Court Opinion

ID: 4659941
Source: CourtListenerOpinion
Date Created: 2021-02-12 15:05:57.345513+00
Date Added: 2024-06-11T08:02:02.752359
License: Public Domain

RENDERED: FEBRUARY 5, 2021; 10:00 A.M.
                        NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals

                              NO. 2019-CA-1594-MR

CONSTANCE MOUANDA                                                     APPELLANT

               APPEAL FROM JEFFERSON CIRCUIT COURT
v.            HONORABLE SUSAN SCHULTZ GIBSON, JUDGE
                       ACTION NO. 19-CI-000283

JANI-KING INTERNATIONAL;
CARDINAL FRANCHISING, INC.,
D/B/A JANI-KING LOUISVILLE;
AND JANI-KING LEASING CORP.                                           APPELLEES

                                    OPINION
                                   AFFIRMING

                                  ** ** ** ** **

BEFORE: CALDWELL, GOODWINE, AND LAMBERT, JUDGES.

LAMBERT, JUDGE: Constance Mouanda has appealed from the June 25, 2019,

order of the Jefferson Circuit Court dismissing her wage and hour, breach of

contract, and fraud claims for failure to state a claim pursuant to Kentucky Rules of

Civil Procedure (CR) 12.02. We affirm.
             Prior to addressing the allegations of the lawsuit underlying this

appeal, we shall set forth the respective parties and explain their roles. To do so,

we shall rely upon the relevant portions of the statement of facts in a motion to

dismiss filed below by two of the defendants, Jani-King International, Inc., and

Jani-King Leasing Corp. (the Jani-King defendants).

                  A. Jani-King International, Inc. and Its
             Business Model

                    Jani-King International, Inc., (“JKI”) is a Texas
             corporation that developed and maintains a proprietary,
             comprehensive commercial cleaning system under the
             brand “Jani-King.” Jani-King Franchising, Inc., (“JKF”)
             is a subsidiary of JKI that sells the right to operate a Jani-
             King sub-franchisor, which is commonly referred to as a
             master franchisee, in an exclusive territory. Master
             franchisees purchase a license to use the “Jani-King”
             trademark, goodwill, and cleaning system in the
             territories in which they operate. Master franchisees –
             such as Defendant Cardinal Franchising, Inc., – in turn
             sell Jani-King unit franchises to small businesses wishing
             to operate a commercial cleaning franchise in the master
             franchisee’s territory (“unit franchisees”). Master
             franchisees train unit franchisees on the proper use of the
             Jani-King proprietary information, and offer various
             support services to unit franchisees, including securing
             commercial cleaning contracts for them to service. The
             Jani-King Defendants are not parties to any agreement
             with a master or unit franchisee.

                    B. Jani-King Leasing Company

                   JKL is a Texas corporation that sells or leases
             cleaning equipment (such as vacuum cleaners, auto-
             scrubbers, burnishers, etc.) to unit franchisees, when such
             equipment is needed. Unit franchisees, however, are not

                                          -2-
              required to buy or lease equipment from JKL under their
              respective franchising agreement. Rather, unit
              franchisees are allowed to purchase the necessary
              equipment to operate their Jani-King franchise from
              whatever source they choose. JLK is not a party to any
              regional or regional unit franchise agreement, nor has it
              sold or leased any cleaning equipment in Kentucky in the
              last three (3) years, including to the franchise owned by
              The Matsoumou’s, LLC.1

                      C. Cardinal Franchising, Inc.

                     Cardinal Franchising, Inc., (“Cardinal”) is a
              Kentucky corporation, which operates under the name
              “Jani-King of Louisville.” Cardinal is a Jani-King master
              franchisee and party to a regional franchise agreement
              with JKF (the “Regional Agreement”). Under the
              Regional Agreement, Cardinal purchased the exclusive
              right to use the “Jani-King” name in Oldham, Shelby,
              Jefferson, Spencer, Nelson, Bullitt, Hardin, Henry, and
              Meade Counties in Kentucky; and Washington, Scott,
              Clark, Floyd, Harrison, Jefferson, and Crawford Counties
              in Indiana (the “Territory”). The Regional Agreement
              also provides that Cardinal is responsible for ensuring
              proper use of the “Jani-King” proprietary information in
              the Territory; however, in the event Cardinal fails to do
              so, JKF reserves the right to enforce any necessary
              provisions in Cardinal’s unit franchise agreements. JKI
              and JKL are parties to the Regional Agreement.
              Moreover, Cardinal is a separate business entity and not a
              subsidiary of JKI, JKF or JKL.

