Patel v. 7-Eleven, Inc.

81 F.4th 73

• Court: Court of Appeals for the First Circuit
• Decided: August 29, 2023
• Docket: 23-1043
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

No. 23-1043

DHANANJAY PATEL, SAFDAR HUSSAIN, VATSAL CHOKSHI, DHAVAL PATEL, and NIRAL PATEL, on behalf of themselves and all others similarly situated,

Plaintiffs, Appellants,

v.

7-ELEVEN, INC.,

Defendant, Third-Party Plaintiff, Appellee,

MARY CADIGAN; ANDREW BROTHERS,

Defendants,

DP MILK STREET INC.; DP JERSEY INC.; DP TREMONT STREET INC.; DPNEWTO1,

Third-Party Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nathaniel M. Gorton, U.S. District Judge]

Before

Montecalvo, Selya, and Thompson, Circuit Judges.

Shannon Liss-Riordan, with whom Michelle Cassorla and Lichten & Liss-Riordan, P.C. were on brief, for appellants Dhananjay Patel, Safdar Hussain, Vatsal Chokshi, Dhaval Patel, and Niral Patel. David C. Kravitz, Deputy State Solicitor, with whom Douglas S. Martland, Assistant Attorney General, Peter N. Downing, Assistant Attorney General, and Kate Watkins, Assistant Attorney General, were on brief, for the Commonwealth of Massachusetts, amicus curiae. Norman M. Leon, with whom Patricia C. Zapata, DLA Piper LLP, Matthew J. Iverson, and Nelson Mullins Riley & Scarborough LLP were on brief, for appellee 7-Eleven.

August 29, 2023 PER CURIAM. Plaintiffs, who collectively comprise a

putative class of franchisees, have been classified as independent

contractors of their franchisor, Defendant 7-Eleven, Inc. ("7-

Eleven"). Wishing instead to be classified as employees,

Plaintiffs sued 7-Eleven for violations of Massachusetts wage

laws.

For the second time now, this case presents a novel

question of Massachusetts law. To be specific, resolving the

present appeal will require us to consider what is meant, in the

context of a franchise arrangement, by "performing any service" as

that phrase is used in the Massachusetts Independent Contractor

Law ("ICL"), Mass. Gen. Laws ch. 149, § 148B(a) -- an issue which

the Massachusetts Supreme Judicial Court ("SJC") has not squarely

addressed.

Accordingly, as "[t]he SJC is the final arbiter of

Massachusetts law," Genereux v. Raytheon, Co., 754 F.3d 51, 57

(1st Cir. 2014), we certify this unresolved question to that court,

pursuant to SJC Rule 1:03.

BACKGROUND

As the SJC is already familiar with this case, we provide

an abridged version of the factual and procedural history.

Plaintiffs are owners and operators of 7-Eleven

franchises in Massachusetts. Each franchisee relationship with 7-

Eleven is governed by a franchise agreement ("the Franchise

- 3 - Agreement"), which Plaintiffs signed in order to establish each

franchise location. The Franchise Agreement (which is materially

the same between each individual Plaintiff and 7-Eleven) details

the many obligations franchisees owe 7-Eleven, including (among

many other things) holding themselves out to the public as

independent contractors, participating in required trainings,

manning their convenience stores 24 hours per day in 7-Eleven-

approved uniforms, buying particular inventory from particular

vendors, and using a designated system for payroll. Both upfront

and throughout their franchisor-franchisee relationship,

franchisees agree to pay various costs. Of note is the "7-Eleven

Charge," which is approximately 50 percent of the store's gross

profits owed to 7-Eleven. As a percentage of the store's gross

profits (as opposed to a flat rate), the exact amount of the 7-

Eleven Charge depends on the store's performance. For each

franchisee, 7-Eleven establishes and maintains a bank account,

where the store's gross profits are held and from which the 7-

Eleven Charge is paid. After the 7-Eleven Charge is paid, 7-

Eleven "agree[s] to . . . pay" each franchisee the remaining gross

profits as weekly draw.

