Massachusetts Delivery Associa v. Healey ( 2016 )

United States Court of Appeals
For the First Circuit
No. 15-1908
MASSACHUSETTS DELIVERY ASSOCIATION,
Plaintiff, Appellee,
v.
MAURA T. HEALEY, in her official capacity as
Attorney General of the Commonwealth of Massachusetts,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Howard, Chief Judge,
Selya and Lynch, Circuit Judges.
Douglas S. Martland, Assistant Attorney General, with whom
Maura Healey, Attorney General of Massachusetts, was on brief, for
appellant.
David C. Casey, with whom Christopher B. Kaczmarek, Stephen
T. Melnick, and Littler Mendelson, P.C. were on brief, for
appellee.
May 11, 2016
LYNCH, Circuit Judge. The question in this case is
whether the express preemption provision of the Federal Aviation
Administration Authorization Act of 1994 ("FAAAA"), 49 U.S.C.
§ 14501(c)(1), preempts the application of "Prong 2" of the
Massachusetts Independent Contractor Statute, Mass. Gen. Laws ch.
149, § 148B(a)(2), to the same-day delivery companies that
constitute the Massachusetts Delivery Association ("MDA"). This
court previously remanded this case to the district court for a
determination, on review of the full evidentiary record, of whether
Prong 2 is FAAAA-preempted because it "relate[s] to" the prices,
routes, or services of the motor carriers. Mass. Delivery Ass'n
v. Coakley (MDA II), 769 F.3d 11, 23 (1st Cir. 2014). On remand,
the district court, at summary judgment, answered in the
affirmative. Mass. Delivery Ass'n v. Healey, 117 F. Supp. 3d 86,
97–98 (D. Mass. 2015).
After the filing of the appeal in this case, this court
held in Schwann v. FedEx Ground Package System, Inc. that the FAAAA
preempts the application of Prong 21 to the nationwide package
delivery service FedEx. 813 F.3d 429, 432 (1st Cir. 2016).
Applying the reasoning in Schwann, we affirm.
1 An earlier appeal of this case referred to this
subsection as "Prong B." We now adopt the term "Prong 2," as used
in Schwann.
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I.
The MDA is a trade organization representing same-day
delivery service companies in Massachusetts. The MDA brought this
suit on behalf of its members, seeking a declaration that Prong 2
is preempted by the FAAAA as well as an injunction barring the
Attorney General from enforcing Prong 2 against its members. The
MDA chose one member, X Pressman Trucking & Courier, Inc.
("Xpressman"), as an exemplar for this litigation.
Xpressman offers its clients both scheduled-route and
on-demand deliveries. For scheduled-route deliveries, packages
are picked up and dropped off at regular times and places.
Xpressman's scheduled routes are serviced by forty-six couriers.
Xpressman selects scheduled-route couriers by soliciting bids
through online advertisements and awarding the route to whoever
advances the best bid. For on-demand deliveries, the times,
locations, and total number of deliveries are variable and
unpredictable. Each day, couriers provide Xpressman with their
availability to make on-demand deliveries, and Xpressman matches
on-demand delivery requests with available couriers. It was
represented to us at oral argument that up to a dozen couriers
submit their availability for on-demand deliveries each day and
that that number comprises different individuals from day to day.
Xpressman considers its couriers to be independent
contractors. Xpressman's couriers drive their own cars and trucks.
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They are paid for each route they complete and they do not receive
benefits such as health insurance, retirement, or workers'
compensation. Meanwhile, Xpressman has six full-time and two part-
time workers, whom Xpressman classifies as employees, for
administrative and warehouse duties. Those workers are paid on an
hourly or salary basis, and they receive benefits such as health
insurance, retirement, and workers' compensation.
The basic premise of the MDA's claim is that
Massachusetts law forces Xpressman and other MDA members to
designate their couriers as employees rather than as independent
contractors, as its member companies have classified them. The
relevant Massachusetts law is the Massachusetts Independent
Contractor Statute, Mass. Gen. Laws ch. 149, § 148B, which
establishes a three-prong test to determine who is an "employee"
for the purposes of Massachusetts General Laws Chapters 149 and
151. A worker is considered an employee rather than an independent
contractor unless the employer can meet all three prongs:
For the purpose of this chapter and chapter
151, an individual performing any service,
except as authorized under this chapter, shall
be considered to be an employee under those
chapters unless:
(1) the individual is free from control
and direction in connection with the
performance of the service, both under
his contract for the performance of
service and in fact; and
(2) the service is performed outside the
usual course of the business of the
employer; and,
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(3) the individual is customarily engaged
in an independently established trade,
occupation, profession or business of the
same nature as that involved in the
service performed.
Mass. Gen. Laws ch. 149, § 148B(a). The second requirement is
what we have termed "Prong 2." Schwann, 813 F.3d at 433. The MDA
claims that Prong 2's requirement that an independent contractor
only perform services "outside the usual course of the business of
the employer" makes it impossible for its member delivery companies
to treat their couriers as independent contractors. We recognized
in Schwann that this characteristic of Prong 2 -- that "it makes
any person who performs a service within the usual course of the
enterprise's business an employee" -- is "something of an anomaly"
among state wage laws. Id. at 438.
