Vazquez v. Jan-Pro Franchising Int'l, Inc.

Decision Date02 May 2019
Docket NumberNo. 17-16096,17-16096
Citation923 F.3d 575
Parties Gerardo VAZQUEZ, Gloria Roman, and Juan Aguilar, on behalf of themselves and all other similarly situated, Plaintiffs-Appellants, v. JAN-PRO FRANCHISING INTERNATIONAL, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

923 F.3d 575

Gerardo VAZQUEZ, Gloria Roman, and Juan Aguilar, on behalf of themselves and all other similarly situated, Plaintiffs-Appellants,
v.
JAN-PRO FRANCHISING INTERNATIONAL, INC., Defendant-Appellee.

No. 17-16096

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 18, 2018 San Francisco, California
Filed May 2, 2019


923 F.3d 578

Shannon Liss-Riordan (argued), Lichten & Liss-Riordan P.C., Boston, Massachusetts, for Plaintiffs-Appellants.

Jeffrey M. Rosin (argued), O’Hagan Meyer PLLC, Boston, Massachusetts, for Defendant-Appellee.

Catherine K. Ruckelshaus and Najah A. Farley, National Employment Law Project, New York, New York, for Amici Curiae National Employment Law Project, Equal Rights Advocates, Dolores Street Community Services, Legal Aid at Work, and Worksafe, Inc.

Norman M. Leon, DLA Piper LLP, Chicago, Illinois; Jonathan Solish, Bryan Cave LLP, Santa Monica, California; James F. Speyer, Arnold & Porter Kaye Scholer LLP, Los Angeles, California; for Amicus Curiae The International Franchise Association.

Before: Ronald M. Gould and Marsha S. Berzon, Circuit Judges, and Frederic Block, District Judge.*

BLOCK, District Judge:

TABLE OF CONTENTS

OVERVIEW ...579

THE ISSUES....580

DEPIANTI ....580

I. The Factual Background...580

II. Massachusetts and Georgia Decisions...582

A. Answer by the Massachusetts Supreme Judicial Court...582

B. Parallel Litigation in Georgia...582

C. Final Order from the District Court of Massachusetts...582

III. The First Circuit’s Decision...583

THE PRESENT CASE...583

I. Res Judicata and Law of the Case...583

II. Retroactivity...586

A. Dynamex Applies Retroactively Under California Law...586

B. Applying Dynamex Retroactively Is Consistent with Due Process...588

III. The Merits...590

A. The Facts...590

1. The Contracts Among the Various Entities...590

2. The Practical Realities...591

B. The District Court’s Decision...592

C. Dynamex ...593

D. Application of Dynamex on Remand...594

923 F.3d 579

1. There Is No Patterson Gloss to the ABC Test...594

2. Other Courts Have Considered Three-Tier Franchise Structures in Applying the ABC Test...595

3. Prong B of the ABC Test May Be the One Most Susceptible to Summary Judgment...596

i. Are Unit Franchisees Necessary to Jan-Pro’s Business? ...597

ii. Do Unit Franchisees Continuously Work in Jan-Pro’s Business System? ...598

iii. Does Jan-Pro Hold Itself Out as a Cleaning Business? ...598

CONCLUSION...599

In this putative class action we are tasked with having to decide the applicability of a recent decision by the high court of California, Dynamex Ops. W. Inc. v. Superior Court , 4 Cal.5th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1 (2018) —postdating the district court’s decision. Dynamex adopted the so-called "ABC test" for determining whether workers are independent contractors or employees under California wage order laws. We hold that the test does apply, vacate the lower court’s grant of summary judgment dismissing the complaint, and remand for further proceedings consistent with this opinion.

OVERVIEW

This case dates back over a decade. In 2008, a putative class action was filed in the District of Massachusetts by a Massachusetts plaintiff, Giovani Depianti, and two Pennsylvania plaintiffs, against the Defendant-Appellee, Jan-Pro International Franchising, Inc. ("Jan-Pro"), a Georgia corporation. By the end of that year, there was an additional plaintiff from Massachusetts plus seven more from other states, including the three individual Plaintiffs-Appellants ("Plaintiffs") in this case, who are California residents. They all had a common cause to pursue: that Jan-Pro, a major international janitorial cleaning business, had developed a sophisticated "three-tier" franchising model to avoid paying its janitors minimum wages and overtime compensation by misclassifying them as independent contractors.

