with recent immigrants to the United States with little 20 or no fluency in English, who signed the agreements without 21 understanding them and on the basis of representations made by Jani-King representatives; by doing so, Jani-King performed an end-23 run around California's Labor Code, extracting below-minimum wage 24 labor from workers who were "franchisees" in name only.

declarations. Alejandro Juarez states that his first and primary 27 language is Spanish, and that "at the time that I signed the Franchise Agreement with Jani-King and paid for the franchise, I Plaintiffs relied on in choosing to purchase a franchise. Id. at

These allegations are fleshed out in named Plaintiffs' could not read, write, or speak with ease in English." Pls.' Ev. Vol. 1 Tab A ¶ 7. Alejandro further declares that despite the fact 3 that Jani-King's representatives spoke to him in Spanish, he was 4 never given a Spanish-language franchise agreement or a translation 5 of the franchise agreement. Id. The other named Plaintiffs --6

Maria Juarez, Portillo, and Romero -- make identical allegations in 7 their declarations. Id. Tab B ¶ 7, B ¶ 6, D ¶ 6. The declarations 8 of the other franchisees do not contain these allegations. See 9

These are serious allegations, and Plaintiffs are entitled to attempt to prove them in court and, if they are successful, collect 12 the appropriate relief. However, Plaintiffs do not allege in their Motion that these allegations are typical of the class, and they 14 submit no evidence of a common scheme to mislead prospective 15 franchisees through oral promises of franchise profitability. On 16 the contrary, Jani-King's promotional materials and required 17 franchise documentation clearly state that Jani-King does not make 18 profit predictions.

typical of the class as a whole. If they were to serve as class 21 representatives, named Plaintiffs would likely be called on to 22 subjugate their interest in the litigation of their uncertified 23 fraud claims to serve their representational duty owed to the 24 class, and it is unclear whether the named Plaintiffs are aware of 25 this sacrifice. Each named Plaintiff has submitted a sworn 26 declaration stating: "I have agreed to serve as a representative of 27 the proposed Class in this case. I understand that I am 28 responsible for acting in and for the best interests of the Class,

Franchisees' Decls. 10

United States District Court For the Northern District of California As such, named Plaintiffs' experiences and claims are not and not just my own interests. I am not aware of any conflicts or 2 reasons why I cannot represent the interests of the Class." Pls.' Ev. Tabs A - D ("Named Pls.' Decls.") ¶ 2. While this statement 4 evidences named Plaintiffs' willingness to serve as class 5 representatives, it does not show that named Plaintiffs understand 6 the obligations of the position. In fact, the statement that named Plaintiffs are "unaware" of any conflicts with the class suggests 8 that counsel has not adequately disclosed to them that such 9 conflicts exist.

Juarezes for breach of contract and tortious interference. Jani-The second issue is Jani-King's counterclaim against the

United States District Court For the Northern District of California King alleges that the Juarezes -- without seeking to terminate 13 their Jani-King franchise -- formed a competing cleaning firm, Nano's Janitors, and induced Jani-King customers to terminate their 15 cleaning agreements and transfer their business to the competing 16 firm. See Defs.' Countercl. While the existence of a counterclaim 17 does not automatically render a named plaintiff inadequate to 18 represent a class, the Court finds the dangers of inadequate 19 representation to be particularly strong here due to a lack of 20 alignment of interests between named Plaintiffs and the class as a 21 whole.

The third issue is the potential for conflict within the proposed class. Plaintiffs have chosen to define the class 24 extremely broadly, and essentially capture all Jani-King California 25 franchisees in their class definition. Several prospective 26 conflicts exist within this class. As Jani-King notes, there is a 27 conflict between Jani-King franchisees who perform janitorial 28 services themselves and those that hire employees to perform the labor. Plaintiffs' Labor Code claims hinge on proof that Jani-King 2 so controls the actions of its franchisees as to make the 3 franchisees Jani-King employees, making the franchise itself a 4 fraudulent scheme to avoid employment regulations. Similarly, 5 franchisees who are still in the Initial Offering Period may prefer 6 injunctive relief over rescission or damages, while those who have 7 terminated their franchise agreements with Jani-King will receive 8 no benefit from injunctive relief. While these potential conflicts 9 could arise at trial, they could also arise during settlement 10 negotiations.

