California Trucking Association v. Becerra
Facts
California Governor Gavin Newsom signed the new California Assembly Bill 5 (AB-5) into law on September 18, 2019, and the law went into effect on January 1, 2020. This bill codified the ABC test, adopted from the case of Dynamex Operations West v. Superior Court. The ABC test replaced the original test from the California Supreme Court in S. G. Borello & Sons, Inc. v. Department of Industrial Relations. Both of these tests determine whether a worker is classified as an employee or an independent contractor. Under the original Borello test, the factors considered in this determination included the right to control work, whether the worker is engaged in a distinct occupation or business, the amount of supervision needed, the skill required, whether the worker supplies the tools needed, the length of time for which those services are to be performed, the method of payment, whether the work is part of the regular business of the principal, and whether the parties believe that they are creating an employer-employee relationship. The new AB-5 bill codified Dynamex and presumes that an owner-operator is an employee unless the motor carrier can establish all three of the following requirements:
(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.
This new law includes some exceptions that were not a part of the Dynamex test, including the “business-to-business contracting relationship” exception. The statute finally provides that if the three-part test is deemed to be inapplicable, then the Borello test applies to determine whether an entity is an employee or an independent contractor.
In anticipation of the AB-5 law going into effect in 2020, the California Trucking Association (CTA) filed a motion for a preliminary injunction on December 2, 2019. Subsequently, the CTA filed a motion for a temporary restraining order when the court continued the hearing to a later date. The court granted the motion for a temporary restraining order, restricting the enforcement of the AB-5 law on any motor carrier operating in California until the court resolved the motion for a preliminary injunction. The Court held the hearing for the CTA’s motion for a preliminary injunction on January 13, 2020.
Discussion
The Court decided two issues in this case: (1) whether the CTA had Article III standing to request a preliminary injunction; and (2) whether the CTA is entitled to a preliminary injunction to stop the enforcement of the AB-5 law. To obtain a preliminary injunction, the plaintiffs must establish that (1) they are likely to succeed to the merits; (2) they will suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in their favor; and (4) an injunction is in the public interest. In the alternative, “serious questions going to the merits” and a balance of hardship that tips sharply towards the plaintiffs also supports the issuance of a preliminary injunction if the plaintiffs show that there is a likelihood of irreparable injury and that the injunction is in the public interest.
In showing the likelihood of success on the merits, the CTA argued that the FAAAA preempted the AB-5 Bill. Congress included an express preemption provision in the FAAAA stating that states may not enact or enforce any law, regulation, or other provision that has the force and effect of law related to a price, route, or service of any motor carrier regarding the transportation of property. This preemption is broad, since “related to” refers to any state law “having a connection with or reference to” carrier rates, routes, or services (whether the connection is direct or indirect). The issue of whether the FAAAA preempted the AB-5 law and the ABC test was a novel issue for the Ninth Circuit, although other Ninth Circuit case law suggested that the answer to this issue is “yes.” In addition, the court cited to cases from other circuits that held that the FAAAA preempted parts of the ABC test. The court stated that the FAAAA likely preempts AB-5 since the law prevents motor carriers from exercising their freedom to choose between using independent contractors or employees. For example, Prong B of the test requires motor carriers to reclassify any independent-contractor drivers as employee-drivers under the California Labor Code, the Industrial Welfare Commission wage orders, and the Unemployment Insurance Code. Citing to a case decided by the Los Angeles Superior Court, the ABC test “has a significant, impermissible effect on motor carriers’ ‘prices, routes, and services,’ and thus, is preempted by the FAAAA.” Since the AB-5 law’s ABC test has more than a “tenuous, remote, or peripheral” impact on motor carriers’ prices, routes, or services, the CTA properly showed that a likelihood of success on the merits existed as to their FAAAA preemption challenge.
The CTA next argued that the AB-5 law would subject them to facing the risk of governmental enforcement actions and criminal and civil penalties in showing the likelihood of irreparable harm. Here, the court found that motor carriers were subject to a Hobson’s choice. In other words, motor carriers that wish to offer their same services to customers in California can only do so by using employee drivers. This would require restricting their business models, obtaining trucks, hiring and training employee drivers, and establishing administrative infrastructure that complies with AB-5. Therefore, motor carriers have no choice but to comply with the AB-5 law or face criminal and civil penalties. The court concluded that the CTA met its burden in proving a likelihood of irreparable harm.
