Patel v. 7-Eleven, Inc.

• Decision Date: 10 September 2020
• Docket Number: Civil Action No. 17-11414-NMG
• Citation: 485 F.Supp.3d 299
• Parties: Dhananjay PATEL, et al., Plaintiffs, v. 7-ELEVEN, INC., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

485 F.Supp.3d 299

Dhananjay PATEL, et al., Plaintiffs,

v.7-ELEVEN, INC., et al., Defendants.

Civil Action No. 17-11414-NMG

United States District Court, D. Massachusetts.

Signed September 10, 2020

Adelaide H. Pagano, Shannon E. Liss-Riordan, Michelle Cassorla, Lichten & Liss-Riordan, P.C., Boston, MA, for Plaintiffs Dhananjay Patel, Safdar Hussain, Vatsal Chokshi, Dhaval Patel, Niral Patel.

Michelle Cassorla, Lichten & Liss-Riordan, P.C., Boston, MA, for Plaintiffs DP Milk Street Inc., DP Jersey Inc., DP Tremont Street Inc., DPNEWTO1.

Matthew J. Iverson, Jamie Kurtz, Jennifer Brown, DLA Piper US LLP, Boston, MA, Norman M. Leon, Pro Hac Vice, DLA Piper LLP (US), Chicago, IL, for Defendant 7-Eleven, Inc.

Matthew J. Iverson, Jennifer Brown, DLA Piper US LLP, Boston, MA, Norman M. Leon, Pro Hac Vice, DLA Piper LLP (US), Chicago, IL, for Defendants Mary Carrigan, Andrew Brothers.

MEMORANDUM & ORDER

GORTON, United States District Judge

This is a putative class action brought by Dhananjay Patel, Safdar Hussain, Vatsal Chokshi, Dhaval Patel and Niral Patel (collectively "plaintiffs") on behalf of themselves and a putative class of similarly situated individuals who operate franchise stores of 7-Eleven, Inc. ("7-Eleven" or "defendant") in the Commonwealth of Massachusetts.

Plaintiffs allege that 7-Eleven (1) misclassifies its franchisees as independent contractors instead of employees in violation of the Massachusetts Independent Contractor Law, Mass. Gen. L. c. 149, § 148B (Count I), (2) has violated the Massachusetts Wage Act, Mass. Gen. L. c. 149, § 148 (Count II) and (3) has violated the Massachusetts Minimum Wage Law, Mass. Gen. L. c. 151, §§ 1, 7 (Count III). Plaintiffs initially made similar claims against two 7-Eleven market managers, Mary Cadigan and Andrew Brothers ("the individual defendants") but this Court dismissed those claims on July 20, 2018.

7-Eleven has counterclaimed, (1) seeking declaratory judgment that the various franchise agreements are void (Counterclaim I); (2) for breach of contract (Counterclaim II); and (3) for contractual indemnity (Counterclaim III). 7-Eleven also filed a third-party complaint on the same grounds against DPNEWTO1, Inc., DP Tremont Street, Inc., DP Milk Street, Inc. and DP Jersey, Inc. (collectively, "third-party corporate defendants"), each of which is a corporation through which a named plaintiff contracted with 7-Eleven.

Pending before the Court are the parties’ cross motions for summary judgment and plaintiffs’ motion for class certification.

I. Background

A. The Parties

7-Eleven is a Texas corporation with its principal place of business in Texas. For more than 50 years, 7-Eleven has sold convenience store franchises. In addition to its franchises, 7-Eleven operates corporate stores, which are managed and staffed by acknowledged 7-Eleven employees ("company operated 7-Elevens"). As of 2018, there were approximately 1,700 company operated 7-Elevens and 7,200 franchisee-operated 7-Elevens in the United States. Approximately 160 of those franchisee-operated 7-Elevens are in Massachusetts.

The named plaintiffs are residents of Massachusetts who acquired 7-Eleven franchises and work as store managers and clerks in Massachusetts. Dharmesh and Dhaval Patel entered into a franchise agreement for a 7-Eleven store located on Tremont Street in Boston, Massachusetts in December, 2010. DP Tremont St, Inc., of which Dhaval Patel is the president, is listed as the franchisee of the Tremont Street 7-Eleven.

Dharmesh and Niral Patel entered into a franchise agreement in December, 2010, for a 7-Eleven store located on Milk Street in Boston. DP Milk Street, Inc., of which Niral Patel is the president, is the franchisee for the Milk Street 7-Eleven.

In December, 2012, DPNEWTO1, Inc. entered into a franchise agreement with 7-Eleven, signed by Vatsal Chokshi. Chokshi entered into another franchise agreement with 7-Eleven on behalf of DP Jersey, Inc. in March, 2011.

In May, 2007, Dhananjay Patel entered into a franchise agreement with 7-Eleven and in December, 2016, Sadar Hussain renewed a prior franchise agreement with 7-Eleven.

