Allegedly Fraudulent Truck Independent Contractor Relationship Held to Fall Within Confines of Ohio Business Opportunity Act
By: Jeffrey M. Goldstein
In a recent federal court case in the Northern District of Ohio, the Court denied Defendants’ Motion to Dismiss the Plaintiffs’ Ohio Business Opportunity Act (“OBOA”) claim based on alleged fraud. Goodwin v. Am. Marine Express, Inc., No. 1:18-cv-01014, 2019 U.S. Dist. LEXIS 190965 (N.D. Ohio Nov. 4, 2019). The issue decided by the Court was whether the business relationship between the Plaintiffs and Defendants was legally a “business opportunity” covered by the OBOA. The process engaged in by the Court in determining whether the business relationship was a ‘business opportunity’ is very similar to that carried out by courts in determining whether certain distribution relationships fall within the confines of various state and federal franchise laws.
As alleged in the Goodwin Complaint, AMX was a common carrier based in Cleveland that provided intermodal drayage, local/regional cartage, and over the road trucking services, whose customers shipped goods via tractor trailers operated by company-employed drivers or owner-operators, with dedicated leased units. Per Plaintiffs, as part of their “fraudulent scheme,” the individual Defendants directed AMX to transfer titles of semi-truck cabs that they intended to lease to owner-operators, like Plaintiffs, to Gurai Leasing through lease agreements called “Independent Contractor Agreements.” According to Plaintiffs, AMX and Gurai Leasing–as directed and controlled by the individual Defendants–concealed from them the terms of the lease and/or purchase, misrepresented and concealed from them the party from whom they were leasing and/or purchasing the semi-truck cabs, and the relationship between AMX and Gurai Leasing.
Factual Background
Plaintiffs Glenn Goodwin and Ronald King alleged, in relevant part, the following. They were hired by Defendant American Marine Express, Inc. (“AMX”) as W-2 employee drivers, but were later approached by Defendant Cain with AMX to alter their status from that of a company-employed driver, to that of an owner-operator in a lease-purchase program. Cain promised Plaintiffs that they would receive one hundred percent of each load that they delivered with the leased semi-truck cabs, minus certain agreed deductions, to include no-interest fixed truck payments, fixed escrow payments, and reasonable and necessary expenses for fuel, maintenance, repairs, etc.. They were also promised that they would acquire equity in the semi-truck cabs that they were purchasing through weekly deductions, and that if they entered into the lease-purchase program they would receive more lucrative opportunities, routes, and income from AMX. Last, Cain promised them that at the conclusion of the lease-purchase, they would be able to parlay ownership of the semi-truck cabs to greater opportunity and wealth by being able to lease their cabs to multiple motor carriers.
Defendants, through Cain, promised a written contract relative to the lease/purchase agreement, but no documentation or written agreement was provided or presented to Plaintiffs by Defendants regarding the lease-purchase program or the terms promised; similarly, Defendants provided no documentation as to the true costs and expenses of the lease-purchase agreement. Plaintiffs alleged that Defendants never intended to transfer title of the semi-truck cabs to them, and after all the deductions were taken from their pay, they received little or no compensation. As the Court noted, based on the Complaint, “Plaintiffs never received titles to the semi-truck cabs because when they objected to the “arbitrary and unfair treatment,” Defendants terminated them.”
Legal Analysis
The Court’s decision pivoted on the issue whether the business arrangements that Plaintiffs alleged they entered into with Defendants were included within the definition of “business opportunity plan” of the Ohio Business Opportunity Plan Act. The pertinent part of the Ohio Business Opportunity Act provides, in relevant part, as follows:
(A) “Seller” means a person who sells or leases a business opportunity plan.
(B) “Purchaser” means a person to whom a business opportunity plan is sold or leased.
***
(D) “Business opportunity plan” means an agreement in which a purchaser obtains the right to offer, sell, or distribute goods or services under all of the following conditions:
(1) The goods or services are supplied by the seller, a third person with whom the purchaser is required or advised to do business by the seller, or an affiliated person.
