Alejandro Lupian v. Joseph Cory Holdings LLC ( 2018 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 17-2346
_____________
ALEJANDRO LUPIAN; JUAN LUPIAN; JOSE REYES;
EFFRAIN LUCATERO; ISAIAS LUNA, individually and on
behalf of those similarly situated
v.
JOSEPH CORY HOLDINGS LLC,
Appellant
____________
On Appeal from the United States District Court for the
District of New Jersey
(D.C. No. 2:16-cv-05172)
District Judge: Hon. William J. Martini
Argued: February 7, 2018
Before: CHAGARES, SCIRICA, and COWEN, Circuit
Judges.
(Filed: September 27, 2018)
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
2
Berger & Montague, P.C.
1622 Locust Street
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.
____________
OPINION
____________
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
3
Payment and Collection Act (“IWPCA”), 820 Ill. Comp. Stat.
115/1–115/15. Joseph Cory moved to dismiss, arguing that the
Federal Aviation Administration Authorization Act of 1994
(“FAAAA”), Pub. L. No. 103-305, 108 Stat. 1569, 1606, 49
U.S.C. §§ 14501–06, preempts the IWPCA. The District
Court, inter alia, denied Joseph Cory’s motion, holding that the
FAAAA did not preempt the Drivers’ IWPCA claims. For the
reasons that follow, we will affirm the District Court’s order.
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 violated the
IWPCA’s wage-deduction provision, 820 Ill. Comp. Stat.
4
115/9.1 The Drivers’ complaint alleged a putative class action
under the Class Action Fairness Act of 2005 (“CAFA”), Pub.
L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28
U.S.C.), in which the Drivers would be the named plaintiffs.
Joseph Cory moved to dismiss the IWPCA claims under
Federal Rule of Civil Procedure 12(b)(6), arguing that the
FAAAA preempted the IWPCA. The District Court denied
Joseph Cory’s motion to dismiss, holding that, on its face, the
IWPCA’s connection to the FAAAA’s subject matter was too
attenuated to trigger preemption. Lupian v. Joseph Cory
Holdings, LLC, 240 F. Supp. 3d 309, 317 (D.N.J. 2017).2
The District Court certified its order for an interlocutory
appeal under 28 U.S.C. § 1292(b), and we granted Joseph
Cory’s petition to appeal the certified interlocutory order.3
1
The complaint alternatively alleged similar violations
of New Jersey law. The District Court determined that Illinois
law applied and dismissed the Drivers’ New Jersey law-based
claims. Lupian v. Joseph Cory Holdings, LLC, 240 F. Supp.
3d 309, 313–14 (D.N.J. 2017). On appeal, the parties do not
disagree that Illinois law should be applied, nor do we.
2
In addition to dismissing the counts in the complaint
alleging violations of New Jersey law, the District Court also
dismissed the count alleging unjust enrichment under Illinois
law. The Drivers do not contest these rulings on appeal.
3
The District Court exercised jurisdiction over this
matter pursuant to CAFA, 28 U.S.C. § 1332(d)(2). This Court
has jurisdiction under 28 U.S.C. § 1292(b), which permits
discretionary interlocutory review when a district judge
certifies that an order not otherwise appealable “involves a
controlling question of law as to which there is substantial
ground for difference of opinion and that an immediate appeal
5
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 Rule
12(b)(6) motion to dismiss based on an affirmative defense,4
as Joseph Cory seeks to do here, a defendant must show that
“the defense is ‘apparent on the face of the complaint’ and
documents relied on in the complaint.” Bohus v.
Restaurant.com, Inc., 784 F.3d 918, 923 n.2 (3d Cir. 2015)
(quoting Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014));
from the order may materially advance the ultimate
termination of the litigation.”
4
It has been suggested that the more appropriate
vehicles for determining whether a claim is preempted are a
motion for judgment on the pleadings under Federal Rule of
Civil Procedure 12(c) or a motion for summary judgment under
Federal Rule of Civil Procedure 56. See In re Asbestos Prods.
Liab. Litig. (No. VI), 822 F.3d at 133 n.6; Fisher v.
Halliburton, 667 F.3d 602, 609 (5th Cir. 2012).
6
see also Jones v. Bock, 549 U.S. 199, 215 (2007); Leveto v.
Lapina, 258 F.3d 156, 161 (3d Cir. 2001). Put another way,
dismissal is appropriate under Rule 12(b)(6) only when
“preemption is manifest in the complaint itself.” In re
Asbestos Prods. Liab. Litig., 822 F.3d at 133 n.6; see
also Simmons v. Sabine River Auth., 732 F.3d 469, 473 (5th
Cir. 2013).