Finally, the court found that the hardships faced by the CTA significantly outweighed the hardships faced by the defendants because the AB-5 law’s application would result in the violations of the Constitution. The court noted that, while the defendants have an interest in preventing misclassification of workers as independent contractors, the defendants’ interest is outweighed by the fact that California has numerous laws and regulations that serve to protect workers classified as employees. Without the ABC test, the Borello standard will continue to apply. The court also found that the public interest supports the issuance of a preliminary injunction. While the California legislature has an interest in protecting misclassified workers, this interest must be balanced against the public interest that is inherent in Congress’s decision to deregulate the motor carrier industry and the Constitution’s declaration that federal law is supreme. The public interest thus militates in favor of the CTA.
The court granted the CTA’s motion for a preliminary injunction and ordered several California officials temporarily enjoined from enforcing the AB-5 law until the rendering of a final judgment in the case.
California Trucking Association v. Bonta
After the decision rendered above, the state of California and the International Brothers of Teamsters (IBT) timely appealed. The Ninth Circuit considered the issues of whether the court erred in finding whether the CTA had standing to bring a challenge to the AB-5 law and whether the lower court abused its discretion in enjoining the state form enforcing AB-5 against motor carriers doing business in California. The Ninth Circuit found that the lower court correctly held that the CTA had standing to challenge the AB-5 law.
Although the Ninth Circuit agreed that the CTA had standing to present their challenge to the AB-5, the Court did not agree that the FAAAA preempted the AB-5 law. First, the Ninth Circuit found that AB-5 is a generally applicable law since it applies to all employers generally. It does not single out motor carriers; it only affects them solely in their capacity as employers. Next, the Ninth Circuit determined that AB-5 only compels a particular result at the level of a motor carrier’s relationship with its workforce, rather than in a motor carrier’s relationship with consumers. It does not freeze into place a particular price, route, or service that a carrier does not provide. Based on this reasoning, the Ninth Circuit ultimately held that the AB-5 only had a “tenuous, remote, or peripheral connection to rates, routes, or services.” Thus, the AB-5 is not preempted by the FAAAA.
Furthermore, the Ninth Circuit added that laws that impose an indirect effect on prices, routes, or services are not preempted by the FAAAA. In addition, the court held that the AB-5 does not require an employer to hire employees, rather than independent contractors. Since no legislative history exists that supports the argument posited by the CTA that the FAAAA preempts the AB-5, the Ninth Circuit held that the district court erred by enjoining the state from enforcing AB-5 against motor carriers operating in California. It reversed the lower court decision.
Judge Bennett dissented from the majority decision, stating that because the AB-5 affects motor carriers’ relationships with their workers and significantly impacts the services motor carriers are able to provide to their customers, it is preempted by the FAAAA. First, Judge Bennett stated that, despite Ninth Circuit precedent, the majority incorrectly characterized dicta from Miller v. C. H. Robinson Worldwide, Inc. to state that the FAAAA does not prohibit California from enforcing normal background rules applying to employers doing business in California. Judge Bennett argued that Miller only reaffirmed that “related to” in the FAAAA refers to state laws that have a connection with or reference to rates, routes, or services, whether that connection be direct or indirect. According to Judge Bennett, Miller held that, when a generally applicable law that aimed to hold a motor carrier liable at the point at which it provides a service to its customers, the state law is directly connected with a motor carrier’s service and is preempted.
Continuing this logic, Judge Bennett then stated that the AB-5 sought to interfere with motor carriers’ operations at the point at which they provide a service to their customers like in Miller. The AB-5 mandates the very means by which CTA members must provide transportation services to their customers. It also requires motor carriers to use their employees rather than independent contractors as drivers. This ruling significantly impacts CTA members’ relationships with their workers and the services that CTA members provide their customers. Judge Bennett agreed with the district court that motor carriers would need to reclassify all independent-contractor drivers as employee-drivers for all purposes under the California Labor Code, the Industrial Welfare Commission wage orders, and the Unemployment Insurance Code.
