ROBERT J. SHELBY, District Judge.
This is a putative class action brought against two affiliated trucking companies by drivers once associated with those companies. Plaintiffs Charles Roberts and Kenneth McKay allege that Defendants C.R. England, Inc. and Opportunity Leasing, Inc. developed a fraudulent plan to induce thousands of people to enroll in England's driver training schools by promising students the choice of eventual employment as a company driver or the ability to earn a desirable income driving as an independent contractor. Plaintiffs contend that in reality, company driver positions were largely unavailable, and students in the driver training schools were subjected to a misinformation campaign to convince them to lease trucks from the Defendants and become independent contractor drivers affiliated with England. Hundreds, if not thousands, of students were persuaded to invest substantial sums of money to lease trucks from Defendants and become independent contractor drivers. But many soon found they could not earn a living as they had been led to believe, and were left debt-ridden. Plaintiffs sue to recover on behalf of these drivers and now move the court for class certification.
Defendants acknowledge the hardship accompanying the life of a long-haul trucker, but vigorously deny Plaintiffs' allegations. Defendants oppose class certification,
After careful consideration of the pleadings, the parties' extensive briefing and post-hearing submissions, the record developed, and the arguments presented by counsel, the court grants Defendants' motion for judgment on the pleadings, denies Defendants' motion for summary judgment, and grants in part and denies in part Plaintiffs' motion for class certification.
C.R. England, Inc. is a nationwide trucking company specializing in temperature-controlled transportation. Headquartered in West Valley City, Utah, England has been a family-run business since its inception in 1920. After nearly a century of expansion, it is now Utah's fifth-largest employer. Between 1965 and 2005, England's annual revenue increased from $1 million to over $544 million. Dan England, a grandson of England's founder, oversaw much of this growth as the company's chief executive officer. His son, Josh England, currently serves as the company's president and chief financial officer. England and its affiliated company's growth continued to skyrocket through at least 2009.
England family members formed Opportunity Leasing, Inc. in 1997.
The parties differ in their views of Horizon's relation to England. Defendants contend that Horizon and England are separate but affiliated corporate entities, while Plaintiffs see Horizon as a part of England's "empire."
Since its founding, England traditionally relied on experienced company drivers and a fleet of trucks to move freight for its customers. But beginning in about 1998, after Horizon was formed, England began using independent contractors to compete with other carriers that were doing so.
As England's business expanded in recent years, so too did its need for experienced drivers. To meet this demand, it established five driver training schools in Utah, California, Texas, and Indiana where students could earn a commercial driver license.
England enrolled 94,095 individuals in its schools between 2008 and 2012. These students paid tuition ranging from $1,995 to $2,995, depending on financing—rates England contends were lower than similar commercial driver license programs. In fact, England claims it does not profit from the schools.
According to England, students who graduated with their commercial driver license were given the option to train for an additional ninety days as an England employee. A total of 38,524 drivers completed England driving school curriculum and advanced to England's driver training program. This training consisted of Phase I and Phase II, which are described below. After completing Phase I and Phase II, trainees returned to Utah or Indiana "to pass final checks" and attend an orientation.
In 2004 and 2005, England analyzed driver profitability, comparing its company drivers and affiliated independent contractors.
The numbers suggest that the Implementation Plan succeeded. Between 1998 and 2002, England's projection for active leases varied between 290 and 594. But by 2009, the number of active truck leases at one point exceeded 2,200, or eighty percent of England's fleet. Although the percentage of independent contractors for England can fluctuate, according to Defendants, independent contractors currently operate twenty-four percent of England's fleet. As of February 2014, England employed 7,351 full-time employees. Approximately 13,143 individuals became independent contractors for England between January 1, 2008 and December 31, 2013.
Plaintiffs Roberts and McKay attended an England training school, where each obtained a commercial driver license and eventually became independent contractors for England, operating trucks leased from Horizon.
Plaintiffs allege that Defendants used misrepresentations in a nationwide advertising campaign promising "guaranteed job[s]" with England which did not exist to persuade thousands to enroll in England's driver training schools, where each student paid thousands of dollars in tuition.
Roberts alleges that in May 2009, he viewed an advertisement on England's website from his home in California. Based on England's "representations of training, employment, the Driving Opportunity, and the potential income," Roberts submitted an online application to England, spoke with two England representatives on the phone, and ultimately attended a driver training school in California.
Also a California resident, McKay learned about England's training program from its website in January 2009 and submitted an online application. During an initial phone interview and a follow-up conversation, England's Utah-based representatives allegedly confirmed that McKay could earn at least $30,000 per year. McKay alleges he never learned about high turnover or failure rates. After borrowing the cost of his tuition, McKay attended the California training school in February 2009, where he signed a Student Training Agreement and received a copy of the England Business Guide.
According to the Third Amended Complaint, Plaintiffs and other drivers received training materials that included material misrepresentations in advertisements and in the England Business Guide. After students completed school and Phase I and Phase II training, Defendants allegedly used recruiters, inaccurate data in graphs, and delay tactics to convince Plaintiffs and other trainees to purchase the Driving Opportunity and to dissuade these same trainees from seeking employment as company drivers.
For example, McKay alleges that England informed him that no company driver positions were available and his only option was to purchase the Driving Opportunity. Eventually, McKay purchased the Driving Opportunity under a six-month lease in July 2009.
The Third Amended Complaint includes fourteen claims for relief. Plaintiffs seek class certification on ten claims. These ten claims generally fall into three categories.
First, Plaintiffs claim Defendants violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and Utah Pattern of Unlawful Activity Act (UPUAA) by fraudulently inducing individuals into purchasing the Driving Opportunity, which in turn transferred financial risk from England to unsuspecting lease drivers.
Second, Plaintiffs allege Defendants violated the Utah Consumer Sales Practices Act, the Utah Business Opportunity Disclosure Act, and the Utah Truth in Advertising Act.
Third and finally, Plaintiffs assert four claims for relief under common law theories of recovery: (1) fraud and misrepresentation, (2) breach of fiduciary duty, (3) unjust enrichment, and (4) breach of contract.
Plaintiffs ask the court to certify a nationwide class for claims arising under Utah state statutes for violations of the Utah Business Opportunity Disclosure Act, the Utah Consumer Sales Practices Act, and the Utah Truth in Advertising Act. Plaintiffs also move for certification of a nationwide class for their negligent misrepresentation, breach of fiduciary duty, and unjust enrichment claims.
Plaintiffs also propose certification of two subclasses. The first subclass includes independent contractors who purchased the Driving Opportunity Defendants offered during the period when Defendants were utilizing the England Business Guide.
Both parties have submitted voluminous records in support of their respective positions on class certification. The court recites below the evidence most relevant to the class certification issues presented.
Plaintiffs argue that after England analyzed in 2004 and 2005 the profitability of its drivers, it sought to increase the percentage of independent contractors affiliated with the company as compared to company drivers. In 2005, it adopted a concerted recruitment strategy—the Implementation Plan—to further this goal. Internal documents and deposition testimony suggest that both Horizon and England were concerned about recruitment efforts due to high driver turnover.
England used online marketing to increase recruitment. On their respective websites, England and Horizon made representations about the merits of joining England or working as an independent contractor.
In response to Plaintiffs' website exhibits, Defendants submit testimony of trainees who neither visited nor relied on information displayed on the websites. Defendants also contend their websites displayed "potential" mileage, as opposed to the average mileage of an independent contractor, and contained a disclaimer indicating that income depended on individual performance. Finally, Defendants maintain that England also relied on print media, television, radio, billboards, truck trainers, and word of mouth for advertising during the relevant time periods.
Plaintiffs contend that England's Independent Contractor Division created brochures with inaccurate statements about the number of miles and income opportunities available to lease operators.
Similar to the websites, Defendants argue that the brochures merely contained potential mileage and income, as opposed to a specific calculation of average income. Defendants point to a disclaimer that indicated "actual income will vary based on individual performance." Finally, Defendants point out that the brochures, which varied over time, were not publicly distributed, but were available to trainees at the Horizon offices.
England instructed its recruiters to contact potential drivers within twenty-four hours of receiving an application for the driving school.
In 2008 and 2009, England provided manuals to its recruits touting the advantages of its independent contractor program
Manuals for England's recruiters instructed them on the best ways to overcome an applicant's potential objections or questions. Cathy Mattan, a former telephone recruiter, submitted a declaration describing her personal experiences with England's recruiting policies.
In response to Ms. Mattan's declaration, Defendants argue that recruiters were instructed to tailor their discussions to individuals. According to Steve Branch, England's Director of Recruiting and Advertising from December 2008 until March 2013, every single call was different but recruiters were "always instructed to give accurate and truthful information."
During training, some trainees entered into a Student Training Agreement with England. In the Student Training Agreement, trainees agreed to complete England's training program in return for career opportunities.