The MDA argues that because the application of Prong 2
would require its member companies to treat their couriers as
employees, the application of Prong 2 to its members is preempted
by the FAAAA. The FAAAA's express preemption provision states:
Except as provided in paragraphs (2) and (3),
a State, political subdivision of a State, or
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 (other than a carrier
affiliated with a direct air carrier covered
by section 41713(b)(4)) or any motor private
carrier, broker, or freight forwarder with
respect to the transportation of property.
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49 U.S.C. § 14501(c)(1) (emphases added). The MDA argues that by
requiring its member companies to treat their couriers as employees
rather than as independent contractors, the Massachusetts law
"relate[s] to" their prices, routes, or services and is FAAAA-
preempted.
The MDA filed this suit on September 7, 2010. On April
8, 2011, the district court dismissed the case on the basis of
abstention under Younger v. Harris, 401 U.S. 37 (1971). In the
first appeal in this case, this court reversed and remanded. Mass.
Delivery Ass'n v. Coakley (MDA I), 671 F.3d 33, 35 (1st Cir. 2012).
On remand, the parties filed cross-motions for summary
judgment. The district court denied the MDA's motion and allowed
the Attorney General's motion in part, holding that Prong 2 was
not preempted by the FAAAA. In the second appeal in this case,
this court vacated and remanded. MDA II, 769 F.3d at 23. We
instructed the district court on remand to determine, on a full
evidentiary record, id., whether Prong 2 "expressly references, or
has a significant impact on, carriers' prices, routes, or
services," id. at 17–18. In doing so, we "express[ed] no view on
the sufficiency of the evidence before the district court." Id.
at 22.
On remand, the parties renewed their cross-motions for
summary judgment. The MDA argued that Prong 2 was preempted both
as a matter of logical effect and by record evidence showing an
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impermissible significant impact on prices, routes, or services.
The Attorney General argued for summary judgment based on the lack
of any such significant impact. In the alternative, the Attorney
General argued that the MDA's motion for summary judgment should
be denied because of the existence of genuine issues of material
fact.
On July 8, 2015, the district court entered summary
judgment for the MDA and held that the FAAAA preempts Prong 2 as
to the members of the MDA as a matter of logical effect. Mass.
Delivery Ass'n, 117 F. Supp. 3d at 97–98. At the same time, the
district court denied the Attorney General's motion for summary
judgment. Id.
This appeal followed.
II.
We review the district court's grant of summary judgment
de novo, viewing the facts in the light most favorable to the non-
moving party. Flovac, Inc. v. Airvac, Inc., No. 15-1571, 2016 WL
1319274, at *2 (1st Cir. Apr. 4, 2016). Summary judgment is
appropriate when there is "no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law."
Fed. R. Civ. P. 56(a).
Recently, in Schwann, this court faced a suit by delivery
drivers who claimed that, under the same Massachusetts statute at
issue here, FedEx should have treated them as employees rather
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than as independent contractors. 813 F.3d at 432. We affirmed
the district court's holding that the FAAAA preempted the
application of the Prong 2 requirement to FedEx. Id.
Our analysis in Schwann began by recognizing that FAAAA
preemption is purposefully expansive and may occur even when the
state law has only an indirect effect on prices, routes, or
services. Id. at 436 (citing MDA II, 769 F.3d at 18). "[A] state
statute is preempted if it expressly references, or has a
significant impact on, carriers' prices, routes, or services."
Id. (quoting MDA II, 769 F.3d at 17–18); see also Morales v. Trans
World Airlines, Inc., 504 U.S. 374, 388 (1992). Significant impact
may be proven by "empirical evidence" or "the logical effect that
a particular scheme has on the delivery of services," or some
combination of each. Schwann, 813 F.3d at 437 (quoting MDA II,
769 F.3d at 21).
We concluded that the application of Prong 2 to FedEx
would both expressly reference and have a significant impact on
FedEx's prices, routes, or services. As to the former, we found
express reference because the application of Prong 2 to FedEx would
require "a judicial determination of the extent and types of motor
carrier services that FedEx provides" in order to determine whether
that service is within the usual course of business of FedEx. Id.
at 437–38.
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As to the latter, we found that the application of Prong
2 would have a significant impact, as a matter of logical effect,
on FedEx's services and routes. The application of Prong 2 would
logically have a significant impact on FedEx's services because it
would take away from FedEx "[t]he decision whether to provide a
service directly, with one's own employee, or to procure the
services of an independent contractor." Id. at 438. The
application of Prong 2 would deprive FedEx of the choice of
"providing for first-and-last mile pick-up and delivery services
through an independent person who bears the economic risk
associated with any inefficiencies in performance," id. at 439,
and as a result, "a court, rather than the market participant,
would ultimately determine what services that company provides and
how it chooses to provide them," id. at 438. We went on to conclude
that the application of Prong 2 would also have a logical effect
on FedEx's routes because it would not allow "delegat[ion of] the
precise design of the route to [a] contractor, who assume[s] the
risks and benefits of increased or decreased efficiencies achieved
by the selected routes." Id. at 439.