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.” U.S. Const. art. VI. Thus, state
law “which interferes with or is contrary to federal law, must
yield.” Free v. Bland, 369 U.S. 663, 666 (1962). There are
three types of federal preemption: field preemption, implied
conflict preemption, and — as is relevant here — express
preemption. See Kurns v. A.W. Chesterson Inc., 620 F.3d 392,
395 (3d Cir. 2010). Express preemption requires a analysis of
whether “[s]tate action may be foreclosed by express language
in a congressional enactment.” Lorillard Tobacco Co. v.
Reilly, 533 U.S. 525, 541 (2001).
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
5
Joseph Cory argues that the Supreme Court no longer
applies the presumption against preemption in express
preemption cases, citing language in Puerto Rico v. Franklin
7
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,
Cal. Tax-Free Tr., 136 S. Ct. 1938, 1946 (2016). However, we
have determined that, because that decision, dealing with a
Bankruptcy Code provision, did not address claims involving
areas historically regulated by states, we would continue to
apply the presumption against preemption to express
preemption claims. Shuker v. Smith & Nephew, PLC, 885
F.3d 760, 771 n.9 (3d Cir. 2018). We note that we would reach
the same result in this case even if this presumption was not
applied.
6
See Travelers Ins. Co., 514 U.S. at 655; see also
Chamber of Commerce of U.S. v. Whiting, 563 U.S. 582, 594
(2011) (“[W]e ‘focus on the plain wording of the clause, which
necessarily contains the best evidence of Congress’ preemptive
8
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 Federal Aviation Act of 1958, Pub. L. No. 85–726, 72 Stat.
731 (codified at 49 U.S.C. §§ 1.01 et seq. (repealed)); see also
Taj Mahal Travel, Inc. v. Delta Airlines, Inc., 164 F.3d 186,
190 (3d Cir. 1998). Congress determined in 1978 that both
consumers and the economy would benefit from open
competition in the airline industry, especially in the areas of
rates and services, and that this could be achieved by economic
deregulation of the industry. Taj Mahal Travel, Inc., 164 F.3d
at 190–91 (citing 49 U.S.C. § 1302 (recodified as amended 49
U.S.C. § 40101)). As a result, the Airline Deregulation Act of
1978 (the “ADA”), Pub. L. No. 95-504, 92 Stat. 1705 (codified
at 49 U.S.C. §§ 40101, et seq.) was enacted. See Morales v.
Trans World Airlines, Inc., 504 U.S. 374, 378 (1992)
(“Congress, determining that ‘maximum reliance on
competitive market forces’ would best further ‘efficiency,
innovation and low prices’ as well as ‘variety [and] quality . . .
of air transportation services,’ enacted the [ADA].” (quoting
49 U.S.C. App. § 1302(a)(4) & (a)(9))). “To ensure that the
intent.’” (quoting CSX Transp., Inc. v. Easterwood, 507 U.S.
658, 664 (1993))).
9
States would not undo federal deregulation with regulation of
their own, the ADA included a pre-emption provision,
prohibiting the States from enforcing any law ‘relating to rates,
routes, or services’ of any air carrier.” Id. at 378–79 (quoting
49 U.S.C. App. § 1305(a)(1)).
The Motor Carrier Act of 1980, Pub. L. No. 96-296, 94
Stat. 793 (codified in scattered sections of 49 U.S.C.), similarly
deregulated the motor carrier industry, but it did not preempt
state regulation of the industry. Over the next fourteen years,
however, “[s]tate economic regulation of motor carrier
operations [had become] a huge problem for national and
regional carriers attempting to conduct a standard way of doing
business.” City of Columbus, 536 U.S. at 440 (quoting H.R.
Rep. No. 103-667, at 87 (1994) (Conf. Rep.)). Congress
addressed this concern in 1994 when it enacted the FAAAA,
which expressly preempted certain state regulation of the
trucking industry. The FAAAA preemption provision
provides, in pertinent part:
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.
10
49 U.S.C. § 14501(c)(1).7 This preemption clause borrows
from the language set forth in the ADA,8 although it does add
the qualifying phrase: “with respect to transportation of
property.” See Dan’s City Used Cars, Inc. v. Pelkey, 569 U.S.
251, 261 (2013) (quoting 49 U.S.C. § 14501(c)(1)). As
recognized by the Supreme Court, “[t]hat phrase ‘massively
limits the scope of preemption’ ordered by the FAAAA.” Id.
at 261 (quoting City of Columbus, 536 U.S. at 449 (Scalia, J.,
dissenting)).
