ALEJANDRO LUPIAN; JUAN LUPIAN; JOSE REYES; EFFRAIN LUCATERO; ISAIAS LUNA, individually and on behalf of those similarly situated v. JOSEPH CORY HOLDINGS LLC
No. 17-2346
United States Court of Appeals for the Third Circuit
September 27, 2018
PRECEDENTIAL. Argued: February 7, 2018.
Before: CHAGARES, SCIRICA, and COWEN, Circuit Judges.
Adam C. Smedstad [ARGUED]
Andrew J. Butcher
Scopelitis, Garvin, Light, Hanson & Feary, P.C.
30 West Monroe Street
Suite 600
Chicago, IL 60603
Christopher J. Eckhart
Scopelitis, Garvin, Light, Hanson & Feary, P.C.
Suite 1400
10 West Market Street
Suite 1400
Indianapolis, IN 46204
Peter F. Berk
Genova Burns
494 Broad Street
Newark, NJ 07102
Counsel for Appellant
Harold L. Lichten [ARGUED]
Michael N. Turi, Esq.
Lichten & Liss-Riordan, P.C.
729 Boylston Street
Suite 2000
Boston, MA 02116
Shanon J. Carson
Camille Fundora
Alexandra K. Piazza
Sarah R. Schalman-Bergen
Berger & Montague, P.C.
1818 Market Street, Suite 3600
Philadelphia, PA 19103
Counsel for Appellees
Adina H. Rosenbaum
Allison M. Zieve
Public Citizen Litigation Group
1600 20th Street, N.W.
Washington, DC 20009
Counsel for Amicus Curiae Public Citizen, Inc.
CHAGARES, Circuit Judge.
Alejandro Lupian, Juan Lupian, Isaias Luna, Jose Reyes, and Efrain Lucatero (collectively, “the Drivers“) are professional delivery drivers who separately contracted to provide equipment and services to Joseph Cory Holdings LLC (“Joseph Cory“), a motor carrier and property broker. The Drivers filed a class action complaint alleging that Joseph Cory deducted wages from their paychecks without obtaining contemporaneous consent in violation of the Illinois Wage Payment and Collection Act (“IWPCA“),
I.
The contracts between the Drivers and Joseph Cory purported to establish that the Drivers would work as independent contractors, although the Drivers claim the realities of their relationship made them Joseph Cory‘s employees under the IWPCA. The contracts expressly permitted Joseph Cory to take “[c]hargebacks” for any expense or liability that the Drivers had agreed to bear — “expenses [that] shall be deducted from the amount of [the Drivers‘] compensation.” Appendix (“App.“) 44, 50. Joseph Cory deducted these expenses — including costs for “insurance, any related insurance claims, truck rentals, . . . uniforms,” and “damaged goods” — from the Drivers’ paychecks without obtaining contemporaneous consent. App. 20.
The Drivers filed a lawsuit against Joseph Cory in the United States District Court for the District of New Jersey, claiming, inter alia, that Joseph Cory‘s practice of deducting wages from their paychecks and those of similarly situated employees without contemporaneous consent
The District Court certified its order for an interlocutory appeal under
II.
A.
Joseph Cory moved to dismiss the Drivers’ IWPCA claim based on federal preemption. This Court conducts plenary review of the grant or denial of a motion to dismiss based on preemption. Rosenberg v. DVI Receivables XVII, LLC, 835 F.3d 414, 418 (3d Cir. 2016). Facts alleged in the complaint are accepted as true for purposes of the motion. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Preemption is an affirmative defense that the defendant has the burden to prove. In re Asbestos Prods. Liab. Litig. (No. VI), 822 F.3d 125, 133 n.6 (3d Cir. 2016). Therefore, Joseph Cory has the burden to demonstrate that the Drivers’ state-law claims under the IWPCA are preempted. To prevail on a
The doctrine of preemption is derived from the Supremacy Clause of Article IV of the Constitution, which provides that “the Laws of the United States . . . shall be the supreme Law of the Land.”