(2) The purchaser is required to make an initial payment greater than five hundred dollars, but less than one hundred thousand dollars, to the seller or an affiliated person to begin or maintain the business opportunity plan.
(3) The seller makes any of the following representations:
***
(c) That the purchaser can earn a profit in excess of the initial payment;
(d) That there is a market for the goods or services.
Initially the Court pointed out that Plaintiffs must show that “the factual allegations must demonstrate that the lease purchase program satisfies the statutory definition of a business opportunity plan,” i.e., that “there was an agreement in which each plaintiff ‘obtained the right to offer, sell or distribute goods or services’ supplied by AMX and Gurai Leasing.” Defendants argued that Plaintiffs’ Complaint failed to meet the statutory definition of a business opportunity plan. As the Court stated: “according to Defendants, when interpreting the language of R.C. § 1334.01(D), Ohio’s rules or canons of statutory construction apply so as to dictate the conclusion that because the Amended Complaint does not identify any goods or services that Plaintiffs obtained the right to sell, distribute, or offer, the lease purchase program does not qualify as a business opportunity plan.” Under Defendants’ theory of the case, as articulated by the Court, “the agreements Plaintiffs entered into with AMX and Gurai Leasing only gave each Plaintiff the right to purchase a single truck at an agreed price, nothing more; and could not, and did not, give Plaintiffs a right to offer, sell, or distribute any freight transportation services to shippers since ‘authority to offer or sell freight transportation services comes only from USDOT.’”
Plaintiffs opposed this argument by asserting that Defendants’ arrangement with Plaintiffs extended beyond the mere purchase of a truck and “necessarily included providing services in the form of transporting cargo for AMX in the leased trucks.” According to Plaintiffs, the Amended Complaint includes allegations sufficient to meet the three statutory requirements.
First, as to the statutory requirement that “the . . . services are supplied by the seller,” Plaintiffs argued that Defendants, as the “sellers,” agreed to supply the Plaintiffs or “purchasers” with the “method of operation” to provide the transportation of cargo or “services,” by providing them with not only the semi-truck cabs financed through Defendants, but also the shippers needing drivers to deliver freight, and the authority to transport goods in interstate commerce under AMX’s operating authority.” Plaintiffs in support of their argument relied upon Cook v. Emplrs. Overload Co., No. C-2-87-0079, 1987 U.S. Dist. LEXIS 17094 (S.D. Ohio Aug, 18, 1987), “wherein the Court denied the defendant’s Rule 12(b)(6) motion to dismiss count one of the complaint that alleged a violation of Ohio’s Business Opportunity Act, based upon the argument that the franchise agreement at issue did not meet the statutory definition of a “business opportunity plan” because the defendant did not supply the service that the plaintiff gave to its customers, i.e., providing temporary employees.” As the Court stated, “in Cook, the Court agreed with the plaintiff that franchises wherein the purchaser or franchisee is supplied with the tools and method of operation to produce a final product or service which is sold under the franchisor’s trademark were meant to be included in the definition of “business opportunity plan.””
Second, as to the requirement that “the purchaser is required to make an initial payment greater than five hundred dollars, but less than one hundred thousand dollars, to the seller . . . to begin or maintain the business opportunity plan,” Plaintiffs argued that Plaintiff King’s “initial payment” of $3500 for his semi-truck cab, and Plaintiff Goodwin’s “initial payment” of $20,000 for his semi-truck cab satisfy this requirement. Third, as to the statutory requirement that “the seller makes . . . the . . . representation: *** that the purchaser can earn a profit in excess of the initial payment,” Plaintiffs asserted that this requirement was satisfied since the Amended Complaint alleged that AMX promised Plaintiffs that they would be assigned more lucrative routes, that they would earn a profit in excess of their initial payments, that there was a lucrative market for these services, and that they would receive title to a semi-truck cab.”
