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DAMON M. OTT, Bar No. 215392
1 dott@littler.com
PHILIP B. BALDWIN, Bar No. 307920
2 pbaldwin@littler.com
ROBERT GEIGER, Bar No. 322914
3 rgeiger@littler.com
LITTLER MENDELSON, P.C.
4 333 Bush Street, 34th Floor
San Francisco, California 94104
5 Telephone: 415.433.1940
Fax No.: 415.399.8490
6
Attorneys for Defendant
7 VANGUARD CLEANING SYSTEMS, INC.
8
SUPERIOR COURT OF THE STATE OF CALIFORNIA
9
COUNTY OF SAN MATEO
10
11
ALIDA MAZARIEGOS, PAULA GONZALEZ, Case No. 20-CIV-04267
12 and JAIME AMAYA,
COMPLEX ACTION
13 Plaintiffs,
ASSIGNED FOR ALL PURPOSES TO
14 v. THE HONORABLE NANCY L.
FINEMAN, DEPT 4
15 VANGUARD CLEANING SYSTEMS, INC.;
RR FRANCHISING, INC., D/B/A DEFENDANT VANGUARD
16 VANGUARD CLEANING SYSTEMS OF CLEANING SYSTEM, INC.’S
SOUTHERN CALIFORNIA AND D/B/A OPPOSITION TO PLAINTIFFS’
17 VANGUARD CLEANING SYSTEMS OF MOTION FOR CLASS
NORTHERN CALIFORNIA; BUDDHA CERTIFICATION
18 CAPITAL CORPORATION, D/B/A
VANGUARD CLEANING SYSTEMS OF Date: July 26, 2022
19 SACRAMENTO, D/B/A VANGUARD Time: 2:00 p.m.
CLEANING SYSTEMS OF THECENTRAL Dept.: 4; Ctrm. G
20 VALLEY, AND D/B/AVANGUARD
CLEANING SYSTEMS OF THE CENTRAL
21 COAST; AND WINE COUNTRY
VENTURES, INC. D/B/A VANGUARD
22 CLEANING SYSTEMS OF THE NORTH
BAY, AND DOES 1 THROUGH 10,
23 INCLUSIVE,
24 Defendants.
25
26
27
28
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
TABLE OF CONTENTS
1 Page
I. INTRODUCTION ................................................................................................................... 8
2
II. FACTS ..................................................................................................................................... 8
3 A. Background On Pertinent Franchise Laws. ................................................................. 8
4 B. Overview Of The Parties To The Action ................................................................... 11
C. Unit Franchise Owners Run Their Businesses In Vastly Different Ways ................. 12
5
III. LEGAL ARGUMENT ........................................................................................................... 14
6 A. Class Certification Standards ..................................................................................... 14
7 B. The Threshold Issue Of Employee Versus Independent Contractor Status
Presents Far Too Many Individualized Issues For Class Treatment.......................... 14
8 1. The ABC Test Does Not Apply ..................................................................... 14
9 a. The ABC Test Does Not Apply To Labor Code Claims Pre-
Dating The Year 2020 ........................................................................ 14
10 b. The ABC Test Does Not Apply Under Labor Code Section
2775(a)(3) .......................................................................................... 15
11
c. Common Issues Will Not Predominate Under The Express
12 B2B Exemption.................................................................................. 16
d. The Martinez Joint-Employer Test Will Apply To An
13 Unknown Number of Unit Franchise Owners ................................... 17
14 2. Common Issues Do Not Predominate Under Borello .................................... 18
3. Common Issues Do Not Predominate Under The ABC Test ........................ 20
15
C. Assessing Liability For The Actual Legal Claims Would Entail Highly
16 Individualized Issues .................................................................................................. 22
1. Determining Whether Unit Franchise Owners Were Exempt
17 Employees Would Be Unmanageable And Involve Many
Individualized Issues ...................................................................................... 22
18
2. Common Issues Do Not Predominate For The Break Claims ....................... 22
19 3. Common Issues Do Not Predominate For The Overtime Claim ................... 23
20 4. Common Issues Do Not Predominate For The Expense-
Reimbursement Claims. ................................................................................. 24
21 5. Common Issues Do Not Predominate For The Wage-Statement And
Waiting-Time Penalty Claims........................................................................ 27
22
D. A Class Action Would Not Be Manageable Or Superior To Individual Actions ...... 28
23 1. Plaintiffs’ Class Definition, Alone, Renders This Action
Unmanageable................................................................................................ 28
24
2. The Existence Of Hundreds Of Arbitration And Release Agreements
25 Renders This Action Unmanageable ............................................................. 29
3. For Additional Reasons, A Class Action Is Not Superior To Individual
26 Actions ........................................................................................................... 30
27 E. Plaintiffs Fail To Meet The Typicality And Adequacy Standards ............................ 30
IV. CONCLUSION ...................................................................................................................... 31
28
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104 2
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
TABLE OF AUTHORITIES
1
2 Page(s)
3 Cases
4 Albert v. Postmates Inc.,
2019 WL 1045785 (N.D. Cal. Mar. 5, 2019) ...........................................................................24
5
Amaral v. Cintas Corp. No. 2,
6 163 Cal. App. 4th 1157 (2008) ..........................................................................................27, 28
7
Basurco v. 21st Century Ins.,
8 108 Cal. App. 4th 110 (2003) ..................................................................................................30
9 Berman v. Freedom Fin. Network, LLC,
400 F. Supp. 3d 964 (N.D. Cal. 2019) ...............................................................................29, 30
10
Block v. Major League Baseball,
11 65 Cal. App. 4th 538 (1998) ....................................................................................................14
12 Bowman v. CMG Mortg. Inc.,
13 2008 WL 3200662 (N.D. Cal. Aug. 4, 2008) ..........................................................................26
14 Brinker Restaurant Corp. v. Superior Court,
53 Cal. 4th 1004 (2012) ...........................................................................................................14
15
Chavez v. Lumber Liquidators,
16 2012 WL 1004850 (N.D. Cal. Mar. 26, 2012) .........................................................................26
17 Chebotnikov v. LimoLink, Inc.,
2017 WL 2888713 (D. Mass. July 6, 2017).............................................................................16
18
19 Chris Pyara v. Sysco Corp.,
2017 WL 928715 (E.D. Cal. Mar. 9, 2017) .............................................................................26
20
Cislaw v. Southland Corp.,
21 4 Cal. App. 4th 1284 (1992) ....................................................................................................18
22 Cochran v. Schwan's Home Serv., Inc.,
228 Cal. App. 4th 1137 (2014) ..........................................................................................24, 26
23
24 Cristler v. Express Messenger Systems, Inc.,
171 Cal. App. 4th 72 (2009) ....................................................................................................18
25
Curry v. Equilon Enters., LLC,
26 23 Cal. App. 5th 289 (2018) ..............................................................................................17, 21
27 Dailey v. Sears, Roebuck & Co.,
214 Cal. App. 4th 974 (2013) ............................................................................................22, 23
28
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104 3
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
Dalton v. Lee Publications, Inc.,
1
2011 WL 1045107 (S.D. Cal. 2011) ........................................................................................28
2
Dilts v. Penske Logistics, LLC,
3 2014 WL 866954 (S.D. Cal. Feb. 19, 2014) ............................................................................26
4 Dryer v. Los Angeles Rams,
40 Cal. 3d 406 (1985) ..............................................................................................................29