Judge Bennett pointed out that the record established that the AB-5 will have a significant impact on motor carriers’ services to their customers because it will diminish the specialized transportation services that motor carriers would provide through independent contractor drivers. Based on testimony from an officer of one of CTA’s members, Judge Bennett explained that many of the individual owner-operators invested in specialized equipment and obtained skills to operate that equipment in an efficient manner. Thus, the lack of specialized operators would deprive consumers of certain services. Many consumers depend on motor carriers to hire independent contractors to transport unwieldy, hazardous, or unusual goods that are not usually transported with typical trucks and equipment.
Secondly, the record demonstrated that the AB-5 will eliminate motor carriers’ flexibility to accommodate fluctuations in supply and demand by requiring motor carriers to hire employee drivers. Evidence presented at trial showed that employer driver fleets could not expand and contract as easily in times of plenty and times of shortages like owner-operator fleets. Hiring only employee drivers would limit motor carriers to only obtain just enough equipment and employee drivers to meet typical demand. Judge Bennett then mentioned that the majority misunderstood his argument as meaning that the AB-5’s impact is so significant that it indirectly determines services. Rather, Judge Bennett clarified that, in his opinion, the AB-5 determines the means of providing those services, which significantly impacts them and triggers FAAAA preemption. Additionally, while the majority stated that there is no Ninth Circuit precedent where a generally applicable law was subject to FAAAA preemption, Judge Bennett states that the Ninth Circuit supported his position that an “all or nothing” rule requiring the use of employees rather than independent contractors is preempted by the FAAAA. In addition, other circuits have also held that “all or nothing” rules like the AB-5 law in California are preempted.
Finally, Judge Bennett said that the majority’s holding undermined the balance of state and federal power and created an unnecessary circuit split. He opined that bind precedent from the Supreme Court and the Ninth Circuit compelled the conclusion that the AB-5 is preempted as applied to the CTA’s members.
Other Circuits Ruling Contrary to Ninth Circuit
Seventh Circuit Finds That FAAAA Preempts Personal Injury Claims Against Brokers
In a recent Seventh Circuit case, Ye v. GlobalTranz Enterprises, Inc., GlobalTranz Enterprises, Inc., the freight broker, hired/selected a motor carrier, Global Sunrise, Inc., to transport a load from Illinois to Texas. Global Sunrise was involved in an accident with a motorcyclist, and his wife filed a wrongful death lawsuit against numerous defendants, including GlobalTranz, claiming that it negligently hired/selected Global Sunrise and that GlobalTranz was vicariously liable for Global Sunrise and its driver’s underlying negligence.
GlobalTranz filed a motion to dismiss, and the U.S. District Court for the Northern District of Illinois granted GlobalTranz’s motion to dismiss as to plaintiff’s negligent hiring/selection claim on the basis that the FAAAA preempted this claim and that the “safety exception” did not apply. Though the Northern District denied the motion to dismiss as to plaintiff’s vicarious liability claim, it ultimately granted GlobalTranz summary judgment on this claim.
The plaintiff appealed, but Seventh Circuit affirmed, finding that the plaintiff’s claim for negligent hiring/selection was preempted by the FAAAA and not saved by the “safety exception.” The appellate court concluded that the “safety exception” did not apply because “a common law negligence claim enforced against a broker is not a law that is ‘with respect to motor vehicles’” and “the relationship between brokers and motor vehicle safety will be indirect, at most” as it is the motor carrier who is responsible for its drivers and its vehicles. Additionally, the Seventh Circuit expressly criticized the Ninth Circuit’s decision in Miller v. C.H. Robinson Worldwide, Inc., 976 F.3d 1016, 1020 (9th Cir. 2020), which found that the “safety exception” applies to personal injury claims against a freight broker.