                      D. Plaintiff Constance Mouanda

                    Plaintiff formed the Company, which purchased
              and operated a unit franchise of Cardinal. The Company

1
 The Matsoumou’s, LLC (the “Company”) is a Kentucky limited liability company formed by
Plaintiff Constance Mouanda (“Plaintiff”) for the purpose of purchasing and operating a Jani-
King unit franchise. (Footnote 1 in original.)

                                              -3-
            entered into a unit franchise agreement (“Unit
            Agreement”) with Cardinal on February 28, 2018. The
            Unit Agreement provides the Company with the right to
            operate a franchise under the “Jani-King” name in the
            Territory and use the Jani-King cleaning system and
            proprietary marks licensed by Cardinal. JKI and JKL are
            not parties to the Unit Agreement, nor did they
            participate in the negotiations of its terms or otherwise
            make any representations to Plaintiff or the Company
            concerning the Unit Agreement. Cardinal holds the
            accounts serviced by the Company and established the
            sale price for the Company’s franchise. Neither JKI nor
            JKL participated in these negotiations. While the
            Company, as a franchisee of Cardinal, has the right to
            implement a business model established by JKI, neither
            the Company’s nor Plaintiff’s performance of cleaning
            services is controlled by JKI or JKL. Additionally, while
            JKI had the ability to enforce the Unit Agreement
            between Cardinal and the Company to protect the “Jani-
            King” branding, JKI was not obligated to pay the
            Company or Plaintiff, and JKI’s status as the owner of a
            national franchise brand did not make it a party to that
            agreement.

(Citations to appendices omitted.)

            In January 2019, Mouanda filed a complaint against Cardinal and the

Jani-King defendants for causes of action she alleged arose on February 28, 2018.

Mouanda, who is not a native English speaker, alleged that she entered into

agreements to become the owner of a Jani-King franchise on that day. In order to

do so, she made a $6,000.00 down payment and was guaranteed to earn $2,000.00

per month by the contract. She claimed that the agreements amounted to 50 pages,

which she did not have counsel review or have a reasonable opportunity to review

                                        -4-
herself. These documents, she alleged, included corporate resolutions, LLC

formation documents, and a franchise agreement setting forth the relationship

between her and Jani-King. She claimed that she was fraudulently induced to sign

the agreement, which required her to lease commercial cleaning equipment and

purchase cleaning materials from the defendants.

            Mouanda alleged that Jani-King structures its business to avoid

providing its workers with employment law protections by deeming workers like

her as franchisees. She was not paid a minimum wage for her work in violation of

Kentucky Revised Statutes (KRS) 337.275 nor was she given information about

hours worked in violation of KRS 337.070. She was not paid what she had

bargained for. Mouanda claimed that the nature of the relationship between herself

and Jani-King was identical to an employment relationship. She alleged that the

contract she entered into with Jani-King was substantively unconscionable. As a

result, Mouanda alleged causes of action for fraud based upon the material

representations that she would earn over $2,000.00 per month, for a violation of

Kentucky’s minimum wage law, and for breach of contract based upon Jani-King’s

failure to offer her work that would provide her with $2,000.00 in income as

promised and its refusal to refund her $6,000.00 down payment. Mouanda sought

compensatory and punitive damages.

                                        -5-
             In lieu of an answer, Cardinal filed a motion to dismiss Mouanda’s

complaint for failure to state a claim pursuant to CR 12.02. It argued that she

lacked standing to bring this cause of action because the franchise agreement was

between Cardinal as the franchisor and The Matsoumou’s, LLC as the franchisee.

