Mujo v. Jani-King International Inc.

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          Adelaide Pagano, Shannon Liss-Riordan, Pro Hac Vice, Lichten & Liss-Riordan, P.C., Boston, MA, Richard Eugene Hayber,

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Hayber, McKenna & Dinsmore, LLC, Lori Ann Knuth, The Hayber Law Firm LLC, Hartford, CT, Michael T. Petela, Jr., Hayber, McKenna & Dinsmore, LLC, New Haven, CT, for Plaintiffs.

          Aaron Van Oort, Kerry L. Bundy, Pro Hac Vice, Larry E. Latarte, Pro Hac Vice, Rory Collins, Faegre Baker Daniels LLP, Minneapolis, MN, Alison G. Fox, Faegre Baker Daniels LLP, South Bend, IN, Peter Joseph Murphy, Shipman & Goodwin LLP, Hartford, CT, for Defendants.

         RULING AND ORDER ON MOTION FOR SUMMARY JUDGMENT

         VICTOR A. BOLDEN, UNITED STATES DISTRICT JUDGE.

         Simon Mujo and Indrit Muharremi, on behalf of a class of over 100 Jani-King franchisees (collectively "Plaintiffs"), allege that Jani-King International, Inc., Jani-King, Inc., and Jani-King of Hartford, Inc. (collectively "Defendants" or "Jani-King") unlawfully classified them as independent contractors and were unjustly enriched in violation of Conn. Gen. Stat. § 31-73(b).

         Jani-King moves for summary judgment.

         For the following reasons, Jani-King's motion for summary judgment is GRANTED.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         A. Factual Background

         Plaintiffs signed Jani-King franchise agreements to "operate a Jani-King franchise cleaning and maintenance services company" and to provide commercial cleaning services using Jani-King's trademarks and system. Pls.' Local Rule 56(a)(2) Statement of Material Facts in Opp. to Jani-King Mot., ECF No. 155 ¶ 1 (Aug. 2, 2019) ("Pls.' SMF"); Ex. 2: Luli & Son LLC^[1] Franchise Agreement, ECF No. 136-5 at § 4.1 (Apr. 23, 2014) ("Luli & Son Franchise Agmt."); Ex. 1: Simon Mujo Franchise Agreement, ECF No. 136-4 at § 4.1 (July 11, 2007) ("Mujo Franchise Agmt."). Plaintiffs' claims arise out of the Jani-King franchise agreement and the ensuing business relationship between the parties. The parties dispute whether Jani-King's franchise agreements permit the Plaintiffs to operate as independent contractors with their own commercial cleaning businesses, or whether Plaintiffs are employees. Pls.' SMF ¶ 1.

         Jani-King's Franchise System and Model

         Jani-King sells commercial cleaning service-based franchises, and requires franchisees to operate under its franchise system in a particular geographic area. Pls.' SMF ¶¶ 54, 56. Jani-King provides janitorial services to commercial entities. Id. ¶ 89. Jani-King's workers are classified as independent contractor franchisees. Id. ¶ 91 (citing Luli & Son Franchise Agmt. at § 12.6).

         Jani-King owns all contracts with its cleaning customers and is solely responsible for drafting all cleaning contracts. Id. ¶ 93; see also Mujo Franchise Agmt. at § 4.7.1 ("All monies received from clients are the property of Franchisor."). Jani-King has the exclusive right to "secure commercial cleaning and maintenance contracts." Pls.' SMF ¶ 99 (citing Luli & Son Franchise Agmt. at § 4.3.1); see also Ex. 24: Jani-King Uniform Offering Circular, ECF No. 156-5 at JKCT00001104 (Apr. 30, 2007)

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("UOC") ("All proposals for services made by [franchisees] to either current or prospective clients must be reviewed and approved by [Jani-King] staff. Any solicitation for services made by [franchisee] must be approved by [Jani-King]."). Additionally, franchisees are limited to accepting or rejecting Jani-King's offered business. Pls.'s SMF ¶ 100 (citing UOC at JKCT00001110). Along with the customer, Jani-King sets the terms of the cleaning services to be provided by franchisees, so franchisees must accept the contract negotiated between Jani-King and the customer. Id. ¶ 101.