The Eleventh Circuit Holds the FAAAA Preempts Negligence Claims Against Brokers
In Aspen American Insurance Co. v. Landstar Ranger, Inc., the Eleventh Circuit affirmed the district court’s granting of the freight broker’s motion to dismiss on the basis that the FAAAA preempted the claim for negligent selection and that the “safety exception” did not apply. Aspen alleged that transportation broker Landstar should be liable for its role in brokering a load that was ultimately stolen by an imposter motor carrier who made off with a truckload of over $600,000 of cell phone cases. Landstar argued that the negligence claims were preempted by the FAAAA, which was enacted by Congress to prohibit the states from reregulating trucking and enforcing state laws or common laws that relate to the prices, routes, or services of a broker with respect to the transportation of property.
The Eleventh Circuit wrote:
Indeed, Aspen itself acknowledges that “the broker has but a single job—to select a reputable carrier for the transportation of the shipment. That’s all.” And this is precisely the brokerage service that Aspen’s negligence claims challenge—Landstar’s allegedly inadequate selection of a motor carrier to transport Tessco’s shipment. Accordingly, these claims have “a connection with or reference to” the service of a broker with respect to the transportation of property.
Furthermore, cases which have found these types of negligent hiring/selection claims to be outside the scope of the FAAAA’s preemptive scope are incompatible with the U.S. Supreme Court’s holding in Morales v. Trans World Airlines, Inc., which broadly defined the scope of the preemptive language at issue in the case. Specifically,
We realize that some district courts have held claims like Aspen’s to be outside the scope of FAAAA preemption on the ground that such claims “are generally applicable state common law causes of action” that “are not targeted or directed at the trucking industry. . . . But those decisions are incompatible with Morales . . . .
The Eleventh Circuit then held that the FAAAA’s Safety Exception, which Aspen lobbied for, did not apply to the claims before the court because the claims were not “with respect to motor vehicles.” The court wrote:
[I]f an indirect connection between a state law and a motor vehicle satisfied the safety exception, then the phrase “with respect to motor vehicles” would have no meaningful operative effect. . . . [A] mere indirect connection between state regulations and motor vehicles will not invoke the FAAAA’s safety exception.
Fifth Circuit Cases on FAAAA Preemption
While no Fifth Circuit cases have considered the issue of FAAAA preemption of state law claims, recent federal district court cases within the Fifth Circuit have addressed this issue.
Gillum v. High Standard, LLC
In Gillum, a tractor trailer driven by Micah Underwood (Underwood) struck the plaintiff’s vehicle. In response to the accident, the plaintiff instituted suit against Underwood, two motor carriers, High Standard and Double Down Trucking (Double Down), and the freight broker Danco Transport (Danco). The plaintiff asserted claims of negligence, gross negligence, and negligence per se against Underwood. He also asserted claims of negligent entrustment and hiring/training claims against the motor carriers. Finally, the plaintiff brought negligence claims against Danco under a respondeat superior theory and negligent hiring, retention, entrustment, and/or agency under the theory that Danco negligently selected motor carriers who were careless in their selection and training of the driver. After the filing of the original petition in Texas state court, Danco removed the action to federal court and asserted federal question jurisdiction based on complete preemption under the FAAAA.
In response to the plaintiff motion to remand, the court found federal question jurisdiction based on complete preemption under the FAAAA. In doing so, the court held the doctrine of complete preemption serves as an exception to the well-pleaded complaint rule, stating, “When the federal statute completely preempts the state-law cause of action, a claim which comes within the scope of that action, even if pleaded in terms of state law, is in reality based on federal law.” The court noted that federal question jurisdiction based on such preemption exists when Congress completely preempts a particular area such that any civil complaint raising this select group of claims is necessarily federal in character. The court found that the plaintiff’s claims against Danco went to the very core of what being a careful broker entails—“arranging for the transportation of property between motor carriers.”
Finally, the court noted that even the plaintiff’s own petition acknowledged that Danco’s alleged duty to the plaintiff arose from Danco’s services as a truck broker. Thus, the plaintiff sought to enforce a duty of care that is related to how Danco arranged for the transportation of property between High Standard and Double Down, and, since the lawsuit covers the “services” that Danco provides, it falls within the bounds of FAAAA preemption. The court held that the claim directly implicated how the defendant “performs its central function of hiring motor carriers” and will therefore “have a significant economic impact” on Danco’s services that is not tenuous, remote, or peripheral.