Mouanda, individually, did not have a contractual relationship with Cardinal and

therefore could not bring suit against it. In addition, Cardinal asserted that

Mouanda was an independent contractor performing work for her LLC. Therefore,

she was not an employee, and Cardinal was not her employer. Cardinal also

argued that Mouanda failed to plead her fraud claim with particularity. In the

accompanying memorandum, Cardinal pointed out that the LLC had been

incorporated on November 11, 2017, well before the franchise agreement was

signed. The franchise agreement contained provisions in which Mouanda

acknowledged that she was an independent contractor and that no employment

taxes would be withheld by Cardinal.

             The Jani-King defendants also filed a motion to dismiss for lack of

personal jurisdiction and for failure to state a claim upon which relief could be

granted pursuant to CR 12.02. They asserted that the circuit court could not

exercise jurisdiction over them because both entities were incorporated in Texas

and did not have business operations or conduct business in Kentucky. In addition,

they asserted that they were not Mouanda’s employer, they had not made any

                                          -6-
statement during the negotiation for the franchise agreement, and they had not

breached the franchise agreement as they were not parties to the contract between

the LLC and Cardinal.

             Mouanda responded to both motions, first asserting that the

defendants’ ownership, operation, and interests were “so aligned as to make them

one entity.” Thus, she argued that piercing the corporate veil would be appropriate

to hold the parent corporation liable. She went on to argue that Jani-King

exercised a level of control over her that created an agency relationship between

them. In addition, Mouanda stated that she was an employee of Cardinal, and thus

she was entitled to prosecute her wage and hour claim as an individual, based upon

the economic reality of her relationship with Jani-King and the control Jani-King

exerted over her. She relied upon federal law to support this argument. Mouanda

continued to argue that Cardinal and the Jani-King defendants committed fraud by

requiring the unit franchisees to incorporate and by misrepresenting the benefits of

a franchise. She described the push to incorporate and invest personal capital as “a

scheme to obtain labor without following labor laws.” Mouanda objected to the

jurisdiction arguments, and she claimed to be the proper person to bring the fraud

allegation. Finally, Mouanda acknowledged that she was not a party to the

franchise agreement, individually, and stated she would be filing an amended

complaint to add the LLC as a party for the breach of contract claim. Mouanda

                                         -7-
believed discovery was necessary to detail the full scope of “the corporate

entanglements.” Cardinal and the Jani-King defendants filed separate replies

disputing Mouanda’s arguments.

             On September 23, 2019, the circuit court entered a memorandum and

order granting the motions and dismissing Mouanda’s claims without prejudice.

The court first addressed whether Mouanda lacked standing to bring the claims in

the complaint. After summarizing the law related to standing when an LLC is

involved, including the Opinion of Turner v. Andrew, 413 S.W.3d 272 (Ky. 2013),

in which the Supreme Court of Kentucky held that an individual member of an

LLC does not have the capacity to sue as a real party in interest, the circuit court

observed and ruled as follows:

                    Similar to Turner, Plaintiff was the sole owner and
             member in Matsoumou’s LLC. The record reflects that
             Plaintiff acknowledged by her signature that she was
             provided documentation from Cardinal Franchising
             through a Franchise Disclosure Form, dated December 2,
             2016, and by another Franchise Disclosure Form, dated
             October 16, 2017. The record also reflects that the
             Articles of Incorporation for Matsoumou’s LLC were
             filed with the Kentucky Secretary of State on November
             11, 2017. The record further reflects that Plaintiff, as
             president of Matsoumou’s LLC, executed the Franchise
             Agreement with Cardinal Franchising on February 28,
             2018. Thus, the Franchise Agreement appears to be
             between Matsoumou’s LLC and Cardinal Franchising
             and, allegedly, Jani-King. Even if Cardinal Franchising
             was perpetrating a fraud in assisting Plaintiff to
             incorporate Matsoumou’s LLC as Plaintiff asserts,
             Plaintiff cannot prove that she suffered any injury that

