SIMON GORO, an individual; TONY RUSSELL, an individual; REY PENA, an individual; JOSE PENA, an individual; JEFF BELANDER, an individual; and GUISEPPE ZIZZO, an individual v. FLOWERS FOODS, INC., a Georgia corporation; FLOWERS BAKING CO. OF CALIFORNIA, LLC, a California limited liability company; FLOWERS BAKING CO. OF HENDERSON, LLC, a Nevada limited liability company; and DOES 1 through 100, inclusive
Case No.: 17-CV-2580 TWR (JLB)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
September 21, 2021
ORDER (1) GRANTING PLAINTIFF TONY RUSSELL‘S MOTION FOR PARTIAL SUMMARY JUDGMENT ON DEFENDANTS’ FIRST AND THIRTY-SECOND AFFIRMATIVE DEFENSES, AND (2) DENYING WITHOUT PREJUDICE PLAINTIFF‘S MOTION TO SEAL (ECF Nos. 171, 172)
BACKGROUND
I. Material Facts2
A. Defendants’ Direct-Store-Delivery System
FF is the second largest producer and marketer of bakery products in the United States. (See ECF No. 171-3 (“Ex. A“) at 2, 4.) FF markets well-recognized brands such as Nature‘s Own, Dave‘s Killer Bread, and Wonder. (See id.) In 2017, FF had $ 3.9 billion in sales. (See id. at 4.) FF advertises to potential investors that it is in the “[r]etail and foodservice” market. (See id.)
FF distributes its products through two segments: a Direct-Store-Delivery (“DSD“) for fresh bakery foods and a Warehouse Delivery segment for others, including snack cakes and frozen products. (See id. at 2, 5; see also ECF No. 171-4 (“Ex. B“) at 41-42.) The DSD segment accounts for approximately 85 percent of FF‘s sales, or approximately $3.3
Publicly, Defendants characterize their use of Distributors as an “independent contractor franchise model,” which is meant to incentivize Distributors to develop business and generate additional sales within the area to which they own distribution rights. (See Ex. A at 5; see also Parmer Decl. ¶ 4.) Under certain circumstances, Defendants may manage some routes using their employees. (See Ex. I at 1.) Other bakeries also use this distribution model, which was developed in the 1950s. (See Parmer Decl. ¶ 4.) Mr. Russell initially believed that, as a Distributor, he would have the opportunity to increase the value of his territory. (See ECF No. 193-3 (“Ex. 1“) at 36:14-17.)
To purchase distribution rights to a defined geographic territory, a Distributor signs a Distributor Agreement (“DA“). (See Parmer Decl. ¶ 8; see also Ex. I at 1; ECF No. 137-7 (“Ex. L“) (DA between FBC Henderson and Mr. Russell).) Although prospective Distributors may make certain elections under the DA, they are not permitted to make any changes to it. (See ECF No. 173-14 (“Ex. Y“) at 160:15-161:20.) The DA defines the territory that the Distributor may purchase, the products the Distributor is authorized to sell, and the purchase price for those products. (See Parmer Decl. ¶ 9.) Under the terms of the DA, the Distributor is “an independent contractor” that “shall not be controlled by [Defendants] as to the specific details or manner of DISTRIBUTOR‘s business.” (See id. (quoting Pl.‘s Ex. L “Witnesseth” Section ¶¶ 4, 16.1).) Mr. Russell, for example, testified
Among other things, the DA also provides that Distributors: may hire others to operate their territory without Defendants’ approval,4 (see Parmer Decl. ¶¶ 10(a), 12(a)); may hold other jobs and deliver products for other companies, (see id. ¶ 10(b); see also Ex. 1 at 147:19-149:24); may sell products not from Defendants, so long as those products do not compete with Defendants’ products, (see Parmer Decl. ¶ 10(c)); are not required to abide by a dress code, (see id. ¶ 10(d)); are expected to provide their own delivery vehicles, (see id. ¶ 10(e); see also Ex. 1 at 139:16-25); agree to use “commercially reasonable best efforts,” (see Parmer Decl. ¶ 10(f)); are expected to perform in accordance with “Good Industry Practice,” (see id. ¶ 10(g)); and own the distribution rights to Defendants’ products in the Distributors’ territory. (See id. ¶ 10(h).) The term “Good Industry Practice” refers to industry customs, which the DA defines as “the standards that have developed and are generally accepted and followed in the baking industry,” including “adequate fresh supply” of products, “properly rotating” products, and “promptly removing” stale products. (See id. ¶ 11; see also Ex. Y at 142:20-144:18.) Defendants will repurchase stale product from Distributors up to a “stale cap” or “stale allowance.” (See Parmer Decl. ¶ 20.) As for sales products above the allowance, Distributors may sell them for non-human consumption, donate them to charity, or bear their cost as a business expense. (See id.) The DA, however, explicitly proscribes Distributors from reselling stale product for human consumption to protect Defendants’ brands. (See id.)