Zamorano v. Zyna LLC
The case of Zamorano addressed a similar set of facts and reached a similar result as Gillum. In this case, a motor vehicle collision occurred in which a commercial vehicle, operated by John Hayes, Jr. (Hayes), crashed into another vehicle operated by a non-party. The plaintiff then crashed into one or both vehicles. After the impact from the collision, another vehicle hit the plaintiff from behind. The plaintiff made several allegations rooted in negligence against the defendants in the case. Specifically, the plaintiff brought claims under theories of respondeat superior, negligent hiring, entrustment, negligent training and supervision, retention, and failing to ensure driver qualifications, and gross negligence against J.W. Logistics Operations, LLC (JWLO). JWLO removed the case to federal court on the basis of federal question jurisdiction and subsequently moved to dismiss the case under Rule 12(b)(6), arguing that the FAAAA completely preempted the plaintiff’s claims.
The court agreed, holding that the claims “relat[ed] to . . . services of any . . . broker.” The Court found that JWLO was a broker—a point the plaintiff admitted in the complaint. Like in Gillum, the entire basis of the plaintiff’s claims against JWLO was that JWLO “had a duty to ensure the companies it retained, referred or provided the work used due care to hire competent and safe drivers to perform the services offered. . . .” Citing Gillum, the court found that these factors go to the core of what it means to be a careful broker. The court concluded that the plaintiff sought to hold JWLO to a standard of care that requires more than federal law does, which is exactly what the FAAAA sought to avoid by deregulating the surface transportation industry.
While Gillum and Zamorano follow the result of Becerra, other cases within the Fifth Circuit follow Bonta.
Bertram v. Progressive Southeastern Insurance Co.
In Bertram, a tractor trailer operated by Justin Chong (Chong) experienced a tire blow-out while on Interstate 10. Chong lost control of the truck and trailer because of the blowout and crossed over into the westbound travel lanes, hitting two vehicles. The plaintiffs filed suit on behalf of Mr. Bertram, who died due to the collision. Blue-Grace Logistics LLC (Blue-Grace) was the freight broker that operated under an agreement with Empire National, Inc. (Empire). In the plaintiffs’ third amended complaint, they alleged that Blue-Grace (i) negligently investigated, selected, and hired Empire; (ii) failed to exercise ordinary care in investigating Empire’s competence to transport goods in a commercial vehicle on the public roadways; and (iii) failed to exercise ordinary care in selecting Empire to transport goods in a commercial motor vehicle on the public roadways. Blue-Grace brought a motion to dismiss under Rule 12(b)(6) to dismiss the plaintiffs’ negligence claims, arguing that the claims are subject to FAAAA preemption.
The Bertram court ultimately held that the negligence claims were not preempted by the FAAAA because they were subject to the “safety-regulatory authority” exception. In doing so, the court noted that the selection of motor carriers is a core service of a broker, and, since the negligence claim sought to interfere at the point at which the broker arranges for transportation by motor carrier, it is directly connected with broker services. The court then noted that the FAAAA expressly provides that the preemption provision “shall not restrict the safety regulatory authority of a State with respect to motor vehicles.” The court was thus more persuaded by the Ninth Circuit’s rationale, which construed the “Safety-Regulatory Authority” exception as encompassing common-law tort claims. Since Congress’s purpose in enacting this safety exception was “to ensure that its preemption of States’ economic authority over [that industry] . . . not restrict the States’ existing power over safety,” the court explicitly declined to follow Gillum here.
Lopez v. Amazon Logistics, Inc
In yet another Texas case, Lopez v. Amazon Logistics, Inc., a Hino box truck operated by Timmie Turner (Turner) rear-ended Gustavo Lopez (Lopez) at a high speed. At the time of the accident, Turner was a carrier for Amazon Logistics, Inc. and Amazon Transportation Services, Inc. (Amazon) and was transporting and delivering items sold by Amazon. Lopez died from the injuries allegedly sustained from the accident. Plaintiffs initially filed suit in state court and alleged multiple state tort and statutory claims against several defendants. J.W. Logistics, LLC (J.W. Logistics) removed the case to federal court and asserted that the FAAAA preempted the state law tort claims and gave the federal court jurisdiction to hear the case.
