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Butler v. Jimmy John's Franchise, LLC

United States District Court, S.D. Illinois

July 31, 2018

SYLAS BUTLER, on behalf of himself and all others similarly situated, Plaintiffs,
JIMMY JOHN'S FRANCHISE, LLC, et al., Defendants.



         Section 1 of the Sherman Act prohibits certain agreements that restrain trade. This class action asks whether franchisees of the national sandwich chain “Jimmy John's” violated Section 1 by agreeing amongst themselves and with corporate headquarters not to hire employees that have worked at another Jimmy John's location within the preceding year. The defendants-Jimmy John's Franchise, LLC, Jimmy John's Enterprises, LLC, and Jimmy John's LLC (together, “Jimmy John's”)-have now moved to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1) & (6) for a lack of standing and for failure to state a claim. (ECF No. 28.) For the following reasons, the Court GRANTS IN PART and DENIES IN PART the motion to dismiss.

         I. BACKGROUND

         Jimmy John's sells and delivers deli-style sandwiches. The chain has over 2, 700 locations in more than 40 states plus the District of Columbia. (Compl. ¶ 36, ECF No. 1.) About 98% of these locations are franchisees that are independently owned and operated as separate entities from Jimmy John's corporate; the other two percent are owned and operated by Jimmy John's itself. (Id.) Basically, when a franchisee contracts with Jimmy John's, the franchisee signs a ten-year franchise agreement for a fee of $35, 000. (Id. at ¶ 40.) Those agreements then allow the franchisee to utilize the Jimmy John's brand in the operation of an independently owned store. (Id. at ¶ 42.)

         According to the plaintiff, these agreements give the franchisees significant amounts of independence. Not only do the contracts explicitly provide that the franchisees are independent of Jimmy John's, but the agreements also state that the franchisees (1) are responsible for developing the restaurant, including all obligations and liabilities of the business; (2) do not receive an exclusive territory; (3) and may face competition from other franchisees, including in the same delivery area. (Id. at ¶¶ 50, 61-63.) Moreover, a franchisee must identify itself as the owner of its specific store in all dealings with external entities, and it must place notices of independent ownership on any forms, business cards, advertising, or any other materials that Jimmy John's requires. (Id. at ¶ 52.) Most importantly, the franchise agreements outright disclaim that Jimmy John's and the franchisees are agents, joint venture partners, or employees of the other “for any purpose.” (Id. at ¶ 51.) The President and CEO of Jimmy John's has testified under oath in another case that the franchisees “independently own[] and operate[] a franchise business that stands in an arm's length contractual relationship with Jimmy John's, ” and that franchisees and Jimmy John's are not agents or partners “for any purpose”-just as stated in the franchise agreements. (Id. at ¶ 54.)

         This case arises from something that Jimmy John's does make the franchisees do. The franchise agreements order that the franchisee must not “solicit or initiate recruitment of any person then employed, or who was employed within the preceding twelve (12) months, by [Jimmy John's], any of [Jimmy John's] affiliates, or another Jimmy John's Restaurant franchisee.” (Id. at ¶ 78) (hereinafter the “no-hire provision.”) In plain language, this means that one Jimmy John's franchisee cannot hire the employee of another Jimmy John's franchisee, unless that employee has not worked at a Jimmy John's shop in over a year. If a franchisee violates the no-hire provision, Jimmy John's headquarters considers it a non-curable default of the franchise agreement that is grounds for termination of the entire contract. (Id. at ¶ 80.) Termination also subjects the franchisee to liquidated damages in the form of up to three years' worth of restaurant royalties, which the franchisee must pay within 15 days of termination. (Id. at ¶ 81.) The penalties are even higher if the employee in question is a manager. (Id. at ¶ 83.)

         The franchise agreements have another common thread that is crucial to the theory of this case: The agreements state that all current and future franchisees are “third-party beneficiaries” of the no-hire provision. (Id. at ¶ 85.) As a third-party beneficiary, each franchisee enjoys an independent right to enforce the no-hire provision against another franchisee, which could lead to a $50, 000 fine against the at-fault franchisee. (Id. at ¶ 91.) And if a franchisee wants to avoid this whole affair, it is required to obtain written permission from the other franchisee before recruiting that franchisee's current or former employee. (Id. at ¶ 89.)

         So in order to protect themselves, the franchisees made their employees sign non-compete agreements-designed by Jimmy John's-which set a few ground rules: (1) Employees could not work or have any interest in any other business that sells “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” within a few miles of any Jimmy John's franchisee in the United States, both during their employment and for two years afterwards; (2) employees must immediately notify the franchisee of any employment offers made by any competitor; and (3) an employee who violated the agreement would have to reimburse the franchisee and Jimmy John's for all costs and expenses-including attorney's fees-incurred to enforce the agreement against that employee. (Id. at ¶¶ 92-97.)

         Plaintiff Sylas Butler used to work at a Jimmy John's franchise owned by Kidds Restaurant, Inc. (Id. at ¶ 145.) While at the store, Butler worked as both a delivery driver and as an in-store employee. (Id. at ¶ 147.) Over the course of about 17 months, Butler's supervisor reduced Butler's hours to about four hours of work per week, even though Butler wanted to work more. (Id. at ¶ 148.) But because Butler was subject to the non-compete agreement, he was unable to transfer to a competing Jimmy John's franchisee or to another sandwich store-so his only options were to (1) stay stagnant at his current Jimmy John's store; or (2) quit and start another entry-level job at a non-sandwich shop. (Id. at ¶¶ 146, 149.) Butler ended up quitting. (Id.)

         Now, Butler brings this class action lawsuit on behalf of a nationwide class of persons who are current or former employees at a Jimmy John's franchise restaurant. (Id. at ¶ 156.) The complaint alleges that Jimmy John's utilized the employee no-hire agreements in violation of three statutes: (1) Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, et seq.; (2) the Illinois Antitrust Act, 740 ILCS 10/1, et seq.; and (3) the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq. Specifically, Butler alleges that Jimmy John's employees have “suffered reduced wages, reduced hours, reduced employment benefits, loss of professional growth opportunities, and worsened, illegal working conditions because of the express restraint of trade among Jimmy John's franchisees, as orchestrated by Jimmy John's itself.” (Id. at ¶ 150.) Butler also points out that the no-hire agreement affects potentially tens of thousands of businesses in the United States that also sell sandwiches, as Jimmy John's employees are not allowed to go work at those other businesses either. (Id. at ¶ 154.)


         A. Federal Rule of Civil Procedure 12(b)(1) & Article III Standing

         A plaintiff must have standing under Article III of the United States Constitution in order to bring suit; otherwise, the Court does not have jurisdiction to hear the case. Lujan v. Defs. of Wildlife, 504 U.S. 555, 559 (1992). For a plaintiff to state a case or controversy pursuant to Article III, he must “prove that he has suffered a concrete and particularized injury that is fairly traceable to the challenged conduct, and is likely to be redressed by a favorable judicial decision.” Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688, 691-92 (7th Cir. 2015) (quoting Hollingsworth v. Perry, 570 U.S. 693, 704 (2013)). At the motion to dismiss stage, “general factual allegations of injury resulting from the defendant's conduct may suffice.” Lujan, 504 U.S. at 561.

         Antitrust cases have a more rigorous standing requirement. A plaintiff must show an “antitrust injury, ” which is an injury stemming from conduct that the antitrust laws are actually meant to prevent. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977); Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 125 (1969). Antitrust injury can result from either the legal violation itself or anticompetitive actions made possible by the ...

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