         Once franchisees pay an initial franchise fee down payment and initial finder's fee down payment, they operate under Jani-King's marketing system and use Jani-King's intellectual property. Id. ¶¶ 55, 57. Plaintiffs deny that they acquire rights to operate the franchise and allege that "[a]t all times, Jani-King controls the operation." Id. at ¶ 55. Plaintiffs note that among other indices of control, their franchise agreements state that:

Franchisor has developed and used, and continues to develop, use and control in connection with its System, certain confidential information, programs, devices, methods, techniques and processes which are not generally known to the public pertaining to franchising, promotion, marketing, operation and management of a business, ... which includes but is not limited to information regarding the operational, sales, promotional methods and techniques, and marketing methods and techniques of Franchisor and the Jani-King program.

Id. (citing Mujo Franchise Agmt. at § 4.1.2; Luli & Son Franchise Agmt. at § 4.1.3). Plaintiffs also allege that some franchisees pay the entirety of the initial fee upfront, while others pay it over time, with the fee being deducted from their pay. Id. ¶ 96.

         According to the franchise agreement, Jani-King has the "exclusive right to perform all billing and accounting functions for the services." Luli & Son Franchise Agmt. at § 4.8. The franchisee must pay 3% of gross revenue as an accounting fee to Jani-King. Id. Plaintiffs allege they must agree to these support services even if they would rather forgo them. Pls.' SMF ¶ 58.

         According to the franchise agreement, franchisees pay various fees: a 10% royalty fee on monthly gross revenue, subject to certain minimum accounts, id. ¶ 59 (citing Luli & Son Franchise Agmt. at § 4.5.1); an advertising fee of 1.5% gross revenue for specified marketing programs intended to "maximize general public recognition and acceptance of the registered trademarks and enhance the collective success of all [Jani-King] franchises," id. ¶ 61 (citing Luli & Son Franchise Agmt. at § 4.5.2(1)); and a finder's fee for additional cleaning work—over and above the initial business purchased—referred by Jani-King, id. ¶ 62 (citing Luli & Son Franchise Agmt. at § 4.6). Other fees include insurance fees (otherwise known as the "business protection plan"), complaint fees, miscellaneous fees, and charge-backs. Id. ¶ 97; see also id. ¶ 98 (explaining that a charge-back occurs when a customer fails to pay Jani-King for work already performed by Plaintiffs; Jani-King deducts this amount from Plaintiff's earnings); Luli & Son Franchise Agmt. at § 4.8.1 ("Any money not collected in an account for any reason will be charged back to Franchisee."). These contractual fees are all deducted monthly from the gross revenue generated by franchisees. Id. ¶ 64. Plaintiffs deny that the franchise agreement defined "compensation," but Jani-King alleges that Plaintiffs "expressly agreed that their compensation

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would exclude all fees set out in their respective agreements." Id.

         Under the franchise agreement, franchisees are responsible for providing and maintaining worker's compensation and liability insurance. Id. ¶ 66.

         In order to ensure continuous service and client communication, Jani-King has required franchisees to notify the regional office of vacations and contact information for the people who will be responsible for servicing the accounts. Id. ¶ 67. Subject to customer requirements, franchisees set their own schedules. Id. ¶ 68. Franchisees could exchange customer accounts with other franchisees, subject to Jani-King approval, and franchisees also could decline or stop servicing customer accounts, but they risk not getting additional work to make up the difference in revenue. Id. (citing UOC at JKCT00001057).

         Jani-King requires franchisees to "purchase certain professional products and equipment ... under specifications in the Franchise Agreement and operating manuals." UOC at JKCT00001090; see generally id. at JKCT00001090-91 (describing restrictions on sources of products, supplies, and equipment for the cleaning services). Jani-King also determines the advertising and promotional materials used by franchisees, Pls.' SMF ¶ 106 (citing UOC at JKCT00001098),

         Franchisees are responsible for inspecting their customer accounts, Pls.' SMF ¶ 70, and Jani-King also conducts "quality control inspections of accounts ... from time to time in order to insure [sic] that the service is performed in accordance with the cleaning schedule or instructions associated with the contract between Franchisor [Jani-King] and the customer and to the performance standards of Jani-King," Luli & Son Franchise Agmt. at § 4.19.3.

