Court of Appeals of Oregon.Alfred P. VIADO and Pamela Viado, Plaintiffs-Appellants, v. DOMINO'S PIZZA, LLC, a Michigan limited liability corporation, Defendant-Respondent, Zzeeks Pizza & Wingz, Inc., an Oregon corporation, dba Domino's Pizza No. 7231; Scott L. Mathias; Does I-X, Defendants.060504975, A136842.Decided: September 02, 2009Before EDMONDS, Presiding Judge, and WOLLHEIM, Judge, and SERCOMBE, Judge. Eric S. Postma argued the cause and filed the briefs for appellants. Jay W. Beattie argued the cause for respondent. With him on the brief were Glen P. McClendon and Kennedy K. Luvai, and Lindsay, Hart, Neil & Weigler, LLP.In 2005, plaintiff was injured when his motorcycle collided with a vehicle driven by Mathias, a pizza delivery driver.1At the time of the accident, Mathias was employed by and was delivering pizzas for Zzeeks Pizza & Wings, Inc. (Zzeeks), doing business as one of approximately 4,500 franchises of Domino's Pizza, LLC (Domino's). Plaintiff subsequently filed this negligence action against Mathias, Zzeeks, and Domino's. Domino's, in turn, moved for summary judgment on the ground that the facts were insufficient to establish its vicarious liability for the acts of its franchisee's employee. The trial court agreed, granted the motion, and entered a limited judgment in favor of Domino's. Plaintiff appeals that limited judgment, and we affirm.

For purposes of this appeal, the question is not whether Mathias was negligent; Domino's assumes that he was. The issue, rather, is whether plaintiff's evidence at the summary judgment stage would permit a reasonable juror to find Domino's vicariously liable for that negligence. ORCP 47 C. To better frame that issue, and to provide context for the pertinent facts in the summary judgment record, we begin with a general discussion of the principles of vicarious liability, as recently described in Vaughn v. First Transit, Inc., 346 Or. 128, 206 P.3d 181 (2009). The first question, for purposes of vicarious liability, is whether the relationship in question is one of "agency":

"At common law, 'agency' was defined as a relationship that 'results from the manifestation of consent by one person to another that the other shall act on behalf and subject to his control, and consent by the other so to act.' Hampton Tree Farms, Inc. v. Jewett, 320 Or. 599, 617, 892 P.2d 683 (1995) (emphasis added; internal quotation marks omitted). The 'agent' is the person in that relationship who acts on behalf of the other, the 'principal.' Restatement (Second) of Agency 1 (1958).

" * * * * *

"Even the ability to control in detail another's actions does not alone make an agency relationship; to qualify as an agent, one must also agree to act 'on [another's] behalf.' Thus, for example, a subordinate employee is not the agent of a supervisor simply because the supervisor has full control over the employee's work activities. Instead, both the subordinate and the supervisor are agents of their common employer, on whose behalf they have agreed to work. See Restatement (Third) of Agency at 1.01 comment g (giving examples). In sum, to be an 'agent'-using the well-defined legal meaning of that term-two requirements must be met: (1) the individual must be subject to another's control; and (2) the individual must 'act on behalf of' the other person."

Vaughn, 346 Or. at 135-36, 206 P.3d 181.

In Miller v. McDonald's Corp., 150 Or.App. 274, 945 P.2d 1107 (1997), we considered how general agency principles applied in the context of a franchise relationship. We ultimately endorsed the reasoning set forth in Billops v. Magness Const. Co., 391 A.2d 196 (Del.1978):

"If, in practical effect, the franchise agreement goes beyond the stage of setting standards, and allocates to the franchisor the right to exercise control over the daily operations of the franchise, an agency relationship exists. 391 A.2d at 197-98."

Miller, 150 Or.App. at 280, 945 P.2d 1107. Thus, to determine whether the franchisee (and its employees2) are the agents of the franchisor, we look to whether the franchisor controls the day-to-day operations of the franchisee.