5
Dynamex Operations W. v. Superior Court,
6
4 Cal. 5th 903 (2018) .........................................................................................................14, 27
7
In re FedEx Ground Package Sys., Inc., Employment Practices Litig.,
8 273 F.R.D. 516 (N.D.Ind.2010) ...............................................................................................21
9 Fireside Bank v. Superior Court,
40 Cal. 4th 1069 (2007) ...........................................................................................................31
10
Frlekin v. Apple, Inc.,
11 8 Cal. 5th 1038 (2020) .............................................................................................................24
12
Garcia v. Border Transportation Group, LLC,
13 28 Cal. App. 5th 558 (2018) ....................................................................................................15
14 Garcia v. Pexco, LLC,
11 Cal. App. 5th 782 (2017) ....................................................................................................29
15
Grissom v. Vons Co.,
16 1 Cal. App. 4th 52 (1991) ........................................................................................................25
17 Haitayan v. 7-Eleven, Inc.,
18 2021 WL 4078727 (C.D. Cal. Sept. 8, 2021) .................................................................. passim
19 Haitayan v. 7-Eleven, Inc.,
2021 WL 757024 (C.D. Cal. Feb. 8, 2021)............................................................14, 21, 22, 26
20
Harris v. Vector Marketing Corp.,
21 753 F.Supp.2d 996 (N.D. Cal. 2010) .......................................................................................27
22 Henderson v. Equilon Enters., LLC,
23 40 Cal. App. 5th 1111 (2019) ..................................................................................................17
24 Henry v. Central Freight Lines, Inc.,
2021 WL 3187257 (E.D. Cal. July 28, 2021) ..........................................................................15
25
Hill v. Walmart, Inc.,
26 32 F.4th 811 (2022)..................................................................................................................27
27 Howard v. Gap,
2009 WL 3571984 (N.D. Cal. Oct. 29, 2009)..........................................................................25
28
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104 4
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
Jong v. Kaiser Foundation Health Plan, Inc.,
1
226 Cal. App. 4th 391 (2014) ..................................................................................................24
2
Juarez v. Jani-King of California, Inc.,
3 273 F.R.D. 571 (N.D. Cal. 2011) .............................................................................................30
4 Kizer v. Tristar Risk Management,
13 Cal. App. 5th 830 (2017) ....................................................................................................24
5
Koval v. Pacific Bell Telephone Co.,
6
232 Cal. App. 4th 1050 (2014) ................................................................................................23
7
La Sala v. American Sav. & Loan Assoc.,
8 5 Cal. 3d 864 (1971) ................................................................................................................31
9 Lampe v. Queen of the Valley Medical Center,
19 Cal. App. 5th 832 (2018) ..............................................................................................23, 24
10
Linton v. Desoto Cab Co.,
11 15 Cal. App. 5th 1208 (2017) ..............................................................................................8, 18
12
Madrigal v. Tommy Bahama Grp., Inc.,
13 2011 WL 10511339 (C.D. Cal. June 27, 2011) .......................................................................27
14 Martinez v. Combs,
49 Cal. 4th 35 (2010) .........................................................................................................17, 22
15
Martinez-Sanchez v. Anthony Vineyards, Inc.,
16 2021 WL 5371425 (E.D. Cal. Nov. 18, 2021) .........................................................................26
17 Moreno v. Castlerock Farming and Transport, Inc.,
18 2022 WL 902597 (E.D. Cal. March 28, 2022) ........................................................................31
19 Moreno v. Jct Logistics,
2019 WL 3858999 (C.D. Cal. May 29, 2019) .........................................................................15
20
Morgan v. Wet Seal, Inc.,
21 210 Cal. App. 4th 1341 (2012) ................................................................................................26
22 Naranjo v. Spectrum Sec. Servs., Inc.,
23 40 Cal. App. 5th 444 (2019) ....................................................................................................31
24 Narayan v. EGL, Inc.,
285 F.R.D. 473 (N.D. Cal. 2012) .................................................................................19, 21, 29
25
Okeke v. Dynamex Operations East, Inc.,
26 2013 WL 7085617 (Mass.Super. Dec. 03, 2013) ....................................................................16
27 Olson v. California,
2020 WL 905572 (C.D. Cal. Feb 10, 2020).............................................................................14
28
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104 5
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
Patterson v. Domino’s Pizza, LLC,
1
60 Cal. 4th 474 (2014) ...................................................................................................8, 10, 15
2
Payton v. CSI Elec. Contractors, Inc.,
3 27 Cal. App. 5th 832 (2018) ....................................................................................................23
4 Peabody v. Time Warner Cable, Inc.,
59 Cal. 4th 662 (2014) .............................................................................................................22
5
People v. Pac. Landmark, LLC,
6
129 Cal. App. 4th 1203 (2005) ................................................................................................26
7
Reyes v. San Diego County Bd. of Supervisors,
8 196 Cal. App. 3d 1263 (1987) .................................................................................................28
9 S.G. Borello & Sons, Inc. v. Department of Industrial Relations,
48 Cal. 3d 341 (1989) ...................................................................................................... passim
10
Salazar v. McDonald’s Corp.,
11 944 F.3d 1024 (2019)...............................................................................................................17
12
Sanchez v. Hearst Communications, Inc.,
13 2022 WL 1400853 (N.D. Cal. May 4, 2022) ...........................................................................19
14 Schwann v. FedEx Ground Package Sys., Inc.,
2013 WL 1292432 (D. Mass. Apr. 1, 2013) ............................................................................21
15
Soares v. Flower Foods, Inc.,
16 320 F.R.D. 464 (N.D. Cal. 2017) ..................................................................................... passim
17 Spencer v. Beavex, Inc.,
18 2006 WL 6500597 (S.D. Cal. Dec. 15, 2006)....................................................................19, 29
19 Sportsman v. A Place for Rover, Inc.,
537 F. Supp. 3d 1081 (N.D. Cal. 2021) ...................................................................................21
20
Tokoshima v. Pep BoysManny Moe & Jack of California,
21 2014 WL 1677979 (N.D. Cal. Apr. 28, 2014) .........................................................................25
22 Urena v. Earthgrains Distribution, LLC,
23 2017 WL 4786106 (C.D. Cal. July 19, 2017) ........................................................19, 20, 29, 30
24 Vazquez v. Jan-Pro Franchising International, Inc.,
923 F. 3d 575 (2019)................................................................................................................10
25
Villalpando v. Exel Direct, Inc.,
26 2015 WL 5179486 (N.D. Cal. 2015) .......................................................................................28
27 Statutes
28 15 U.S.C. §1127 (2000) ...................................................................................................................9
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104 6