When a federal statute contains a provision preempting state law claims that pertain to “areas of traditional state regulation” or police power, we apply a presumption against preemption. Bates v. Dow Agrosciences LLC, 544 U.S. 431, 449 (1992); see also N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995).5 Areas of traditional state regulation or police power include regulation of “the employment relationship to protect workers in the State” such as regulation of “minimum and other wage laws.” DeCanas v. Bica, 424 U.S. 351, 356 (1976), superseded by statute on other grounds as recognized in Arizona v. United States, 567 U.S. 387, 404 (2012); see also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 21 (1987) (“[P]re-emption should not be lightly inferred in this area, since the establishment of labor standards falls within the traditional police power of the State.“). The Supreme Court in City of Columbus v. Ours Garage & Wrecker Service, Inc., considered another issue under the FAAAA preemption clause and applied this presumption against preemption, noting that its “[p]reemption analysis ‘start[s] with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.‘” 536 U.S. 424, 438 (2002) (quoting Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996)). To discern Congress‘s purpose, we look first to the plain language employed in the statutory provision at issue,6 and, if necessary, the statutory structure as a whole, Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977), as well as our “understanding of the way in which Congress intended the statute and its surrounding regulatory scheme to affect business, consumers, and the law,” Medtronic, Inc., 518 U.S. at 486.
B.
1.
Prior to 1978, the interstate airline industry in the United States was tightly regulated by the federal government. See
The
a State, political division of a State, or a political authority of 2 or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.
2.
The IWPCA applies to all employees and employers in the State of Illinois.
deductions by employers from wages or final compensation are prohibited unless such deductions are . . . made with the express written consent of the employee, given freely at the time the deduction is made.
III.
A.
The Supreme Court in several decisions has provided guidance “to ‘identify the domain expressly pre-empted‘” by the FAAAA. Dan‘s City Used Cars, 569 U.S. at 260 (quoting Lorillard Tobacco Co., 533 U.S. at 541). First, the phrase “related to” in the FAAAA preemption clause refers to state actions having “‘a connection with, or reference to, airline’ prices, routes, or services” of a motor carrier. Nw., Inc. v. Ginsburg, 572 U.S. 284, 134 S. Ct. 1422, 1430 (2014) (quoting Morales, 504 U.S. at 384). Second, considering the broad scope of the preemption clause, “pre-emption may occur even if a state law‘s effect on rates, routes, or services ‘is only indirect.‘” Rowe v. N.H. Motor Transp. Ass‘n, 552 U.S. 364, 371 (2008) (quoting Morales, 504 U.S. at 386). Third, “pre-emption occurs at least where state laws have a ‘significant impact’ related to Congress’ deregulatory and pre-emption-related objectives.” Id. (quoting Morales, 504 U.S. at 390). Fourth, the FAAAA “does not preempt state laws affecting carrier prices, routes and services ‘in only a tenuous, remote, or peripheral . . . manner.‘” Dan‘s City Used Cars, 569 U.S. at 261 (quoting Rowe, 552 U.S. at 371). The Court has noted that, for instance, the FAAAA does not preempt state or local zoning regulations, id. at 264, and state laws prohibiting prostitution, gambling, and “obscene depictions” are too tenuous, remote, and peripheral to be preempted, Morales, 504 U.S. at 390.
In Taj Mahal Travel, we considered the ADA‘s preemption clause. In that case, a travel agency filed a lawsuit alleging, inter alia, defamation against Delta Airlines after a number of the agency‘s customers received letters from Delta informing them
In Gary v. Air Group, Inc., we were presented with the issue of whether the ADA‘s preemption clause barred an employee‘s wrongful termination lawsuit instituted under New Jersey‘s whistleblower statute. 397 F.3d 183, 185 (3d Cir. 2005). We again considered the purpose of the preemption clause and the presumption against preemption, noting that the presumption “is particularly apt in the employment law context which ‘falls squarely within the traditional police powers of the states, and as such should not be disturbed lightly.‘” Id. at 190 (quoting Branche v. Airtran Airways, Inc., 342 F.3d 1248, 1259 (11th Cir. 2003)). The employer-airline argued that Gary‘s claim was preempted because his wrongful discharge claim was “‘related to’ the ‘service of an air carrier.‘” Id. at 187 (quoting
B.