After Plaintiffs filed suit for alleged violations of

the Massachusetts ICL, Mass. Gen. Laws ch. 149, § 148B, the

Massachusetts Wage Act, Mass. Gen. Laws ch. 149, § 148, and the

Massachusetts Minimum Wage Law, Mass. Gen. Laws ch. 151, §§ 1, 7,

- 4 - both parties eventually moved for summary judgment. The district

court ruled in 7-Eleven's favor and, in so doing, determined that

the Massachusetts test for independent contractor

misclassification conflicted with the Federal Trade Commission's

("FTC") franchise regulations known as the "Franchise Rule" and

could, therefore, not be applied. A timely appeal followed, and

this court certified the following question of law to the SJC:

"Whether the three-prong test for independent contractor status

set forth in Mass. Gen. Laws ch. 149 § 148B applies to the

relationship between a franchisor and its franchisee, where the

franchisor must also comply with the FTC Franchise Rule." Patel

v. 7-Eleven, Inc., 8 F.4th 26, 29 (1st Cir. 2021). Answering our

question, the SJC concluded that the ICL applies to franchisor-

franchisee relationships and does not conflict with the FTC's

Franchise Rule. Patel v. 7-Eleven, Inc., 489 Mass. 356, 357

(2022).

Back in the district court on remand, the parties moved

for summary judgment (again), and the district court ruled in favor

of 7-Eleven (again). This time, the district court concluded that

the three-prong Massachusetts ICL test did not apply because

Plaintiffs failed to surpass the ICL's threshold inquiry, which

requires "performing any service" to the putative employer.1 In

The district court began its analysis here, following the 1

SJC's lead in Patel. In addition to answering our certified

- 5 - reaching that conclusion, the district court determined that

Plaintiffs "are not paid for any services performed for 7-Eleven"

and that it is Plaintiffs who "pay franchise fees to 7-Eleven in

exchange for a variety of services to support the franchisee."

Another timely appeal followed.

THE ISSUES

With the facts and procedural history squared away, we

now turn to the issues before us on appeal. The Massachusetts ICL

provides that "an individual performing any service" is presumed

to be an employee (and thereby entitled to the protections of

Massachusetts wage laws), unless the putative employer satisfies

the three prongs of the Massachusetts test for independent

contractor misclassification, commonly known as the "ABC" test.

Mass. Gen. Laws ch. 149, § 148B. The instant appeal concerns that

threshold inquiry -- namely, whether Plaintiffs "perform[] any

service" for 7-Eleven.

The parties do not agree on much, but they do rest their

arguments on the same set of cases. Chief among them is the SJC's

decision in Sebago v. Bos. Cab Dispatch, Inc., 471 Mass. 321

question, the SJC in Patel took our invitation to provide further guidance that might resolve this case. 489 Mass. at 369. Among the guidance provided was the SJC's instruction that the threshold inquiry "is not satisfied merely because a relationship between the parties benefits their mutual economic interests," nor is it satisfied through "required compliance with Federal or State regulatory obligations." Id. at 370.

- 6 - (2015), which they each contend controls the outcome of this

appeal. To understand the parties' arguments, some background on

Sebago is helpful.

There, taxicab drivers brought misclassification claims

against three sets of defendants: (1) medallion owners, who leased

their taxicabs and medallions2 to the drivers, thus enabling them

to drive at regulated flat-rates; (2) radio associations, who

dispatched the drivers and who maintained a network of corporate

clients who would take rides with the drivers in exchange for cash-

redeemable vouchers through the radio association; and (3) a garage

that serviced the taxicabs and equipment. Id. at 323–26, 330–31.

As to the medallion owners, the SJC concluded that the value those

owners derived from their lessor-lessee relationship with the

drivers did not suffice, without more, to qualify as a service

provided to the medallion owners that would render the drivers

employees under the ICL. See id. 329-31. The SJC determined,

however, that a question of material fact existed as to whether

the drivers provided other services, such as driving taxicabs with

advertising space leased by the medallion owners (because driving

such taxicabs would "increase[] the value and facilitate[] the

sale of advertising space"), that might establish an employment

relationship. See id. As to the radio associations, the SJC

2 Medallions are the licenses an owner of a taxicab must obtain for each such taxicab. Sebago, 471 Mass. at 323.

- 7 - determined that the drivers did perform services, because "[t]he

revenue flowing to the radio association through the voucher

program [with its corporate clients] . . . directly depende[d] on

the drivers' work of transporting passengers." Id. at 331.

Finally, as to the garage, the SJC explained that the drivers

performed no services because the garage did "not lease taxicabs,

maintain corporate voucher accounts, or belong to a radio dispatch

association," rather earning its revenue "from setting up and

servicing taxicabs" generally and "from credit card companies for

repairs made to credit card machines installed in taxicabs." Id.