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
B2B Exemption..............................................................................................................................16
1
2 Cal. Corp. Code §31001...................................................................................................................9
3 Cal. Corp. Code § 31005(a)(1)-(3) ..........................................................................................10, 15
4 California Franchise Investment Law ..............................................................................................9
5 California Franchise Relations Act ............................................................................................9, 20
6 CFIL .................................................................................................................................................9
7 Labor Code Section 2775(a)(3) .....................................................................................................15
8
Labor Code section 2775(b)...........................................................................................................20
9
Labor Code section 2776 ...............................................................................................................16
10
Labor Code section 2802 .......................................................................................15, 24, 25, 26, 30
11
Labor Code section 2802(a) ...........................................................................................................26
12
Labor Code section 203 ...........................................................................................................27, 28
13
Labor Code section 226 .................................................................................................................28
14
Lanham Act ......................................................................................................................................9
15
16 Other Authorities
17 16 C.F.R. § 436.1(h)(1)....................................................................................................................9
18 16 C.F.R. § 436.1(h)(l)-(3)...............................................................................................................9
19 Wage Order 5, §§ 11-12...........................................................................................................21, 22
20
21
22
23
24
25
26
27
28
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104 7
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
I. INTRODUCTION
1
Defendant Vanguard Cleaning Systems, Inc. (“VCS”) submits this brief in opposition to
2
Plaintiffs’ Motion for Class Certification. For many reasons, Plaintiffs’ claims are not remotely
3
appropriate for class treatment. Any trial in this matter would be riddled with manageability problems
4
and individualized issues on at least three levels: (1) discerning who is a class member (and for which
5
periods of time); (2) determining which of several employment-classification tests apply to whom,
6
during which periods of time, and then applying those various tests to a kaleidoscope of fact patterns;
7
and then, if necessary, (3) actually determining whether there is any – and the extent of any – liability
8
under Plaintiffs’ various legal claims, which itself would involve thousands of mini trials. Plaintiffs
9
ask this court to believe that trying this case would be as easy as A-B-C. The reality is that this case
10
is extraordinarily complex and unmanageable, and the issue of employee versus independent-
11
contractor status is simply one of many issues.
12
Plaintiffs are also not adequate or typical representatives of the individuals they seek to
13
represent. Plaintiffs seek to represent individuals who own businesses that generate seven-figure
14
annual revenue, have operations across the nation, and manage workforces in excess of 100
15
employees. Plaintiffs claim that these successful business owners they are seeking to represent are
16
non-exempt employees of VCS (a company these individuals have never even spoken to). The claim
17
is ridiculous on many levels. Plaintiffs’ Motion and proposed class definition also fail to recognize
18
that hundreds of individuals they seek to represent are subject to binding arbitration agreements with
19
class-action waivers, and that many such individuals have entered release agreements resolving some
20
or all of the claims at issue in this case.
21
The arguments against class certification are too numerous to summarize in an introductory
22
section. The arguments are set forth in greater detail below.
23
II. FACTS
24
A. Background On Pertinent Franchise Laws.1
25
Franchising has “existed in this country in one form or another for over 150 years” (Patterson
26
v. Domino’s Pizza, LLC, 60 Cal. 4th 474, 489 (2014)), and, in the words of the California Supreme
27
1
When reading this section, it is important to bear in mind that in California, “[a] putative employer
28 does not exercise any degree of control merely by imposing requirements mandated by government
regulation.”
LITTLER MENDELSON, P.C. Linton v. Desoto Cab Co., 15 Cal. App. 5th 1208, 1223 (2017).
333 Bush Street
34th Floor
San Francisco, CA 94104 8
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
Court, has “become a ubiquitous, lucrative, and thriving business model.” Id. at 477. California
1
franchisors are heavily regulated by both the state and federal government. At the federal level, the
2
Federal Trade Commission defines a “franchise” in part as “any continuing commercial relationship
3
or arrangement” whereby the franchisor promises that the franchisee “will obtain the right to operate
4
a business that is identified or associated with the franchisor’s trademark ....” 16 C.F.R. § 436.1(h)(1).
5
Further, the Lanham Act mandates that trademark licensors maintain control over the use of their
6
trademarks. See 15 U.S.C. §1127 (2000). In pertinent part, 16 C.F.R. § 436.1(h)(l)-(3) provides:
7
8 (h) Franchise means any continuing commercial relationship or arrangement,
whatever it may be called, in which the terms of the offer or contract specify, or the
9 franchise seller promises or represents, orally or in writing, that:
10 (1) The franchisee will obtain the right to operate a business that is
identified or associated with the franchisor’s trademark, or to offer, sell, or distribute
11
goods, services, or commodities that are identified or associated with the franchisor’s
12 trademark;
13 (2) The franchisor will exert or has authority to exert a significant
degree of control over the franchisee’s method of operation, or provide significant
14 assistance in the franchisee’s method of operation, and;
15
(3) As a condition of obtaining or commencing operation of the
16 franchise, the franchisee makes a required payment or commits to make a required
payment to the franchisor or its affiliate.
17
See 16 C.F.R. § 436. 1 (h)(l)-(3)(emphasis added).
18
The California Legislature has enacted two statutes to regulate franchise relationships (the
19
California Franchise Investment Law [the “CFIL”] and the California Franchise Relations Act [the
20
“CFRA”]). These enactments also repeatedly characterize franchises as “businesses” and describe the
21
relationship created between a franchisor and a franchisee as a “business relationship.” See, e.g., Cal.
22
Corp. Code §31001; §31005(a)(2); §31011.
23
Under the CFIL, a “franchise” is a contract or agreement characterized by three elements:
24
(1) A franchisee is granted the right to engage in the business of
25
offering, selling or distributing goods or services under a marketing plan or system
26 prescribed in substantial part by a franchisor; and
27
(2) The operation of the franchisee’s business pursuant to such plan or
28 system is substantially associated with the franchisor’s trademark, service mark,
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104 9
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
trade name, logotype, advertising or other commercial symbol designating the
1
franchisor or its affiliate; and
2
(3) The franchisee is required to pay, directly or indirectly, a franchise
3 fee.
