Timothy Johnson v. Diakon Logistics ( 2022 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-2886
TIMOTHY JOHNSON and DARRYL MOORE, on behalf of a class,
Plaintiffs-Appellants,
v.
DIAKON LOGISTICS, INC., and WILLIAM C. JARNAGIN, JR.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 16-cv-06776 — Andrea R. Wood, Judge.
____________________
ARGUED JUNE 1, 2022 — DECIDED AUGUST 17, 2022
____________________
Before EASTERBROOK, WOOD, and SCUDDER, Circuit Judges.
EASTERBROOK, Circuit Judge. Diakon Logistics, Inc., coordi-
nates delivery and installation of merchandise for retailers
across the nation. It is incorporated in Delaware and has its
principal place of business in Virginia. Diakon provided ser-
vices to Innovel Solutions, Inc., a former subsidiary of Sears,
Roebuck and Co. Innovel hired Diakon to get furniture and
appliances from warehouses to customers’ homes. Diakon, in
turn, hired truck drivers to perform these deliveries.
2 No. 21-2886
Plaintiffs are two of those drivers, Timothy Johnson and
Darryl Moore. Johnson and Moore were citizens of Illinois
who drove for Diakon out of Innovel’s warehouse in Romeo-
ville, Illinois, which is about 30 miles southwest of Chicago.
Innovel operated a second warehouse in Granite City, Illinois,
just across the Mississippi River from St. Louis. Drivers work-
ing out of both warehouses delivered merchandise to custom-
ers of Sears in Illinois, Indiana, and Missouri.
Plaintiffs and Diakon signed contracts called “Service
Agreements”. Two versions of the Service Agreement—one
signed before 2015 and one that governed the relations from
2015 onward—are potentially relevant. They classify the driv-
ers as independent contractors yet include terms that set out
detailed expectations for the drivers—among other things
what uniforms to wear, what business cards to carry, what
decals to put on their trucks, and how to perform deliveries
and installations. The Service Agreements also contain choice-
of-law provisions that select Virginia law to govern the par-
ties’ relations. The clause in the pre-2015 version reads: “This
Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Virginia without re-
gard to conflict of law rules.” The later-signed agreements are
more expansive: “The law of the Commonwealth of Virginia
shall govern all interpretations of this Agreement or any
rights or liabilities stemming from it or related to it in any
such action. The obligations in this paragraph shall survive
termination of the Agreement.”
The Service Agreements authorize Diakon to deduct fees
and penalties from the drivers’ pay. They allow deductions
for truck rental fees, the cost of insurance, workers’
No. 21-2886 3
compensation coverage, and customers’ refused deliveries.
As an example, one section of the Service Agreement pro-
vides:
Contractor will be liable for loss or damage to items intended for
transport occurring while such items are in Contractor’s posses-
sion or under his dominion and control. Before making deduc-
tions from seIlements with Contractor … to reflect such loss or
damage, Company shall provide Contractor with a wriIen expla-
nation and itemization of such deductions.
In 2016 Johnson and Moore sued Diakon in federal court
alleging violations of Illinois labor law. Plaintiffs allege that
Diakon misclassified them as independent contractors when
they were employees under Illinois law. Plaintiffs’ allegation
rests on the definition of “employee” in the Illinois Wage Pay-
ment and Collection Act, 820 ILCS 115/1 to 115/15. Under 820
ILCS 115/2, Illinois courts apply a three-part test to determine
employee status. Novakovic v. Samutin, 354 Ill. App. 3d 660,
667–68 (2004). The parties agree that this approach, known as
the “ABC Test”, is more likely to classify workers as employ-
ees than is the parallel test under Virginia law, which plain-
tiffs concede would treat them as contractors.
The Illinois Act allows deductions from pay only if the em-
ployees consent in writing at the time of the deduction. 820
ILCS 115/9. Plaintiffs allege that Diakon’s deductions from
their pay did not satisfy this contemporaneous-authorization
requirement and so were improper. Plaintiffs seek reimburse-
ment on behalf of a class of drivers in Illinois who signed sim-
ilar Service Agreements with Diakon.