During Phase II, the student would work as "a C.R. England employee assigned as a 2nd seat to a [P]hase II trainer."
Citing declarations of former employees, deposition testimony, and company documents, Plaintiffs contend Defendants continued to use uniform misrepresentations to induce students into becoming lease operators at training schools and during Phase I and Phase II training.
For example, Defendants appear to have indicated in a PowerPoint slide entitled "Lease Program FAQs" that a solo lease operator averaged 2,800 to 3,300 miles per week with an annual income of $44,400.35.
David Bilbo, a former instructor and company driver, testified that England's policy was to promote aggressively the independent contractor program, and that classes were taught in a manner consistent with identical PowerPoint presentations.
During Phase II, trainees received training materials—Career Advancement Training Modules—that they were required to study and be tested on containing the same information found in the England Business Guide.
As late as 2011, Mr. Fife, an England vice president, informed Horizon employees that the goal was at least "80% conversion to the lease program. . . ."
As discussed below, Defendants challenge Plaintiffs' assertions that trainees were forced to wait for company trucks, or that they received and relied on a uniform set of information during Phase I and Phase II training. Defendants cite to declarations of trainers and trainees they believe illustrate the range of drivers' experiences during training.
According to Plaintiffs, the England Business Guide "uniformly misrepresented mileage and income to the entire putative class between November 2006 and at least July 2010."
The England Business Guide underwent several revisions each year.
According to Plaintiffs, every version of the England Business Guide and Equinox Business Guide between November 2006 and November 2010 contained three graphs. These graphs compared the projected income of independent contractors and company drivers. The graphs suggested that independent contractors traveled more miles and earned more income than company drivers. A caption to one of these graphs stated: "[Y]ou can see that 21% of independent contractors make more than $50,000 a year. Only 12% of drivers make that same amount." A separate caption explained: "This graph shows that independent contractors make more money, faster than company drivers do." Still another provided that independent contractors "average 33% more miles than company drivers do. More miles can equal more money." Plaintiffs argue that the information unrealistically reflected the experience of the average lease operator.
Plaintiffs proffer internal emails and deposition testimony from which they contend a reasonable jury could find Defendants understood that the average income comparisons, the weekly mileage graph, and representations relating to the percentage of drivers with incomes exceeding $50,000 contained in the England Business Guide were false.
In response, Defendants argue that reliance and interpretation of the graphs in the England Business Guide varied depending on the individual. According to Defendants, the graphs are subject to multiple interpretations. For example, Defendants maintain that the graph comparing the income earned by independent contractors and company drivers is subject to multiple interpretations because the text does not explicitly state that the graph reflects the average income of each group. Similarly, Defendants contend that the bar graph comparing miles driven raises an individual issue of fact because it would require an individual to understand how to read a bar graph and to assume that the graph reflected a guarantee. Finally, Defendants argue that the graph reflecting the percentage of independent contractors receiving in excess of $50,000 per year is not necessarily false, but instead depends on the data set.
Plaintiffs reply that the graphs are not subject to multiple interpretations.
Roberts submitted a declaration in support of the Motion for Class Certification. Consistent with the allegations in the Third Amended Complaint, Roberts testified that he learned about the independent contractor and lease program from England's website and through conversations with England recruiters. In June 2009, Roberts attended training school. After receiving his commercial driver license, he attended orientation at an England facility, where he received the England Business Guide. During classroom instruction, Roberts heard instructors and representatives praise the independent contractor and lease program, which these representatives claimed allowed drivers to make more income than company employees. He testified he never received accurate information about failure or turnover rates.
Roberts began Phase I training in July 2009. After just over a month, he finished Phase I and attended Phase I Upgrade, where he signed the Student Training Agreement. Roberts testified that he always intended to become a company driver. As he participated in Phase II, Roberts operated under the expectation that he would become a company driver, but he received pressure from England to abandon this plan and enter the lease program. During this period, Defendants' representative indicated that trainees would have to wait to become company drivers and instructed Roberts to carefully study the England Business Guide.
Relying on representations in the England Business Guide and statements made during the training program suggesting that the average lease driver could be financially successful, Roberts ultimately signed both the Lease Agreement and the Operating Agreement. He testified he was charged $502 a week for a truck lease and also received certain other charges: (1) a fourteen cent-per-mile variable mileage charge, and (2) a seven cent-per-mile general reserve charge. Although he had believed England's income calculation and representations, Roberts testified that he did not make "much money" as an independent contractor, and some weeks even operated at a deficit to England. He stopped working as a lease driver in April 2010.
McKay also provided a declaration describing his experiences as a lease driver. After learning about England via Google, McKay visited England's website, where he read that the company had a training program that could provide both a commercial driver license and a job. Shortly after submitting an online application, McKay received a telephone call from an England representative who confirmed that England guaranteed a job but did not inform McKay that a position as a company driver would likely be unavailable. Like Roberts, McKay testified that the recruiter did not mention the high turnover rates or the average length of employment for a lease driver.
McKay attended England's driving school in California in February 2009. His trainers provided him with a copy of the England Business Guide and instructed him to review it.
At the end of his Phase II training, McKay traveled to Salt Lake City, Utah. An England representative there informed him that no company jobs were available, but that he could begin working immediately as a lease operator.
McKay leased one of Defendants' trucks for $567 per month. He testified that he also paid the variable mileage and general lease reserve charges, levied purportedly in part to cover the cost of "dispatching, load planning, paperwork, and other miscellaneous support services."
Plaintiffs also submit declarations from similarly-situated lease operators. For example, Carlos Cavezas testified about his recruitment and training in 2010, an experience that was substantially similar to that of McKay and Roberts.
Defendants contend that the uniformity described by Plaintiffs is without factual basis. Rather, Defendants argue that every applicant, trainee, independent contractor, and company driver made career decisions based on his or her individual needs and priorities.
Defendants support this position with a series of declarations from individual drivers who decided to attend England driving school based on equipment selection, recommendations from personal acquaintances, the company's safety record, the opportunity to work a dedicated route, or other reasons separate from England's website or representations about income or miles available to independent contractors.
Similarly, Defendants submit declarations in which drivers testify that England gave them the option to become company drivers.
Defendants argue that questions about whether trainees received sufficient time to consider the Leasing Agreement and Operating Agreement necessarily require consideration of highly individualized evidence. Under this theory, individuals chose to lease from Horizon for a variety of reasons, including whether or not the leasing company required a down payment or whether the driver had a qualifying credit rating. According to Defendants, the plain terms of the Leasing Agreement and Operating Agreement put drivers on notice of their options and obligations. Several declarants testify that they spent days reviewing the agreements before committing to the independent contractor program.
Finally, Defendants contend that trainees chose to become independent contractors for reasons distinct from of the alleged uniform misrepresentations. For example, several former trainees state they were unaware of the misrepresentations, chose to become independent contractors for reasons completely unrelated to the misrepresentations, or knew of the actual income or mileage of the average independent contractor but nevertheless chose to enter the program. Several of these trainees testify that they heavily relied on representations by trainers. According to Defendants, these trainers did not follow a uniform script but instead tailored the training program to the individual trainees. Several of Defendants' declarants state that they did not rely on the England Business Guide in making their decisions, or that they can no longer remember reviewing or thinking about the graphs contained in the England Business Guide.
Plaintiffs challenge Defendants' declarations. According to Plaintiffs, the declarants are unrepresentative of the proposed class. Plaintiffs contend that Defendants cherry-picked twenty-eight drivers whose timing or circumstances were unique from the thousands of individuals who were the subject of a campaign of uniform misrepresentations and elected to purchase the Driving Opportunity. To support this proposition, Plaintiffs analyze each of the declarants and identify distinguishing features, which include: (1) the declarant's entry into the independent contractor program after Defendants discontinued the England Business Guide or other misrepresentations, (2) the fact that a declarant transitioned out of the Driving Opportunity, worked as a company driver, or belonged to a minority of drivers who received "Dedicated" routes, or (3) an argument that the declarant never belonged to the proposed class.
Plaintiffs contend that only nine of the declarants purchased the Driving Opportunity during the relevant time period. According to Plaintiffs, four of these fall into the minority of independent contractors who received guaranteed mileage from a dedicated route, while three transitioned to the lease-purchase program. Of the remaining two drivers, one received extra mileage by working as a trainer, while the other driver earned only $322 per week. Finally, in response declarations Defendants submitted relating to recruitment and training, Plaintiffs point to internal company records, training manuals, presentation materials, trainer guidelines, and trainer compensation, all of which may suggest that Defendants and the trainers themselves understood the importance of conveying a positive and uniform message about the value of the independent contractor program.