In arguing that the Oho Business Opportunity Act was applicable, Plaintiffs conceded that there were no cases addressing directly whether lease-purchases like those alleged by Plaintiffs were business opportunities as defined by the OBOA. Accordingly, Plaintiffs cited two non-Ohio cases in support of their case. The first case relied upon by Plaintiffs was Tousley v. N. Am. Van Lines, Inc., 752 F.2d 96 (4th Cir. 1985), in which the plaintiff Tousley (“Tousley”) attended a seminar where oral representations and written materials were presented to him by defendant North American Van Lines, Inc.’s (“North American”) recruiting representative. As the Goodwin Court stated, in Tousley, “North American offered to train Tousley as a truck driver, sell him a truck, finance his purchase of the truck, and dispatch him and his truck to places where he would pick up freight for transportation.” Further, “Tousley was told that he should earn gross income of $71,000 a year, and after subtracting the payments on his truck and other expenses, should net between $16,000 and $19,000 a year.” And, “the day following the seminar, Tousley paid $400 in order to attend North American’s training school, and after attending it, Tousley purchased a truck from North American and executed a contract and security agreement and then operated the truck for approximately two years hauling freight for North American, but realized considerably less income than the amounts mentioned by the recruiting representative.” After terminating his relationship with North American and having his truck repossessed by North American, Tousley sued North American asserting violations, inter alia, of the Business Opportunity Sales Act. On appeal, North American contended that “its recruitment of Tousley and the subsequent execution of the agreements did not amount to a “business opportunity” under the South Carolina Business Opportunity Sales Act.” In that case, the Business Opportunity Act provided, in pertinent part, as follows:
As used in this chapter “business opportunity” means the sale or lease of any products, equipment, supplies or services which are sold to the purchaser for the purpose of enabling the purchaser to start a business and in which the seller represents:
***
(3) That he guarantees that the purchaser will derive income from the business opportunity which exceeds the price paid for the business opportunity; or . . .
(4) That upon payment by the purchaser of a fee or sum of money which exceeds fifty dollars to the seller, the seller will provide a sales program or marketing program which will enable the purchaser to derive income from the business opportunity which exceeds the price paid for the business opportunity.
The Goodwin Court in turn focused on the Tousley court’s view that “while North American did not dispute that there was a sale or lease as described in the Act, but only that none of the four alternative requirements were present … the question of whether North American violated the Business Opportunity Act, however, was a factual issue properly submitted to the jury.” In turn, the Tousley court “concluded that there was more than sufficient evidence upon which the jury could have based the finding against North American.”
The second case relied upon by Plaintiffs was Roberts v. C.R. England, Inc., 318 F.R.D. 457 (D. Utah 2017), in which “the plaintiffs alleged that two affiliated trucking companies, C.R. England, Inc. (“England”) 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.”
The plaintiffs in Roberts contended 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.” Further, according to the Court, “allegedly, students were persuaded to invest substantial sums of money to lease trucks from defendants and became 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.”
As the Court explained, under the Utah Business Opportunity Disclosure Act, which applies to “sellers” of “assisted marketing plans, “the term “assisted marketing plan” is defined to include “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, and in which the seller represents: *** (iv) that upon payment by the purchaser of a fee or sum of money, which exceeds $300 to the seller, the seller will provide a sales program or marketing program that will enable the purchaser to derive income from the assisted marketing plan that exceeds the price paid for the marketing plan.” The Roberts court denied the defendants’ motion for summary judgment, explaining, in relevant part, that:
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. Because a reasonable jury could find Defendants’ representations relating to the profitability of the Driving Opportunity met the statutory requirements, genuine issues of material fact preclude summary judgment.
After reviewing these two cases, the Goodwin Court refused to dismiss the Plaintiffs’ Business Opportunity claim based on its conclusion that “Plaintiffs have pled sufficient facts to state a plausible or non-speculative claim for relief under the Ohio Business Opportunity Act, specifically facts that if proven, could demonstrate that the lease-purchase agreements qualify as “business opportunity plans” as that term is defined and used in the Act.”