2.
The IWPCA applies to all employees and employers in
the State of Illinois. 820 Ill. Comp. Stat. 115/1. An
“employee” is defined in the IWPCA as, inter alia, a person
who is permitted to work by an employer. Id. 115/2.9 The
IWPCA creates wage-related obligations for employers, such
as paying employees within certain time periods, id. 115/3–4,
paying separated employees, id. 115/5, contributing to
employee benefit trusts or funds, id. 115/8, notifying
employees about their rate of pay as well as the time and
7
The FAAAA preemption clause contains exceptions
not relevant here.
8
Because of the close similarity in language between the
ADA and FAAAA, courts rely upon interpretations of both
interchangeably. Rowe v. N.H. Motor Transp. Ass’n, 552 U.S.
364, 370 (2008).
9
Exceptions to the definition of employee are also
included in the IWPCA. See 820 Ill. Comp. Stat. 115/2.
Insofar as the Drivers’ allegation that they are employees must
be accepted as true in considering a motion to dismiss, we need
not consider these exceptions.
11
location of pay, id. 115/10, and paying damages for failing to
properly compensate employees, id. 115/14. The Drivers in
this case claim that Joseph Cory violated the provision of the
IWPCA that requires, in pertinent part:
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.
Id. 115/9.
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
12
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 that their tickets would not be honored because
they had been reported as stolen and that Delta had not received
the money that the customers paid. 164 F.3d at 188. We
reviewed the background of the ADA and noted that our
interpretation of the preemption clause began with the
presumption against preemption of state law. Id. at 192. That
presumption, we acknowledged, rests “on 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.” Id. (quoting Travelers Ins.
Co., 514 U.S. at 655). We then adopted the view “that the
preemption clause was intended to prevent states from re-
regulating airline operations so that competitive market forces
could function.” Id. at 194 (citing American Airlines, Inc. v.
Wolens, 513 U.S. 219 (1995); Charas v. Trans World Airlines,
Inc., 160 F.3d 1259, 1264–65 (9th Cir. 1998) (en banc)).
13
As a result, in Taj Mahal Travel, we framed the proper
inquiry as: “whether a common law tort remedy frustrates
deregulation by interfering with competition through public-
utility-style regulation.” 164 F.3d at 194; see also id. (“We
conclude that focusing on the competitive forces of the market
. . . leads to a more accurate assessment of Congressional
intent.”). If a state law does not have such a regulatory effect,
we determined, then the state law “is ‘too tenuous, remote or
peripheral’ to be preempted.” Id. (quoting Morales, 504 U.S.
at 390). Applying this inquiry, we held that the travel agency’s
defamation claim was not preempted by the ADA. Id. at 195.
We reasoned that “[a]pplication of state law in these
circumstances does not frustrate Congressional intent, nor does
it impose a state utility-like regulation on the airlines.” Id. We
concluded that the travel agency’s defamation suit was “simply
‘too tenuous, remote or peripheral’ to be subject to
preemption.” Id.
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 49 U.S.C. § 41713(b)(1)). Put another way, we
considered whether the state law employment claim “ha[d] a
14
‘forbidden significant effect’ upon The Air Group’s ‘service.’”
Id. We answered that question in the negative and held that
Gary’s claim — “properly viewed as comparable to a garden
variety employment claim,” id. at 189 — was not preempted
“because its connection to The Air Group’s ‘service of an air
carrier’, actual or potential [was] simply too remote and too
attenuated to fall within the scope of the [preemption clause].”
Id. In support of our holding, we noted that Gary did not
interrupt any flights or refuse any assignments and that his
actions did not result in the potential interruption of service.
Id.B.
We turn to applying the standards set forth above to
determine whether District Court properly denied Joseph
Cory’s Rule 12(b)(6) motion to dismiss on the basis that the
FAAAA did not preempt the Drivers’ claims under the
IWPCA.
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.” 49 U.S.C. § 40101(a)(6). The preemption
clause undoubtedly applies, for example, to state laws directly
restricting types of goods that can be carried by trucks, tariffs,
and barriers to entry. But state law may also be preempted if
it has an indirect effect. This intent is patent in the FAAAA
insofar as the preemption clause employs the phrase “related
to” immediately before “a price, route, or service of any motor
carrier.” Id. § 14501(c)(1). The Supreme Court further
observed that “state laws whose ‘effect’ is ‘forbidden’ under
federal law are those with a ‘significant impact’ on carrier
15
rates, routes, or services.” Rowe, 552 U.S. at 375 (quoting
Morales, 504 U.S. at 388).