As discussed above, the Driving Opportunity rests at the heart of this case. To Plaintiffs, the Driving Opportunity consisted of the Leasing Agreement and the Operating Agreement, both of which were signed by the proposed class members in Salt Lake City, Utah or Burns Harbor, Indiana. Discovery responses suggest the majority of the proposed class entered into the Driving Opportunity in Utah. In exchange for the Driving Opportunity, drivers leased a truck from Horizon for at least $450 per week. They also paid variable costs for fuel, insurance, permits, and maintenance.
Despite England's income comparisons and projections, the average annualized income of a solo lease operator amounted to from about $17,000 to $21,000 per year, depending on the division in which the driver worked. Plaintiffs contend that Defendants' internal documents show that one in five drivers earned nothing in any given week. Citing testimony, Plaintiffs maintain the difference between a company driver and a lease operator was that the latter experienced high costs, low pay, and insufficient mileage. Unlike company drivers, lease operators had to cover lease payments, fuel, insurance, taxes, truck maintenance, and permits. These costs, in turn, reduced a lease operator's net income.
Although the parties dispute the inferences to be drawn from the data, there is evidence at this point suggesting that Defendants were aware they were making misrepresentations, but continued to make them. For example, an internal study indicated that company drivers made more than lease operators for the same mileage in 2012.
As indicated above, Plaintiffs submitted declarations illustrating a uniform scheme and uniform experience. Defendants submitted declarations suggesting a diversity of experiences among potential class members. In short, the parties hotly contest whether England uniformly made misrepresentations and whether drivers uniformly relied on the alleged misrepresentations to their detriment. Two additional observations relating to uniformity are worth noting.
Defendants contend that representations changed over time. For example, Defendants discontinued the England Business Guide in 2010, removed pro formas from their websites in 2012, and deleted the alleged misrepresentations from Horizon's brochures in 2012. England contends that it removed mileage and income estimates from recruiting guides in 2013.
Defendants maintain that there was no uniform distribution or receipt of representations to potential independent contractors. Here, Defendants rely on the testimony of both company drivers and independent contractors. Some testified they could not remember a particular representation. Others indicated that they became independent contractors for reasons independent of the misinformation Plaintiffs identified.
Plaintiffs respond that Defendants made a series of uniform misrepresentations throughout the class period using different mediums. Citing the England Business Guide, the Handbook Guide to Driver Recruiting, the Driver Recruiting Information Guide, brochures, Business 101 instruction materials, and pro formas from the website, Plaintiffs contend Defendants consistently misrepresented that independent contractors averaged between 2,718 and 3,300 miles per week between 2006 and 2012, despite internal communications between executives that suggests they understood the mileage predictions were inconsistent with reality.
The parties dispute the inferences that should be drawn from high driver turnover. To Plaintiffs, high turnover suggests culpability. In their view, Defendants could have informed driving school applicants of high turnover rates and told trainees about the relatively high percentage of independent contractors who quickly left England's program and abandoned their Horizon leases.
Defendants respond that high turnover is endemic to the trucking industry, where drivers face unique challenges, including long stretches of time alone on the road and away from home. Defendants maintain that recruits and trainees knew of high turnover rates in the industry but nevertheless decided to take the risk and enter the independent contractor program. Defendants also argue that an independent contractor might leave the program for a variety of reasons, many of which are unrelated to mileage or income.
Similarly, the parties dispute whether success or failure in the independent contractor program was driven by a systemic flaw or individual performance. Citing declarations of drivers, Defendants contend that success hinged on each driver's: (1) willingness to minimize time at home, (2) habit of making timely deliveries, (3) fuel efficiency and costs, (4) trip planning, and (5) decision to drive solo or in a team. To Defendants, each of these factors bore a relation to an independent contractor's weekly and annual income, which in turn drove individual success in the program.
The parties dispute the extent to which damages can be determined on a class-wide basis. This dispute centers on the contents and use of a set of data obtained from England. The parties refer to the data set as the OWNRRE database.
The OWNRRE database has sets of data for each independent contractor. Among other things, OWNRRE contains mileage information, gross revenue, net payments to each lease operator, and an accounting of fixed and variable costs charged to each lease operator under the Driving Opportunity.
England contends that OWNRRE does not have sufficient information for an accurate calculation of damages for three reasons. First, Defendants argue the raw data is limited because it gives no indication of individual choices affecting a driver's income, such as fuel efficiency or trip planning. Second, Defendants question whether an expert could calculate damages based on OWNRRE data, when it does not indicate which representation a driver relied on when making the decision to become an independent contractor. Third and finally, Defendants contend OWNRRE does not provide enough information to demonstrate injury-in-fact.
In the motions for class certification and partial summary judgment, the parties ask the court to determine whether Utah law applies to Plaintiffs' claims. There are minor disputes over the inference to be drawn from or the weight given to a particular fact, but the parties generally do not dispute the following facts relevant to choice of law.
This case involves considerable contacts with both California and Utah. Plaintiffs lived in California when they learned about England's driver training schools, and attended England's training school in California. Both used Eagle Atlantic Financial Services, Inc. to finance their tuition while in California. They relied, at least in part, on recruiters' representations about the independent contractor program while completing training in California. And although he traveled across the country for England, Roberts based his work as an independent contractor out of California.
But Utah also bears a significant relationship to this litigation. Both the Leasing Agreement and Operating Agreement Plaintiffs signed provide that Utah law will govern the interpretation of the agreements, stating that they "shall be interpreted under the laws of the United States and the State of Utah, without regard to the choice-of-law rules of such State or any other jurisdiction."
Additionally, England and Horizon are incorporated in Utah. Defendants' recruiters contacted prospective drivers from Utah. According to Plaintiffs, Defendants created content for websites and public recruiting materials in Utah. Moreover, although the parties dispute the uniformity of the representations in the training program, there is some evidence that the script used by recruiters and trainees was developed by executives from Defendants' headquarters in West Valley City, Utah. And while students and trainees received the alleged misrepresentations at training locations throughout the country or on the road during training, Plaintiffs proffer evidence that Defendants developed and oversaw the independent contractor program, the training program, and the Driving Opportunity in Utah. Plaintiffs traveled to Utah, where they and a majority of the proposed class members attended Business 101 presentations and purchased the Driving Opportunity.
Defendants move pursuant to Rule 12(c), Federal Rules of Civil Procedure, for judgment on the pleadings on four of Plaintiffs' claims for relief. These claims allege violations of: (1) the Racketeer Influenced and Corrupt Organizations Act (RICO), (2) Utah's Pattern of Unlawful Activity Act (UPUAA), (3) California's Seller Assisted Marketing Plan Act, and (4) California's Unfair Competition Law.
Courts in the Tenth Circuit are instructed to apply the "same standard when evaluating 12(b)(6) and 12(c) motions."
For purposes of this motion, Defendants stipulated to the facts alleged in the Third Amended Complaint, but nevertheless contend they are entitled to judgment in their favor because Plaintiffs fail to allege a distinction between the liable persons and the alleged enterprise, as required under cases interpreting the relevant RICO provision. According to Defendants, this line of reasoning should also result in judgment on Plaintiffs' UPUAA claim.
Assuming the truth of all factual allegations contained in the Third Amended Complaint and drawing all reasonable inferences in favor of Plaintiffs, the court concludes that Defendants are entitled to judgment on Plaintiffs' RICO and UPUAA claims for the reasons stated below.
The RICO statute makes it unlawful for "any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt."
For example, in Brannon v. Boatmen's First National Bank,
The Brannon decision must be considered in light of Cedric Kushner Promotions, Ltd. v. King.
In each of these decisions, three terms feature prominently: person, enterprise, and association-in-fact. RICO defines person as "any individual or entity capable of holding a legal or beneficial interest in property."
Plaintiffs allege in the Third Amended Complaint that England, Horizon, and the drivers who serviced England's customers constituted an association-in-fact enterprise, which Plaintiffs refer to as the "England Truck Leasing Enterprise."
The central issue here is whether Plaintiffs have alleged an enterprise separate and distinct from Defendants themselves. This involves two sub-issues. First, the parties dispute whether the drivers should be excluded from the enterprise if they are either victims or agents of Defendants. Second, assuming drivers cannot be included in the enterprise, the parties contest whether Plaintiffs satisfy the distinctness requirement, especially where the Defendants are alleged to belong to the same corporate family. The court addresses these issues in turn.
Defendants argue the drivers cannot be included in the defined enterprise because victims or agents of a corporation should be excluded from an association-in-fact enterprise. Plaintiffs contend that the England Truck Leasing Enterprise includes the drivers, and that this satisfies the distinctness requirements. Although the parties cite to a wealth of authority in their papers, two decisions were particularly helpful in illustrating the issue presented.
The first is an unpublished Tenth Circuit Court of Appeals decision: Dirt Hogs Inc. v. Natural Gas Pipeline Co. of America.
The second instructive case is Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A.