We turn to applying the standards set forth above to determine whether District Court properly denied Joseph Cory‘s
The purpose of the FAAAA‘s preemption clause is to prohibit states from effectively re-regulating the trucking industry and to promote “maximum reliance on competitive market forces.”
We cannot say, particularly at this procedural juncture, that the IWPCA has a significant impact on carrier rates, routes, or services of a motor carrier or that it frustrates the FAAAA‘s deregulatory objectives. Joseph Cory argues otherwise, contending the impact of the IWPCA is substantial, and complains that if this lawsuit is successful, it will permit the Drivers to “re-write” their independent contractor agreements with Joseph Cory. Joseph Cory Br. 13.10 It contends that adjusting the compensation arrangements with their drivers would be disruptive to its business and choice of business model and contravene the deregulatory objectives of the preemption clause. For instance, Joseph Cory asserts the IWPCA claims will impact its “services” regarding transportation of property. Joseph Cory Br. 22.
A similar effect could also be experienced by a change in zoning regulations, and the Supreme Court has concluded that such regulations are not preempted. See Dan‘s City Used Cars, 569 U.S. at 264. We reiterate that the phrase “related to” does have bounds, and we believe that the IWPCA falls outside those bounds. See id. at 260 (“[T]he breadth of the words ‘related to’ does not mean that the sky is the limit.“). Put another way, the IWPCA claims here are too far removed from the statute‘s purpose to warrant preemption. With no record to demonstrate otherwise, we hold that the impact of the IWPCA is too tenuous, remote, and peripheral to fall within the scope of the FAAAA preemption clause.
We are persuaded by the decisions of two of our sister Courts of Appeals. The Court of Appeals for the Seventh Circuit considered nearly identical facts in Costello v. BeavEx, Inc. and concluded, on a summary judgment record, that the FAAAA did not preempt the IWPCA. 810 F.3d 1045, 1048 (7th Cir. 2016). As in this case, the BeavEx plaintiffs only sought remedy for violation of the IWPCA wage deduction provision. Id. at 1055. The court determined that, considering the limited scope of the IWPCA, its effect is similarly limited and, rather than “hav[ing] a significant impact on the prices, routes, and services that BeavEx offers to its customers,” id., “the impact of the IWPCA is too ‘tenuous, remote, or peripheral’ to warrant FAAAA preemption,” id. BeavEx argued that, if the IWPCA were not preempted, it would suffer increased labor costs, and that would result in higher prices for its customers and would force it to change its business model. Id. at 1056. In fact, BeavEx produced evidence that they would have to spend, for instance, an additional $185,000 per year to employ a human resources professional. Id. The court was not persuaded, determining that “the IWPCA regulates the motor carrier as an employer, and any indirect effect on prices is too tenuous, remote, or peripheral.” Id. at 1055; see also id. at 1056 (“We do not see . . . how the increased labor cost will have a significant impact on the prices that BeavEx offers to its customers. BeavEx has offered no evidence to persuade us otherwise.“).12 The court held that denial of
The Court of Appeals for the Ninth Circuit in Dilts v. Penske Logistics, LLC, also considered the scope of the FAAAA‘s preemption clause. 769 F.3d 637 (9th Cir. 2014). The truck drivers in that case asserted claims under California‘s meal and rest break statutes against their employer. The court began its analysis of the employer‘s motion for summary judgment by recognizing that “[w]age and hour laws constitute areas of traditional state regulation” and, therefore, the presumption against preemption of state law applied. Id. at 643–44. Applying the standards necessary to resolve an FAAAA preemption issue, the court noted that “generally applicable background regulations . . . such as prevailing wage laws or safety regulations[] are not preempted, even if employers must factor those provisions into their decisions about the prices they set, the routes that they use, or the services that they provide.” Id. at 646. Indeed, the employer produced evidence that compliance with the meal and rest break laws at issue would mean the employer would have to raise prices about 3.4% per year. Id. at 651 (Zouhary, J., concurring). The court reversed the district court‘s grant of summary judgment and held that the FAAAA preemption clause did not preempt the California law, reasoning that the state law was not sufficiently “related to” motor carrier prices, routes, or services. Id. at 650 (majority opinion).
