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7-Eleven potentially on the hook for calling card shenanigans

By Rebecca Tushnet

Soto v. Superior Telecom, Inc., 2010 WL 2232145 (S.D. Cal.)

Defendant STI markets, sells, and services prepaid telephone cards, including one branded Bonita Señorita. Soto bought these cards from a 7-Eleven operated by defendant Dhami under a franchise agreement with 7-Eleven. A $5 card purportedly provided 50 minutes of calling time to La Paz, Bolivia, at $.10/minute. When he called the 800 number and entered his PIN, a voice prompt said he had 50 minutes of calling time. However, he alleged that he didn?t receive the full 50 minutes because of undisclosed rates, charges and fees that would have deterred him from buying the card had he known of them.

Soto alleged that 7-Eleven and Dhami violated California law by ?failing to make available clearly and conspicuously in a prominent area immediately proximate to the point of sale? the information about charges, costs, and fees, as required by the California Business and Professions Code. The law requires the seller to print that information on the card or packaging, and also requires the retail vendor to make that information prominently available immediately proximate to the point of sale and keep it current.

7-Eleven argued that Dhami was an independent contractor, and that Soto had made only conclusory allegations of joint action insufficient to establish actual control, so 7-Eleven couldn?t be liable. Bare assertions of joint management and control were not, under Iqbal, entitled to be assumed true. Moreover, even taking them as true, defendants argued that they didn?t establish that 7-Eleven had any control over the means and manner in which Dhami sold phone cards.

The court disagreed that Soto?s allegations were no more than conclusory, bare assertions. The complaint alleged that, under the terms of its standard franchise agreement, 7-Eleven requires franchisees to offer certain categories, including prepaid cards. It also alleged that 7-Eleven devotes substantial time and effort developing and marketing its prepaid card product category, controlling which products franchisees are required to sell, negotiating purchase terms with distributors such as STI, and overseeing the installation and maintenance of the equipment used to activate and charge the cards at the register. And the complaint alleged that Dhami and 7-Eleven share in the profits and losses from the cards and possess joint management and control of sales. Viewed as a whole, these specific allegations were more than a ?formulaic recitation of the elements,? and they were a ?far cry? from the allegations found inadequate in Iqbal.

Taken as true, they stated a claim for relief. A franchisee may, in appropriate circumstances, be a franchisor?s agent. The allegations here could allow a jury to find that 7-Eleven exercised enough control over Dhami related to the sale of prepaid calling cards to satisfy the agency requirements.

Defendants next argued that Soto lacked standing because he didn?t assert that he paid more than the value of what he received, and thus had not lost money or property. The court disagreed. Soto alleged that he received fewer minutes than he believed he would. He lost money (the excess money he paid for each minute below the promised 50) or property (each minute of calling time below 50 minutes) as a result of failure to disclose the applicable fees and charges.

Full post as published by 43(B)log on June 19, 2010 (boomark / email).