While recognizing that federal courts have been divided in their treatment of agents and victims, the court ultimately concludes the reasoning of Dirt Hogs and Riverwoods is persuasive. Applying the reasoning of these cases, Plaintiffs here cannot satisfy the distinctness requirement by alleging that drivers participated in the England Truck Leasing Enterprise for two independent reasons: (1) although independent contractors, the drivers acted subject to Defendants' control; and (2) the drivers were the alleged victims. Under either approach, the drivers are not properly considered part of the enterprise for the purposes of the RICO distinctness analysis.
First, the drivers' participation in the enterprise was subject to Defendants' control.
Second, the court concludes that the drivers, as the primary victims of the alleged fraud, can hardly be characterized as members of the enterprise. Although the decision is unpublished, the Tenth Circuit appears to have recognized that the weight of authority and sound policy weigh in favor of excluding victims when evaluating whether named defendants are distinct from the enterprise, at least in some cases.
In response to Defendants' motion, Plaintiffs produce litanies of case citations.
For all of these reasons, the court concludes Plaintiffs fail to satisfy RICO's distinctness requirement by alleging drivers—either as victims or agents—belong to the enterprise.
Defendants further contend the Third Amended Complaint independently fails to allege a separate and distinct person and enterprise because Plaintiffs themselves allege England and Horizon belong to a single corporate family. In response, Plaintiffs contend that England and Horizon are distinct from the enterprise because the companies are practically and formally distinct from one another.
RICO cases are often factually complex, so it is perhaps unsurprising that treatment of this issue has been varied. The Sixth Circuit recently characterized the case law before and after Cedric Kushner as "meandering and inconsistent."
The Second Circuit considered a similar issue in Discon, Inc. v. NYNEX Corporation.
At the same time, courts have not uniformly applied the principle articulated in Discon. Some courts have adopted bright-line rules for particular factual contexts. For example, the Seventh Circuit held that an individual was distinct from a sole proprietorship, in part because the proprietorship was a separate legal entity and may have employed other individuals.
Still other decisions appear to be bound by their facts or motivated by particular policy considerations. For example, in United States v. Goldin Industries, Inc.,
The Second Circuit used a similar analysis in Securitron Magnalock Corp. v. Schnabolk.
Although different in degree, most of the decisions cited by Plaintiffs and England can be distinguished from the instant dispute. This case is distinguishable from suits involving a single defendant and an enterprise composed of additional, separate legal entities. Yet this case also appears to differ from suits where the enterprise consists only of the named defendants, with each participating in the enterprise as a clearly distinct legal entity. Finally, unlike Brannon, this case does not involve a parent company and its subsidiaries. And after reviewing the cases cited by both parties, the court concludes the RICO claim pled in Plaintiffs' Third Amended Complaint presents an issue of first impression in the Tenth Circuit. Specifically, neither the Tenth Circuit nor the Supreme Court has resolved whether an association-in-fact enterprise composed of corporate entities is distinct from the corporate entities, as persons, where a plaintiff alleges both entities belong to a single corporate family and seeks to recover against each under an alter ego theory.
After studying the factual allegations in the Third Amended Complaint and analogous authority, the court concludes the facts Plaintiffs allege fail to establish a distinct person and enterprise. Assuming the truth of Plaintiffs' allegations, England and Horizon are alter egos of one another.
Plaintiffs' claim may be cognizable under a different set of facts and theory of recovery. Under Cedric Kushner, for example, a plaintiff might sue a corporate officer for participating in an association-in-fact enterprise consisting of his employer and other corporate entities.
The parties dispute whether Plaintiffs' RICO and UPUAA claims rise and fall together.
Here, the UPUAA contains a requirement of a distinct person and enterprise, employing language that is nearly identical to the RICO statute.
Defendants also move for partial summary judgment on Plaintiffs' Sixth Claim for Relief, claiming violation of the Utah Business Opportunity Disclosure Act (UBODA). The motion raises four issues: (1) whether Utah's choice of law rules extend UBODA to Plaintiffs; (2) whether Defendants offered an assisted marketing plan under UBODA; (3) whether the Federal Aviation Administration Act preempts UBODA, as applied to this case; and (4) whether the claim is time-barred.
Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."
The first issue presented is whether Utah courts would apply California law, as opposed to Utah law, to the business opportunity claims in this case. The parties appear to agree that there is a conflict between the laws of these two jurisdictions.
Federal courts sitting in diversity apply the choice of law rules of the forum state.
The parties dispute two issues relevant to the choice of law analysis. First, they dispute whether the contracts between Defendants and the drivers require application of Utah's business opportunity statute, UBODA. Second, in the event the contractual language does not govern the choice of law analysis, the parties dispute whether Utah or California bears the most significant relationship to the events at issue and the parties.
Utah appears to have adopted Section 187 of the Restatement (Second) Conflict of Laws, which applies when parties select and agree upon the application of a forum's law.
The court concludes that neither Defendants nor the drivers contracted to apply Utah law to the UBODA claim. In both the Operating Agreement and the Lease Agreement, the parties stipulated: "This Agreement shall be interpreted under the laws of the United States and the State of Utah, without regard to the choice-of-law rules of such State or any other jurisdiction."
Because the Agreements do not reflect the parties' intent to apply Utah law to legal issues beyond contract interpretation, the court concludes the agreements are not determinative, and Sections 145 and 148 of the Restatement are more applicable to assessing whether California or Utah has the most significant relationship to the claim.
For torts, Utah courts traditionally apply the factors contained in Section 145 of the Restatement. These factors include "(a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered."
Restatement Section 148 specifically addresses claims arising out of a fraud or misrepresentation.
Plaintiffs do not address whether Section 145 or Section 148 has more bearing on this court's analysis of a statutory claim on the theories here advanced, in part because Defendants raised the issue in their reply brief. But the Section 148 factors are helpful insofar as the UBODA claims seeks to recover for harm that arose out of a claimed failure to disclose or report accurate information. After careful consideration of the undisputed facts, the arguments, and the Restatement, the court concludes Utah has the most significant relationship to the parties and the occurrence forming the basis of Plaintiffs' UBODA claim.
California undoubtedly has some relationship to this case under Section 145 and the first three Section 148 factors. Plaintiffs resided in California. While in California, Plaintiffs accessed online advertisements and spoke with England's recruiters. After enrolling in driver training school, Plaintiffs traveled to a California school, where they learned about Defendants' independent contractor program from instructors. Arguably, the injury occurred in California, where Roberts and McKay began to operate their trucking operations. But while these contacts suggest that California has a significant relationship to the claim, this does not end the inquiry. Under the Restatement, multiple states often share an interest to litigation. Here, the question is whether, notwithstanding these contacts, Utah has a more significant relationship.
Under both Section 145 and three factors of Section 148(b), Utah bears a significant relationship to the parties and the occurrence. The conduct ultimately causing the claimed injury occurred in the Utah, where Defendants purportedly created a business opportunity without adequate disclosures. And while a plaintiff's place of residence is entitled to substantial weight if the harm is pecuniary in nature,
Moreover, the business opportunity itself was based in Utah. Plaintiffs traveled to Utah to attend the Phase II Upgrade. Relying on representations received in Utah and elsewhere, Plaintiffs ultimately signed the Leasing Agreement and Operating Agreement in Utah. While Plaintiffs traveled across the nation as independent contractors for England, Defendants managed their operations and the lease from their Utah headquarters. And in some respects, the injury occurred in multiple states, including Utah, where Defendants continued to deduct payments for fixed and variable costs.
When resolving conflicts, courts often also consider the general choice of law factors articulated in Section 6 of the Restatement:
The court concludes these factors slightly favor application of Utah law.
Both Utah and California have an interest in regulating fraudulent business opportunity schemes insofar as California desires to protect residents, while Utah has an interest in regulating its companies. Neither side argues that the needs of the interstate system favor California or Utah. But there are equally compelling arguments as to the justified expectations of parties. On the one hand, the Leasing Agreement and Operating Agreement contain choice of law provisions for interpreting the contracts, but are silent respecting the law to apply to claims or disputes arising out of or related to the contracts. On the other hand, Defendants could justifiably expect that a statute in their home state would apply to their conduct within that state. Plaintiffs persuasively argue that where, as here, a party allegedly perpetrated a uniform scheme across the country, certainty, predictability, uniformity, ease of determination, and application of law weigh in favor of applying the law of the forum where the potentially liable party is based. But this factor weighs only slightly in favor of Plaintiffs, because similar arguments could be made about a bright-line rule requiring application of the law of the victim's home state. In short, after balancing these factors, the court concludes the Section 6 factors weigh modestly in favor of applying Utah law.
Ultimately, the question of which state has a more significant relationship to the business opportunity claim is a close one. But on balance, the court concludes Utah has the most significant relationship to the parties and events at issue. The conduct that formed the basis of the claim occurred predominantly in Utah. The heart of the claim—the Driving Opportunity— was developed, advertised, managed, and directed from Utah by a Utah-based company. For this reason, Utah law applies and Defendants are not entitled to summary judgment on the UBODA claim under a choice of law theory.