B. The Franchise Agreements

Each plaintiff, either on behalf of himself/herself or through a third-party corporate defendant, signed a franchise agreement with 7-Eleven that contains substantially similar terms ("the Franchise Agreement").

The Statement of Intent in each agreement explains that "[f]ranchising is a method of distributing goods or services in a consistent manner" and that the franchisee acknowledges the importance of a uniform and high-quality presentation of the 7-Eleven brand. It further provides that 7-Eleven agrees to

assist [the franchisee] by providing a recognized brand, merchandising advice and operational systems.... [and to] contribute the value of the 7-Eleven [trademark] and brand ...

Section 2 of the Franchise Agreement provides that the franchisee agrees "to hold [himself/herself] out to the public as an independent contractor" as well as to exercise "complete control" over the day-to-day operations of the store and all store employees.

In Section 4 of the Franchise Agreement, the franchisee agrees to participate in various initial and ongoing training programs and to train his or her store employees. Plaintiffs each testified that they do, in fact, train their store employees.

Pursuant to Section 5, the franchisee agrees that he/she is the sole owner of the store and will keep 7-Eleven's proprietary information confidential. Section 5 also contains a noncompetition clause that restricts franchisees from operating competitive businesses within a 1/2 mile of a 7-Eleven during the term of the Franchise Agreement. Several plaintiffs testified that they have operated competitive businesses in compliance with the noncompetition clause during the term of the Franchise Agreement.

Section 7 outlines the license granted by 7-Eleven to the franchisee ("the 7-Eleven License"). Specifically, 7-Eleven grants "the right and license" and the franchisee agrees to accept the "right and obligation" to operate a 7-Eleven store using 7-Eleven's intellectual property, trade secrets and proprietary products.

Section 10(a) explains the "7-Eleven Charge", a fee 7-Eleven collects in exchange for providing the 7-Eleven License.

7-Eleven Charge. You agree to pay us the 7-Eleven Charge for the License, the Lease and our continuing services. The 7-Eleven Charge is due and payable each Collection Period with respect to the Receipts from the Collection Period at the time the deposit of those Receipts is due.... You may not withhold Receipts or prevent payment of the 7-Eleven Charge to us on the grounds of the alleged non-performance or breach of any of our obligations to provide services to you or any other obligations to you under this Agreement or any related agreement.

Section 15 governs merchandising and inventory in 7-Eleven stores. 7-Eleven requires that franchisees purchase a certain percentage of recommended inventory from recommended vendors. That inventory is subject to product packaging and display requirements. 7-Eleven provides floor layouts ("planograms") that recommend, but do not require, that inventory be placed in certain areas throughout the store. Recommended inventory may, however, be removed or altered with 7-Eleven's consent, which may not be unreasonably withheld.

Section 19 of the Franchise Agreement identifies various additional covenants, including the franchisee's obligation to (1) maintain ethical standards; (2) work full time in the store and supervise day-to-day operations; (3) operate the store 24-hours a day unless prohibited by law or otherwise agreed to in writing; (4) properly record all sales; (5) wear and cause employees to wear apparel approved by 7-Eleven while working; and (6) use the 7-Eleven payroll system.

Franchisees must pay all sales, inventory, payroll, occupancy, business and income taxes related to their store pursuant to Section 21. Employees’ wages are to be paid from the franchisees’ share of the revenue. Franchisees may determine how many employees to hire, how much to pay them and whether to pay them a salary or an hourly wage.

7-Eleven collects an "advertising fee" from franchisees and arranges for advertisements in local, regional or national ad campaigns pursuant to Section 22(a). Franchisees may also, with the written consent of 7-Eleven, engage in local advertising if such advertising "accurately portrays" 7-Eleven.

According to the Security System and Monitoring Amendment to the Franchise Agreement, as described in the parties’ statements of fact, 7-Eleven installs 24/7 video surveillance in 7-Eleven stores for training purposes, investigation of potential criminal conduct, fraud and personal injury.

7-Eleven does not pay franchisees a salary. Instead, franchisees may withdraw weekly or monthly "draws" from the store's gross profit minus the 7-Eleven Charge and store expenses. Franchisees are, however, required to ensure that their stores maintain a minimum net worth.

C. Procedural Background

Plaintiffs filed their statutory claims with the Office of the Attorney General and received a right to sue letter, as required by Mass. Gen. L. c. 149, § 50. Thereafter they filed this action in Massachusetts Superior Court for Middlesex County and defendant promptly removed the case to this Court on diversity grounds.

7-Eleven and the two other named defendants moved to dismiss. Plaintiffs opposed that motion and moved to remand the case and to enjoin defendants from obtaining releases from putative class members. In July, 2018, this Court denied plaintiffs’ motion to remand, plaintiffs’ emergency motion for injunctive relief and 7-Eleven's motion to dismiss. The Court allowed the motion to dismiss of the two individual defendants.

Plaintiffs then moved to dismiss 7-Eleven's counterclaims and third-party complaint which the Court denied.

In March, 2020, both parties timely filed cross motions for summary judgment and plaintiffs filed their ...