Defendants contend that, under the DA, Distributors are responsible for operating their own businesses. (See id. ¶ 12.) According to Defendants, Distributors can decide: how many days a week to work given assistance from hired help, (see id. ¶ 12(a)); when
Distributors sell products they purportedly purchase from Defendants to their customers, and may promote displays, solicit new accounts, recommend new products, and change product pricing, among other things. (See Parmer Decl. ¶ 13.) Distributors may personally service two types of accounts: cash accounts and unauthorized credit accounts. (See id. ¶ 14.) With cash accounts, the Distributor serves as the primary contact for the customer, accepting payment directly. (See id.) Accordingly, the Distributor may extend credit and set payment terms, but is also bears the risk of non-payment. (See id.) With charge accounts, the Distributor receives credit for their sales following sales transactions at their respective accounts. (See id.) Distributors receive from Defendants approximately 18 percent on average of the Manufacturer‘s Suggested Retail Price of the products they deliver, which represents their profit (or “margin“) on the products they sell. (See ECF No. 173-8 (“Ex. M“) at 3; see also ECF No. 173-16 (“Ex. AA“) at 82:15-83:25.)
Defendants employ national account representatives to serve as points of contact at the corporate level for larger chain accounts, such as Wal-Mart. (See id. ¶ 15; see also ECF No. 173-3 (“Ex. H“) (Wal-Mart “Supplier Agreement” with “Flowers Bakeries LLC“);
Until the beginning of 2018, Defendants employed “Branch Sales Managers” (“BSMs“) as advisors or liaisons to their Distributors. (See Parmer Decl. ¶ 21.) According to Defendants, BSMs did not “manage” Distributors, but instead were intended to help Distributors grow their businesses and sales by offering suggestions that Distributors could implement or not. (See id.; see also ECF No. 193-4 (“Ex. 2“) at 232:12-14.) Although BSMs did visit retailers, Defendants contend that they did so to “look for opportunities to grow the business,” not to supervise or check in on Distributors. (See Parmer Decl. ¶ 22.) Nonetheless, store visits did sometimes alert BSMs that Distributors were not complying with their contractual obligations under their DAs, (see id.), and, if a BSM noticed during a store visit that a Distributor was missing sales opportunities, the BSM might have approached the Distributor to discuss the issue. (Ex. 2 at 164:18-24.)
When Defendants determine that a Distributor is violating their contractual obligations under the DA, including failing to satisfy the “Good Industry Practice” standard, Defendants may issue a “breach letter” as provided in the DA. (See Parmer Decl. ¶¶ 23-24; see also ECF No. 173-12 (“Ex. W“); ECF No. 173-13 (“Ex. X“).) Breach letters
Defendants’ DSD system has been the subject of much investigation and litigation. (See, e.g., Ex. B at 41; ECF No. 197-7.) For example, the California Labor Commissioner determined on December 20, 2017, that a Distributor who filed a claim for reimbursable business expenses against FBC Henderson was a “franchisee and therefore outside of the Labor Commission jurisdiction.” (See generally ECF No. 197-7.) Around the same time, the United States Department of Labor conducted investigations of Defendants in three counties of Georgia, concluding that Defendants had misclassified their Distributors as independent contractors rather than employees. (See generally ECF No. 171-36 (“Ex. HH“).) Defendants have also been named in several employment actions across the country. (See, e.g., ECF No. 171-41 (“Ex. MM“); see also ECF No. 195-1 (“Ex. QQ“) at 17, F-53.)