4 Cal. Corp. Code § 31005(a)(1)-(3) (emphasis added).
5 The California Supreme Court repeatedly praised franchising as a business model in the 2014
6 decision Patterson v. Domino’s Pizza, LLC, 60 Cal. 4th 474, writing:
7 This contractual arrangement benefits both parties. The franchisor, which sells the right
to use its trademark and comprehensive business plan, can expand its enterprise while
8
avoiding the risk and cost of running its own stores... By following the standards used
9 by all stores in the same chain, the self-motivated franchisee profits from the expertise,
goodwill, and reputation of the franchisor.
10
Id. at 477. The Court further noted that franchisors must
11
[I]mpose[] comprehensive and meticulous standards for marketing its trademarked
12 brand and operating its franchises in a uniform way. To this extent, the franchisor
controls the enterprise. However, the franchisee retains autonomy as a manager and
13 employer. It is the franchisee who implements the operational standards on a day-to-
14 day basis, hires and fires store employees, and regulates workplace behavior.
Id. at 478 (emphasis added). On this subject, the Court added:
15
16 Under the business format model, the franchisee pays royalties and fees for the right
to sell products or services under the franchisor's name and trademark. In the process,
17 the franchisee also acquires a business plan, which the franchisor has crafted…This
business plan requires the franchisee to follow a system of standards and procedures.
18 A long list of marketing, production, operational, and administrative areas is
typically involved…The franchisor's system can take the form of printed manuals2,
19
training programs, advertising services, and managerial support, among other
20 things… [S]ystemwide standards and controls provide a means of protecting the
trademarked brand at great distances…
21
The goal—which benefits both parties to the contract—is to build and keep customer
22 trust by ensuring consistency and uniformity in the quality of goods and services[.]
23 Id. at 489-90 (internal citations omitted; emphasis added).
24 Patterson is controlling law that has never been reversed or superseded.3
25
2
26 VCS has distributed eleven different manuals in effect during the Class Period (April 6, 2016 to
present). (Lee Dec., ¶ 12, Exhs. 3-11.)
3
27 The Ninth Circuit in Vazquez v. Jan-Pro Franchising International, Inc., 923 F. 3d 575 (2019)
strayed far afield from the Supreme Court’s Patterson decision, and its dicta regarding the ABC test
28 failed entirely to recognize (or even acknowledge) critical realities of franchise and trademark
regulations,
LITTLER MENDELSON, P.C. including Patterson’s recognition (as relates to the B prong) that franchisors generate
333 Bush Street
34th Floor
San Francisco, CA 94104 10
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
B. Overview Of The Parties To The Action.
1
VCS is a master-franchising business with a single office in San Mateo, California. VCS sits
2
atop a three-tier franchise system, and it is the owner of the Vanguard Cleaning Systems® brand (a
3
service mark), related marks, and the Vanguard Cleaning Systems® franchise business
4
system. Master Franchises (such as the co-Defendants) are licensed to use and operate under VCS’s
5
trademarks and given access to the Vanguard Cleaning Systems® franchise business system. Master
6
Franchises are then given the right and obligation to sub-franchise, i.e., sell unit franchises in
7
designated regions for independently owned and operated commercial cleaning businesses (“Unit
8
Franchises”). These Unit Franchises make use of the Vanguard Cleaning Systems® franchise business
9
system subfranchised to them by the applicable Master Franchise. (Lee Dec., ¶¶ 2-4.)
10
Co-defendants Buddha Capital Corp. (“Buddha”), R.R. Franchising, Inc. (“R.R.”), and Wine
11
Country Ventures, Inc. (“WCV”) are Vanguard® Master Franchises. (Id., ¶ 5.) Master Franchises are
12
subject to minimal, mandatory operating requirements and are generally afforded broad discretion in
13
managing their networks. Each Master Franchise takes the general business concepts developed by
14
VCS and ultimately fashions its own franchise operation within its particular region. (Id., ¶ 8.) The
15
Plaintiffs in this case currently or formerly owned Unit Franchises in California. (Id., ¶ 5.)
16
Unit Franchises, as independently owned and controlled commercial-cleaning businesses,
17
provide commercial cleaning services to a variety of businesses. Unit Franchises decide for
18
themselves how to staff and operate their businesses, how to handle hiring and firing of staff, how to
19
compensate workers, what terms their workers will be subject to, which customers to service, the
20
number of customers to service, the extent to which they wish to utilize Master Franchises for ancillary
21
business support, and many other critical business decisions. VCS is not a party to their Unit Franchise
22
Agreements or any account-related agreements and has no right to control the method and manner that
23
a Unit Franchise business uses to effectuate cleaning services. (Id., ¶ 6.) While some Unit Franchises
24
operate as sole proprietors, others take on various corporate forms. (Newman Dec., ¶¶ 17, 34;
25
Dusthimer Dec., ¶ 17; Gong Dec., ¶¶ 23-24, 37.)4
26
27 revenues from collecting royalties and fees from franchisees and must likewise create and promote a
uniform brand.
4
28 The Newman, Dusthimer, and Gong Declarations are being filed by the Master Franchise co-
Defendants in support of their Opposition to Plaintiffs’ Motion.
LITTLER MENDELSON, P.C.
333 Bush Street
34th Floor
San Francisco, CA 94104 11
415.433.1940
DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION
Hundreds of California Unit Franchise owners (not including the named Plaintiffs) are subject
1
to arbitration agreements pursuant to various forms of agreements entered into with Defendants. (Lee
2
Dec., ¶ 9; Newman Dec., ¶ 18; Dusthimer Dec., ¶ 19; Gong Dec., ¶ 21.) Many, including Plaintiff
3
Mazariegos, have also entered into release agreements affecting claims at issue in this action.
4
(Newman Dec., ¶ 32; Dusthimer Dec., ¶ 41; Gong Dec., ¶ 28.) Unit Franchises have entered into
5
numerous iterations of Unit Franchise Agreements, each of which have their own unique terms of
6
significance to this case.5
7
C. Unit Franchise Owners Run Their Businesses In Vastly Different Ways.
8
Unit Franchise business owners operate their businesses in substantially different ways and
9
strongly refute the facts alleged by the Plaintiffs and Plaintiffs’ declarants.6 As one example, Wavy
10
Point Industries LLC (“Wavy Point”) is owned by Jaques Carpenter, who started the business in 2000.