If the relationship at issue is one of agency, the next question, for vicarious liability purposes, is what type of agency. Again, the Supreme Court's discussion in Vaughn is instructive:

"Understanding agency law in the context of vicarious liability requires an understanding of two types of agents: employees (or 'servant' agents) and agents who are not employees (sometimes referred to as "nonservant" agents). 'All servants are agents and all masters, principals. However, all principals and agents are not also masters and servants.' Kowaleski v. Kowaleski, 235 Or. 454, 457, 385 P.2d 611 (1963). The common law distinguishes between the two types of agents using a 'right-to-control' test. An agent is an employee if the principal has the right to control the physical details of the work being performed by the agent; in other words, the principal directs not only the end result, but also controls how the employee performs the work. Schaff v. Ray's Land & Sea Food Co., Inc., 334 Or. 94, 100, 45 P.3d 936 (2002). In contrast, when the agent retains control over the details of the manner in which it performs its duties, that agent is a nonemployee agent. Restatement (Second) of Agency at 220 comment e.

"Distinguishing between employees and agents who are not employees is important for vicarious liability purposes, because a principal's liability for the torts of its agents varies based upon the type of agent. In general, a principal is liable for all torts committed by its employees while acting within the scope of their employment. Minnis, 334 Or. at 201, 48 P.3d 137. But a principal ordinarily is not liable in tort for physical injuries caused by the actions of its agents who are not employees. Jensen v. Medley, 336 Or. 222, 230, 82 P.3d 149 (2003). Rather, a principal is vicariously liable for an act of its nonemployee agent only if the principal 'intended' or 'authorized the result [ ]or the manner of performance' of that act. Restatement (Second) of Agency at 250; see also Jensen, 336 Or. at 231, 82 P.3d 149 (principal liable for acts of nonservant agents only if those acts 'within the actual or apparent authorization of the principal'). In other words, for a principal to be vicariously liable for the negligence of its nonemployee agents, there ordinarily must be a connection between the principal's 'right to control' the agent's actions and the specific conduct giving rise to the tort claim."

346 Or. at 137-38, 206 P.3d 181 (s omitted; emphasis in original).

In light of those standards, we turn to the evidence in the summary judgment record, which we evaluate in the light most favorable to plaintiff, the nonmoving party. Vaughn, 346 Or. at 132, 206 P.3d 181. Domino's franchises, including Zzeeks, are delivery-oriented businesses, the hallmark of which is timely delivery. Domino's goal is that its franchises will deliver pizzas within 30 minutes from the time that an order is received. The scope of Zzeeks's delivery service is set forth in Domino's "Standard Franchise Agreement," which Zzeeks and Domino's executed in July 2002. That agreement grants Zzeeks an exclusive delivery area in which to operate and "offer delivery service to all customers" located within that area. "When making deliveries, [Zzeeks and its] employees must strictly comply with all laws, regulations, and rules of the road and due care and caution in the operation of delivery vehicles."

The franchise agreement also addresses "Operating Requirements" for Zzeeks. Under that section of the agreement, Zzeeks agrees to "comply with all specifications, standards and operating procedures and rules * * * relating to * * * (d) methods and procedures relating to receiving, preparing and delivering customer orders." In that regard, the agreement also incorporates certain "standards and operating procedures" set forth in a "Manager's Reference Guide," a document that addresses various aspects of franchise operation in exhausting detail.3

The "Standards" section of the Manager's Reference Guide provides a number of detailed requirements pertaining specifically to delivery drivers. Those requirements include:

"B. Driver Safety

"1. No keys are to be left in an unoccupied vehicle.

"2. Age limit for Hiring

"No one under the age of eighteen (18) years shall be permitted to operate a motor vehicle while in the course and scope of employment at any Domino's Pizza location.

"3. MVR Standard[.]"

The MVR standards are "Motor Vehicle Record" requirements that must be satisfied by Domino's Pizza delivery drivers. Subparagraphs a. through c. of the "MVR Standard" paragraph provide that all personnel must have their driving records (maintained by a governmental authority) verified "at the start of employment and at a minimum of every six months thereafter"; state that "[f]ranchisees who do not meet MVR requirements will not deliver pizza and other related products"; indicate that copies of "MVRs will be maintained in the Team Member's personnel file"; and set forth minimum driving history requirements-two years for drivers who are 18 years old and one year for drivers who are 19 or older.