B. Defendants’ Accounting Practices
As a publicly traded company, FF must regularly file reports with the Securities and Exchange Commission (“SEC“).5 (See ECF No. 173-20 (“Ex. EE“) at 11:21-13:15.) FF‘s
Based on guidance from the Financial Accounting Standards Board (“FASB“), FF recognizes revenue for authorized charge sales when the product is delivered to retailers by Distributors and for scan-based trading accounts when the product is purchased by the end consumer. (See id. ¶ 6; see also Ex. B at 9; Ex. I at 2.) When a Distributor picks up more product than is required to service their authorized charge or pay-by-scan sales, such as for unauthorized charge or cash sales, FF recognizes revenue immediately. (See Ex. I at 4.) Both PricewaterhouseCoopers (“PwC“), which is FF‘s outside auditor, (see Davis Decl. ¶ 1), and Ernst & Young approve of FF‘s manner of revenue recognition. (See id. ¶ 7.) Under Generally Accepted Accounting Principles (“GAAP“), intercompany transactions—including those between FF‘s subsidiaries—are reflected only by offsetting ledger entries that do not appear in the consolidated financial statements, which reflect only transactions with outside parties. (See id. ¶ 8; see also Ex. I at 2.) Under GAAP, these offsetting ledger entries reflect bona fide transactions. (See Davis Decl. ¶ 8.)
In internal memoranda regarding revenue recognition in transactions involving Distributors, FF‘s accounting personnel have concluded that Distributors are “agents” of Defendants for authorized charge and pay-by-scan sales for purposes of reporting revenue at gross or net. (See Ex I at 4-5; Ex. N at 9-12; Ex. EE at 18:5-19:3, 38:13-41:3.) These sales are also “considered to be consignment arrangements because control does not transfer to the [Distributor].” (See Ex. N at 22.) In other words, for authorized charge and pay-by-scan sales, Defendants recognize the reseller as their customer and the Distributor as an intermediary. (See id. at 5.) Ultimately, for these two transaction types—which account for 90 to 95 percent of FF‘s sales—it is Defendants who have promised to deliver product to resellers with whom they contract, and Defendants “have engaged the [Distributor] to fulfill this promise.” (See id. at 7, 9; Ex. EE at 34:24-37:7; see also ECF No. 173-10 (“Ex. O“) at 7 (“Independent distributors facilitate the sale[s brokered by
II. Relevant Procedural Background
Plaintiffs Simon Goro, Mr. Russell, Rey Pena, Jose Pena, Jeff Belander, and Giuseppe Zizzo initiated this action in the Superior Court of California, County of San Diego, on November 27, 2017. (See generally ECF No. 1-2.) Generally alleging that Defendants had misclassified them as independent contractors rather than employees, Plaintiffs asserted claims for (1) failure to compensate for all hours worked; (2) failure to pay overtime premium pay; (3) waiting-time penalties; (4) failure to provide accurate wage statements; (5) failure to provide meal periods; (6) unlawful deductions from wages; (7) failure to indemnify for necessary expenditures; and (8) violations of California‘s Unfair Competition Law (“UCL“),
On March 22, 2018, Plaintiffs filed their first amended complaint, adding a ninth claim for enforcement of the California Private Attorney General Act (“PAGA“),
Plaintiffs filed their operative Second Amended Complaint on January 15, 2019, adding additional allegations to support their PAGA cause of action. (See generally ECF
Mr. Russell moved for partial summary judgment as to Defendants’ first affirmative defense—i.e., that Defendants were never Plaintiffs’ employers—on February 15, 2019. (See generally ECF No. 99.) Defendants filed their own motion for partial summary judgment as to six of Plaintiffs’ causes of action on March 12, 2019. (See generally ECF No. 104.) After Judge Sammartino took the cross-motions for partial summary judgment under submission, (see generally ECF No. 135), Defendants moved to stay this action pending resolution of the following issues: (1) whether the “ABC” test articulated in Dynamex Operations West v. Superior Court, 4 Cal. 5th 903 (2018), applies retroactively; and (2) whether the Federal Aviation and Administration Authorization Act (“F4A“) preempts prong “B” of the ABC test. (See generally ECF No. 141.) On January 24, 2020, Judge Sammartino stayed this action pending the California Supreme Court‘s in Vazquez v. Jan-Pro Franchising International, Inc., No. S258191 (Cal. filed Sept. 26, 2019), and denied without prejudice the Parties’ cross-motions for partial summary judgment. (See generally ECF No. 166.)