For these reasons, the Court finds the typicality and adequacy-of-counsel requirements to be unsatisfied.

As with the typicality and adequacy-of-representation requirements, because Jani-King's predominance and superiority arguments are tightly intertwined, the Court discusses them together.

Rule 23(b)(3) requires the court to find that "the questions of law or fact common to class members predominate over any 20 questions affecting only individual members." Fed. R. Civ. P. (b)(3). Predominance "tests whether proposed classes are 22 sufficiently cohesive to warrant adjudication by representation," a standard "far more demanding" than the commonality requirement of Rule 23(a). Amchem, 521 U.S. at 623-24. However, "[w]hen common 25 questions present a significant aspect of the case and they can be 26 resolved for all members of the class in a single adjudication, 27 there is clear justification for handling the dispute on a 28 representative rather than an individual basis." Hanlon, 150 F.3d

United States District Court For the Northern District of California

E. Predominance and Superiority at 1022. If the plaintiff advances a theory of liability in its 2 motion for class certification, the court should determine whether 3 common issues predominate under this theory without evaluating the 4 theory itself. United Steel, Paper & Forestry, Rubber, Mfg. Energy, Allied Indus. & Service Workers Int'l Union, AFL-CIO, CLC v. ConocoPhillips Co., 593 F.3d 802, 808 (9th Cir. 2010) ("United Steel"); see also Dukes, 603 F.3d at 588 ("it is the plaintiff's 8 theory that matters at the class certification stage, not whether 9 the theory will ultimately succeed on the merits") (emphasis in 10 original).

Rule 23(b)(3) also requires that the class action be "superior 12 to other available methods for fairly and efficiently adjudicating 13 the controversy." Fed. R. Civ. P. 23(b)(3). The factors relevant 14 to assessing superiority include:

(A) the class members' interests in individually controlling the prosecution or United States District Court For the Northern District of California defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.

Fed. R. Civ. P. 23(b)(3). 21 Because Plaintiffs' seven claims demand individual attention, 22 the Court discusses them separately. 23 1. Plaintiffs' Labor Code Claims

The legal theory underlying Plaintiffs' Labor Code claims is 25 that Jani-King's common policies and practices so tightly control 26 the franchisees' actions as to create an employer-employee 27 relationship between Jani-King and the putative class. Mot. at 14. 28

Under California law, "the principal test of an employment relationship is whether the person to whom service is rendered has 2 the right to control the manner and means of accomplishing the 3 result desired." S.G. Borello & Sons, Inc. v. Dept. of Indus. Rel. Cal. 3d 341, 349, (1989). While the principal's right to 5 control is the most important consideration, California courts 6 consider a number of additional factors, including: the right of 7 the principal to discharge at will, without cause; whether the one 8 performing services is engaged in a distinct occupation or 9 business; whether the work is usually done under the direction of 10 the principal; whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person 12 doing the work; the length of time for which the services are to be 13 performed; the method of payment; whether the work is a part of the 14 regular business of the principal; and whether the parties believe 15 they are creating an employer-employee relationship. Id. at 351.

Jani-King's franchise manuals and other documents, which they claim 18 show that Jani-King directs the franchisees' method of cleaning, 19 their cleaning schedule, their contact with customers, and their 20 manner of dress, as Jani-King requires franchisees to wear uniforms 21 with the Jani-King logo. Mot. at 3. Plaintiffs submit, as 22 evidence of "control," that franchisees must be reachable by Jani-23

King within four hours of contact and must notify Jani-King before 24 going on vacation; that franchisees are not permitted to handle 25 customer complaints without notifying Jani-King and following 26 specific procedures; that franchisees must obtain Jani-King's 27 approval before they establish an office location, use a trade or 28 business name, or create a vehicle display; and that franchisees

United States District Court For the Northern District of California As common proof of their Labor Code claims, Plaintiffs offer must "always use Jani-King's name and Jani-King's phone number with 2 clients." Id. Plaintiffs cite Jani-King's advertising material --3 which touts the company's "quality control" over its franchisees --4 as evidence of an employer-employee relationship. Id. Plaintiffs 5 argue that because it is undisputed that the class members 6 "performed janitorial work" for Jani-King, Jani-King should have 7 the burden of rebutting the existence of an employer/employee 8 relationship. Reply at 2 (citing Narayan v. EGL, Inc., 616 F.3d Jani-King responds that many of the above-mentioned franchise agreement terms are policies Jani-King must abide by under 895, 900 (9th Cir. 2010)).