The MVR standards continue:

"d. No one will be allowed to drive a personal vehicle for Domino's Pizza without proof of insurance and a valid state driver's license.

"e. Any Team Member involved in product delivery that does not comply with this Standard may only work for Domino's Pizza in a non-driving capacity and then only after signing a 'Non-Driving Agreement.'

"f. No one will be allowed to drive for Domino's Pizza with a 'suspended,' 'provisional,' 'court restricted,' 'revoked,' 'learners permit' or 'junior' license. In the event of a 'probationary' license, a Team Member will be allowed to drive if the history requirement is fulfilled. Additional endorsements are acceptable.

"g. No vehicle will be allowed to be used for business purposes for Domino's Pizza unless the vehicle passes a periodic inspection.

"h. No team Member may operate a motor vehicle in the furtherance of the company's business unless that person possesses a valid state driver's license."

The next subparagraph under "MVR Standard" provides specific criteria that must be met by each driver. For example, a driver cannot have "more than two (2) violations in the past two (2) years (e.g.: speeding, failure to yield, fail to obey traffic signal/device, fail to stop, improper turn, improper lane change, careless driving, follow too close, operated not restrained by safety belt)." Certain offenses automatically disqualify delivery drivers for three years from the date of the violation, such as leaving the scene of an accident, reckless driving, hit and run, and vehicular homicide.

Paragraph 4 of the "Driver Safety" subsection of the Manager's Reference Guide concerns the use of seat belts:

"a. When driving or riding in a vehicle on the clock for Domino's Pizza, personnel are required to wear seat belts at all times.

"b. No Team Member can be transported in an area of a vehicle where seat belts are NOT available, i.e. truck bed."

Paragraph 5 of that subsection provides that "[r]adar detectors are not permitted in any vehicle used while in the scope of employment for Domino's Pizza." Paragraph 6, the final paragraph of the "Driver Safety" subsection, is titled "Periodic vehicle inspection." It provides that "[a]ll delivery vehicles whether company or personal, used for delivery, must be inspected prior to hire and on a periodic basis," and specifically lists what the inspection must cover, including, among other things, headlights, taillights, windshield wipers, backup lights, horn, brake pressure, and the exhaust system. "Any vehicle, which does not pass the inspection, is not to be used during the course and scope of employment." Moreover, "[i]nsurance is to be valid and current at all times and must be inspected prior to hire and a minimum of twice a year."

Subsection C. of the Manager's Reference Guide addresses "Mobile Phone Use." Although that subsection is separate from Driver Safety, it indirectly addresses the safe operation of delivery vehicles:

"1. No Team member during work hours for Domino's Pizza shall drive a vehicle while using a mobile telephone. The only exception is a 'hands-free mobile telephone' which permits the team member to talk and listen without the use of either hand.

"2. A team member may use a hands-free mobile phone while the vehicle is in motion to activate, deactivate or initiate a one touch call and if the team member uses the highest degree of care while doing so. In all other circumstances the team member must pull over at a legal, safe location to place the call.

"3. All mobile phones must be turned off while at a gas station. If the phone is turned on, a static electric charge could occur, which could ignite the gas fumes and cause a fire."

In addition to the above-described requirements regarding driving safety, the "Standards" also provide that "safe driving lessons in Book One must be successfully completed by every Team Member who delivers pizzas." The Book One standards cover subjects such as defensive driving techniques, rights of way at intersections, planning routes, etc. The delivery driver in this case, Mathias, had watched a Domino's training video before starting his employment with Zzeeks.

