June 20, 2019
By: Thomas M. O’Connell
Citation:
Campbell v. FAF, Inc., et al., 2019 WL 2574119 (S.D. C.A. 2019).
Executive Summary:
In an unreported decision, Judge Hayes of the United States District Court for the Southern District of California decided a Motion to Transfer that defendants’ filed based on a forum selection clause in an “Independent Contractor Operating Agreement” (“Agreement”). Plaintiff argued enforcement of the forum selection clause violated public policy–as codified by the California Franchise Investment Law (“CFIL”). Defendants argued that Plaintiff has not and cannot establish that the Agreement qualifies as a franchise. The Court agreed with Defendants finding that Plaintiff fails to allege in non-conclusory facts to support a plausible inference of a franchise under California law, and its analysis of the Agreement did not merit such a finding either. Based thereon, the Court granted Defendants’ Motion to Transfer.
Relevant Background:
Plaintiff Ken Campbell on behalf of himself and others similarly situated (“Plaintiff”) initiated an action against Defendants FAF, Inc., Forward Air Corporation, Priority Capital Group, and Odyssey Transport LLC (“Defendants”) on January 22, 2019. Plaintiff asserted many claims for relief but, relevant here, Plaintiff alleged violations of the Fair Labor Standards Act (“FLSA”) and California Labor Code based on his claims that Defendants misclassified truck drivers as independent contractors. Defendants filed a Motion to Transfer to the Eastern District of Tennessee based on a forum selection clause in the parties’ Agreement.
Decision:
Court’s analysis began by stating that pursuant to 28 U.S.C. s. 1404(a), a valid forum selection clause should control except in unusual cases and that plaintiff bears the burden of showing why the court should not transfer the case to a forum to which the parties agreed. To meet this burden, Plaintiff alleged that the enforcement of the forum selection clause would violate strong California public policy regarding the California Franchise Investment Law and that a determination of whether Plaintiff was a franchisee was a factual question that should not be dealt with as part of initial pleadings.
The Court disagreed and made the following findings:
- Even though Plaintiff did not attach the Agreement to its pleadings, pursuant to the incorporation by reference doctrine, the Court found it was proper to consider the agreement at this stage of the pleadings under the incorporation by reference doctrine because as it was referred to in the complaint and it forms the basis of Plaintiff’s claims.
- In response to Plaintiff’s contention that determination of whether the Court could at this stage of the pleadings determine if Plaintiff was a franchise–specifically, whether payments for a truck rental are ordinary business expenses and not a franchise fee, the Court stated Twombly requires more than labels, conclusions, and formulaic recitation of the elements of a cause of action and that Plaintiff “fails to allege nonconclusory facts to support a plausible inference of a franchise within the meaning of [the CFIL].”
Based on the foregoing findings, the Court found that Plaintiffs failed to allege a franchise under the CFIL and the transfer of this action is required under 28 U.S.C. s. 1406(a).
Looking Forward:
While notice pleading is the go-to for most plaintiff’s attorneys, this case is emblematic of why that practice sometimes has unintended consequences. Specifically, here, the CFIL is a well-settled vehicle for invalidating forum selection clauses for California franchise disputes but Plaintiff’s conclusory allegations and formulaic recitation of the elements of its claim that it is a franchisee did not satisfy the Court. Rather than providing the Plaintiff with a chance to fix its Complaint–something that was certainly offered by Defendants in the meet and confer process prior to filing its Motion to Transfer–the Court granted Defendants Motion to Transfer to the Eastern District of Tennessee. While not dispositive of the case, Plaintiff’s choice to cut costs up front by submitting such a pleading will most certainly cost Plaintiff’s more money given they now have to litigate this matter in Tennessee.
This article was originally published on the California Franchise Network.