11
(Carpenter Dec., ¶ 2.) Six years after Wavy Point was formed, the business acquired a Vanguard®
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Unit Franchise. (Id., ¶ 3.) The company has grown to the point where it now has thirty employees
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and generates $1.5 million in annual revenue. (Id., ¶ 4.) Wavy Point is in the process of branching
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DAMON M. OTT, Bar No. 215392 1 dott@littler.com PHILIP B. BALDWIN, Bar No. 307920 2 pbaldwin@littler.com ROBERT GEIGER, Bar No. 322914 3 rgeiger@littler.com LITTLER MENDELSON, P.C. 4 333 Bush Street, 34th Floor San Francisco, California 94104 5 Telephone: 415.433.1940 Fax No.: 415.399.8490 6 Attorneys for Defendant 7 VANGUARD CLEANING SYSTEMS, INC. 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF SAN MATEO 10 11 ALIDA MAZARIEGOS, PAULA GONZALEZ, Case No. 20-CIV-04267 12 and JAIME AMAYA, COMPLEX ACTION 13 Plaintiffs, ASSIGNED FOR ALL PURPOSES TO 14 v. THE HONORABLE NANCY L. FINEMAN, DEPT 4 15 VANGUARD CLEANING SYSTEMS, INC.; RR FRANCHISING, INC., D/B/A DEFENDANT VANGUARD 16 VANGUARD CLEANING SYSTEMS OF CLEANING SYSTEM, INC.’S SOUTHERN CALIFORNIA AND D/B/A OPPOSITION TO PLAINTIFFS’ 17 VANGUARD CLEANING SYSTEMS OF MOTION FOR CLASS NORTHERN CALIFORNIA; BUDDHA CERTIFICATION 18 CAPITAL CORPORATION, D/B/A VANGUARD CLEANING SYSTEMS OF Date: July 26, 2022 19 SACRAMENTO, D/B/A VANGUARD Time: 2:00 p.m. CLEANING SYSTEMS OF THECENTRAL Dept.: 4; Ctrm. G 20 VALLEY, AND D/B/AVANGUARD CLEANING SYSTEMS OF THE CENTRAL 21 COAST; AND WINE COUNTRY VENTURES, INC. D/B/A VANGUARD 22 CLEANING SYSTEMS OF THE NORTH BAY, AND DOES 1 THROUGH 10, 23 INCLUSIVE, 24 Defendants. 25 26 27 28 LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION TABLE OF CONTENTS 1 Page I. INTRODUCTION ................................................................................................................... 8 2 II. FACTS ..................................................................................................................................... 8 3 A. Background On Pertinent Franchise Laws. ................................................................. 8 4 B. Overview Of The Parties To The Action ................................................................... 11 C. Unit Franchise Owners Run Their Businesses In Vastly Different Ways ................. 12 5 III. LEGAL ARGUMENT ........................................................................................................... 14 6 A. Class Certification Standards ..................................................................................... 14 7 B. The Threshold Issue Of Employee Versus Independent Contractor Status Presents Far Too Many Individualized Issues For Class Treatment.......................... 14 8 1. The ABC Test Does Not Apply ..................................................................... 14 9 a. The ABC Test Does Not Apply To Labor Code Claims Pre- Dating The Year 2020 ........................................................................ 14 10 b. The ABC Test Does Not Apply Under Labor Code Section 2775(a)(3) .......................................................................................... 15 11 c. Common Issues Will Not Predominate Under The Express 12 B2B Exemption.................................................................................. 16 d. The Martinez Joint-Employer Test Will Apply To An 13 Unknown Number of Unit Franchise Owners ................................... 17 14 2. Common Issues Do Not Predominate Under Borello .................................... 18 3. Common Issues Do Not Predominate Under The ABC Test ........................ 20 15 C. Assessing Liability For The Actual Legal Claims Would Entail Highly 16 Individualized Issues .................................................................................................. 22 1. Determining Whether Unit Franchise Owners Were Exempt 17 Employees Would Be Unmanageable And Involve Many Individualized Issues ...................................................................................... 22 18 2. Common Issues Do Not Predominate For The Break Claims ....................... 22 19 3. Common Issues Do Not Predominate For The Overtime Claim ................... 23 20 4. Common Issues Do Not Predominate For The Expense- Reimbursement Claims. ................................................................................. 24 21 5. Common Issues Do Not Predominate For The Wage-Statement And Waiting-Time Penalty Claims........................................................................ 27 22 D. A Class Action Would Not Be Manageable Or Superior To Individual Actions ...... 28 23 1. Plaintiffs’ Class Definition, Alone, Renders This Action Unmanageable................................................................................................ 28 24 2. The Existence Of Hundreds Of Arbitration And Release Agreements 25 Renders This Action Unmanageable ............................................................. 29 3. For Additional Reasons, A Class Action Is Not Superior To Individual 26 Actions ........................................................................................................... 30 27 E. Plaintiffs Fail To Meet The Typicality And Adequacy Standards ............................ 30 IV. CONCLUSION ...................................................................................................................... 31 28 LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 2 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION TABLE OF AUTHORITIES 1 2 Page(s) 3 Cases 4 Albert v. Postmates Inc., 2019 WL 1045785 (N.D. Cal. Mar. 5, 2019) ...........................................................................24 5 Amaral v. Cintas Corp. No. 2, 6 163 Cal. App. 4th 1157 (2008) ..........................................................................................27, 28 7 Basurco v. 21st Century Ins., 8 108 Cal. App. 4th 110 (2003) ..................................................................................................30 9 Berman v. Freedom Fin. Network, LLC, 400 F. Supp. 3d 964 (N.D. Cal. 2019) ...............................................................................29, 30 10 Block v. Major League Baseball, 11 65 Cal. App. 4th 538 (1998) ....................................................................................................14 12 Bowman v. CMG Mortg. Inc., 13 2008 WL 3200662 (N.D. Cal. Aug. 4, 2008) ..........................................................................26 14 Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012) ...........................................................................................................14 15 Chavez v. Lumber Liquidators, 16 2012 WL 1004850 (N.D. Cal. Mar. 26, 2012) .........................................................................26 17 Chebotnikov v. LimoLink, Inc., 2017 WL 2888713 (D. Mass. July 6, 2017).............................................................................16 18 19 Chris Pyara v. Sysco Corp., 2017 WL 928715 (E.D. Cal. Mar. 9, 2017) .............................................................................26 20 Cislaw v. Southland Corp., 21 4 Cal. App. 4th 1284 (1992) ....................................................................................................18 22 Cochran v. Schwan's Home Serv., Inc., 228 Cal. App. 4th 1137 (2014) ..........................................................................................24, 26 23 24 Cristler v. Express Messenger Systems, Inc., 171 Cal. App. 4th 72 (2009) ....................................................................................................18 25 Curry v. Equilon Enters., LLC, 26 23 Cal. App. 5th 289 (2018) ..............................................................................................17, 21 27 Dailey v. Sears, Roebuck & Co., 214 Cal. App. 4th 974 (2013) ............................................................................................22, 