Under the franchise agreement, Domino's also retains the right to conduct inspections of Zzeeks's operations and business records. To the extent that Domino's discovers violations of its standards and operating procedures, it has the right to terminate the franchise agreement if those violations are not cured within seven days after Zzeeks receives notice. Moreover, "[i]n the event that the conditions [at Zzeeks] or operations at [Zzeeks], in [Domino's] judgment, present a threat of imminent danger to public health or safety, [Domino's] may require the immediate cessation of operations at the Store upon delivery of a Notice of Immediate Cessation of Operations and Termination (the 'Notice') to [Zzeeks]."4

Despite the detailed operating procedures that must be followed by Zzeeks, the franchise agreement nevertheless states that "the parties to this Agreement are independent contractors" and that "the relationship created by this Agreement and the relationship between us is not a fiduciary relationship nor one of principal and agent." Under the terms of the agreement, Domino's has "no relationship with [Zzeeks's] employees and ha[s] no rights, duties, or responsibilities with regard to their employment by [Zzeeks]." The agreement further states that Zzeeks "shall be solely responsible for recruiting, hiring, training, scheduling for work, supervising and paying the persons who work in the Store and those persons shall be your employees, and not our agents or employees."5

With those facts in mind, we turn to the relevant question on appeal: whether, on the record before us, a reasonable juror could find Domino's vicariously liable for the negligent driving of its franchisee's employee. As explained above, that question involves three subparts: (1) Is the relationship between Domino's and Zzeeks one of agency? (2) If so, what type of agency relationship does Domino's have with Zzeeks-i.e., an employee or nonemployee relationship? And (3) If Zzeeks is a nonemployee agent, did plaintiff come forward with sufficient evidence of a "connection between [Domino's] 'right to control' [Zzeeks's] actions and the specific conduct giving rise to the tort claim." Vaughn, 346 Or. at 138, 206 P.3d 181.

We begin our analysis with the first of those three inquiries: Whether the summary judgment record, viewed in the light most favorable to plaintiff, demonstrates that Zzeeks was Domino's' agent under the common law. As explained above, to be an "agent" for purposes of imposing vicarious liability, "two requirements must be met: (1) the individual must be subject to another's control; and (2) the individual must 'act on behalf of' the other person." Vaughn, 346 Or. at 136, 206 P.3d 181.

In this case, Domino's has not put in issue the second of those requirements-i.e., that Zzeeks was acting "on behalf of" Domino's. Rather, the thrust of Domino's argument below and on appeal is that, on this summary judgment record, no reasonable juror could find that Zzeeks was subject to the control of Domino's. In short, our case law says otherwise.

In Miller, we set forth a test for determining whether a franchisor had a sufficient "right of control" over its franchisee such that the franchisee was its agent. We explained:

"The kind of actual agency relationship that would make [the franchisor] vicariously liable for [the franchisee's] negligence requires that [the franchisor] have the right to control the method by which [the franchisee] performed its obligations under the Agreement. The common context for that test is a normal master-servant (or employer-employee) relationship. See, e.g., Jenkins v. AAA Heating, 245 Or. 382, 386, 421 P.2d 971 (1966); Chard v. Beauty-N-Beast Salon, 148 Or.App. 623, 628, 941 P.2d 611 (1997). The relationship between two business entities is not precisely an employment relationship, but the Oregon Supreme Court, in common with most if not all other courts that have considered the issue, has applied the right to control test for vicarious liability in that context as well. See Peeples v. Kawasaki Heavy Indust., Ltd., 288 Or. 143, 603 P.2d 765 (1979). We therefore apply that test to this case."

Miller, 150 Or.App. at 279, 945 P.2d 1107 (emphasis in original). We noted that the Supreme Court in Peeples had held that, where "the record as a whole supported a finding that the distributor had the right to control the dealer's conduct in providing warranty service * * *[,] the trial court properly submitted the issue of the distributor's vicarious liability [for negligent service work] to the jury." 150 Or.App. at 279, 945 P.2d 1107. We then observed that other courts had applied the "right-to-control" test in the franchise context:

"A number of other courts have applied the right to control test to a franchise relationship. The Delaware Supreme Court, in Billops v. Magness Const. Co., 391 A.2d 196 (Del.1978), stated the test as it applies to that context:

" 'If, in practical effect, the franchise agreement goes beyond the stage of setting standards, and allocates to the franchisor the right to exercise control over the daily operations of the franchise, an agency relationship exists.' 391 A.2d at 197-98.

"This statement expresses the general direction that courts have taken and is consistent with the Supreme Court's discussion in Peeples. We therefore adopt it for the purposes of this case."

Miller, 150 Or.App. at 279-80, 945 P.2d 1107.

