Eastern District Of Pennsylvania Refuses To Determine Proper Standard Of Review In No-Poach Suit At The Motion To Dismiss Phase; Denies Motion In Part
On November 25, 2019, Judge Anita Brody of the United States District Court for the Eastern District of Pennsylvania issued an order granting in part, and denying in part, defendants’ motion to dismiss claims alleging Jiffy Lube’s (the “Company’s”) franchise agreements included no-poach provisions that violate Section One of the Sherman Act. Fuentes v. Royal Dutch Shell PLC, et al., 18-cv-05174 (E.D. Pa. Nov. 25, 2019). Plaintiffs alleged that requests to be transferred between the Company franchisees in Florida and Pennsylvania were denied because of no-poach clauses that prevented franchisees from hiring other franchisees’ employees while they were working at the Company and for six months following the end of their employment. According to plaintiffs, the no-poach provision in the Company’s franchising agreements suppressed wages, inhibited employment mobility and lessened professional work opportunities.
Defendants argued that the Complaint should be dismissed for three principal reasons. First, the Complaint incorrectly suggests that the alleged conduct should be evaluated under the per se rule, but the Supreme Court precedent makes clear that vertical restraints should be evaluated under the rule of reason. Because plaintiffs failed to plead the necessary elements of a rule of reason claim, including relevant geographic and product markets, the Complaint should be dismissed. Second, plaintiffs lacked standing to pursue injunctive relief because the individual bringing the putative class action was not at the time employed by a Company franchisee and had not indicated plans to return to such employment. Finally, the four-year statute of limitations barred much of the claim.
The Court recognized that in six “no-poach” cases around the country with similar franchise provisions, five of the six courts denied motions to dismiss. The Court further noted that in three of those decisions, the courts refused to determine at the pleading stage whether the rule of reason or per se standard was the appropriate standard of review. The Court found these recent precedents persuasive and held that plaintiff plausibly alleged a conspiracy that “may, in part or in full, be characterized as horizontal.” Order at 2.
However, the Court granted defendants’ motion to dismiss the claim for injunctive relief for a lack of standing because the named plaintiff could not allege a sufficiently imminent threat of future injury. The Court found that, at best, plaintiff alleged only hypothetical future harm, which was insufficient. In addition, the Court held that plaintiffs could not recover damages for claims dating back to 2010, rejecting the argument that the statute of limitations should be tolled under a fraudulent concealment theory. Because the complaint did not allege sufficient factual information to establish that the Company misled the public about the possible existence of the no-poach provisions, Rule 9(b)’s heightened pleading standard was not met. As a result, the Court barred claims beyond the four-year time limit.
The Fuentes decision shows that depending on the factual circumstances—and in this case, limited to franchising litigation—it may be difficult to get courts to determine the proper standard of review at the motion to dismiss stage.