On September 25, 2020, this action was transferred to the undersigned. (See generally ECF No. 167.) After Plaintiffs informed the Court that the California Supreme Court had issued a decision in Vazquez, (see generally ECF No. 168), the Court lifted the stay, (see generally ECF No. 169), and requested a Joint Status Report from the Parties. (See generally ECF No. 170.) Before the ordered deadline for the Joint States Report, Mr. Russell filed the instant Motions. (See generally ECF Nos. 171, 172.)
LEGAL STANDARD
Under
The initial burden of establishing the absence of a genuine issue of material fact falls on the moving party. Celotex, 477 U.S. at 323. The moving party may meet this burden by “identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact.” Id. “When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (quoting Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)).
Once the moving party satisfies this initial burden, the nonmoving party must identify specific facts showing that there is a genuine dispute for trial. Celotex, 477 U.S. at 324. This requires “more than simply show[ing] that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, to survive summary judgment, the nonmoving party must “go beyond the pleadings and by her own affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’ designate ‘specific facts’ that would allow a reasonable fact finder to return a verdict for the non-moving party.” Celotex, 477 U.S. at 324; see also Anderson, 477 U.S. at 248. Accordingly, the non-moving party cannot oppose a properly supported summary judgment motion by “rest[ing] upon mere allegations or denials of his pleading.” Anderson, 477 U.S. at 256.
Through the instant Motion, Mr. Russell seeks summary adjudication in his favor as to Defendants’ first and thirty-second affirmative defenses. (See Mot. at 2; ECF Nos. 171-1 & 173-23 (“Mem.“) at 1, 25; see also generally Mem. at 9-25.7) Defendants’ first affirmative defense provides that “Plaintiffs’ claims may not be properly maintained against Defendants because Defendants were never Plaintiffs’ employer, joint employer, or co-employer,” (Ans. at 13), while their thirty-second affirmative defense maintains that “Plaintiffs’ claims are preempted, in whole or in part, by the Federal Aviation Administration Authorization Act.” (Id. at 18.)
In evaluating Mr. Russell‘s Motion, the Court first determines whether the ABC Test articulated by the California Supreme Court in Dynamex, 4 Cal. 5th 903, and codified at
I. ABC Test or Borello Test
As an initial matter, the Court must determine whether the ABC Test or the Borello test applies to Mr. Russell‘s employment law claims. Mr. Russell contends that the ABC Test applies to all his claims, (see Mem. at 14-17), while Defendants contend that his
The Court first addresses Defendants’ retroactivity argument. (See id. at 11.) In Vazquez, the California Supreme Court clarified that the ABC Test articulated in ”Dynamex applies retroactively to all nonfinal cases [governed by wage orders] that predate the effective date of the Dynamex decision.” See 10 Cal. 5th at 958. Nonetheless, Defendants contend, based on Haitayan v. 7-Eleven, Inc., No. CV 17-7454 DSF (ASx), 2021 WL 757024 (C.D. Cal. Feb. 8, 2021), and Olson v. California, No. CV1910956DMGRAOX, 2020 WL 905572, at *12 (C.D. Cal. Feb. 10, 2020), that Assembly Bill 5, later codified as
The Court concludes that Mr. Russell‘s claims for expense reimbursement and waiting time penalties relate to wage orders such that the ABC Test applies to those claims. Mr. Russell urges that his waiting time claims relate to the work orders because they are derivative of his other labor-related claims. (See Mem. at 16 n.9; see also SAC ¶ 37 (alleging that penalties are merited because of Defendants’ failure to compensate Plaintiffs “for all hours worked, failing to adequately compensate for meal and rest breaks, [and] failing to pay overtime premium pay“).) Defendants’ own cases support that the ABC Test
II. Preemption Arguments
Defendants next contend that Mr. Russell cannot prevail under the ABC Test because it is preempted by the F4A, (see Opp‘n at 3-9 (discussing Defendants’ thirty-second affirmative defense)), and under the Federal Trade Commission Franchise Rule (“FTC Franchise Rule“),
A. Thirty-Second Affirmative Defense: F4A Preemption
For their thirty-second affirmative defense, Defendants assert that “Plaintiffs’ claims are preempted, in whole or in part, by the Federal Aviation Administration Authorization Act.” (See Ans. at 18.) Mr. Russell raises several arguments against F4A preemption, (see Mem. at 17-24), and Defendants respond that his arguments were rejected in California Trucking Association v. Becerra, 433 F. Supp. 3d 1154 (S.D. Cal. 2020) (Benitez, J.), and “there is, at a minimum, a triable issue of fact given that Judge Benitez entered a state-wide order enjoining the enforcement of the ABC test as to motor carriers.” (See Opp‘n at 9 (citing Cal. Trucking Ass‘n v. Becerra, 433 F. Supp. 3d at 1171).)