UBODA applies to "sellers" of "assisted marketing plans."
An assisted marketing plan is defined as "the sale or lease of any products, equipment, supplies, or services that are sold to the purchaser upon payment of an initial required consideration of $300 or more for the purpose of enabling the purchaser to start a business, in which the seller represents" one of four listed things.
Defendants maintain they are entitled to summary judgment under UBODA because: (1) there was no initial required consideration, and (2) Plaintiffs cannot show the existence of a separate sales or marketing program. The court takes up these arguments in turn.
Defendants first argue the Driving Opportunity does not constitute an assisted marketing plan under UBODA because there was no "initial required consideration," an essential element of the statutory definition. "Initial required consideration" means the "total amount a purchaser is obligated to pay under the terms of the assisted marketing plan, either prior to or at the time of delivery of the products, equipment, supplies, or services, or within six months of the commencement of operation of the assisted marketing plan by the purchaser."
Defendants argue: (1) England's Operating Agreement did not require independent contractors to lease products, equipment, or services; (2) drivers who leased vehicles made payments to Horizon, not England; (3) drivers were not required to make payments to England but instead voluntarily opted to have the company process expenses; and (4) drivers could have become independent contractors without paying tuition.
The court disagrees. Notwithstanding the language of the Agreements, Plaintiffs have proffered evidence that England and Horizon together developed a plan to attract individuals with no experience in the trucking industry by offering an opportunity to own a trucking business through the Leasing Agreement and Operating Agreement. The record contains testimony of company employees relating to joint recruiting efforts, internal documents describing the Implementation Plan, recruiting guides and scripts, and even pay statements. A reasonable jury could find at trial that Plaintiffs met their burden of demonstrating that England and Horizon jointly offered the Driving Opportunity, which in turn required a payment of at least $300 within the first six months of the program in the form of either fixed leasing payments or variable mileage charges. In this context, the issue of initial required consideration may raise a series of interrelated factual issues at trial, including: (1) whether England and Horizon constituted a joint venture, (2) which company received the benefit of payments processed through England; and (3) whether particular deductions were required under the Driving Opportunity, as defined by Plaintiffs.
Against these facts, the court cannot find that England is entitled to summary judgment as a matter of law under the theory it did not require drivers to pay initial consideration.
Defendants next argue Plaintiffs cannot prove England or Horizon made a representation that would bring the Driving Opportunity within UBODA's definition of "assisted marketing plan."
To constitute an assisted marketing plan, the seller must make a representation that falls within the statute.
Marketing is often defined as the "act or process of promoting and selling, leasing, or licensing products or services," or alternatively, as the "part of a business concerned with meeting customers' needs."
Defendants argue: (1) UBODA requires Plaintiffs to demonstrate that they paid for a marketing program beyond the initial required consideration, which they cannot do; and (2) England did not provide a sales or marketing program.
Contrary to Defendants' theory, Utah Code § 13-15-2(1)(a)(iv) does not require a party affirmatively to prove an additional payment was made. Applying the plain and ordinary meaning of the statutory language, the court concludes UBODA merely requires a party to show that a seller represented that, on the payment of a threshold amount, it would provide the benefits of a program or plan relating to selling, leasing, or licensing goods or services, and that this plan or program would permit the purchaser to derive income in excess of the price paid.
While proof of this payment may be relevant to whether the seller made a representation in the first instance, the court's inquiry under the statute centers on the occurrence of a qualifying representation, as opposed to the existence of a particular payment. Here, Plaintiffs offered some evidence that England developed the Driving Opportunity to attract independent contractors, indicated that independent contractors would pay leasing and variable mileage costs in exchange for business from one particular client (England), and suggested that the Driving Opportunity was an affordable and potentially lucrative business opportunity.
In response, Defendants insist that the use of different terms in different subsections of the statute—marketing plan and marketing program—suggests that UBODA requires both initial consideration and a future payment for the program itself. As discussed above, the definitions of plan and program overlap. But even assuming UBODA requires a separate initial payment and then a subsequent payment for the marketing program itself, genuine issues of material fact preclude summary judgment. Here, a reasonable jury could find that Defendants' program—the opportunity to provide services directly to England under the Leasing Agreement and the Operating Agreement—was contingent on lease payments, variable mileage payments, or both. In other words, a jury could distinguish the initial required consideration from payments required to continue to participate in the Driving Opportunity. If so, genuine issues of material fact exist on the issue of whether drivers paid for a marketing program under UBODA.
Defendants' UBODA challenge raises significant issues. At trial, England may convince the jury that England and Horizon did not work together to offer a business opportunity, that Plaintiffs did not make sufficient payments to either England or Horizon, or that the Driving Opportunity—at least as defined by Plaintiffs—does not constitute an assisted marketing plan under UBODA. On the record presented, however, Plaintiffs are entitled to all reasonable inferences that can be drawn from settlement reports, company documents describing the development of the independent contractor program, the affiliation between the two family-owned companies, testimony relating to recruitment, website advertising, and the England Business Guide. Taken together, this evidence raises a genuine issue of material fact concerning whether Defendants offered an assisted marketing plan to drivers without making statutory disclosures.
For all these reasons, the court concludes England is not entitled to summary judgment under UBODA at this stage of the proceedings.
The next issue is whether the Federal Aviation Administration Authorization Act preempts UBODA claims against motor carriers like England. Defendants contend the Aviation Act's express preemption provision bars such claims. Plaintiffs argue the generally applicable statute in this case falls outside the Aviation Act's preemption provision.
Under the Aviation Act, a state "may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . with respect to the transportation of property."
In Rowe, the Supreme Court considered whether the Aviation Act preempted a state statute regulating tobacco delivery and imposing civil penalties for transporting tobacco products when either the sender or receiver lacked a state license. Importing a preexisting interpretation of a preemption provision from the Airline Deregulation Act of 1978, the Court held: (1) "[s]tate enforcement actions having a connection with, or reference to, carrier rates, routes, or services are pre-empted"; (2) "pre-emption may occur even if a state law's effect on rates, routes, or services is only indirect"; (3) "it makes no difference whether a state law is consistent or inconsistent with federal regulation"; and (4) "pre-emption occurs at least where state laws have a significant impact related to Congress' deregulatory and pre-emption-related objectives[,]" which was to ensure motor carriers received the benefit of "competitive market forces" which in turn would stimulate "efficiency, innovation, and low prices."
Applying that standard, the Court held the Aviation Act preempted state tobacco laws.
The Court reached the opposite conclusion in Dan's City Used Cars, Inc. v. Pelkey.
The Court then held that the Aviation Act did not preempt enforcement of a claim based on a state statute that was "related to neither the `transportation of property' nor the `service' of a motor carrier."
As the parties recognize in their papers, application of these principles and the Aviation Act varies depending on the context. At least one court has held that the Aviation Act preempted state laws governing independent contractors as applied to motor carriers because the laws directly and substantially impacted the business model of a trucking company.
As discussed above, Defendants argue UBODA is preempted because its enforcement against a motor carrier company like England directly affects trucking services, prices, and the transportation of property. Plaintiffs, however, contend the Aviation Act does not preempt their claims against Horizon or England because UBODA is a generally applicable state law that neither regulates transportation of property nor directly relates to prices, routes, or services. The court agrees with Plaintiffs and finds for the two reasons discussed below that the Aviation Act does not preempt the UBODA claim.
The court concludes that UBODA is not sufficiently related to the price, route, or service of a motor vehicle carrier. Instead, it is a generally applicable business regulation statute requiring entities engaging in the practice of offering business opportunities in the form of assisted marketing plans to comply with certain reporting and disclosure obligations.
In this respect, UBODA is properly analogized to generally applicable discrimination, rest break, or wage laws which unavoidably affect drivers and motor carriers but have survived preemption challenges because they bear only a tenuous connection to motor carriers and do not exert a "significant impact on . . . rates, routes, or services."
And unlike cases where courts reach the opposite result, Defendants have not provided an evidentiary record here that supports the conclusion that compliance would have a "significant" effect on their prices, routes, or services.
In contrast, Defendants simply assert that patchwork compliance will affect its business model, which is a substantial step removed from prices, routes, and services. As the Supreme Court recently observed, "the breadth of the words `related to' does not mean the sky is the limit."
For these reasons, the court concludes UBODA is not sufficiently "related to" England's prices, routes, and services, and that the Aviation Act does not preempt Plaintiffs' claim on this basis.
Alternatively, Defendants' motion must be denied because the Utah statute in question does not bear a sufficient connection to the "transportation of property."
The final UBODA issue the parties present is whether a one-year statute of limitations that applies generally to penalties and forfeitures
In Utah, "[a]n action may be brought within one year . . . upon a statute for a penalty or forfeiture where the action is given to an individual, or to an individual and the state, except when the statute imposing it prescribes a different limitation."
