The Franchise Memorandum

In Moua et al. v. Jani-King of Minnesota, Inc., 2009 WL 212425 (D. Minn. Jan. 27, 2009), the United States District Court for the District of Minnesota denied a group of class action plaintiffs’ motion to remand the case to state court, finding that federal jurisdiction was proper under the Class Action Fairness Act (CAFA). The plaintiffs, a group of franchisees of the Jani-King cleaning and janitorial system, initially brought suit in Minnesota state court against their franchisor, claiming Jani-King did not have enough cleaning and janitorial accounts to provide the minimum level of monthly business each had been promised, among other allegations. Jani-King removed the case to federal court under CAFA’s mandate that gives federal courts jurisdiction over class actions based on state law when (1) there is “minimal” diversity, meaning that at least one plaintiff and one defendant are from different states; (2) the amount in controversy exceeds $5 million, and (3) the action involves at least 100 class members. The court found that all three grounds were met here. 

The franchisee plaintiffs argued that the case fell within one of CAFA’s exceptions to federal jurisdiction, the so-called “home state controversy exception.” That exception requires a federal district court to decline jurisdiction over a class action in which at least two-thirds of the members of the class and the primary defendants are citizens of the state in which the action was originally filed.  Two-thirds of the class here were Minnesota citizens, and the franchisees argued that the primary defendant, Jani-King of Minnesota, Inc., was as well. Jani-King countered that Jani-King International, one of the named defendants, was a Texas citizen and thus the exception did not apply. The court agreed, finding that Jani-King International was alleged to be directly liable in a significant number of the asserted claims and thus constituted one of the primary defendants for purposes of the exception. The court went on to dismiss several of the claims, finding some of the franchisees were barred from bringing certain claims by the statute of limitations and other claims were not pleaded with sufficient particularity, including fraud and false statements in advertising.