United States District Court For the Northern District of California California's law governing franchises. Opp'n at 8. Section 20001 13 of California's Business and Professions Code defines the term

"franchise" as "a contract or agreement, either expressed or 15 implied, whether oral or written, between two or more persons by 16 which:" distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and

(b) The operation of the franchisee's business pursuant to that plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype,

advertising, or other commercial symbol designating the franchisor or its affiliate; and

(c) The franchisee is required to pay, directly or indirectly, a franchise fee.

Cal. Bus. & Prof. Code § 20001(b); Cal. Corp. Code § 31005(a). more than that which makes the owners franchisees." Id. at 7-8. ) A franchisee is granted the right to engage in the business of offering, selling or Jani-King argues that Plaintiffs' common proof "shows nothing Jani-King also argues that Plaintiffs, not Jani-King, should have 2 the burden of establishing an employer-employee relationship. Id.

California law, in determining whether a plaintiff is an employee 5 or an independent contractor, "once a plaintiff comes forward with 6 evidence that he provided services for an employer, the employee 7 has established a prima facie case that the relationship was one of 8 employer/employee." Narayan, 616 F.3d at 900. However, Plaintiffs 9 cite no authority suggesting that this rebuttable presumption 10 applies to franchisees. There are substantial public policy

reasons for the rule provided in Narayan: with the hiring of 12 employees comes the additional expenses of compliance with California's Labor Code, and employers have a strong motive to 14 avoid these costs through creatively classifying their workers as 15 independent contractors. This is why California does not permit 16 circumvention of the Labor Code through "label" or "subterfuge." S.G. Borello, 48 Cal. 3d at 349. Franchisors, however, are subject 18 to a considerable amount of regulation that does not apply to 19 independent contractors or employees. For instance, franchisors 20 are compelled by state and federal law to make detailed disclosures 21 to prospective franchisees, and must provide a fourteen-day waiting 22 period between provision of the disclosure document and the sale of 23 the franchise. See 16 C.F.R. § 436. Thus the above policy 24 concerns do not weigh as heavily in the franchise context. 25

In support of its argument that the rebuttable presumption does not apply to franchisees, Jani-King cites to a number of cases discussing the problem of agency in the franchisor-franchisee 28 relationship. In Cislaw v. Southland Corp., 4 Cal. App. 4th 1284,

The Court agrees with Jani-King. It is true that under

United States District Court For the Northern District of California 1292 (Ct. App. 1992), the court held that a "franchisor's interest 2 in the reputation of its entire system allows it to exercise 3 certain controls over the enterprise without running the risk of 4 transforming its independent contractor franchisee into an agent."

For this reason, California courts have consistently held that a 6 principal-agent relationship exists only when the franchisor 7 retains complete or substantial control over the daily activities 8 of the franchisee's business. Id. at 1296. franchisee context has been found helpful by other courts in addressing the employee-independent contractor question. In Singh Mar. 8, 2007), a federal district court granted summary judgment in 14 the franchisor's favor on the plaintiff's Labor Code claims, 15 finding that the franchisor 7-Eleven failed to exercise control 16 beyond that which was necessary to protect and maintain its 17 trademark, trade name, and goodwill, despite the fact that the 18 franchisor paid the franchisee's lease and utilities, shared in the 19 store's profits, and sent a field consultant to the store for 20 weekly visits to evaluate the condition of the store and provide 21 advice on increasing sales and profits. Id. at *1. 22