23 28 LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 3 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION Dalton v. Lee Publications, Inc., 1 2011 WL 1045107 (S.D. Cal. 2011) ........................................................................................28 2 Dilts v. Penske Logistics, LLC, 3 2014 WL 866954 (S.D. Cal. Feb. 19, 2014) ............................................................................26 4 Dryer v. Los Angeles Rams, 40 Cal. 3d 406 (1985) ..............................................................................................................29 5 Dynamex Operations W. v. Superior Court, 6 4 Cal. 5th 903 (2018) .........................................................................................................14, 27 7 In re FedEx Ground Package Sys., Inc., Employment Practices Litig., 8 273 F.R.D. 516 (N.D.Ind.2010) ...............................................................................................21 9 Fireside Bank v. Superior Court, 40 Cal. 4th 1069 (2007) ...........................................................................................................31 10 Frlekin v. Apple, Inc., 11 8 Cal. 5th 1038 (2020) .............................................................................................................24 12 Garcia v. Border Transportation Group, LLC, 13 28 Cal. App. 5th 558 (2018) ....................................................................................................15 14 Garcia v. Pexco, LLC, 11 Cal. App. 5th 782 (2017) ....................................................................................................29 15 Grissom v. Vons Co., 16 1 Cal. App. 4th 52 (1991) ........................................................................................................25 17 Haitayan v. 7-Eleven, Inc., 18 2021 WL 4078727 (C.D. Cal. Sept. 8, 2021) .................................................................. passim 19 Haitayan v. 7-Eleven, Inc., 2021 WL 757024 (C.D. Cal. Feb. 8, 2021)............................................................14, 21, 22, 26 20 Harris v. Vector Marketing Corp., 21 753 F.Supp.2d 996 (N.D. Cal. 2010) .......................................................................................27 22 Henderson v. Equilon Enters., LLC, 23 40 Cal. App. 5th 1111 (2019) ..................................................................................................17 24 Henry v. Central Freight Lines, Inc., 2021 WL 3187257 (E.D. Cal. July 28, 2021) ..........................................................................15 25 Hill v. Walmart, Inc., 26 32 F.4th 811 (2022)..................................................................................................................27 27 Howard v. Gap, 2009 WL 3571984 (N.D. Cal. Oct. 29, 2009)..........................................................................25 28 LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 4 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION Jong v. Kaiser Foundation Health Plan, Inc., 1 226 Cal. App. 4th 391 (2014) ..................................................................................................24 2 Juarez v. Jani-King of California, Inc., 3 273 F.R.D. 571 (N.D. Cal. 2011) .............................................................................................30 4 Kizer v. Tristar Risk Management, 13 Cal. App. 5th 830 (2017) ....................................................................................................24 5 Koval v. Pacific Bell Telephone Co., 6 232 Cal. App. 4th 1050 (2014) ................................................................................................23 7 La Sala v. American Sav. & Loan Assoc., 8 5 Cal. 3d 864 (1971) ................................................................................................................31 9 Lampe v. Queen of the Valley Medical Center, 19 Cal. App. 5th 832 (2018) ..............................................................................................23, 24 10 Linton v. Desoto Cab Co., 11 15 Cal. App. 5th 1208 (2017) ..............................................................................................8, 18 12 Madrigal v. Tommy Bahama Grp., Inc., 13 2011 WL 10511339 (C.D. Cal. June 27, 2011) .......................................................................27 14 Martinez v. Combs, 49 Cal. 4th 35 (2010) .........................................................................................................17, 22 15 Martinez-Sanchez v. Anthony Vineyards, Inc., 16 2021 WL 5371425 (E.D. Cal. Nov. 18, 2021) .........................................................................26 17 Moreno v. Castlerock Farming and Transport, Inc., 18 2022 WL 902597 (E.D. Cal. March 28, 2022) ........................................................................31 19 Moreno v. Jct Logistics, 2019 WL 3858999 (C.D. Cal. May 29, 2019) .........................................................................15 20 Morgan v. Wet Seal, Inc., 21 210 Cal. App. 4th 1341 (2012) ................................................................................................26 22 Naranjo v. Spectrum Sec. Servs., Inc., 23 40 Cal. App. 5th 444 (2019) ....................................................................................................31 24 Narayan v. EGL, Inc., 285 F.R.D. 473 (N.D. Cal. 2012) .................................................................................19, 21, 29 25 Okeke v. Dynamex Operations East, Inc., 26 2013 WL 7085617 (Mass.Super. Dec. 03, 2013) ....................................................................16 27 Olson v. California, 2020 WL 905572 (C.D. Cal. Feb 10, 2020).............................................................................14 28 LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 5 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION Patterson v. Domino’s Pizza, LLC, 1 60 Cal. 4th 474 (2014) ...................................................................................................8, 10, 15 2 Payton v. CSI Elec. Contractors, Inc., 3 27 Cal. App. 5th 832 (2018) ....................................................................................................23 4 Peabody v. Time Warner Cable, Inc., 59 Cal. 4th 662 (2014) .............................................................................................................22 5 People v. Pac. Landmark, LLC, 6 129 Cal. App. 4th 1203 (2005) ................................................................................................26 7 Reyes v. San Diego County Bd. of Supervisors, 8 196 Cal. App. 3d 1263 (1987) .................................................................................................28 9 S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989) ...................................................................................................... passim 10 Salazar v. McDonald’s Corp., 11 944 F.3d 1024 (2019)...............................................................................................................17 12 Sanchez v. Hearst Communications, Inc., 13 2022 WL 1400853 (N.D. Cal. May 4, 2022) ...........................................................................19 14 Schwann v. FedEx Ground Package Sys., Inc., 2013 WL 1292432 (D. Mass. Apr. 1, 2013) ............................................................................21 15 Soares v. Flower Foods, Inc., 16 320 F.R.D. 464 (N.D. Cal. 2017) ..................................................................................... passim 17 Spencer v. Beavex, Inc., 18 2006 WL 6500597 (S.D. Cal. Dec. 15, 2006)....................................................................19, 29 19 Sportsman v. A Place for Rover, Inc., 537 F. Supp. 3d 1081 (N.D. Cal. 2021) ...................................................................................21 20 Tokoshima v. Pep BoysManny Moe & Jack of California, 21 2014 WL 1677979 (N.D. Cal. Apr. 28, 