But “once a federal circuit court issues a decision, the district courts within that circuit are bound to follow it and have no authority to await a ruling by the Supreme Court before applying the circuit court‘s decision as binding authority[.]” Yong v. I.N.S., 208 F.3d 1116, 1119 n.2 (9th Cir. 2000) (citing McClellan v. Young, 421 F.2d 690, 691 (6th Cir. 1970)). This is true even when, as here, see Order, Cal. Trucking Ass‘n v. Bonta, No. 20-55106 (9th Cir. filed June 23, 2021), ECF No. 113, the Ninth Circuit has stayed the mandate to offer an opportunity to petition for review of the decision. See In re Zermeno-Gomez, 868 F.3d 1048, 1050-53 (9th Cir. 2017) (concluding that district court committed clear error and ordering the district court to comply with a published decision issued by the Ninth Circuit despite the fact that the mandate had been stayed to allow the government to seek en banc review or to petition for a writ of certiorari). Accordingly, the Court concludes that California Trucking Association v. Bonta is determinative, GRANTS Mr. Russell‘s Motion, and DISMISSES Defendants’ thirty-second affirmative defense that the ABC Test is preempted by the F4A as to Mr. Russell.
Before the Court may proceed to analyze Defendants’ first affirmative defense, the Court also must address Defendants’ additional preemption arguments, namely, that “applying the ABC Test is preempted by the Federal Trade Commission Franchise Rule and the Lanham Act” because Plaintiffs are franchisees. (See Opp‘n at 9-11.) Specifically, Defendants argue, the FTC Franchise Rule requires a “franchisor . . . to exert a significant degree of control over the franchisee‘s method of Operation,” (see Opp‘n at 10 (quoting
In Vazquez, the Ninth Circuit held that “the franchise context does not alter the Dynamex analysis.” See 986 F.3d at 1124. Although highly persuasive, the Ninth Circuit in Vazquez was not confronted with the preemption arguments that are currently before the Court. “Federal preemption occurs when: (1) Congress enacts a statute that explicitly pre-empts state law; (2) state law actually conflicts with federal law; or (3) federal law occupies a legislative field to such an extent that it is reasonable to conclude that Congress left no room for state regulation in that field.” CTIA - Wireless Ass‘n v. City of Berkeley, 928 F.3d 832, 849 (9th Cir. 2019). Defendants appear to invoke conflict preemption. (See Opp‘n at 9-11 (arguing that it is “impossible to reconcile” the FTC Franchise Rule and Lanham Act with California‘s ABC Test).) To determine whether the ABC Test conflicts with the FTC Franchise Rule and Lanham Act, the Court must focus on Congress‘s intent and “begin with the presumption that Congress did not intend to
First, Defendants fail to identify any actual conflict between the ABC Test and the FTC Franchise Rule or Lanham Act. Not only do Defendants rely only on the definitional provisions of the FTC Franchise Rule and Lanham Act, (see Opp‘n at 10 (citing
Second, neither the FTC Franchise Rule nor the Lanham Act evidences a “clear and manifest purpose of Congress” to preempt state labor law. Rather, Part 436 of Title 16 of
Because Defendants have failed to demonstrate that the ABC Test is preempted by either the F4A, the FTC Franchise Rule, or the Lanham Act, the Court will apply the ABC Test to evaluate Defendants’ first affirmative defense.
III. First Affirmative Defense: Employment Status
Defendants’ first affirmative defense is that “Plaintiffs’ claims may not be properly maintained against Defendants because Defendants were never Plaintiffs’ employer, joint employer, or co-employer.” (See Ans. at 13.) Mr. Russell contends that he is entitled to summary adjudication because Defendants are unable to meet their burden of raising a genuine issue of material fact as to his employment status under either the ABC Test or the alternate Borello test. (See generally Mem. at 9-14, 24-25.)