Defendants rely on a decision in which the Tenth Circuit held that a late check return claim was subject to the one-year statute of limitation for penalties and forfeitures, because: (1) the late check return statute required the payment of "a sum of money . . . by way of punishment for doing some act which is prohibited, or omitted to do some act which is required to be done,"
In contrast, Plaintiffs rely primarily on a decision from this district where the court held that the limitations period was not applicable to a statute awarding treble damages.
None of these cases resolve the issue or meaningfully aid this court's analysis. Here, the statute imposing liability serves both a compensatory and punitive purpose. For example, an award of the statutory minimum may compensate an individual for actual damages less than $2,000, but would also penalize the seller for the difference between the statutory minimum and the actual damages. In this respect, the Castleton decision is unhelpful because the Tenth Circuit expressly concluded that the statute in that case was not intended to compensate. At the same time, Plaintiffs' cases do not grapple with the Utah Supreme Court's 1924 definition of penalty, which appears to be broader than the definition applied in Sinclair and Christensen.
More recently, Utah courts have looked to legislative intent surrounding the underlying statute imposing liability when considering whether a statute imposes a penalty
For these reasons, the court concludes that legislative intent is the most helpful metric for analyzing whether UBODA's imposition of a statutory fine when actual damages fall below $2,000 constitutes a penalty. Here, the section in which the statutory minimum is included is entitled: "Failure to file disclosures—Relief where seller fails to comply with chapter—Relief where division granted judgment or injunction—Administrative fines."
The court finds Castletons and the 1924 definition of penalty are distinguishable. Here, the statutory minimum damages serve a hybrid purpose that includes compensating the purchasers of business opportunity plans. Extension of the one-year statute of limitations for penalties would be contrary to legislative intent and at odds with the remedial purpose of UBODA. Accordingly, the court concludes that Utah courts would not apply the one-year statute of limitations for penalties. Plaintiffs' UBODA claim is not time-barred.
Plaintiffs move for certification of a nationwide class for claims arising under the Utah Business Opportunity Disclosure Act, the Utah Consumer Sales Practices Act, the Utah Truth in Advertising Act, and the common law doctrines of negligent misrepresentation, breach of fiduciary duty, and unjust enrichment. Plaintiffs also move for certification of two subclasses for their breach of contract and fraud claims.
Rule 23, Federal Rules of Civil Procedure, permits parties to pursue resolution of complex disputes through a class action as "an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only."
First, Rule 23(a), Prerequisites, "requires the party seeking certification to demonstrate that: (1) `the class is so numerous that joinder of all members is impracticable' (numerosity); (2) `there is a question of law or fact common to the class' (commonality); (3) `the claims or defenses of the representative parties are typical of the claims or defenses of the class' (typicality); and (4) `the representative parties will fairly and adequately protect the interests of the class' (adequacy)."
As the Tenth Circuit recently recognized, "Rule 23 is more than a pleading standard. Hence, the `party seeking class certification must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.' Further, the district court has an independent obligation to conduct a `rigorous analysis' before concluding that Rule 23's requirements have been satisfied. Often that analysis requires looking at the merits of a plaintiff's claim."
And the Supreme Court has instructed lower courts to "probe behind the pleadings before coming to rest on the certification question" and that the Rule 23(a) analysis "will frequently overlap with the merits of the plaintiff's underlying claim."
But this inquiry is not without limit. The Supreme Court has cautioned that "Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage."
Consistent with the language of Rule 23, this court first considers whether Plaintiffs carry their burden of satisfying the four Rule 23(a) prerequisites and then evaluates whether class certification is appropriate under the relevant Rule 23(b) factors.
Under Rule 23(a), class certification is appropriate only if four requirements are satisfied: "(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class."
The court below considers in turn whether the Plaintiffs have met their strict burden of proof to show that all of the Rule 23(a) requirements are met.
The court first considers whether the proposed class is "so numerous that joinder of all class members is impracticable" as required under Rule 23(a)(1). Recognizing that no precise number satisfies this requirement, courts have observed that a class in excess of one hundred is usually sufficient.
In this case, Plaintiffs contend the proposed class exceeds 14,708 drivers. Defendants do not seriously dispute that numerosity exists on the record presented. Given the size of the putative class and subclasses, potentially including thousands of drivers, the court finds that Plaintiffs have satisfied the numerosity requirement.
The court next considers whether Plaintiffs have shown, as Rule 23(a)(2) requires, "questions of law or fact common to the class." The parties dispute whether this prerequisite, referred to as commonality, exists for the claims that Plaintiffs seek to certify. Given the complexity of the parties' dispute, the court will discuss the governing standard and helpful cases before analyzing each of the substantive claims at issue.
The commonality prerequisite has generated considerable discussion over the last several years, in part because of the Supreme Court's holding in Wal-Mart Stores, Inc. v. Dukes.
The Supreme Court reversed. The Court concluded that commonality requires more than mere recitation of common questions.
Applying that principle, the Court observed that resolution of the Title VII claims hinged on "the reason for a particular employment decision" and expressed concern that the plaintiffs sought recovery for "literally millions of [Wal-Mart's] employment decisions at once."
Notably, the Court concluded that the only corporate policy on the record facilitated "discretion by local supervisors over employment matters," which prevented "convincing proof of a companywide discriminatory pay and promotion policy."
Defendants contend that a classwide proceeding would not generate common answers capable of resolving this litigation because: (1) members of the putative class received and relied on a variety of different representations; (2) independent contractors had a range of reasons for joining the independent contractor program; and (3) the fact that hundreds of trainees became company drivers, as they originally intended, precludes a finding of commonality for the proposed subclass on Plaintiffs' breach of contract claim.
None of these arguments persuade the court that Plaintiffs are unable to make showing of common issues of law and fact. Both before and after Dukes, courts have held that differences between class members do not preclude a finding of commonality, so long as the claims present common questions of fact and law. This is because class actions necessarily sweep in members whose individual experiences are not precisely identical. To the extent individual experiences demonstrate the claims are inapt for class certification, the court concludes that these arguments go primarily to the predominance inquiry under Rule 23(b). For example, although Defendants maintain that individual experience precludes commonality on breach of contract, the argument in the papers primarily goes to whether breach is an individualized question that outweighs the common issue presented by uniform contracts—an inquiry that sounds more in Rule 23(b) than Rule 23(a). The court concludes that Defendants' individual evidence theory, at least for the purpose of the commonality analysis, is largely unpersuasive.
Defendants also argue that Dukes forecloses class certification in this case.
Mindful of its obligation to engage in a rigorous analysis of the Rule 23(a) factors, the court will evaluate each asserted claim in turn under the standard articulated in Dukes. As stated below, the court finds that Plaintiffs satisfied their burden of showing commonality for each of their claims.
As discussed above, UBODA requires sellers of assisted marketing plans to register with the State of Utah and to provide specific disclosures to prospective purchasers. Here, Plaintiffs demonstrated that the claim presents several common questions of law and fact: (1) whether the Driving Opportunity is a seller-assisted marketing plan; (2) whether Defendants registered with the Utah Division of Consumer Protection; and (3) whether Defendants provided disclosure statements to purchasers, as required by UBODA. Resolution of these issues will largely depend on Defendant's conduct. Plaintiffs proffered sufficient evidence for the court to conclude that the classification of the Driving Opportunity, its registration under UBODA, and the existence of adequate statutory disclosures are uniform to the class. Because resolution of these central issues would resolve the claim "in one stroke," the court finds that Plaintiffs met their commonality burden for this claim.
The Utah Consumer Sales Practices Act "prohibits deceptive or unconscionable acts or practices by a supplier in connection with a consumer transaction."
After careful consideration of the testimony and exhibits submitted, the court finds that Plaintiffs' Sales Act claim raises common questions of fact and law. Specifically, Plaintiffs and the class suffered the same type of injury arising out of a common course of conduct designed to sell students and trainees the Driving Opportunity. Resolution of a series of questions will resolve issues central to the validity of the class's claim: (1) whether the sale of the Driving Opportunity was a consumer opportunity; (2) whether use of inaccurate or incomplete recruiting materials, such as the ones presented here, constituted a deceptive act and practice; (3) whether Defendants knowingly offered an untenable number of independent contractor positions; (4) whether Defendants concealed the likelihood of success for an independent contractor; and (5) whether Defendants concealed accurate pay information and/or turnover rates.
Each of these issues raises questions of fact or law common to the class and apt to resolve the validity of the claim. And while there may be minor variations for class members, there is also sufficient evidence that these central and uniform issues are "capable of classwide resolution."
The Utah Truth in Advertising Act was intended "to prevent deceptive, misleading, and false advertising practices and forms in Utah."