Jani-King are inapposite because they do not discuss the employee-24 independent contractor distinction. Reply at 4. But Plaintiffs 25 offer no competing law; they merely continually cite to Narayan as 26 the appropriate test. Id. 27 28 likely that under California law, a franchisee must show that the Cislaw's test for principal-agent liability in the franchisor-United States District Court For the Northern District of California

v. 7-Eleven, Inc., No. C-05-4534, 2007 WL 715488, *7 (N.D. Cal. 13 Plaintiff argues that Cislaw and the other cases cited by While the answer is not entirely clear, the Court finds it franchisor exercised "control beyond that necessary to protect and 2 maintain its interest in its trademark, trade name and goodwill" to 3 establish a prima facie case of an employer-employee relationship.

Cislaw, 4 Cal. App. 4th at 129. As such, the Court can safely 5 exclude from the employee-employer relationship analysis facts that 6 merely show the common hallmarks of a franchise -- those that 7 constitute a "marketing plan or system" under which the 8 franchisee's operation is "substantially associated with the 9 franchisor's trademark, service mark, trade name," or goodwill. 10

required to follow specific methods of cleaning and handle customer 12 complaints a certain way because that is part of Jani-King's 13 required franchise system. Franchisees must wear uniforms, use Jani-King's name and phone number in client communication, and 15 receive approval before they create marketing and advertising tools 16 because the system must be substantially associated with the 17 franchise's service mark.

King's service mark and goodwill, the Court finds very little -- if 20 any -- common evidence tending to prove an employer-employee 21 relationship between Jani-King and its franchisees. For these 22 reasons, the Court finds that individual questions predominate over 23 common questions, and that class treatment of Plaintiffs' Labor

2. Plaintiffs' Good Faith Claim

Plaintiff alleges that Jani-King breached its covenant of good faith and fair dealing with all class members in the same manner.

Mot. at 9. Plaintiffs claim that although Jani-King is required Cal. Bus. & Prof. Code § 20001(b). Jani-King's franchisees are United States District Court For the Northern District of California

Once it sets aside the policies required to protect Jani- Code claims is not superior to individual actions. under the franchise agreement to offer a certain volume of cleaning 2 accounts to each franchisee, Jani-King frustrates the franchisee's 3 opportunity to benefit from this promise by (1) crediting an 4 offered account, regardless of whether the franchisee accepts the 5 account; (2) withdrawing offers before a franchisee has the opportunity to review the account, inspect the account property, and accept; and (3) taking away accounts from franchisees at will. Mot. at 9. Plaintiffs additionally argue that "Jani-King's uniform bidding process and formulas are such that, after all the Jani-King fees and the costs of doing business that class members must incur are taken into account, class members are deprived of any profits from the accounts." Id.

franchisees requires "an individual inquiry into whether each owner had a chance to respond to offers, to accept offers, to review 16 accounts, or to inspect the property." Opp'n at 11. Jani-King argues that the evidence cited by Plaintiffs are "hand-picked declarations." Opp'n at 4. Jani-King argues that these 19 declarations are not representative of the class as a whole; that

"the declarations are filled with qualifications showing that the 21 events were not uniform even for the individual declarants but 22 happened only 'sometimes' or, at most, 'often,'" and that the 23 declarants' deposition testimony contradicts their declarations.

Having reviewed the evidence, the Court finds Plaintiffs have 26 failed to establish that Jani-King's allegedly breaching activity 27 can be shown through common proof. The "common proof" cited -- a 28 handful of nearly identical declarations picked from a putative United States District Court For the Northern District of California Jani-King argues that whether it breached a duty to its class of nearly two thousand -- shows only that a dozen franchisees 2 had similar experiences, and does not tend to show that common 3 issues predominate through the class as a whole.

good faith through expert testimony showing that Jani-King lacks sufficient accounts to fulfill all of its obligations owed to its franchisees. Mot. at 19. Jani-King argues that this alleged breach can only be proved with individual evidence. Opp'n at 10.