The Court has already determined that the ABC Test applies to Mr. Russell‘s claims. (See supra Sections I-II.) Pursuant to California‘s ABC Test,
[A] person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity‘s business. (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Prong B requires Defendants to establish that Mr. Russell “performs work that is outside the usual course of [Defendants‘] business.” See
Defendants contend that there are factual disputes related to the first and third factors under Prong B that prevent summary adjudication, and that there also exist factual disputes about the relationship between Mr. Russell and FF. (See Opp‘n at 13-14.) With regard to the first factor, Defendants argue that Mr. Russell‘s own Memorandum reveals his belief that Defendants are in the “baking business,” while he is in the transportation or delivery business. (See id. at 14 (citing Mem. at 1, 5, 10, 11, 21, 22).) According to Defendants, “[i]f Russell could conclude that he is in the transportation business and Defendants are in the baking business, a juror could do the same.” (See id. (citing Parmer Decl. ¶ 12(a)).) The Court finds this argument disingenuous—while Mr. Russell may concede that Defendants manufacture baked goods, he also contends that Defendants’ business is not so limited, additionally encompassing sales, delivery, and merchandising. (See Mem. at 10-12.)
Defendants also argue that they are “indifferent to how much work Distributors do . . . and how they perform their work.” (See Opp‘n at 15 (citing Parmer Decl. ¶ 12(a)).) The Court agrees that Defendants “misrepresent Mr. Parmer‘s declaration to make this claim.” (See Reply at 4.) Paragraph 12(a) of the Parmer Declaration provides only that “Mr. Russell could exercise his rights under the DA to hire others to distribute products for him, without prior approval from Flowers. As a result, Mr. Russell could work five days a week, or two days, or no days. It was all up to him.” (Parmer Decl. ¶ 12(a).) Even if true, this does not support that Defendants were “indifferent” to the amount or end results of their Distributors’ labor. Indeed, Mr. Russell responds that this argument is “absurd” because “most Flowers’ business flows through its DSD segment . . . ; Flowers contractually promises that it will put its products on large retail shelves and service these retail customers . . . ; Flowers can and will discipline distributors for not meeting performance obligations it owes to its customers . . . ; Flowers personally operates territories and carries out the same work as distributors . . . ; and Flowers operates
The Court agrees that the undisputed facts demonstrate that Distributors’ work was necessary to Defendants’ business. Defendants’ DSD segment accounted for 85 percent of their sales for Fiscal Year 2017, or approximately $3.3 billion of $3.9 billion in total sales over that period. (See Ex. A at 1.) In their “Investor Fact Sheet,” Defendants identified their “distributor partners” as part of their “core business.” (See id. at 4 (emphasis in original).) Defendants’ top 25 customers account for approximately three-quarters of their revenue, (see Ex. J at 3), and it is Defendants that negotiate and sign contracts with these large chain accounts. (See Parmer Decl. ¶ 15; Ex. H (Wal-Mart “Supplier Agreement” with “Flowers Bakeries LLC“); Ex. K (Sonic Industries Services Inc. and Sonic Capital LLC “Product Agreement” with “Flowers Foods Foodservice Sales, LLC“).) These large customers decide the products they will stock, the price they will pay, and the shelf space they will allocate. (See Parmer Decl. ¶ 15; see also Ex. N at 10 (internal accounting memorandum recognizing that “[t]he [Distributor] does not set prices, incentives, or advertising with the reseller” for pay-by-scan transactions), 11-12 (same for authorized credit transactions).) It is Defendants who contract to sell and deliver their products to these customers, (see, e.g., Ex. H at 1; Ex. K at 8), who therefore view Defendants, not their Distributors, as their “vendor.” (See Ex. N. at 9, 11.) Consequently, when Distributors fail to perform under Defendants’ contracts, Defendants may use their own employees to fulfill those duties,11 (see, e.g., Ex. JJ at 249:14-250:13; Ex. JJ at 8), and may even terminate a Distributor within 24-hours if their “failure of performance . . . threatens to do substantial harm to COMPANY‘s business, trademarks or reputation, including, but not limited to, any action or inaction on DISTRIBUTOR‘s part that results in DISTRIBUTOR‘s inability to service any Chain account.” (See Ex. L § 17.3; see also