We then compared the Delaware court's decision in Billops to an Alabama case, Wood v. Shell Oil Co., 495 So.2d 1034 (Ala.1986), in an effort to discern "when a franchisor has retained a right not only to set standards but also to control the daily operations of the franchisee." 150 Or.App. at 280, 945 P.2d 1107. After comparing the facts of those cases, we distilled the following principle:

"The essential distinction between Wood and Billops is the extent to which the franchisor retained control over the details of the franchisee's performance. In Wood, the franchisor required only that mechanical work be done in a workmanlike manner. In Billops, however, the franchisor issued a manual that described the methods by which the franchisee was to carry out its responsibilities in considerable detail. The agreement in Wood, thus, could only be read as providing standards that the franchisee had to meet, while the agreement in Billops could be read as retaining the right to exercise control over the franchisee's daily operations."

150 Or.App. at 281, 945 P.2d 1107.

We next examined the franchise relationship in Miller in light of that principle:

"The facts of this case are close to those in Billops. For that reason, we believe that a jury could find that [the franchisor] retained sufficient control over [its franchisee's] daily operations that an actual agency relationship existed. The Agreement not simply set standards that [the franchisee] had to meet. Rather, it required [the franchisor] to use the precise methods that defendant established, both in the Agreement and in the detailed manuals that the Agreement incorporated. Those methods included the ways in which [the franchisee] was to handle and prepare food. [The franchisor] enforced the use of those methods by regularly sending inspectors and by its retained power to cancel the Agreement. That evidence would support a finding that [the franchisor] had the right to control the way in which [the franchisee] performed at least food handling and preparation. In her complaint, plaintiff alleges that [the franchisee's] deficiencies in those functions resulted in the sapphire being in the Big Mac and thereby caused her injuries. Thus, as in Peeples, there is evidence that [the franchisor] had the right to control [the franchisee] in the precise part of its business that allegedly resulted in plaintiff's injuries. That is sufficient to raise an issue of actual agency."

150 Or.App. at 281, 945 P.2d 1107.

Turning back to the facts in this record, there is evidence that the franchise relationship between Domino's and Zzeeks includes at least as much control over the day-to-day operations of the franchise as in Miller. The franchise agreement and Domino's' operating manual together set forth detailed rules and operating procedures relating to:

"(a) the safety, maintenance, cleanliness, sanitation, function and appearance of the Store premises and its equipment, image, fixtures, furniture, decor and signs.

"(b) qualifications, dress, grooming, general appearance and demeanor of [Zzeeks and its employees,]

"(c) quality, taste, portion control and uniformity, and manner of preparation and sale, of all pizza and other authorized food and beverage products sold by the Store and of all ingredients, supplies and materials used in the preparation, packaging and sale of these items,

"(d) methods and procedures relating to receiving, preparing and delivering customer orders,

"(e) the hours during which the Store will be open for business,

"(f) use and illumination of exterior and interior signs, posters, displays, menu boards and similar items,

"(g) the handling of customer complaints,

"(h) advertising on the Internet or other electronic media, including websites, home pages and the use of domain names,

"(i) e-mail capabilities of the Store and other electronic communication devices to facilitate communication with us or our offices, and,

"(j) the method and manner of payment which will be accepted from customers."

Under the franchise agreement, Domino's retained the ability to modify the operating procedures from time to time, and those modifications constituted part of the franchise agreement as though they had been set forth in that agreement. Domino's also retained "the right at any time during business hours and without prior notice to conduct reasonable inspections of the Store, its operations, and its business records[.]" In the event that Zzeeks failed to comply with "any specification, standard or operating procedure or rule prescribed by [Domino's] which relates to the use of any Mark, safety and security, or the quality of pizza or other authorized food products or any beverage sold by [Zzeeks,]" Domino's had the right to terminate the agreement, provided that Zzeeks did not cure the failure within seven days after delivery of the notice of the failure.6

On this record, a reasonable juror could conclude that the rules and operating procedures went beyond the stage of setting standards, and that Domino's retained sufficient control over certain day-to-day operations of Zzeeks, its franchisee, to establish an agency relationship.7See Vaughn, 346 Or. at 136, 206 P.3d 181 ("control" includes the "right to give interim instructions or directions to the agent once their relationship is established") (quoting Restatement (Third) of Agency 1.01 comment f (2006)).