2014) .........................................................................25 22 Urena v. Earthgrains Distribution, LLC, 23 2017 WL 4786106 (C.D. Cal. July 19, 2017) ........................................................19, 20, 29, 30 24 Vazquez v. Jan-Pro Franchising International, Inc., 923 F. 3d 575 (2019)................................................................................................................10 25 Villalpando v. Exel Direct, Inc., 26 2015 WL 5179486 (N.D. Cal. 2015) .......................................................................................28 27 Statutes 28 15 U.S.C. §1127 (2000) ...................................................................................................................9 LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 6 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION B2B Exemption..............................................................................................................................16 1 2 Cal. Corp. Code §31001...................................................................................................................9 3 Cal. Corp. Code § 31005(a)(1)-(3) ..........................................................................................10, 15 4 California Franchise Investment Law ..............................................................................................9 5 California Franchise Relations Act ............................................................................................9, 20 6 CFIL .................................................................................................................................................9 7 Labor Code Section 2775(a)(3) .....................................................................................................15 8 Labor Code section 2775(b)...........................................................................................................20 9 Labor Code section 2776 ...............................................................................................................16 10 Labor Code section 2802 .......................................................................................15, 24, 25, 26, 30 11 Labor Code section 2802(a) ...........................................................................................................26 12 Labor Code section 203 ...........................................................................................................27, 28 13 Labor Code section 226 .................................................................................................................28 14 Lanham Act ......................................................................................................................................9 15 16 Other Authorities 17 16 C.F.R. § 436.1(h)(1)....................................................................................................................9 18 16 C.F.R. § 436.1(h)(l)-(3)...............................................................................................................9 19 Wage Order 5, §§ 11-12...........................................................................................................21, 22 20 21 22 23 24 25 26 27 28 LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 7 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION I. INTRODUCTION 1 Defendant Vanguard Cleaning Systems, Inc. (“VCS”) submits this brief in opposition to 2 Plaintiffs’ Motion for Class Certification. For many reasons, Plaintiffs’ claims are not remotely 3 appropriate for class treatment. Any trial in this matter would be riddled with manageability problems 4 and individualized issues on at least three levels: (1) discerning who is a class member (and for which 5 periods of time); (2) determining which of several employment-classification tests apply to whom, 6 during which periods of time, and then applying those various tests to a kaleidoscope of fact patterns; 7 and then, if necessary, (3) actually determining whether there is any – and the extent of any – liability 8 under Plaintiffs’ various legal claims, which itself would involve thousands of mini trials. Plaintiffs 9 ask this court to believe that trying this case would be as easy as A-B-C. The reality is that this case 10 is extraordinarily complex and unmanageable, and the issue of employee versus independent- 11 contractor status is simply one of many issues. 12 Plaintiffs are also not adequate or typical representatives of the individuals they seek to 13 represent. Plaintiffs seek to represent individuals who own businesses that generate seven-figure 14 annual revenue, have operations across the nation, and manage workforces in excess of 100 15 employees. Plaintiffs claim that these successful business owners they are seeking to represent are 16 non-exempt employees of VCS (a company these individuals have never even spoken to). The claim 17 is ridiculous on many levels. Plaintiffs’ Motion and proposed class definition also fail to recognize 18 that hundreds of individuals they seek to represent are subject to binding arbitration agreements with 19 class-action waivers, and that many such individuals have entered release agreements resolving some 20 or all of the claims at issue in this case. 21 The arguments against class certification are too numerous to summarize in an introductory 22 section. The arguments are set forth in greater detail below. 23 II. FACTS 24 A. Background On Pertinent Franchise Laws.1 25 Franchising has “existed in this country in one form or another for over 150 years” (Patterson 26 v. Domino’s Pizza, LLC, 60 Cal. 4th 474, 489 (2014)), and, in the words of the California Supreme 27 1 When reading this section, it is important to bear in mind that in California, “[a] putative employer 28 does not exercise any degree of control merely by imposing requirements mandated by government regulation.” LITTLER MENDELSON, P.C. Linton v. Desoto Cab Co., 15 Cal. App. 5th 1208, 1223 (2017). 333 Bush Street 34th Floor San Francisco, CA 94104 8 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION Court, has “become a ubiquitous, lucrative, and thriving business model.” Id. at 477. California 1 franchisors are heavily regulated by both the state and federal government. At the federal level, the 2 Federal Trade Commission defines a “franchise” in part as “any continuing commercial relationship 3 or arrangement” whereby the franchisor promises that the franchisee “will obtain the right to operate 4 a business that is identified or associated with the franchisor’s trademark ....” 16 C.F.R. § 436.1(h)(1). 5 Further, the Lanham Act mandates that trademark licensors maintain control over the use of their 6 trademarks. See 15 U.S.C. §1127 (2000). In pertinent part, 16 C.F.R. § 436.1(h)(l)-(3) provides: 7 8 (h) Franchise means any continuing commercial relationship or arrangement, whatever it may be called, in which the terms of the offer or contract specify, or the 9 franchise seller promises or represents, orally or in writing, that: 10 (1) The franchisee will obtain the right to operate a business that is identified or associated with the franchisor’s trademark, or to offer, sell, or distribute 11 goods, services, or commodities that are identified or associated with the franchisor’s 12 trademark; 13 (2) The franchisor will exert or has authority to exert a significant degree of control over the franchisee’s method of operation, or provide significant 14 assistance in the franchisee’s method of operation, and; 15 (3) As a condition of obtaining or commencing operation of the 16 franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate. 17 See 16 C.F.R. § 436. 1 (h)(l)-(3)(emphasis added). 18 The California Legislature has enacted two statutes to regulate franchise relationships (the 19 California Franchise Investment Law [the “CFIL”] and the California Franchise Relations Act [the 20 “CFRA”]). These enactments also repeatedly characterize franchises as “businesses” and describe the 21 relationship created between a franchisor and a franchisee as a “business relationship.” See, e.g., Cal. 22 Corp. Code §31001; §31005(a)(2); §31011. 