7-Eleven insists that its relationship with Plaintiffs

is more akin to the lessor-lessee relationship between the

medallion owners and drivers, which the SJC said did not satisfy

the threshold inquiry of performing any service. In other words,

7-Eleven argues that Plaintiffs here pay it "for the rights and

tools [Plaintiffs] need[] to operate [their] own [franchises]."

It also distinguishes itself from the radio associations, arguing

that "the [r]adio [a]ssociations sold a service to their own

customers and then paid the [d]rivers to perform it," whereas 7-

Eleven does not pay Plaintiffs for the performance of any

obligation -- an argument adopted by the district court.

Plaintiffs flatly disagree, contending that their

relationship with 7-Eleven mirrors that between the drivers and

the radio associations. In their view, just as "[t]he revenue

- 8 - flowing to the radio association" was "directly dependent on the

drivers' work of transporting passengers," id., the revenue

flowing to 7-Eleven necessarily fluctuates depending on how well

each store performs from month to month.

In the mix are also the views of the Commonwealth of

Massachusetts, represented here by the Massachusetts Attorney

General as an amicus curiae in support of Plaintiffs. Not only

does the Commonwealth agree with Plaintiffs' comparison to the

radio associations, but it also highlights "that the threshold

burden is modest" and contends that the district court erred in

its application of that inquiry by considering the supposed

services the putative employer (here, 7-Eleven) performs for the

putative employees (here, Plaintiffs). Finally, as the statutory

phrase "performing any service" is left undefined, the

Commonwealth, after analyzing the plain language of the ICL and

its legislative history, offered several distinct definitions of

the phrase.3

3 Relying on dictionaries, the Commonwealth provided definitions for each word making up the statutory phrase "performing any service." The Commonwealth defined "perform" as "to begin and carry through to completion; do" and "to take action in accordance with the requirements of; fulfill," while defining "any" as "one or some, regardless of sort, quantity, or number." As to "service," the Commonwealth provided four definitions: (1) "employment in duties or work for another"; (2) "an act of assistance or benefit to another or others; favor"; (3) "an act done for the benefit or at the command of another"; and (4) "action or use that furthers some end or purpose: conduct or performance that assists or benefits someone or something."

- 9 - Pulling it all together, it is evident that this appeal

turns on what entails "performing any service" as used in the ICL.

While certainly helpful on this score, we do not consider the

analysis in Sebago (or the other Massachusetts precedent cited by

the parties4) to be outcome-determinative, at least without further

instruction from the SJC. We, accordingly, believe it prudent to

give the SJC the first opportunity to provide the answer to this

question of state law, notwithstanding the tools at our disposal

for resolving it ourselves. This is particularly true here where,

as we noted before, "the ICL impacts untold sectors of workers and

business owners across the Commonwealth" and the policy

considerations at play do not squarely favor a particular outcome.

Patel, 8 F.4th at 29.

CERTIFICATION

In light of the forgoing, we certify the following

question5 to the Massachusetts SJC:

(1) Do Plaintiffs "perform[] any service" for 7-Eleven, within the meaning of Mass. Gen. Laws ch. 149, § 148B, where, as here, they perform various contractual obligations under the Franchise Agreement and 7-Eleven receives a percentage of the franchise's gross profits?

4 See, e.g., Patel, 489 Mass. at 370; Jinks v. Credico (USA) LLC, 488 Mass. 691 (2021); Ruggiero v. Am. United Life Ins. Co., 137 F. Supp. 3d 104 (D. Mass. 2015); Da Costa v. Vanguard Cleaning Sys., Inc., No. 15-04743, 2017 WL 4817349 (Mass. Super. Ct. Sept. 29, 2017). 5 We are grateful to the parties and the Commonwealth for their briefing and input as to which question or questions should be certified to the SJC.

- 10 - We would welcome any further guidance from the SJC on any other

relevant aspect of Massachusetts law that it believes would aid in

the proper resolution of the issues presented here.

The clerk of this court is directed to forward to the

Massachusetts SJC, under the official seal of this court, a copy

of the certified question, this opinion, the district court's

opinion, and the merits briefs and appendices filed by the parties.

We retain jurisdiction over this case pending resolution of this

certified question.

- 11 -