In light of the substantial evidence of a uniform, centrally-driven approach to marketing and promoting the Driving Opportunity and independent contractor program, as well as the relative consistency in mileage and income representations during the class period, the court finds this claim raises issues of law and fact common to the class. Plaintiffs allege the class suffered the same injury under the Advertising Act and that the claim's resolution hinges on these common questions. Some variations in access to advertising material do not preclude a finding of commonality. Indeed, resolution of several issues will be common to the class: (1) whether Defendants' common conduct rose to the level of a deceptive trade practice, (2) whether uniform misrepresentation in the wide range of advertising and written marketing materials falls within the Advertising Act, and (3) whether the Driving Opportunity constitutes goods and services. For these reasons, Plaintiffs carried their burden of demonstrating commonality for this claim.
In Utah, a party seeking to recover on a fraud claim must prove:
As discussed above, Plaintiffs presented evidence of consistent representations of mileage and income to students and trainees that may have been uniformly false during the class period. Specifically, Plaintiffs submitted evidence of three graphs in the England Business Guide, which Defendants provided to every student and instructed them to review. Similarly, Plaintiffs proffered evidence that Defendants uniformly misrepresented independent contractor mileage and income through several mediums, including online marketing, recruiting scripts, and the Business 101 program. The evidentiary record and Plaintiffs' allegations suggest that resolution of the fraud claim depends at a minimum on the answers to several common questions: (1) whether Defendants knowingly or recklessly made representations for the purpose of inducing individuals into purchasing the Driving Opportunity, (2) whether the representations were false, and (3) whether the representations were material. Accordingly, the court finds Plaintiffs satisfied their burden of demonstrating the existence of at least one "common contention . . . capable of classwide resolution [and] central to the validity" of Plaintiffs' fraud claim.
Utah courts recognize negligent misrepresentation as a "form of fraud" and interpret "the elements of the tort in a manner consistent with principles of common-law fraud."
As discussed above, the court concludes that the statements forming the basis of liability in this case are alleged to be consistently and uniformly inaccurate during the class period. And Plaintiffs have presented evidence that mileage and income representations failed to reflect reality. Similar to the fraud claim, the truth or falsity of the representations is capable of classwide resolution. Moreover, resolution of whether Defendants crafted and then repeated the representations in the England Business Guide and similar recruiting materials with the requisite state of mind is a common issue of fact and law under Rule 23(a). Plaintiffs have presented sufficient evidence of commonality for the negligent misrepresentation claim.
To prevail on their contract claim, Plaintiffs must show "(1) a contract, (2) performance by the party seeking recovery, (3) breach of the contract by the other party, and (4) damages."
Plaintiffs seek certification of a group of individuals who signed the Student Training Agreement during the class period. Unlike in the cases cited by Defendants, there is no indication that the terms of the Student Training Agreement varied from student to student. The common basic contract terms present at least one common question under Utah law. Because the obligation at the heart of the claim—whether England offered trainees positions as company drivers—appears to be identical in the Student Training Agreements, it is capable of classwide resolution.
Unjust enrichment claims require proof of three elements: (1) "there must be a benefit conferred on one person by another," (2) "the conferee must appreciate or have knowledge of the benefit," and (3) "there must be `the acceptance or retention by the conferee of the benefit under such circumstances as to make it inequitable for the conferee to retain the benefit without payment for its value.'"
Plaintiffs allege Defendants benefited from passing off costs and expenses to independent contractors. This theory of recovery hinges on whether Defendants: (1) understood that independent contractors could be a source of revenue, (2) retained the benefits of the independent contractor program, and (3) did so through an unjust and fraudulent scheme with full knowledge that most independent contractors would fail. These questions are capable of classwide resolution. Specifically, there is evidence of uniform advertising material, internal company studies, and internal correspondence, all of which consistently emphasized the importance or desirability of the independent contractor program. Because resolution of these issues can be determined on a classwide basis, which in turn drives the determination of liability, the court finds that Plaintiffs met their commonality burden for the unjust enrichment claim.
In Utah, an individual may assert a breach of fiduciary duty based on a failure to disclose information by showing: "(1) a fiduciary duty to disclose material information, (2) knowledge of the information, and (3) failure to disclose the information."
In this case, common issues of fact and law will drive the breach of fiduciary duty claim. Specifically, on the record presented, the following issues may be resolved on a classwide basis: (1) whether the relationship between independent contractors and Defendants—driven by the Driving Opportunity and a disparity in access to information—created a fiduciary relationship between the class members and Defendants; (2) if so, whether Defendants failed to disclose accurate and material mileage and income information; and (3) whether Defendants knew that the information consistently conveyed to potential independent contractors was false. For these reasons, the court finds that commonality was met for the breach of fiduciary duty claim.
After Dukes clarified the analysis, the threshold for satisfying commonality remains within reach for plaintiffs, even when there is variation among class members.
Rule 23(a)'s third requirement is typicality. To establish typicality, a class representative must show "the claims or defenses of the representative parties are typical of the claims or defenses of the class."
Parties opposing class certification often point to variations in the experience of proposed class members. Courts, however, have clarified that typicality does not demand exactly identical interests and claims.
Here, "the claims of the class representatives and class members are based on the same legal or remedial theory."
In other words, the claims for each class member arise out of the same course of events. Each class member and the named Plaintiffs have the same incentive to prove the claims and defenses.
The final Rule 23(a) requirement—adequacy—requires the class representative to show "the representative parties will fairly and adequately protect the interest of the class."
Defendants do not specifically challenge the adequacy of the class representatives. Based on the class representatives' declarations and the information submitted relating to counsel, the court finds that Roberts and McKay will fairly represent the class. There exists no apparent conflict of interest between the class representatives and the putative class. And where, as here, Plaintiffs retained qualified and experienced attorneys who have competently pursued class certification and opposed dispositive motions, the court finds the representative parties will "prosecute the action vigorously on behalf of the class."
Because Plaintiffs made a threshold showing under Rule 23(a), the court turns to Rule 23(b) to determine if Plaintiffs have satisfied through evidentiary proof at least one of its subsections.
As noted above, district courts have a responsibility to conduct a rigorous analysis to test whether a party seeking class certification satisfied the requirements of Rule 23(b).
Under the theory Plaintiffs advance, they must show that "questions of law or fact common to class members predominate over any questions affecting only individual members[.]"
While courts vary in their articulation of the predominance standard, most require plaintiffs to show that "the issues in the class action that are subject to generalized proof, and thus applicable to the class as a whole, [] predominate over those issues that are subject only to individual proof."
Defendants here contend that Plaintiffs cannot establish predominance for three overlapping reasons: (1) proof of injury and damages requires individual evidence and cannot be ascertained from England's data, (2) the claims in this case are far too complex for class resolution assuming choice-of-law principles require application of law from fifty-one jurisdictions, and (3) many of the claims require individual evidence for each individual driver.
As an initial matter, the parties dispute whether reliance or causation—elements that vary from claim to claim—are individualized issues requiring evidence for each class member. The Tenth Circuit recently addressed this issue in a similar context in CGC Holding Co., LLC v. Broad & Cassel.
Discussing cases in other jurisdictions, the Tenth Circuit concluded "issues of reliance can be disposed of on a classwide basis without individualized attention at trial. For example, where circumstantial evidence of reliance can be found through generalized, classwide proof."
After a careful review of the record and the claims, the court concludes that an inference of reliance and causation is warranted in this case. Here, the circumstantial evidence of reliance is abundant. Individuals relied on promises of economic opportunity when they enrolled in and paid tuition to attend England's driving schools. More importantly, the putative class agreed to become independent contractors, operating under the assumption that the Driving Opportunity offered a feasible career choice. As the court already discussed, members of the class had been exposed, through a variety of mediums, to generally uniform representations that may have been inaccurate. And the record before the court is sufficient to support the conclusion that these representations were part of a concerted effort to recruit individuals to England's independent contractor program and convince drivers to lease from Horizon. At least for the proposed class, common sense dictates that each class member's reason for attending driving school and joining the independent contractor program was the belief that Defendants offered an income and mileage opportunity that would support a career.
Both parties devote considerable attention in their papers to the issue of damages. Defendants argue that proof of injury and the amount of damages requires individualized evidence and that, as a result, individual issues predominate over common questions. Plaintiffs contend that damages for each claim can be determined by applying the appropriate methodology to England's comprehensive set of data for each driver.
The Supreme Court recently addressed this issue in Comcast Corp. v. Behrend.
The Court concluded that, in the absence of an appropriate model, "individual damage calculation will inevitably overwhelm questions common to the class."
The Supreme Court then turned to the adequacy of the regression model.
Plaintiffs' theory of damages in this case is a far cry from the flawed model in Comcast and similar cases. Plaintiffs' expert here, Charles Mahla, identifies several reasonable means of calculating minimum statutory damages, actual damages, rescission damages, restitution damages, and value of labor damages for the class.