In light of our conclusion that Domino's exercised sufficient control over Zzeeks to establish an agency relationship, the next question is what type of agency relationship, which in turn determines the concomitant standard for vicarious liability. According to Domino's, franchise relationships-to the extent that they are agency relationships at all-are treated as nonemployee agency relationships under Oregon law; hence, a franchisor is vicariously liable only where the franchisor controlled the specific instrumentality or method that caused the plaintiff's injury. Cf. Miller, 150 Or.App. at 281, 945 P.2d 1107 (concluding that the plaintiff had created a genuine issue of material fact regarding vicarious liability where there was evidence that the franchisor "had the right to control [the franchisee] in the precise part of its business that allegedly resulted in plaintiff's injuries"). Plaintiff, meanwhile, contends that "Miller does not require courts to focus solely upon the control exercised by a franchisor over the specific instrumentality or method that caused the injury." Under plaintiff's reading of Miller, this court should apply a broader standard of vicarious liability akin to that applicable in the master-servant context.

Frankly, Miller is not entirely clear on the question whether the franchise relationship in that case was treated as an employee relationship or as a nonemployee agency relationship. Part of the confusion stems from the fact that the "right to control" is considered at various stages of the vicarious liability analysis: first, in determining whether an agency relationship exists at all (Is the purported agent subject to the principal's control?); second, in determining whether the agent is an employee or nonemployee agent (Does the purported principal have the right to control the physical details of the purported employee's work?); and third, in the case of a nonemployee agent, in determining whether the principal intended or authorized the result or manner of performance of the act (Did the principal have the right to control the physical details of the part of the business that injured the plaintiff?).

In Miller, we observed that "[t]he relationship between two business entities is not precisely an employment relationship," but that Oregon courts have applied the "right-to-control" test in that context as well. 150 Or.App. at 279, 945 P.2d 1107. Although our discussion of the "right to control" test was consistent with a conclusion that the franchisee in Miller was an employee agent, our analysis that followed suggested otherwise. In determining whether there existed a jury question on the issue of vicarious liability, we focused not on whether the tort was committed within the course of employment but rather on whether there was a connection between the principal's "right to control" and the specific conduct giving rise to the tort claim: "Thus, as in Peeples, there is evidence that [the franchisor] had the right to control [the franchisee] in the precise part of its business that allegedly resulted in plaintiff's injuries." 150 Or.App. at 281, 945 P.2d 1107 (emphasis added). That is the standard typically applicable to nonemployee agents.

In Miller, this court essentially skipped over the question whether the franchisee was an employee of the franchisor in that case.8In addressing that question here, however, we are mindful of the court's observation in Miller that "the relationship between two business entities is not precisely an employment relationship." 150 Or.App. at 279, 945 P.2d 1107.

The test for determining whether an agent is an employee is predominantly driven by the "extent to which the purported employer has the right to control the performance of services by the individual." Schaff, 334 Or. at 99-100, 45 P.3d 936. "There is no simple measure of the extent to which an employer may control a worker in the performance of his task without creating a master-servant relationship," but "control over performance remains the principal test." Id. (quoting Jenkins v. AAA Heating & Cooling, Inc., 245 Or. 382, 386-87, 421 P.2d 971 (1966)) (emphasis omitted). Other factors may bear on the analysis as well, namely the Restatement factors:

" '(1) A servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other's control or right to control.

" '(2) In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered:

" '(a) the extent of control which, by the agreement, the master may exercise over the details of the work;

" '(b) whether or not the one employed is engaged in a distinct occupation or business;

" '(c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;

" '(d) the skill required in the particular occupation;

" '(e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;

" '(f) the length of time for which the person is employed;

" '(g) the method of payment, whether by the time or by the job;

" '(h) whether or not the work is a part of the regular business of the employer;

" '(i) whether or not the parties believe they are creating the relation of master and servant; and

" '(j) whether the principal is or is not in business.'

The following case involves pizza and fast driving.