                                          -8-
             resulted from Cardinal Franchising’s purported assistance
             in incorporating Matsoumou’s LLC. As noted by the
             Supreme Court of Kentucky in United Parcel Service Co.
             v. Rickert, 996 S.W.2d 464, 468 (Ky. 1999), “In a
             Kentucky action for fraud, the party claiming harm must
             establish six elements of fraud by clear and convincing
             evidence as follows: a) material misrepresentation b)
             which is false c) known to be false or made recklessly d)
             made with inducement to be acted upon 3) acted in
             reliance thereon and f) causing injury.” Id. at 468, citing
             Wahba v. Don Corlett Motors, Inc., 573 S.W.2d 357, 359
             (Ky. App. 1978). All of the claims Plaintiff asserts in the
             Complaint related to actions allegedly taken subsequent
             to Plaintiff’s execution of the Franchise Agreement, in
             her capacity as president of Matsoumou’s LLC.
             Accordingly, Plaintiff lacks standing to assert the claims
             asserted in the Complaint in this action as a matter of
             law.

The court did not find any support for Mouanda’s argument that she should be

permitted to pursue her fraud claim under a modified theory of piercing the

corporate veil. Concluding that Mouanda lacked standing to assert the claims in

the complaint, the court dismissed the action without prejudice. This appeal now

follows.

             Our standard of review of a motion to dismiss filed pursuant to CR

12.02 for failure to state a claim upon which relief may be granted is set forth in

Benningfield v. Pettit Environmental, Inc., 183 S.W.3d 567, 570 (Ky. App. 2005):

             A motion to dismiss should only be granted if “it appears
             the pleading party would not be entitled to relief under
             any set of facts which could be proved in support of his
             claim.” Pari-Mutuel Clerks’ Union v. Kentucky Jockey
             Club, 551 S.W.2d 801, 803 (Ky. 1977). When ruling on

                                         -9-
             the motion, the allegations in “the pleadings should be
             liberally construed in a light most favorable to the
             plaintiff and all allegations taken in the complaint to be
             true.” Gall v. Scroggy, 725 S.W.2d 867, 868 (Ky. App.
             1987). In making this decision, the trial court is not
             required to make any factual findings. James v. Wilson,
             95 S.W.3d 875, 884 (Ky. App. 2002). Therefore, “the
             question is purely a matter of law.” Id. Accordingly, the
             trial court’s decision will be reviewed de novo. Revenue
             Cabinet v. Hubbard, 37 S.W.3d 717, 719 (Ky. 2000).

With this standard in mind, we shall review Mouanda’s claims.

             For her first argument, Mouanda contends that the circuit court erred

in finding that she did not have standing to sue under Kentucky’s wage and hour

laws. She asserts that the court should have applied an economic realities test

adopted by the federal courts to determine whether she was an employee of Jani-

King. In support, Mouanda cites to several federal cases that relate to whether an

individual is an employee or an independent contractor, as well as to Acosta v.

Jani-King of Oklahoma, Inc., 905 F.3d 1156 (10th Cir. 2018). The Acosta Court

detailed the circumstances in that case and addressed whether the lower court

should have applied the economic realities test:

                    Jani-King is a janitorial company providing
             cleaning services in the Oklahoma City area. The
             company engages individuals, pairs of related
             individuals, or small corporate entities which are
             allegedly composed predominantly or entirely of single
             individuals or pairs of related individuals to perform
             janitorial work on its behalf through franchise
             arrangements. Jani-King recently began requiring
             individuals and pairs of related individuals—both those

                                        -10-
already affiliated with Jani-King and those who are new
—to form corporate entities, which then become the
named parties to the franchise.

       Following an investigation into Jani-King’s
employment practices, the Secretary of Labor filed a
complaint against Jani-King, alleging violations of the
Fair Labor Standards Act and seeking an injunction to
require Jani-King to keep the requisite FLSA employee
records. Specifically, the Secretary asserted that
individuals who form corporate entities and enter
franchise agreements as required by Jani-King
“nonetheless personally perform the janitorial work on
behalf of Jani-King” and, based on the economic realities
of this relationship, are Jani-King’s employees under the
FLSA. (Appellant’s Opening Br. at 5.)