As for the third factor, Defendants contend that they “make clear that they manufacture products and use independent Distributors to deliver them.” (See Opp‘n at 17.) Defendants also identify three exhibits Mr. Russell filed that “state that Defendants are not in the delivery business.” (See id. (citing Exs. A, B, V).) A review of these exhibits, however, reveals that Defendants hold themselves out as more than a mere manufacturer of baked goods. Exhibit A, for example, is a printout from the “Flowers Foods At-A-Glance” tab of FF‘s website. (See Ex. A at 2-3.) On that page, FF advertises that it “produces and markets bakery products in the United States,” and that “[i]t operates through two segments, Direct-Store-Delivery (DSD) and Warehouse Delivery.” (See id. at 2; see also Ex. QQ (“The company has two business segments that reflect its two distinct methods of delivering products to market.“).) While FF routinely mentions that the DSD segment “sells its products through a network of independent distributors to retail and foodservice customers,” (see, e.g., Ex. A at 2), that FF uses purportedly independent distributors does not mean that FF does not also hold itself out as a distributor of its Products. (See id.) FF‘s “Business Overview” on its “Flowers Foods At-A-Glance” webpage, for example, includes a pie chart for “Distribution,” showing that DSD accounts for approximately 85% of FF‘s distribution-related business. (See id.) The website also shows a map of the United States with “Flowers Foods Bakery Locations/Market Territory,” which depicts FF‘s sizeable “fresh (DSD) market distribution.” (See id. at 2-3.) Exhibit A also includes an “Investor Fact Sheet,” which identifies FF‘s “Business” as a “producer and marketer of packaged bakery foods in the U.S.,” and defines its “Market” as “[r]etail and foodservice,” with sales of its “[f]resh bakery foods to 85% of
The other exhibits identified by Defendants, Exhibits B and V, are publicly filed and available SEC filings: Exhibit B is FF‘s Form 10-Q quarterly report for the period ending April 21, 2018, (see generally Ex. B), and Exhibit V is FF‘s Form 10-K annual report for the fiscal year ended December 28, 2013. (See generally Ex. V.) In these filings, much as on its website and in its investor materials, FF describes itself as a national “producer and marketer of . . . bakery” products. (See, e.g., Ex. B at 8, 41; Ex. V at 5.) But also as in Exhibit A, FF advertises that it is more than a bakery. For example, FF notes that its “business is managed based on delivery method of [its] products and [FF] ha[s] two operating segments,” the DSD and Warehouse Delivery segments. (See Ex. B at 41; see also id. at 8; Ex. QQ at 23 (“The design of our delivery systems and segments permits us to allocate management time and resources to meet marketplace expectations.“).) FF acknowledges the importance of its “relationships with [its] retail and foodservice customers,” (see Ex. V at 5), which “include mass merchandisers, supermarkets and other retailers, restaurants, quick-serve chains, food wholesalers, institutions, dollar stores, and vending companies.” (See id. at 7.) FF also represents that its products are “distribut[ed]” or “sold” “through a DSD . . . system,” (see id.; Ex. B at 8), and that FF itself personally operates 230 of its territories. (See Ex. QQ at 1.) Further, as a larger operation, FF “enjoy[s] . . . competitive advantages . . . , including greater brand awareness and economies of scale in purchasing, distribution, production, information technology, advertising and marketing.” (See Ex. V at 9; see also Ex. QQ (“Throughout our history, we have devoted significant resources to automate our production facilities and improve our distribution capabilities. We believe these investments have made us one of the most efficient producers of packaged bakery products in the United States.“).) While it is undisputed that Defendants hold themselves out as a producer and marketer of baked
Finally, Defendants contend that “[e]ven more factual issues are present because Plaintiff contends Flowers Foods, the ultimate parent, does not meet prong B. Flowers Foods provides overall direction to its subsidiaries and is not a party to the DA. How Flowers Foods’ business is allegedly aligned with Plaintiff‘s is replete with factual issues.” (See Opp‘n at 13-14.) The Ninth Circuit has recognized, however, that, “as a doctrinal matter, [FF] could be [Mr. Russell‘s] employer under the ABC test even though it is not a party to any contract with [Mr. Russell].” See Vazquez, 986 F.3d at 1124. This is because “[w]here a party is the agent of misclassification, it may be directly liable under [the ABC test], even where it utilizes a proxy to make arrangements with its employees.” Id. (quoting Depianti v. Jan-Pro Franchising Int‘l, Inc., 465 Mass. 607, 624 n.17 (2013)). Therefore, “[a]s long as the putative employee was providing a service to the hiring entity even indirectly, the hiring entity can fail the ABC test and be treated as an employer.” Id. (emphasis in original) (citing Depianti, 465 Mass. at 623-24).