The court held that, while the FAAAA did apply to the claims and to J.W. Logistics, the FAAAA did not preempt the claims brought by the plaintiff. Specifically, the court found that J.W. Logistics is a broker under the FAAAA based on its broker authority issued by the Federal Motor Carrier Safety Administration (of which the court took judicial notice). The court then noted Section 14501(c)(1) applied to the common law tort claims since the provision extends to state “law[s], regulation[s], or other provisions having the force and effect of law,” with the tort claims constituting “other provisions with the force of law” and, therefore, subject to FAAAA preemption. The court found, however, that the companion preemption clause in Section 14501(b) was not applicable because the provision specifically limits its preemptive scope to laws related to “intrastate rates, intrastate routes, or intrastate services of any freight forwarder or broker.” The plaintiff did not allege that J.W. Logistics offered any intrastate services or that the transportation in this case was intrastate rather than interstate.
In determining whether the tort claims fell within the ambit of Section 145601(c)(1), the court noted that the facts underlying the negligence claim were based on the driver’s operation of the vehicle and the personal injury allegedly caused by that operation, which differed from broker services, which entail the arrangement of transportation. Since the plaintiffs’ negligence claim implicated the operation and maintenance of the vehicle and the training and management of the driver, which are at best remotely related to the brokers’ proffered service of arranging for transportation, preemption did not apply. In contrast, the court found that the negligent-hiring claim did fall within the scope of Section 14501(c)(1) because this claim related to “core broker services” with respect to transportation. That said, the court further found that Section 14501(c)(2)’s preemption exception applied because, to the court, “safety regulatory authority” is not limited to state regulations. The court noted that Congress repeatedly used “regulation” in other provisions of chapter 14501, but it used “regulatory authority” in the safety exception, and found that divergence in Congress’s choice of words suggests that Congress made a deliberate choice to include “regulatory authority.” The court then noted that Supreme Court precedent shows that “regulatory authority” encompasses more than just regulations— “specifically, that a state’s ‘regulatory authority’ authorizes ‘other provisions having the force and effect of law,’ which includes common law claims.” The court concluded that a negligent-hiring claim in a personal injury case is an exercise of regulatory authority “with respect to motor vehicles,” and a claim seeking damages for personal injury against a broker for negligently placing an unsafe carrier on the highways is a claim that concerns motor vehicles and their safe operations.
Conclusion
As mentioned above, the Fifth Circuit has not yet decided a case concerning the issue of FAAAA preemption. The lower court cases discussed above, however, seem to suggest that, if a case does come before the Fifth Circuit soon, it could be decided either way. Some of the cases, such as Gillum and Zamorano, show that the Fifth Circuit could choose to affirm these decisions finding FAAAA preemption. If a statute similar to the AB-5 law was enacted in Texas or Louisiana, the court may declare it preempted by FAAAA in order to avoid having motor carriers completely reorganize their businesses and require additional training of their employees or face enforcement actions. Bertram, however, shows that the court could also choose to follow Ninth Circuit precedent and invoke the apparently broad Safety-Regulatory Authority exception to preemption, as was done in both Bertram and Lopez. In fact, in VRC LLC v. City of Dallas, the Fifth Circuit expressly stated that the safety regulatory exemption be given a board construction. Additionally, in Cole v. City of Dallas, the court “decline[d] to elasticize Congress’s economic goal by narrowly interpreting ‘safety regulatory authority of a State with respect to motor vehicles.’”
Regardless, the decision ultimately depends upon the Fifth Circuit’s interpretation of “related to” as that phase is used in the FAAAA. If the Fifth Circuit believes that having motor carriers reclassify their owner-operators as employees will have a direct connection to prices, routes, and/or services, it will likely find that such a statute is preempted. Additionally, the Fifth Circuit could also hold that FAAAA encompasses any connection, whether direct or indirect, to prices, routes, and/or services, and that any law similar to AB-5 should be preempted. In the alternative, as stated above, the Fifth Circuit could wish to avoid a circuit split on the subject and may simply follow Ninth Circuit precedent by stating that the impact of the law on prices, routes, and services is too remote.