         Jani-King requires franchisees to "meet brand standards addressing everything from cleaning results, to the appearance of people cleaning (e.g., that cleaners should wear clean uniforms with name tags ...), to how the service is associated with Jani-King trade names and advertising." Pls.' SMF ¶ 71; see also id. ¶ 108 (cleaners must wear Jani-King branded uniforms). Additionally, franchisees are prohibited from bringing extra items or non-employees (including children and animals) to the customer site.

         Jani-King requires franchisees to agree not to hold themselves out as an agent, servant, or employee of Jani-King, so that franchisees may not, without prior written approval, obligate Jani-King for any expenses, liabilities, or other obligations. Id. ¶ 72 (citing Mujo Franchise Agmt. at § 12.7; Luli & Son Franchise Agmt. at § 12.6).

         Franchisees may sell their businesses, subject to Jani-King's right of first refusal and written consent. Pls.' SMF ¶ 74. Franchisees are subject to non-compete and non-solicitation provisions after leaving the Jani-King franchise system for a period of two years (within the originally-contracted territory) or one year (outside the territory); during that period, franchisees may not engage in an "independently established trade, occupation, or business" in the commercial cleaning industry. Id. ¶¶ 75, 117 (citing Luli & Son Franchise Agmt. at § 5.2.3).

         Jani-King's franchise agreements have ten or twenty year terms, id. ¶ 76, and may be terminated upon the occurrence of any of the sixteen conditions of default, id. (citing Luli & Son Franchise Agmt. § 8.1). Plaintiffs allege that the "highly subjective conditions in Section 8.1 effectively provide Jani-King with the right to terminate franchisees at will, since it can decide whether Franchisees have engaged in `conduct

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which reflects unfavorably upon ... Jani-King[.]'" Id. (citing Luli & Son Franchise Agmt. at § 8.1(g)(iii)). For many of the conditions for default and termination, Jani-King may terminate the franchise agreement upon thirty (30) days notice. Id. ¶ 114 (citing Luli & Son Franchise Agmt. at § 8.1(g)(i)-(ix)).

         Jani-King provides mandatory initial training, as well as training manuals. Id. ¶ 77. Plaintiffs allege the cleaning methods in the training manuals are not simply recommended techniques, because the franchise agreement may be terminated if franchisees "fail[] to maintain the standards that Franchisor requires in this Agreement or any other standards in Jani-King manuals." Id. (citing Luli & Son Franchise Agmt. at § 8.1(g)(ii)). Additionally, Jani-King may suspend franchisees or require additional training until they meet Jani-King's minimum standards. Id. ¶ 81. Jani-King may also charge more fees to these franchisees who fail to correct deficiencies to the client or Jani-King's satisfaction. Id. ¶ 83.

         According to the franchise agreement between the parties:

Franchisee understands and agrees that Franchisee is required to maintain a good relationship with each customer serviced by Franchisee, and that Franchisor may inspect any premises serviced by Franchisee at any time to ensure that the quality of service being rendered is in accordance with Jani-King standards.

Id. ¶ 82 (quoting Luli & Son Franchise Agmt. at § 4.19; Mujo Franchise Agmt. at § 4.17).

         Although Jani-King alleges it may only terminate franchise agreements "for cause and subject to both contractual notice and any additional requirements imposed by the Connecticut Franchise Act," Conn. Gen. Stat. § 42-133(f)(a), Defendants' Local Rule 56(a)(1) Statement of Undisputed Facts, ECF No. 136-2 ¶ 84 (June 10, 2019) ("Jani-King SMF"), Plaintiffs allege that the broad and subjective conditions for default in Section 8.1, along with the fact that "Jani-King does not continuously guarantee any level of work or accounts," "effectively provide Jani-King with the right to terminate franchisees at will," Pls.' SMF ¶ 84; see also id. ¶ 86 (citing Luli & Son Franchise Agmt. at § 6.1.2 ("Franchisor does not guaranty that the Initial Business will reach or remain at the level stated on the Franchise Summary throughout the term of this Agreement.") (emphasis omitted)). Jani-King does allow franchisees to pursue additional business, provided that they submit all sales proposals for Jani-King's prior approval. Id. ¶ 87; see also UOC at JKCT00001104. In addition, although franchisees may sell extra services to customers, franchisees must still receive prior approval from Jani-King. Id. ¶¶ 88, 102.

         Jani-King employs staff to monitor customer satisfaction and field customer inquiries, including complaints. Additionally, Jani-King's centralized computer system stores call logs, which Plaintiffs allege demonstrate Jani-King's "extensive involvement" with Plaintiffs and Jani-King customers. Id. ¶ 105.