Here, although Mr. Russell signed his DA with FBC California, (see Parmer Decl. ¶ 8; Ex. L), FF is the entity that owns the delivery routes, (see, e.g., Ex. V at 7 (“The company has sold the majority of these territories to independent distributors under long-term financing arrangements.“); see also Ex. QQ at 6, 49, F-9, F-16); finances the purchases and holds the distribution rights notes receivable, (see Ex. Q at 49, F-8-F-9, F-16); recognizes sales and administrative expenses related to its DSD segment, (see id. at 30-31, F-54); and negotiates contracts with retailers, particularly the big brands that make up the vast majority of FF‘s business that the Distributors then fulfill. (See id. at 5, 10.) Under these undisputed facts, the Distributors have provided a service to FF and, consequently, FF may be held directly liable for their misclassification despite the Distributors’ interactions with FF‘s intermediaries. See Vazquez, 986 F.3d at 1124.
IV. Motion to Seal
At Defendants’ insistence, (see Mot. to Seal at 2; ECF No. 172-2 (“Markley Decl.“) ¶¶ 26-27), Mr. Russell moves to file under seal twenty-two documents produced by Defendants (Exs. D, F, H-O, T, W-EE, JJ, NN), and those portions of his Memorandum referencing those documents. (Mot. to Seal at 3-5; Markley Decl. ¶¶ 2-23, 25.) All told, these documents comprise over 400 pages. (See generally ECF No. 173.) Mr. Russell explains that the Exhibits they move to file under seal were all designated “CONFIDENTIAL” by Defendants pursuant to the then-operative Protective Order entered in this action, ECF No. 19. (See Mot. to Seal at 2; see also Markley Decl. ¶ 24.) Defendants have provided no further legal authority for these documents to be filed under seal. (See Mot. to Seal at 2; Markley Decl. ¶¶ 24, 26-27; see also generally Docket.)
As the Court has previously informed the Parties, (see ECF No. 187), a party seeking to seal a judicial record bears the burden of overcoming the strong presumption of access. Foltz v. State Farm Mut. Auto Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003). “[1]he presumption of access is not rebutted where documents which are the subject of a protective order are filed with the court as attachments to summary judgment motions’ and . . . ‘to retain any protected status for documents attached to a summary judgment motion, the proponent must meet the compelling reasons standard and not the lesser good cause determination.” Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1177 (9th Cir. 2006) (internal quotation marks omitted) (quoting Foltz, 331 F.3d at 1135). Through no fault of his own, Mr. Russell cites only to the Protective Order as justification for sealing the documents filed in support of his Motion for Partial Summary Judgment, which is insufficient under Ninth Circuit precedent. The Court therefore DENIES WITHOUT PREJUDICE Mr. Russell‘s Motion to Seal (ECF No. 172).
In light of the foregoing, the Court GRANTS Mr. Russell‘s Motion for Partial Summary Judgment (ECF No. 171) and DISMISSES Defendants’ first and thirty-second affirmative defenses as to Mr. Russell. The Court also DENIES WITHOUT PREJUDICE Mr. Russell‘s Motion to Seal (ECF No. 172). Defendants MAY FILE a renewed motion to file under seal any documents for which “compelling reasons” exist within fourteen (14) days of the electronic docketing of this Order. Should Defendants elect not to file a renewed motion, Mr. Russell SHALL FILE PUBLICLY ECF No. 173 in its entirety within twenty-one (21) days of the electronic docketing of this Order.
IT IS SO ORDERED.
Dated: September 20, 2021
Honorable Todd W. Robinson
United States District Court
Notes
8. Cash Shortage and Breakage
No employer shall make any deduction from the wage or require any reimbursement from an employee for any cash shortage, breakage, or loss of equipment, unless it can be shown that the shortage, breakage, or loss is caused by a dishonest or willful act, or by the gross negligence of the employee.
9. Uniforms and Equipment
(A) When uniforms are required by the employer to be worn by the employee as a condition of employment, such uniforms shall be provided and maintained by the employer. The term “uniform” includes wearing apparel and accessories of distinctive design or color.
. . .
(B) When tools or equipment are required by the employer or are necessary to the performance of a job, such tools and equipment shall be provided and maintained by the employer, except that an employee whose wages are at least two (2) times the minimum wage provided herein may be required to provide and maintain hand tools and equipment customarily required by the trade or craft. This subsection (B) shall not apply to apprentices regularly indentured under the State Division of Apprenticeship Standards.