Plaintiffs additionally argue that they can establish lack of Jani-King provides a chart in its Opposition, which it claims shows 10 that the fourteen deponents and Plaintiffs entered into agreements with Initial Business Obligations ranging from $1000 to $11,000; 12 that some accepted all or nearly all of the accounts offered, while 13 others accepted eighty percent or less of the accounts offered.

Id. at 11. Jani-King also argues that even if Plaintiffs could 15 prove that Jani-King lacked the funds to meet all its obligations, 16 this would only affect the franchises who were not offered 17 sufficient accounts. Id. at 12. Jani-King asserts that this would 18 require individual inquiries to determine whether any transferred 19 account was transferred due to Jani-King's bad faith or a valid 20 reason, such as a franchise owner's non-performance or the 21 cancellation by a client. Id. Jani-King claims that even if 22 there were a common bidding system, good faith would require each 23 franchisee to prove that it was wrongfully denied benefits of the 24 contract, citing Newell v. State Farm Gen. Ins. Co., 118 Cal. App. 25

In light of these arguments, the Court finds the issue of breach of good faith to be highly factual, and to be dependent on individual proof. As such, it finds that common issues do not United States District Court For the Northern District of California 4th 1094, 1103 (2004). Id. at 13. 26 predominate and that class action would not be superior to 2 individual actions. 3 To prevail on its concealment claim, Plaintiffs must show that Jani-King has concealed or suppressed a material fact, Jani-King 6 was under a duty to disclose the fact to Plaintiffs, Jani-King 7 intentionally concealed the fact to defraud Plaintiffs, Plaintiffs 8 were unaware of the fact and would not have acted as they did with 9 knowledge of the fact, and Plaintiffs suffered damage as a result 10 of the concealment. Marketing West, Inc. v. Sanyo Fisher (USA)

Corp., 6 Cal. App. 4th 603, 612-13 (Ct. App. 1992). 12

13 franchisees Jani-King's bidding practices, the amount of business 14 it has to offer, how it offers accounts, and how it prices 15 accounts. Mot. at 21-22. Plaintiffs claim: "Jani-King's 16 fraudulent omissions arise in the context of standardized and 17 scripted disclosures about the details of purchasing and owning a 18 franchise and thus are made to all class members. Jani-King 19 follows a standard, detailed protocol when it sells a franchise." Jani-King argues that Plaintiffs must prove that Jani-King had a duty to disclose this information, and "Plaintiffs cannot provide this duty on a classwide basis without overriding California's 24 franchise regulations." Opp'n at 18. Jani-King also argues that Plaintiffs must prove justifiable reliance, which is "an individual 26 issue." Id. Jani-King writes: "Plaintiffs must prove that each 27 owner would have acted differently had the omitted information been 28 disclosed . . . . This will require an individual inquiry to Plaintiffs' Concealment Claim United States District Court For the Northern District of California Plaintiffs claim that Jani-King concealed from prospective determine what each owner already knew, whether he or she would 2 have received any disclosure, and whether it would have caused him 3 or her to act differently." Id. at 18-19. Jani-King notes that 4 deposition testimony shows that while some franchisees read Jani-5

King's disclosures, some did not, and argue that this shows that 6 for some would-be class members, additional disclosures would have 7 made no difference. Id. at 19. determining questions of the duty owed by Jani-King and justifiable 10 reliance by franchisees. Plaintiffs cite no authority for the argument that this Court is in a position to augment the detailed 12 disclosure requirements California and the federal government place 13 on sellers of franchises. Therefore, the franchisee-franchisor 14 relationship alone cannot give rise to these additional disclosure 15 requirements, and if any additional duty exists, it is created by 16 the details of the relationship between Jani-King and the specific 17 franchisee owed the duty. Plaintiffs do not produce evidence 18 suggesting that the class members are all so similarly situated 19 that they would all be owed an additional disclosure duty. The Court thus finds this issue is heavily factual, and that Plaintiffs 21 have failed to show that common issues predominate over individual 22 issues such that class treatment would be superior.

The UCL prohibits businesses from engaging in "any unlawful, unfair or fraudulent business act or practice." Bus. & Prof. Code 4th 163, 180 (1999).