         Mr. Mujo's Relationship with Jani-King

         On July 11, 2007, Mr. Mujo entered into a franchise agreement with Jani-King. See Mujo Franchise Agmt. Mr. Mujo claims he "was only a worker" for Jani-King and was not a franchise owner. Ex. 31: Deposition of Simon Mujo, ECF No. 156-12 at 26:7-13 (July 27, 2018) ("Mujo Depo."); see also Pls. SMF ¶ 2 (admitting that Plaintiff Mujo "performed the manual labor of cleaning the offices per Jani[-]King's specifications" beginning in 2007). Mr. Mujo admits that his Franchise Agreement obligated

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him to "act at all times as an independent contractor," but he alleges that notwithstanding this language, he was a Jani-King employee. Pls. SMF ¶ 3 (citing Mujo Franchise Agmt. at § 12.7, but noting generally the numerous controls exercised by Jani-King).

         Mr. Mujo paid $44,175 as an initial franchise fee down payment and initial finder's fee down payment in exchange for his use of the Jani-King "System, Property Marks, and Confidential Information." Id. ¶ 4 (citing Mujo Franchise Agreement at 1, § 4.3). Mr. Mujo had no prior sales experience. Id. ¶ 5. Mr. Mujo understood that "Jani-King was obligated to offer [him] at least $15,000 in monthly revenue during the first 480 days of [his] agreement period," Mujo Depo. at 105:2-9, and that Jani-King would keep a certain percentage of revenue equal to its fees, Pls. SMF ¶ 6. Mr. Mujo received Monthly Franchise Reports, which disclosed both customer revenue and Jani-King fees and deductions. Id. ¶ 7. According to Mr. Mujo, "[o]nly Jani-King representatives communicated with the customer accounts such that [he] did not have any contact with customers at all." Id. ¶ 8 (citing Mujo Depo. at 143:1-24). Mr. Mujo claims that he did not receive training to clean specialized accounts, like hospitals and restaurants, id. ¶ 9 (citing Mujo Depo. 1211:18-123:33), and he asserts the "Jani-King representatives were unknowledgeable and unable to answer questions about what kind of cleaning tools he should use for new customer accounts," id. ¶ 10.

         According to Jani-King policies and his franchise agreement, Mr. Mujo's cleaning work had to be performed "in accordance with the cleaning schedule or instructions associated with the contract between [Jani-King] and the client to [Jani-King's] performance standards." Id. ¶ 11 (citing Mujo Franchise Agmt. § 4.17). Mr. Mujo claims that he only declined customer accounts offered by Jani-King when Jani-King instructed him to do so. Id. ¶¶ 12-13 (citing Mujo Depo. at 109:4-110:9). Mr. Mujo could and did hire employees, but he only hired one part-time employee, his cousin, and Mr. Mujo disputes that he supervised his cousin because his cousin also had to "follow current established Jani-King polices, practices, and procedures." Id. ¶ 14 (citing Mujo Franchise Agmt. At § 4.2.2).

         Mr. Mujo provided his own equipment and transportation for cleaning jobs, and he sometimes purchased supplies at Wal-Mart or Lowe's, which lowered his costs. Id. ¶ 15 (noting that Mr. Mujo also purchased supplies where Jani-King told him to go). Although Mr. Mujo allegedly did not know his franchise agreement allowed him to solicit potential clients, id. ¶ 18, he notes that "[a]ll contracts under which terms services are provided by any Jani-King franchisee are the sole property of Jani-King," Mujo Franchise Agmt. § 4.19.2. Mr. Mujo admits he "did not believe he could improve the speed or efficiency of cleaning work, ... that a customer account would take just as long to clean the first time as it would the twenty-fifth time." Pls.'s SMF ¶ 19.

         Mr. Mujo "never communicated" with customers directly, but admits that customers made complaints to Jani-King. Id. ¶ 21 (citing Mujo Depo. at 143:16-24). One customer complained to Jani-King that Mr. Mujo had inappropriately touched an employee, and requested that a new franchisee clean their office. Ex. 6 March 15, 2011 Incident Report, ECF No. 136-8 at 2 (July 19, 2017). Mr. Mujo denies the incident occurred, but admits the complaint was made. Pls. SMF ¶ 22. Another customer, a physician's group, cancelled their Jani-King contract after complaining that Mr. Mujo's franchise did not adequately clean their premises, even after the group spoke to Mr. Mujo. Id. ¶ 23. Mr. Mujo has no

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memory of speaking to anyone at the physician's group about the alleged problem, but admits the complaint was made. Id.