Joseph Cory urges that we should follow two cases from the Court of Appeals for the First Circuit, in which that court held state laws to be preempted by the ADA and FAAAA. Both cases are distinguishable because they involved state laws of a wholly different character than the IWPCA. The first of those cases, DiFiore v. American Airlines, Inc., involved a direct regulation, not an indirect one like the IWPCA. 646 F.3d 81, 88 (1st Cir. 2011). DiFiore involved a Massachusetts law regulating tipping as applied to Logan Airport skycaps. The court held that the statute was preempted by the ADA because it “directly regulate[d] how an airline service is performed and how its price is displayed to customers—not merely how the airline behaves as an employer or proprietor,” and reversed a jury verdict in favor of the plaintiffs. Id. at 88. The opinion expressly distinguished the regulation in that case from one like the IWPCA, noting that “the Supreme Court would be unlikely—with some possible qualifications—to free airlines . . . from prevailing wage laws[] and ordinary taxes applicable to other businesses,” even though “such measures . . . may affect fares and services.” Id. at 87.
In the second of those cases, Schwann v. FedEx Ground Package Systems, the plaintiffs alleged that FedEx mischaracterized them as independent contractors when it should have treated them as employees, and that this mischaracterization violated the Massachusetts Independent Contractor Statute (the “MICS“). 813 F.3d 429, 432–33 (1st Cir. 2016). The court, considering the parties’ cross motions for summary judgment, held that the FAAAA preempted the MICS, basing its holding on the broad sweep of the MICS‘s regulation. The opinion noted that the MICS provided for a comprehensive regulatory scheme that would, “in substance, bar FedEx from using any individuals as full-fledged independent contractors.” Id. at 437. Unlike in the Drivers’ case, in which the IWPCA regulates only limited aspects of the manner in which employees — as defined by that statute — are paid agreed-upon compensation, the MICS provided for a comprehensive regulatory regime, which the court held would result in “interference” with FedEx‘s prices, routes, rates, and services. Id. at 438. The interference, the court determined, was not “peripheral” and it “sufficiently” related to FedEx‘s routes and service, thereby justifying preemption. Id.; cf. Rowe, 552 U.S. at 375 (“[S]tate laws whose ‘effect’ is ‘forbidden’ under federal law are those with a ‘significant impact’ on carrier rates, routes, or services.” (quoting Morales, 564 U.S. at 388)). The Drivers’ case is different from Schwann because the Drivers’ complaint does not show, on its face, that the IWPCA is so far-reaching as to meaningfully affect Joseph Cory‘s prices, routes, rates, or services. See BeavEx, 810 F.3d at 1055 (“Importantly, the [MICS] triggers far more employment laws than the employment definition contained in the IWPCA.“). The IWPCA‘s limited regulation of ministerial aspects of the manner in which employees are paid is different in kind from the MICS‘s unique, sweeping regulation of independent contractors in Massachusetts.13
In closing, we restate the procedural posture of this case, as it is significant. Joseph Cory moved to dismiss under Rule 12(b)(6), and it was required to prove the preemption affirmative defense based on the face of the Drivers’ complaint. We note that the BeavEx, Dilts, and Schwann cases all were decided in the context of a summary judgment record and DiFiore with a trial record. The allegations of the complaint and arguments of Joseph Cory do not persuade us that the District Court erred in denying the motion to dismiss. We conclude that the IWPCA does not have a significant impact on carrier rates, routes, or services of a motor carrier and does not frustrate the FAAAA‘s deregulatory objectives, as the impact of the IWPCA is too tenuous, remote, and peripheral to fall within the scope of the FAAAA preemption clause.
III.
For the foregoing reasons, we will affirm the Order of the District Court.