       Jani-King filed a motion to dismiss on two
grounds: (1) under Rule 12(b)(6), the Secretary failed to
plausibly suggest that every franchise owner should be
treated as an employee under the FLSA, and (2) under
Rule 12(b)(7), the Secretary failed to name the
franchisees as necessary parties. The district court
granted Jani-King’s Rule 12(b)(6) motion and dismissed
the Secretary’s complaint without prejudice. The
Secretary then filed an amended complaint alleging that
the individuals who personally perform the janitorial
cleaning work for Jani-King through the franchise
arrangements are employees under the FLSA, and asking
that Jani-King be required to keep records about those
individuals. In response, Jani-King raised the same Rule
12(b)(6) and 12(b)(7) motions, arguing that the Secretary
is not free to ignore its corporate organization. The
district court again granted Jani-King’s Rule 12(b)(6)
motion—this time with prejudice—concluding the
amended complaint “ignores corporate forms” and does
not plausibly suggest the FLSA applies to all janitorial
cleaners. (Appellant’s App. at 183 & n.9.) The
Secretary now appeals.

                          -11-
                   ....

                     . . . [W]e conclude that the Secretary’s amended
             complaint contains sufficient factual matter to state a
             facially plausible claim for relief. The complaint
             identifies individuals (those who “personally perform the
             janitorial cleaning work”) who could qualify as Section
             203(e)(1) “employees” under the economic realities test
             if all the Secretary’s well-pleaded factual allegations
             about the nature of the relationship between Jani-King
             and these individuals are accepted as true and viewed in
             the light most favorable to the Secretary. The complaint
             also alleges that Jani-King has violated the FLSA as to
             these employees by failing to comply with recordkeeping
             requirements. These allegations are sufficient to state a
             claim at this stage of the proceedings. In so concluding,
             we make no determination as to the merits of the
             Secretary’s case—we only hold that it survives this initial
             Rule 12(b)(6) motion to dismiss.

Acosta, 905 F.3d at 1158, 1161-62 (footnote omitted). Mouanda also cites to the

federal case of Williams v. Jani-King of Philadelphia, Inc., 837 F.3d 314 (3d Cir.

2016), in which the Third Circuit addressed class certification sought by two

franchisees of Jani-King. We note that these franchisees were individuals rather

than LLCs.

             In their responsive briefs, the appellees argue that, because the

franchisee in this case is an LLC, not Mouanda the individual, Mouanda lacks

standing to pursue her claims against them. The Matsoumou’s, LLC was created

by Mouanda in November 2017, several months before the franchise agreement

                                        -12-
between the LLC and Cardinal was signed on a date that Mouanda identified as the

date her claim accrued.

            KRS 275.010(2) specifically provides that “[a] limited liability

company is a legal entity distinct from its members.” In Turner v. Andrew, supra,

the Supreme Court of Kentucky addressed the attributes of a limited liability

company as follows, specifically citing to the language of KRS 275.010(2) and an

LLC’s legal distinction from its members:

                    A limited liability company is a “hybrid business
            entity having attributes of both a corporation and a
            partnership.” Patmon v. Hobbs, 280 S.W.3d 589, 593
            (Ky. App. 2009). As this Court stated in Spurlock v.
            Begley, 308 S.W.3d 657, 659 (Ky. 2010), “limited
            liability companies are creatures of statute” controlled by
            [KRS] Chapter 275. KRS 275.010(2) states
            unequivocally that “a limited liability company is a legal
            entity distinct from its members.” Moreover, KRS
            275.155, entitled “Proper parties to proceedings,” states:

                   A member of a limited liability company
                   shall not be a proper party to a proceeding
                   by or against a limited liability company,
                   solely by reason of being a member of the
                   limited liability company, except if the
                   object of the proceeding is to enforce a
                   member’s right against or liability to the
                   limited liability company or as otherwise
                   provided in an operating agreement.