         Mr. Mujo provided cleaning services for Jani-King until early 2016. Id. ¶ 120. Throughout the term of his franchise agreement, Mr. Mujo paid finder's fees for new accounts, and paid the many other fees as well. Id. ¶ 121.

         Mr. Muharremi's Relationship with Jani-King

         On April 23, 2014, on behalf of his limited liability company, Luli & Son, LLC, Mr. Muharremi entered into a franchise agreement with Jani-King. Luli & Son Franchise Agmt. Mr. Muharremi admits that his Franchise Agreement stated that "Franchisee will be at all times an independent contractor," but alleges that notwithstanding this language, Mr. Muharremi was a Jani-King employee and was not permitted to operate as an independent contractor. Pls. SMF ¶ 25 (citing Luli & Son Franchise Agmt. at § 12.6, and noting the many indices of control throughout the Franchise Agreement).

         Mr. Muharremi paid $16,250 as an initial franchise fee down payment and initial finder's fee down payment in exchange for his use of the Jani-King "System, Property Marks, and Confidential Information." Id. ¶ 26 (citing Luli & Son Franchise Agreement at 1, § 4.3-4.3.1). Mr. Muharremi understood that he (through Luli & Son LLC) was contracting to receive offers of initial business that would generate $4,000 of gross revenue per month, less specified fees, and acknowledges that "part of what [he] purchased with [his] franchise was access to the Jani-King system, for example, training programs that trained [him] in how to clean accounts according to Jani-King standards." Id. ¶¶ 27-28. Although Mr. Muharremi performed his daily duties without supervision, Jani-King personnel sometimes inspected his work for quality control. Id. ¶ 29 (citing Luli & Son Franchise Agmt. at § 4.19.3 and various depositions of Jani-King personnel). Mr. Muharremi "held himself out as an owner of a Jani-King franchise through the use of his business card." Id. ¶ 30; see also Ex. 19: Luli & Son LLC Business Card, ECF No. 136-22 (June 10, 2019) (noting that it was an authorized franchisee of Jani-King, and including Jani-King's logo).

         Consistent with Jani-King's constraints and customer schedules, Mr. Muharremi decided when to perform his cleaning services and provided his own equipment. Id. ¶ 31. Mr. Muharremi decided "both whether to accept any customer account referred by Jani-King, ... and whether to use his own or employee labor to provide cleaning services." Id. ¶ 32. In the span of four years, Mr. Muharremi is aware of three or fewer quality-control inspections by Jani-King, and none occurred while cleaning services were being performed. Id. ¶ 33. Months would pass where Mr. Muharremi had no contact with Jani-King. Id. ¶ 34.

         Mr. Muharremi recognized that he could "minimize expenses by providing services to nearby customers." Id. ¶ 35. Before accepting a new account, Mr. Muharremi collected information about the square footage, fixtures, and any time constraints. Id. ¶ 36. He sometimes sold additional services, like stripping floors and carpet extractions, to existing customers. Id. ¶ 37. He "individually assessed whether each customer space required an initial deep cleaning, ... and always inspected work performed by family members before leaving a job." Id. ¶ 38.

         Mr. Muharremi never tried to "grow" his business or hire employees; never considered what factors made accounts profitable; and never devised strategies to improve efficiency, such as tracking hours spent on different accounts. Id. ¶ 39. Mr.

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Muharremi personally serviced the accounts "90 percent of the time." Id. (citing Ex. 7: Deposition of Indrit Muharremi, ECF No. 136-10 at 230:6-10 (Apr. 18, 2018) ("Muharremi Depo.")). Mr. Muharremi shopped for the lowest price on cleaning supplies and equipment, but noted that "there [are] better deals but not [for] Jani-King approved supplies." Id. (citing Muharremi Depo. at 143:11-144:5).

         Mr. Muharremi continues to perform cleaning services for Jani-King under his franchise agreement. Id. ¶ 118. As a result, he alleges he pays finder's fees "as a condition of securing more cleaning work with Jani-King" for new accounts, and continues to pay the ...