Sanchez v. CleanNet USA, Inc.

78 F. Supp. 3d 747, 24 Wage & Hour Cas.2d (BNA) 89, 2015 U.S. Dist. LEXIS 5383, 2015 WL 231450
CourtDistrict Court, N.D. Illinois
DecidedJanuary 15, 2015
DocketNo. 14 C 2143
StatusPublished
Cited by9 cases

This text of 78 F. Supp. 3d 747 (Sanchez v. CleanNet USA, Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sanchez v. CleanNet USA, Inc., 78 F. Supp. 3d 747, 24 Wage & Hour Cas.2d (BNA) 89, 2015 U.S. Dist. LEXIS 5383, 2015 WL 231450 (N.D. Ill. 2015).

Opinion

MEMORANDUM OPINION AND ORDER

James B. Zagel, United States District Judge

This putative class action arises out of Plaintiff Jose Sanchez’s participation as a franchisee in a nationwide network of commercial cleaning franchised businesses. On March 26, 2014, Plaintiff filed an 8-count complaint alleging that franchisor Defendants CleanNet U.S.A., Inc. (“CleanNet USA”) and CleanNet of Illinois, Inc. (“CleanNet IL,” and collectively, “Defendants”) improperly classified him and other franchisees as independent contractors instead of employees, thereby depriving them of the benefits of an employment relationship under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq., the Illinois Minimum Wage Law, 820 ILCS 105/1 et seq., and the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq. Plaintiff also alleges that Defendants engaged in fraud in the inducement to entice him to enter into the franchise agreement, and that Defendants violated the Illinois Franchise Disclosure Act, 815 ILCS 705/1 et seq.

This matter is presently before the court on Defendants’ motion to dismiss under Federal Buie of Civil Procedure 12(b)(1) or, in the alternative, stay Sanchez’s complaint pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”), on the ground that his individual claims are subject to final and binding arbitration pursuant to the dispute resolution provisions in his franchise agreement.

FACTS

CleanNet USA is a master franchisor whose brand of commercial cleaning franchises is represented by area operators, such as CleanNet IL, that offer unit franchises to investors interested in owning and operating a commercial cleaning business. Jose Sanchez is a Spanish speaker with a limited education who, along with his brother-in-law, purchased a “package” of $2,500 in monthly billing for a franchise price of $11,800. They paid $6,000 in money they borrowed for the franchise and CleanNet IL financed the remaining $5,800 at 9%.

As a part of this purchase, Sanchez entered into a 41-page franchise agreement with CleanNet IL on May 19, 2011 (the “Franchise Agreement”). Yvette Lopez appeared at the meeting on behalf of CleanNet and discussed the Franchise Agreement with Sanchez in Spanish. Sanchez alleges that CleanNet provided him with the Franchise Agreement in English on a take it-or-leave-it basis and failed to inform him that the Franchise Agreement contained a dispute resolution provision or limited his remedies while leaving Defendants’ available remedies completely intact. In addition to signing his name in full on the final page, Sanchez initialed every page of the Franchise Agreement next to the statement “I have read, understood, and agree with the statements on this page as written.”

The Franchise Agreement contains a dispute resolution provision that provides for mediation and, if the dispute remains unresolved, arbitration before the American Arbitration Association:

A. Mediation. Before, and as a necessary condition precedent to, filing a demand for arbitration in accordance with this Agreement, Franchisee and Franchisor shall attempt to settle the dispute through mediation administered by the American Arbitration Association (“AAA”) at its office closest in proximity to Franchisor’s office in accordance with [752]*752the Commercial Mediation Rules of the AAA....
B. Arbitration. All disputes, controversies, and claims of any kind arising between the parties, including but not limited to claims arising out of or relating to this Agreement, the rights and obligations of the parties, the sale of the franchise, or other claims or causes of action relating to the performance of either party that are unable to be settled through mediation shall be settled by arbitration administered by the AAA at its office closest in proximity to the Franchisor’s office, in accordance with the Federal Arbitration Act and the Commercial Rules of the AAA, unless the parties otherwise agree in accordance with Section XXII.C of this Agreement....
5. No arbitration or action under this Agreement shall include, by consolidation, joinder, or any other manner, any claims by any person or entity in privity with or claiming through or on behalf of Franchisee. Franchisee shall not seek to arbitrate or litigate as a representative of, or on behalf of any other person or entity, any dispute, controversy, and claim of any kind arising out of or relating to this Agreement, the rights and obligations of the parties, the sale of the franchise, or other claims or causes of action relating to the performance of either party to this Agreement.
6. To the fullest extent permitted by law, direct negotiations, followed by mediation and/or binding arbitration, shall be the exclusive means of resolving any and all claims relating to this Agreement, including, but not limited to, claims for breach of contract, breach of covenant of good faith and fair dealing, fraud, violation of any and all franchise registration, disclosure and/or franchise protection statutes, regulations, or ordinances, whether federal, state or local, or any other common law claims.

The Franchise Agreement also allocates mediation and arbitration costs. The initiating party pays the filing fee for the mediation while both parties share the mediator’s compensation and administrative expenses. If the matter is not resolved through mediation, then that same initiating party must pay the arbitration filing fee while both parties share the costs of the arbitrator and administrative expenses.

Under the Franchise Agreement, the franchisee waives its right to collect punitive damages, consequential damages, loss of profits, and attorneys’ fees and costs. Instead, the franchisor is only liable for “the percentage of total account lacking, multiplied by the initial franchise fee multiplied by 80%” in the event that CleanNet provided at least one customer, but failed to meet its guaranteed monthly billing quota. If CleanNet issues a refund, the amount refunded is reduced by any amounts financed, including unpaid interest and “[CleanNet’s] obligation to provide additional initial accounts shall be considered fulfilled, and any further obligation in this regard shall be extinguished.”

On the same day that Sanchez filed this lawsuit, March 26, 2014, CleanNet IL filed a submission for mediation with the American Arbitration Association (“AAA”). On May 22, 2014, CleanNet USA filed a similar submission for mediation with AAA. Both cases have been assigned AAA case numbers. By letter dated May 23, 2014, Defendants’ counsel demanded compliance with the dispute resolution provision. On May 30, 2014, Sanchez’s counsel responded to the letter but did not address Defendants’ demand for mediation.

DISCUSSION

I. Sanchez’s Claims Against CleanNet IL

Defendants’ motion to dismiss is brought pursuant to Rule 12(b)(1) because it con[753]*753tends that the court lacks subject-matter jurisdiction due to the parties’ arbitration agreement. See Montgomery v.

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78 F. Supp. 3d 747, 24 Wage & Hour Cas.2d (BNA) 89, 2015 U.S. Dist. LEXIS 5383, 2015 WL 231450, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sanchez-v-cleannet-usa-inc-ilnd-2015.