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
10
Joseph Cory relies heavily upon Wolens, but that
decision is inapposite to this case. Wolens involved the state
consumer fraud and breach of contract claims of consumers
who participated in American Airlines’ frequent flyer program
following retroactive changes to the program’s terms and
conditions. The Court determined that both categories of the
customers’ claims related to “rates” and “services.” 513 U.S.
at 226. But the Court held that although the ADA preempted
the state consumer fraud claims, it did not preempt the breach
of contract claims. Id. at 228–29. The Court noted that the
relevant “distinction [was] between what the State dictates and
what the airline itself undertakes . . . with no enlargement or
enhancement based on state laws or policies external to the
agreement.” Id. at 233. Joseph Cory seizes upon a sentence
from the Brief of the United States in Wolens that “[t]he
stability and efficiency of the market depend fundamentally on
the enforcement of agreements freely made, based on the needs
perceived by the contracting parties.” Id. at 230 (quoting Brief
of United States as Amicus Curiae 23). We agree with this
unremarkable statement on contract law. But the present case
does not involve a breach of contract claim. Moreover, the
16
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.
Wage laws like the IWPCA are a prime example of an
area of traditional state regulation, and we do not lightly
conclude that such laws are superseded. Moreover, such laws
are a part of the backdrop that motor carriers and all business
owners must face in conducting their affairs. The IWPCA does
not single out trucking firms, and it only concerns the
relationship between employers and employees. While the fact
that the IWPCA does not regulate affairs between employers
Court in Wolens was careful to frame its preemption discussion
on breach of contract claims “alleging no violation of state-
imposed obligations, but seeking recovery solely for the
airline’s alleged breach of its own, self-imposed undertakings.”
Id. at 228 (emphasis added). Accordingly, the Court in Wolens
was not called upon to address a circumstance, as we are in this
case, in which a state law imposed an obligation on employers
unrelated to the provision of services or the relationship
between a service provider and its customers. We note
parenthetically that the Supplemental Appendix in this case
contains the Brief of the United States as Amicus Curiae in a
factually identical case discussed infra, and that brief states that
“the FAAAA does not preempt [the drivers’] claim that [the
motor vehicle carrier] violated the IWPCA’s wage-deduction
regulation . . . under the ‘significant impact’ formulation used
in assessing the laws at issue in Rowe, 552 U.S. at 375, and
Morales, 504 U.S. at 309.” Supplemental Appendix 16–17.
17
and customers is not dispositive, it does demonstrate that the
operation of the IWPCA is steps away from the type of
regulation the FAAAA’s preemption clause sought to prohibit.
We have no doubt that the disruption of a labor model —
especially after services have been performed — could have
negative financial and other consequences for an employer.11
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
11
We note that this case is limited to the issue of wage
deductions from agreed-upon compensation. The other
benefits of the independent contractor model — for example,
avoiding costs associated with owning and maintaining
equipment or allowing drivers to choose their own routes and
hours — remain available to Joseph Cory.
18
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 summary
12
The BeavEx court noted the IWPCA’s provision
allowing an employer and employee to “contract around” the
wage deduction prohibition through the “express written
consent of the employee, given freely at the time the deduction
is made.” 810 F.3d at 1057 (quoting 820 Ill. Comp. Stat.
111/9). The court found this significant insofar as the Supreme
Court in Nw., Inc. held that state law was not preempted if the
law “permits an airline to contract around those rules.” 134 S.
Ct. at 1433. Joseph Cory asserts that Nw., Inc. is inapplicable
because the IWPCA “permits written consent to comply with
the IWPCA” rather than permitting parties to contract around
its requirement. Joseph Cory Reply Br. 14. We disagree with
this characterization of the IWPCA and agree with the BeavEx
19
judgment was appropriate and concluded that “BeavEx has not
demonstrated to this court that preventing it from deducting
from its couriers’ wages or the transaction costs associated
with acquiring consent to do so would have a significant
impact related to its prices, routes, or services.” Id. at 1057.
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
court. Indeed, the Supreme Court focused upon whether state
law “authorize[d] parties to free themselves from [a
requirement]” to determine avoid preemption. Nw., Inc., 134
S. Ct. at 1432.
20
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
21
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
13
Furthermore, unlike the wage-deduction provision of
the IWPCA, the Massachusetts law “bar[red] the employer
from excepting itself . . . by contract.” Schwann, 813 F.3d at
433; see supra, note 12.
22
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.
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