In Remington v. J.B. Hunt Transport, Inc., decided the
same day as Schwann, this court faced a challenge to the
application of Prong 2 to another freight and package delivery
company in Massachusetts. No. 15-1252 (1st Cir. Feb. 22, 2016).
Faced with arguments that "materially mirror[ed] those in
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Schwann," we concluded that as in Schwann, "application of Prong
2 to the independent-contractor drivers for J.B. Hunt is
preempted." Id., slip op. at 2.
The Attorney General asks us to reconsider Schwann,
saying that it was wrongly decided. But under the law of the
circuit doctrine, we are "bound by a prior panel decision, absent
any intervening authority." United States v. Mouscardy, 722 F.3d
68, 77 (1st Cir. 2013) (quoting United States v. Grupee, 682 F.3d
143, 149 (1st Cir. 2012)). The Attorney General points to no such
intervening authority. The decisions from other circuits that the
Attorney General argues are inconsistent with Schwann -- Costello
v. BeavEx, Inc., 810 F.3d 1045 (7th Cir. 2016), Amerijet
International, Inc. v. Miami-Dade County, 627 F. App'x 744 (11th
Cir. 2015) (per curiam), and Dilts v. Penske Logistics, LLC, 769
F.3d 637 (9th Cir. 2014) -- were already considered by this court
in Schwann. Those decisions were also raised in the petition for
rehearing and the petition for rehearing en banc in Schwann, which
were both denied.
Applying the reasoning in Schwann, we find that the FAAAA
preempts the application of Prong 2 to Xpressman. As in Schwann,
application of Prong 2 to Xpressman would require a judicial
determination of whether a particular service offered by Xpressman
fits within its usual course of business. See Schwann, 813 F.3d
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at 437–38. As such, Prong 2 expressly references Xpressman's
services.
Also, as in Schwann, application of Prong 2 to Xpressman
would logically have a significant effect on Xpressman's routes
and services. The Attorney General attempts to distinguish Schwann
on the basis that in Schwann, FedEx's relationship with its drivers
was governed by an Operating Agreement under which each contractor
acquired an exclusive and transferable interest in the customer
accounts located in particular FedEx delivery areas. Id. at 432.
By contrast, the Attorney General points out, Xpressman's couriers
do not operate under such agreements but are instead chosen by
bidding for routes in response to online advertisements.
It is true that FedEx's particular arrangement with its
drivers was significant to the Schwann decision. We recognized
that by relying on such an arrangement, FedEx gave drivers "an
economic incentive to keep costs low, to deliver packages
efficiently, and to provide excellent customer service." Id. at
439. We reasoned that the application of Prong 2, by preventing
FedEx from employing such an arrangement, would "substantially
restrain the free-market pursuit of perceived efficiencies and
competitive advantage" of such an arrangement and thereby dictate
"what services that company provides and how it chooses to provide
them." Id. at 438. Additionally, we concluded that preventing
FedEx from offering such economic incentives to drivers would
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logically be expected to have a significant impact on routes. Id.
at 439. In Remington, we concluded that the application of Prong
2 to the motor carrier J.B. Hunt would similarly deprive J.B. Hunt
of its pursuit of perceived efficiencies, even though J.B. Hunt's
particular arrangement with its drivers was different from that of
FedEx. Remington, slip op. at 2.
Xpressman does not use the same arrangement as either
FedEx or J.B. Hunt, but Schwann's reasoning applies nonetheless.
Like FedEx's drivers, Xpressman's couriers bear the expenses of
delivering packages and receive compensation based on the number
of packages delivered. As far as the record indicates, Xpressman's
couriers are free to decide what route to follow in making
deliveries, just as the FedEx drivers were. As such, Xpressman,
like FedEx, has structured its relationship with its couriers to
incentivize its couriers to keep costs low and to deliver packages
efficiently. See Schwann, 813 F.3d at 439. Further bolstering
such an incentive is Xpressman's competitive bidding system in
which routes are awarded to the couriers that submit the lowest
bids.
Application of Prong 2 to Xpressman would, as in Schwann,
deprive Xpressman of its choice of method of providing for delivery
services and incentivizing the persons providing those services.
As a matter of logic, such a restraint on Xpressman's pursuit of
perceived economic efficiencies "would ultimately determine what
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services that company provides and how it chooses to provide them."
Id. at 438. Likewise, application of Prong 2 would logically be
expected to have a significant impact on Xpressman's routes.
Applying the logic of Schwann, we hold that the
application of Prong 2 to the members of the MDA is preempted by
the FAAAA. We affirm.
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