23 Under the CFIL, a “franchise” is a contract or agreement characterized by three elements: 24 (1) A franchisee is granted the right to engage in the business of 25 offering, selling or distributing goods or services under a marketing plan or system 26 prescribed in substantial part by a franchisor; and 27 (2) The operation of the franchisee’s business pursuant to such plan or 28 system is substantially associated with the franchisor’s trademark, service mark, LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 9 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION trade name, logotype, advertising or other commercial symbol designating the 1 franchisor or its affiliate; and 2 (3) The franchisee is required to pay, directly or indirectly, a franchise 3 fee. 4 Cal. Corp. Code § 31005(a)(1)-(3) (emphasis added). 5 The California Supreme Court repeatedly praised franchising as a business model in the 2014 6 decision Patterson v. Domino’s Pizza, LLC, 60 Cal. 4th 474, writing: 7 This contractual arrangement benefits both parties. The franchisor, which sells the right to use its trademark and comprehensive business plan, can expand its enterprise while 8 avoiding the risk and cost of running its own stores... By following the standards used 9 by all stores in the same chain, the self-motivated franchisee profits from the expertise, goodwill, and reputation of the franchisor. 10 Id. at 477. The Court further noted that franchisors must 11 [I]mpose[] comprehensive and meticulous standards for marketing its trademarked 12 brand and operating its franchises in a uniform way. To this extent, the franchisor controls the enterprise. However, the franchisee retains autonomy as a manager and 13 employer. It is the franchisee who implements the operational standards on a day-to- 14 day basis, hires and fires store employees, and regulates workplace behavior. Id. at 478 (emphasis added). On this subject, the Court added: 15 16 Under the business format model, the franchisee pays royalties and fees for the right to sell products or services under the franchisor's name and trademark. In the process, 17 the franchisee also acquires a business plan, which the franchisor has crafted…This business plan requires the franchisee to follow a system of standards and procedures. 18 A long list of marketing, production, operational, and administrative areas is typically involved…The franchisor's system can take the form of printed manuals2, 19 training programs, advertising services, and managerial support, among other 20 things… [S]ystemwide standards and controls provide a means of protecting the trademarked brand at great distances… 21 The goal—which benefits both parties to the contract—is to build and keep customer 22 trust by ensuring consistency and uniformity in the quality of goods and services[.] 23 Id. at 489-90 (internal citations omitted; emphasis added). 24 Patterson is controlling law that has never been reversed or superseded.3 25 2 26 VCS has distributed eleven different manuals in effect during the Class Period (April 6, 2016 to present). (Lee Dec., ¶ 12, Exhs. 3-11.) 3 27 The Ninth Circuit in Vazquez v. Jan-Pro Franchising International, Inc., 923 F. 3d 575 (2019) strayed far afield from the Supreme Court’s Patterson decision, and its dicta regarding the ABC test 28 failed entirely to recognize (or even acknowledge) critical realities of franchise and trademark regulations, LITTLER MENDELSON, P.C. including Patterson’s recognition (as relates to the B prong) that franchisors generate 333 Bush Street 34th Floor San Francisco, CA 94104 10 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION B. Overview Of The Parties To The Action. 1 VCS is a master-franchising business with a single office in San Mateo, California. VCS sits 2 atop a three-tier franchise system, and it is the owner of the Vanguard Cleaning Systems® brand (a 3 service mark), related marks, and the Vanguard Cleaning Systems® franchise business 4 system. Master Franchises (such as the co-Defendants) are licensed to use and operate under VCS’s 5 trademarks and given access to the Vanguard Cleaning Systems® franchise business system. Master 6 Franchises are then given the right and obligation to sub-franchise, i.e., sell unit franchises in 7 designated regions for independently owned and operated commercial cleaning businesses (“Unit 8 Franchises”). These Unit Franchises make use of the Vanguard Cleaning Systems® franchise business 9 system subfranchised to them by the applicable Master Franchise. (Lee Dec., ¶¶ 2-4.) 10 Co-defendants Buddha Capital Corp. (“Buddha”), R.R. Franchising, Inc. (“R.R.”), and Wine 11 Country Ventures, Inc. (“WCV”) are Vanguard® Master Franchises. (Id., ¶ 5.) Master Franchises are 12 subject to minimal, mandatory operating requirements and are generally afforded broad discretion in 13 managing their networks. Each Master Franchise takes the general business concepts developed by 14 VCS and ultimately fashions its own franchise operation within its particular region. (Id., ¶ 8.) The 15 Plaintiffs in this case currently or formerly owned Unit Franchises in California. (Id., ¶ 5.) 16 Unit Franchises, as independently owned and controlled commercial-cleaning businesses, 17 provide commercial cleaning services to a variety of businesses. Unit Franchises decide for 18 themselves how to staff and operate their businesses, how to handle hiring and firing of staff, how to 19 compensate workers, what terms their workers will be subject to, which customers to service, the 20 number of customers to service, the extent to which they wish to utilize Master Franchises for ancillary 21 business support, and many other critical business decisions. VCS is not a party to their Unit Franchise 22 Agreements or any account-related agreements and has no right to control the method and manner that 23 a Unit Franchise business uses to effectuate cleaning services. (Id., ¶ 6.) While some Unit Franchises 24 operate as sole proprietors, others take on various corporate forms. (Newman Dec., ¶¶ 17, 34; 25 Dusthimer Dec., ¶ 17; Gong Dec., ¶¶ 23-24, 37.)4 26 27 revenues from collecting royalties and fees from franchisees and must likewise create and promote a uniform brand. 4 28 The Newman, Dusthimer, and Gong Declarations are being filed by the Master Franchise co- Defendants in support of their Opposition to Plaintiffs’ Motion. LITTLER MENDELSON, P.C. 333 Bush Street 34th Floor San Francisco, CA 94104 11 415.433.1940 DEFENDANT VANGUARD CLEANING SYSTEM, INC.’S OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION Hundreds of California Unit Franchise owners (not including the named Plaintiffs) are subject 1 to arbitration agreements pursuant to various forms of agreements entered into with Defendants. (Lee 2 Dec., ¶ 9; Newman Dec., ¶ 18; Dusthimer Dec., ¶ 19; Gong Dec., ¶ 21.) Many, including Plaintiff 3 Mazariegos, have also entered into release agreements affecting claims at issue in this action. 4 (Newman Dec., ¶ 32; Dusthimer Dec., ¶ 41; Gong Dec., ¶ 28.) Unit Franchises have entered into 5 numerous iterations of Unit Franchise Agreements, each of which have their own unique terms of 6 significance to this case.5 7 C. Unit Franchise Owners Run Their Businesses In Vastly Different Ways. 8 Unit Franchise business owners operate their businesses in substantially different ways and 9 strongly refute the facts alleged by the Plaintiffs and Plaintiffs’ declarants.6 As one example, Wavy 10 Point Industries LLC (“Wavy Point”) is owned by Jaques Carpenter, who started the business in 2000. 11 (Carpenter Dec., ¶ 2.) Six years after Wavy Point was formed, the business acquired a Vanguard® 12 Unit Franchise. (Id., ¶ 3.) The company has grown to the point where it now has thirty employees 13 and generates $1.5 million in annual revenue. (Id., ¶ 4.) Wavy Point is in the process of branching