Defendants contend Dr. Mahla's models fail to account for a range of possibilities, including the possibility that an individual's decision to become an independent contractor had nothing to do with any claimed misrepresentation. To the extent that Defendants' critique of the damages models echoes their causation or reliance arguments, the court has already concluded that the members of the class are entitled on the record presented to an inference of classwide causation and reliance.
In addition to the fact of damages, Defendants also argue that the amount of damages requires individualized evidence in this case.
Defendants' argument is unpersuasive. Although Mr. Hoffman's critique may highlight ways to refine Dr. Mahla's model, Defendants have not identified the type of fundamental flaw in the methodology that rendered the disconnected damages model in Comcast unworkable. Instead, they have identified areas that may be the subject of mitigating evidence or an alternative model of damages at trial. The Comcast Court left open the possibility that damages may be proven by a classwide model, even though the model's calculations were not "exact."
The next issue is whether choice of law issues prevent class certification. Specifically, the parties dispute: (1) whether the choice of law provision in the Leasing Agreement and Operating Agreement extend to Plaintiffs' statutory and common law claims, and (2) whether this court must apply the laws of fifty-one jurisdictions to the claims in this case.
Defendants correctly assert that neither the Leasing Agreement nor the Operating Agreement is determinative of the choice of law analysis. As discussed above,
The remaining claims sound in tort.
Other jurisdictions bear some relationship to this case. Members of the proposed class reside in forty-eight states, Washington D.C., Puerto Rico, and the Virgin Islands.
But Utah has the most significant relationship to the parties and the occurrences that form the basis of the claims. England and Horizon are incorporated and headquartered in Utah. There is significant evidence that the misconduct forming the basis of liability emanated from Defendant's Utah-based headquarters. Indeed, most of the claims are based to varying degrees on the Driving Opportunity and Implementation Plan, both of which were developed, executed, and refined in Utah.
The court is also mindful of additional considerations under Section 6 of the Restatement.
Defendants argue this conclusion may encourage plaintiffs to engage in forum shopping and file class actions in jurisdictions with the most favorable laws.
For these reasons, the court concludes that Utah bears the most significant relationship to the parties and the occurrences relevant to the asserted claims. Accordingly, the court rejects Defendants' argument that application of choice of law principles prevents a finding of predominance or otherwise makes this case unmanageably complex.
Defendants argue that individual evidence predominates over common issues and precludes class certification. In response, Plaintiffs argue that the overarching issue in this case is whether Defendants devised a common scheme that harmed all members of the class.
As the Tenth Circuit recently observed, the touchstone of predominance is consideration of "the elements of the underlying cause of action."
The parties devote significant attention to the fraud-based claims, which include common law fraud and negligent misrepresentation.
Citing this language, courts have applied different standards to class certification of fraud claims. In the Ninth Circuit, class certification of a fraud claim may be warranted if the plaintiffs show that the claims arise out of a common course of conduct.
For purposes of class certification, the court finds that the key representations forming the basis of potential liability do not materially vary. Plaintiffs have submitted competent evidence showing Defendants uniformly misrepresented projected income and mileage for independent contractors during the class period through written, and at times, oral representations.
Still, Defendants argue that reliance on the representations necessarily remains an individualized issue.
Moreover, while Defendants' anecdotal evidence illustrates the complexity of the fraud-based claims, they have not persuaded the court that individualized issues predominate over common questions. For one thing, the cases cited by the Defendants are distinguishable for lack of a centrally-driven scheme or uniform representation.
Moreover, the language of Rule 23(b) and the advisory committee note suggest that class certification is possible, even with variation in the effect on individual class members, so long as individual issues do not predominate over common questions. Even assuming reliance cannot be presumed, the central issues for the fraud-based claims are questions of law and fact common to the class. As discussed in the preceding section, these common questions include: (1) the materiality of the representations, (2) the truth of the representations, and (3) Defendants' state of mind.
The parties dispute whether common issues predominate for the breach of contract claim. Plaintiffs contend that whether England "failed to fulfill its contractual obligations to subclass members by choosing not to make company trucks available and otherwise preventing subclass members from receiving the fruits of their bargain presents common questions."
The breach of contract claim presents a closer question than the fraud-based claims. As discussed above, the scope of England's obligation and a class-wide determination of damages present common questions.
The parties dispute whether the unjust enrichment claim requires individual evidence. As discussed above, this claim presents common issues, including whether Defendants adopted a scheme that allowed Defendants to unjustly benefit by distributing their costs to independent contractors.
Defendants contend that liability for unjust enrichment requires individual evidence of each driver's understanding of the independent contractor program, because this claim requires proof of injustice.
Similarly, the parties dispute predominance for Plaintiffs' breach of fiduciary duty claim. Based on uniformity in the treatment of trainees, the court concluded above that the existence or nonexistence of a fiduciary duty presented a common issue of law or fact. Similarly, the issues of whether Defendants failed to disclose accurate information and whether Defendants were aware of the inaccuracy of the information provided to class members are common to the class.
Defendants argue that under Utah law, the question whether "a confidential or fiduciary relationship exists depends on the facts and circumstances of each individual case."
But even if reliance could not be presumed for Plaintiffs' breach of fiduciary duty claim, the court concludes that the common issues—the existence of a duty, disclosure, and the truth of Defendants' representations about the independent contractor program—are of greater weight and importance than the individualized issues identified by Defendants. This is especially so where, as here, Utah courts do not expressly require reliance as a separate element of the claim and damages can be determined on a classwide basis.
Defendants do not include Plaintiffs' statutory claims in discussing the need for individual evidence.
As discussed above, the UBODA claim raises a series of common issues of fact and law, including the existence of a seller-assisted marketing plan, registration with the Utah Division of Consumer Protection, and adequacy of disclosures to purchasers of the Driving Opportunity. On the record presented, there is no indication that any individualized evidence is necessary to resolve liability under the statute. And even if limited evidence was necessary, the common issues strike at the heart of liability and greatly outweigh any individualized determinations. Accordingly, Plaintiffs met their burden of demonstrating that common issues predominate over individual issues for their UBODA claim.
Similarly, Plaintiffs' Utah Consumer Sales Practices Act claim centers on the resolution of common questions of law and fact. Specifically, common evidence will be used to determine whether the Driving Opportunity constituted a consumer opportunity and whether Defendants engaged in any number of prohibited deceptive sales practices. Because these issues, as well as damages, can be proven by classwide proof, the court finds that common issues predominate of any individual issues for the claim arising under the Sales Act.
Finally, the court finds that predominance has been satisfied for Plaintiffs' Utah Truth in Advertising Act claim. Here, the jury can determine liability by evaluating uniformly inaccurate representations during the class period. Similarly, any determination of a deceptive trade practice and application of statutory definitions can be made on common evidence. On the record presented, the court finds that common issues under the Advertising Act predominate over individual issues.
This court must consider whether "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy."
After considering the relevant factors, the court concludes that a class action in this case would be superior to other methods of adjudication. Defendants do not specifically discuss or contest that the class action mechanism provides a superior means of resolving this dispute.
Moreover, there is evidence in the record that the putative class includes individuals of insubstantial means. Here, the cost and recovery of a single case would make it unlikely that thousands of individuals purportedly harmed would seek recovery outside a class action context.
Because the fairness and efficiency of a class action outweigh resolution of these claims on an individual or alternative basis, the court finds Plaintiffs met their burden of demonstrating superiority under Rule 23(b)(3).
As noted, Plaintiffs assert a claim under the Utah Consumer Sales Practices Act. The Act states that a "consumer who suffers loss as a result of a violation of this chapter may bring a class action for the actual damages caused by an act or practice specified as violating this chapter by a rule adopted by the enforcing authority."
Defendants contend that Plaintiffs cannot bring the claim because the Driving Opportunity is not a "franchise or distributorship." The Administrative Code defines a "franchise or distributorship" as "a contract or agreement requiring substantial capital investment, either expressed or implied, whether oral or written, between two or more persons," where other additional (undisputed) requirements are also present.
This argument is unconvincing. The record evidence amply supports the proposition that the Vehicle Lease Agreement required substantial payments. Further, an equipment lease of this kind is a form of capital investment, wherein drivers seek to earn income through the acquisition and use of an asset to generate additional wealth.
Under Rule 23, "the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort."
For all the reasons stated, the court concludes that Defendants are entitled to judgment on Plaintiffs' RICO and UPUAA claims, but are not entitled to summary judgment on Plaintiffs' UBODA claim. Plaintiffs are entitled to certification of a nationwide class for some of their claims. Accordingly,
The court further ORDERS:
For claims for violations of the UBODA, the Utah Consumer Sales Practices Act and the Utah Truth in Advertising Act, as well as their common law claims for fraud, negligent misrepresentation, unjust enrichment and breach of fiduciary duty, the certification of a nationwide class of all Independent Contractor lease operators who:
SO ORDERED.
