Executive Summary:
In a published decision, Judge Immergut of United States District Court for the District of Oregon granted several hotel franchisors’ motions to dismiss claims that they should be held liable for sex trafficking of a plaintiff that had stayed at their hotels in Oregon and Washington, but the decision’s analysis leaves open several critical questions.
Citation:
A.B. v. Hilton Worldwide Holdings Inc., 484 F.Supp.3d 921 (D. Ore. 2020).
Relevant Background:
Beginning in September 2012 and continuing through March 2013, Plaintiff A.B. (“Plaintiff”) alleges she was a victim of sex trafficking. During that time, Plaintiff alleges she was sold for sex at six different hotels, including a Hilton branded property in Portland, Oregon, a Wyndham branded property in Vancouver, Washington, a Marriott branded property in Portland, Oregon, a Choice branded property in Vancouver, Washington, an ESA branded property in Vancouver, Washington, and a Red Lion branded property in Salem, Oregon (collectively, “Hotels”). Plaintiff alleges that during that time, the hotels should have noticed that she was being sex trafficked at Hotels and that the Hotels should have taken action to stop it.
Plaintiff brought a claim under the Trafficking Victims Protection Reauthorization Act (“TVPRA”) against each of the Hotel Franchisors (collectively, “Franchisors” or “Defendants”) alleging that they each violated the TVPRA. The crux of her argument against the Franchisors was that:
- Franchisors allegedly “owns, supervises and/or operates” one of the branded hotels where she was trafficked, and each benefited financially from room rental and other incidentals when she was trafficked;
- Franchisors allegedly had constructive knowledge of sex trafficking occurring on its branded properties, including by the fact that they were in areas “known for high incidences of crime and prone to sex trafficking activity on and around the hotel premises;” and
- Franchisors allegedly failed to implement policies to protect Plaintiff from being trafficked and continues to profit from the business sex trafficking brings.
Franchisors each responded by filing various motions including motions to dismiss for lack of personal jurisdiction and motions to dismiss for failure to state a claim.
Decision:
The Court’s decision to grant the motions to dismiss for lack of personal jurisdiction by Franchisors whose hotels were not located within the jurisdiction of the District Court of Oregon was based on a straightforward finding based on ordinary principles of general and specific jurisdiction. The more nuanced analysis related to the motions to dismiss for failure to state a claim under the TVPRA. The relevant findings were as follows regarding direct liability of the Franchisors:
- “To state a financial beneficiary claim under [18 U.S.C. §] 1595(a), a Plaintiff must allege facts from which the Court can reasonably infer that Defendants HIlton, Wyndham, Marriott, and Red Lion (1) “knowingly benefit[ed] financially or by receiving anything of value from” (2) participation in a venture they “knew or should have known has engaged in” sex trafficking.”
- The “knowingly benefits financially” element of § 1595 “merely requires that Defendant knowingly receive a financial benefit” and the rental of a hotel room–or royalties from that rental–constitutes a financial benefit sufficient to meet this element.
- Plaintiff was not required to allege actual knowledge of a sex trafficking venture or the performance of an overt act in order to sufficiently plead the “participation in a venture” element of her § 1595 claim.
- Nevertheless, the facts that Plaintiff has alleged in the complaint–a general knowledge of commercial sex activity occurring at hotels across the United States and indicia of trafficking regarding Plaintiff’s own trafficking–fall short of plausibly alleging Defendants knew or should have known of the alleged trafficking of Plaintiff on their corresponding properties.
- “[W]hile factual allegations listing indicia of trafficking (i.e., condition of the hotel room, frequent male visitors) may support a theory that a hotel where Plaintiff was trafficked knew or should have known of Plaintiff’s trafficking, the complaint fails to allege facts as to how [Franchisors] were aware of these facts. Plaintiff has not brought suit against the hotels themselves. To support her direct liability theory, Plaintiff must allege facts showing how [Franchisors] receive notice that Plaintiff A.B. was trafficked at their respective properties and she has not done so. Accordingly, Plaintiff has not alleged facts sufficient to state a claim for direct liability under the TVPRA against [Franchisors].”
Regarding agency liability of the Franchisors, the Court’s relevant findings were as follows:
- To state a claim for vicarious liability under an agency theory, the Plaintiff must plausibly allege that (1) Defendants and their corresponding hotels were in an agency relationship, and (2) the hotels or hotel staff are plausibly liable under § 1595.
- An actual agency relationship requires “(1) manifestation by the principal that the agent shall act for him; (2) that the agent has accepted the undertaking; and (3) that there is an understanding between the parties that the principal is to be in control of the undertaking.” See Sun Microsystems Inc. v. Hynix Semiconductor, Inc., 622 F.Supp.2d 890, 899 (N.D. Cal. 2009).