Plaintiffs allege the above-mentioned claims -- the Labor Code The Court finds that individual issues will predominate in United States District Court For the Northern District of California

4. Plaintiffs' UCL Claim

§ 17200; Cel-Tech Commc'ns Inc. v. L.A. Cellular Tel. Co., 20 Cal.

claims, good faith claim, and concealment claim -- serve as 2 predicates satisfying the UCL's unlawful and fraudulent prongs.

Mot. at 17. Plaintiffs admit that "[t]here is no substantive 4 difference in the analysis of these claims under the UCL unlawful 5 prong." Id. Because the Court finds individual issues predominate 6 each of these claims, it finds that a UCL claim predicated on these 7 claims also fails the predominance and superiority requirements. satisfied through Jani-King's practice of charging franchise fees 10 which are "excessive and unfair;" through the inclusion of a non-compete clause in the franchise agreement; and through the 12 franchise agreement's refund policy, which Plaintiffs claim rewards Jani-King for failing to satisfy its contractual obligations. Mot. 14 at 11-12. 15 constitutes an unfair consumer practice is unsettled in California.

See Mot. at 10-11; Opp'n at 21-22. Some California courts of 18 appeal balance the impact of the allegedly unfair conduct "against 19 the reasons, justifications and motives of the alleged wrongdoer."

861, 886 (1999). Others require a showing of "conduct that 22 threatens an incipient violation of [a] law, or violates the policy 23 or spirit of one of [the] laws because its effects are comparable 24 to or the same as a violation of the law." Cel-Tech, 20 Cal. 4th 25 at 187. Others adopt the approach of the Federal Trade Commission 26 and require plaintiffs to prove three elements: (1) the consumer 27 injury must be substantial; (2) it must not be outweighed by any 28 countervailing benefits to consumers or competition; and (3) it Plaintiffs also argue that the UCL's unfairness prong is

ited States District Court For the Northern District of California

Plaintiffs and Jani-King agree that the question of what . Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal. App. 4th must be an injury that the consumer himself could not reasonably 2 have avoided. See, e.g., Davis v. Ford Motor Credit Co. LLC, 179 Cal. App. 4th 581, 597-98 (2009). Plaintiffs argue that the third 4 test is the appropriate test. Mot. at 11. 5 test, Plaintiffs have failed to show common proof of their UCL 7 claim. For the fees charged to be unfair under this test, 8

Under any of these tests, including Plaintiff's preferred

Plaintiffs must prove that they caused a substantial injury to the 9 class. Aside from citing to handpicked declarations -- some of 10 which are contradicted by the franchisees' deposition testimony -- there is no evidence, let alone common evidence, of such an injury.

United States District Court For the Northern District of California Similarly, Plaintiffs have introduced no evidence that the non-13 compete provision caused injury. Indeed, Plaintiffs have 14 introduced no evidence that the non-compete provision was enforced, 15 or that the non-compete provision affected the franchisees' 16 behavior in any way. As to the third argument -- that the 17 franchise agreement's terms rewarded Jani-King for failing to meet 18 its contract obligations -- Plaintiffs do not fully flesh out this 19 argument and cite to no California case law suggesting that such a 20 refund policy could constitute an unfair practice under California's unfair competition law. The Court cannot bind a class 22 on so novel a theory and so bare an evidentiary record. of the claims Plaintiffs seek to be certified, because individual issues predominate over common issues, because the named

Plaintiffs' claims are not typical of the class as a whole, and 27 because the named Plaintiffs and their counsel have not established 28 that they are capable of adequately representing the class.

In summary, class certification is inappropriate for all eight


For the foregoing reasons, the Court DENIES Plaintiffs' Amended Motion for Class Certification. The case shall proceed as 4 an action on behalf of Alejandro Juarez, Maria Juarez, Luis A. Romero, and Maria Portillo individually. A Case Management

Conference is scheduled for April 29, 2011, at 10:00 a.m. in Courtroom 1, on the 17th floor, U.S. Courthouse, 450 Golden Gate Avenue, San Francisco, CA 94102. Parties shall file a Joint Case Management Statement no later than seven (7) days before the Case Management Conference.

United States District Court For the Northern District of California




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