Because of the variety of state laws involved, the Massachusetts district court chose Depianti’s claim as a test case and, over Jan-Pro’s opposition, severed the California plaintiffs’ claims and sent them to the Northern District of California, Plaintiffs’ place of residence. Depianti’s case ultimately made its way to the First Circuit Court of Appeals, which in 2017 affirmed the district court’s dismissal of the complaint, but not on the merits. See Depianti v. Jan-Pro Franchising Int'l, Inc. , 873 F.3d 21 (1st Cir. 2017) (" Depianti–CA1 "). The claims of all the other plaintiffs before the Massachusetts district court were also dismissed without reaching the merits. But the California plaintiffs have remained steadfast and, as their litigation enters its second decade, they have now brought their battle to this Court.

Jan-Pro obviously has a financial interest in not opening the floodgates to nationwide liability for multiple years of back wages and overtime pay. However, the case has broader ramifications. The National Employment Law Project, which asserts that it has "a strong interest in this case because of the impacts of [Jan Pro’s] franchising schemes and those of similar janitorial companies on low-wage and immigrant workers and their communities," has submitted an amicus brief (joined by other similarly interested not-for-profit organizations) to bring to the Court’s attention "details about the kinds of franchising and labor intermediary structures used by Jan-Pro, and their impacts on workers,

923 F.3d 580

competing employers, and on state and federal coffers." And in support of Jan-Pro, the International Franchise Association ("IFA"), "the oldest and largest trade association in the world devoted to representing the interests of franchising," rails against applying the ABC test adopted by the California Supreme Court because it "would sound the death knell for Franchising in California," casting the case as "of profound importance to franchising" not only in California but also for the "national economies."

THE ISSUES

Because Dynamex postdated the district court’s decision, we issued an order directing the parties to brief its effect on the merits of this case. Plaintiffs devoted most of their supplemental brief to the merits, concluding that "in light of Dynamex , there can be no question that the District Court’s order granting summary judgment to Jan-Pro must be reversed," and that we should "remand the case for further proceedings."

By contrast, Jan-Pro devoted only two pages of its sixteen-page supplemental brief to the merits, citing but one clearly distinguishable case. It argued principally that "the Dynamex decision should not be applied retroactively," and that, in any event, it should prevail under the doctrines of the law of the case and res judicata.

For the reasons that follow, we conclude that Dynamex does apply retroactively, that none of Jan-Pro’s other efforts to avoid reaching the merits are viable, and that the case must be remanded to the district court to consider the merits in light of Dynamex. To explain why neither the law of the case nor res judicata is applicable, we begin with a recitation of Depianti’s complex procedural history.

DEPIANTI

The First Circuit’s Depianti opinion, characterizing "the nearly decade long life-cycle" of the Depianti litigations as a "Whirlwind Procedural Tour," 873 F.3d at 24, aptly traces that tour. It also elucidates the nature of Jan-Pro’s franchise business and the structure of the three-tier franchise model it created in its effort to establish janitorial cleaners, such as Depianti and Plaintiffs, as independent contractors.

I. The Factual Background

As the First Circuit explained, Jan-Pro "organizes commercial cleaning franchises" throughout the United States. Id. at 23. Under its particular franchise model, Jan-Pro "contracts with what are known as intermediary ‘master franchisees’ or ‘master owners’ (regional, third party entities) to whom it sells exclusive rights to the use of the ‘Jan-Pro’ logo, which is trademarked." Id.1 "These master owners, in turn, sell business plans to ‘unit franchisees.’ " Id. Thus, Jan-Pro’s business model is two-tiered, "with (1) Jan-Pro acting as franchisor and the master owner acting as franchisee, in one instance and (2) the master owner acting as franchisor to the unit franchisee, in the other." Id.2

The First Circuit explained how this two-tiered system works:

Jan-Pro and its master owners are separate corporate entities and each has its own staff. Moreover, master owners may
923 F.3d 581
sell or transfer their individual businesses without approval from Jan-Pro. Jan-Pro also reserves the right to inspect any premises serviced by either the master owner or any of the master owner’s
...

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