- When determining whether a principal has sufficient authority to control the actions of an agent such that the principal may be held vicariously liable for the actions of the agent, the Ninth Circuit considers the following non-exhaustive list of factors: “(1) the control exerted by the employer, (2) whether the one employes is engaged in a distinct occupation, (3) whether the work is normally done under the supervision of an employer, (4) the skill required, (5) whether the employer supplies tools and instrumentalities, (6) the length of time employed, (7)whether payment is by time or by the job, (8) whether the work is in the regular business of the employer, (9) the subjective intent of the parties, and (10) whether the employer is or is not in business.” S. v. Bonds, 608 F.3d 495, 504 (9th Cir. 2010).
- At this stage in the pleadings, the Court found that Plaintiff met her burden of alleging a plausible claim for an actual agency relationship between each of the Franchisors and the Hotels as the “alleged facts, if proven, support her theory that Defendants had authority to control aspects of the hotel operations connected to Plaintiff’s claim.”
- Nevertheless, Plaintiff fails to state a claim under an agency theory because the TVPRA “targets commercial sex activity where children are victimized or “threats of force, fraud, coercion …, or any combination of such means will be used to cause the person to engage in a commercial sex act.” Plaintiff has not and cannot plead the facts necessary to satisfy those elements.
- Plaintiff fails to state a claim under apparent agency theory because even though she plead that each of the Franchisors allegedly hold themselves out to the public as possessing authority to act on behalf of each of the Hotels, Plaintiff does not allege that she relied on that belief when engaging with the Hotels.
Last, regarding joint employer liability, the Court’s relevant findings were as follows:
- Two or more parties constitute joint employers if the employers share or co-determine the essential terms and conditions of employment. See Carrier Corp. v. N.L.R.B., 768 F.2d 778, 781 (6th Cir. 1985).
- While there are three different tests that the Ninth Circuit commonly uses for analyzing joint employment (i.e., common law test, the economic realities test, and the hybrid test), the Ninth Circuit “has acknowledged, however, that the various joint employment tests have little functional difference and usually produce the same outcomes.” S. Equal Emp. Opp. Comm. v. Global Horizons, Inc., 915 F.3d 631, 639 (9th Cir. 2019). Ultimately, the Court stated that joint employer tests “turn on the level of control employers may exercise over employees.”
- Plaintiff sufficiently alleged Franchisors may be held liable as joint employers by alleging Franchisors have “a high degree of interrelated, intermingled, and unified operations” with the hotel properties where Plaintiff was trafficked and Franchisors “have authority to exercise control over conditions of employment such as training, setting employee wages, advertising for employment, and making employment decisions.”
- Nevertheless, Plaintiff’s joint employer claim fails because the complaint “fails to show that [Franchisors], their respective hotels, or the hotel staff knew or should have known that Plaintiff was engaging in commercial sex as a result of fraud, force, or coercion.”
Looking Forward:
While this matter got our attention based on its joint employer analysis, there are numerous lessons from this matter that franchisors and franchisees should take note of:
- Regarding the TVPRA claims, agency theories, and joint employer theories, the Court left open many questions regarding how such a claim would work under different circumstances and, in some ways, drew a roadmap for future litigants to test new legal theories. Nevertheless, in doing so, the Court also provided a roadmap to hotel franchisors to some extent and hotel franchisees to a larger extent of what issues they should address. If you are a hotelier in the 9th Circuit, you should consider sending a copy of this opinion to your legal counsel and discussing it immediately.
- With that said, one of the larger issues that this case presents is just how close Plaintiff was to getting past the pleading stage on what was an otherwise outrageous claim. Getting past the pleading stage would have provided an avenue for Plaintiff’s attorneys to try to extort a settlement in lieu of litigation expenses which is, in and of itself, problematic.
- Last, in trying to simplify the manner in which it analyzes joint employment under the three (or more) recognized tests, the Court appears to have inadvertently created a fourth test or at the very least modified all three existing tests with the addition of one word: may. Specifically, the court stated that joint employer tests “turn on the level of control employers may exercise over employees.” While indirect control has been tested in other cases and other jurisdictions and some cases have recognized this test, it has not been widely accepted. Nevertheless, while this may be an inadvertent addition of a single word, this type of development should be monitored closely to ensure it is not purposeful and a trend in the 9th Circuit.
This article was originally published on the California Franchise Network.
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Thomas O’Connell – Tom O’Connell is a Shareholder at Buchalter APC, where he serves as Chair of the firm’s Franchise Law Practice and Chair of Litigation for the firm’s San Diego office.
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