                    Not surprisingly, courts across the country
            addressing limited liability statutes similar to our own
            have uniformly recognized the separateness of a limited
            liability company from its members even where there is
            only one member. See, e.g., O’Reilly v. Valletta, 139

                                       -13-
Conn.App. 208, 55 A.3d 583 (2012) (sole member of
LLC lacked standing to bring suit personally where LLC
was party to lease and operated the restaurant at issue);
Krueger v. Zeman Construction Co., 758 N.W.2d 881
(Minn. App. 2008) (individual who was sole member of
LLC had no standing to bring business discrimination
suit in her own name where relevant contract was
between LLC and corporation engaged in construction
business); Bankston v. Tasch, LLC, 40 So.3d 495 (La.
App. 2010) (even where LLC has sole member it is entity
separate and distinct from that member in terms of
procedural capacity); FTC v. Payday Financial, LLC,
935 F.Supp.2d 926 (D.S.D. 2013) (limited liability
companies organized under South Dakota law are
separate and distinct legal entities from their sole
member). It is indisputable that KRS 275.010(2) and
.155 similarly mandate that Billy Andrew, Jr. Trucking,
LLC be the named plaintiff in any suit asserting a lost
business income claim rightfully belonging to the LLC.

       The Court of Appeals reasoned that because
Andrew was the sole owner of the business he was
necessarily the real party in interest, a status that allowed
him to properly advance the lost profits claim in his own
name rather than in the name of the LLC. The theory of
interchangeability underpinning this position was
explicitly rejected by this Court in Miller v. Paducah
Airport Corp., 551 S.W.2d 241 (Ky. 1977) in the context
of a solely-owned corporation. In Miller, the president of
a corporation that operated a cab service brought suit in
his individual capacity against an airport challenging the
legality of a lease. Id. at 242. The Court held that the
corporation was “an entity, separate, apart and distinct
from [Mr. Miller] himself,” despite the fact that Mr.
Miller owned the entirety of the corporation’s stock. Id.
This Court concluded that the corporation, and not Mr.
Miller in his personal capacity as the corporation’s
president, was the real party in interest to the claim,
declaring that such a distinction “is not trivial nor
supertechnical.” Id. at 243. The same conclusion is

                            -14-
             mandated here. The LLC and its solitary member,
             Andrew, are not legally interchangeable. Moreover, an
             LLC is not a legal coat that one slips on to protect the
             owner from liability but then discards or ignores
             altogether when it is time to pursue a damage claim. The
             law pertaining to limited liability companies simply does
             not work that way.

Turner, 413 S.W.3d at 275-76 (footnote omitted).

             Based upon the holding above, we must agree with the appellees that

Mouanda lacked standing to bring suit against any of them. “To have standing to

sue, one must have a judicially cognizable interest in the subject matter of the

suit.” Bailey v. Preserve Rural Roads of Madison County, Inc., 394 S.W.3d 350,

355 (Ky. 2011). The proper plaintiff for this complaint should have been The

Matsoumou’s, LLC, the named franchisee in the franchise agreement with

Cardinal. And as the Jani-King appellees argued, Mouanda’s citations to the two

federal Jani-King decisions do not support her assertions herein. The Acosta Court

did not decide whether an individual has standing to pursue a claim after the

formation of an LLC, but merely held that the Secretary of Labor had survived the

motion to dismiss, and the Williams case did not include franchises that were

entered into by an incorporated entity. Therefore, we must hold that the circuit

court properly dismissed Mouanda’s complaint.

             Based upon this holding, we need not reach the rest of Mouanda’s

allegations of error.

                                        -15-
            For the foregoing reasons, the order of the Jefferson Circuit Court

dismissing Mouanda’s complaint without prejudice is affirmed.

            ALL CONCUR.

BRIEF FOR APPELLANT:                     BRIEF FOR APPELLEES JANI-
                                         KING INTERNATIONAL, INC.,
Ryan Fenwick                             AND JANI-KING LEASING CORP.:
Louisville, Kentucky
                                         Thomas J. Birchfield
                                         Paul E. Goatley
                                         Louisville, Kentucky

                                         BRIEF FOR APPELLEE CARDINAL
                                         FRANCHISING, INC., D/B/A JANI-
                                         KING OF LOUISVILLE:

                                         Randall S. Strause
                                         Andrew J. Williams
                                         Louisville, Kentucky

                                       -16-