Federal subject-maier jurisdiction rests on the Class Ac-
tion Fairness Act, 28 U.S.C. §1332(d)(2), which creates juris-
diction when three requirements are met: the amount in
4 No. 21-2886
controversy exceeds $5 million, at least one class member and
any defendant are citizens of different states, and there are at
least 100 class members. See 28 U.S.C. §§ 1332(d)(2), (d)(2)(A),
(d)(5)(B).
The district judge certified a class under Fed. R. Civ. P.
23(b)(3) comprising “[a]ll delivery drivers who (1) signed a
Service Agreement with Diakon, (2) were classified as inde-
pendent contractors, and (3) who performed deliveries for
Diakon and Sears in Illinois between June 28, 2006 and the
present.” 2020 U.S. Dist. LEXIS 12435 (N.D. Ill. Jan. 23, 2020).
This class satisfies the Act’s requirements, but the story is
more complicated. That’s because plaintiffs amended their
complaint to add Sears and Innovel as defendants.
The Class Action Fairness Act typically requires only min-
imal diversity, so the presence of defendants with Illinois cit-
izenship did not affect subject-maier jurisdiction. See, e.g.,
Morrison v. YTB International, Inc., 649 F.3d 533, 536 (7th Cir.
2011). But these new defendants posed a potential problem:
their inclusion might trigger the abstention doctrines embod-
ied in 28 U.S.C. §1332(d)(4). This subsection provides that a
“district court shall decline to exercise jurisdiction” when
more than two-thirds of class members are from the state in
which the lawsuit is filed and at least one defendant “from
whom significant relief is sought” is a citizen of that state.
Both Sears and Innovel are citizens of Illinois, and the class
includes only truck drivers making deliveries in Illinois,
which raises the question whether the single-state carveout in
§1332(d)(4) applies. The parties’ briefs did not address the
possibility, but a court may raise abstention under the Class
Action Fairness Act on its own, see Mullen v. GLV, Inc., 37 F.4th
No. 21-2886 5
1326, 1328 (7th Cir. 2022). We invited the parties to submit
supplemental memoranda to address the issue.
After reviewing the parties’ submissions, we conclude
that abstention is not warranted. Whether abstention under
the Class Action Fairness Act should be evaluated based on
the original complaint or instead on circumstances that may
change as the case proceeds is an open issue in this circuit.
Mullen, 37 F.4th at 1329. But, under either approach, the result
in this case is the same. Sears and Innovel did not enter the
case until plaintiffs’ Second Amended Complaint, filed about
a year after the suit commenced. Plaintiffs voluntarily dis-
missed their claims against Sears and Innovel in October 2021.
Sears and Innovel were not parties when this case began and
are not parties now, so abstention is not required.
That brings us to plaintiffs’ claims under the Illinois Wage
Payment and Collections Act (which from now on we call “the
Act”). The district judge entered summary judgment in Dia-
kon’s favor, concluding that the choice-of-law clauses man-
date application of Virginia law. 2021 U.S. Dist. LEXIS 188950(N.D. Ill. Sept. 30, 2021). The district judge did not analyze the
difference between the two versions of the Service Agree-
ments and instead concluded that plaintiffs’ claims fail be-
cause they are all inextricable from the Agreements’ choice-
of-law provisions. To support that conclusion, the district
judge observed that Illinois courts routinely enforce choice-
of-law clauses. See Belleville Toyota, Inc. v. Toyota Motor Sales,
U.S.A., Inc., 199 Ill. 2d 325, 351–52 (2002). Diakon embraces
this argument on appeal, insisting that plaintiffs’ claims nec-
essarily depend on their Service Agreements.
Plaintiffs maintain that Diakon has waived the benefit of
the choice-of-law provisions. See Vukadinovich v. McCarthy, 59
6 No. 21-2886
F.3d 58, 62 (7th Cir. 1995) (choice of law normally is not juris-
dictional and is subject to waiver). Diakon first argued that
the state-law claims were preempted and later defended
against class certification. It was not until summary judgment
that Diakon raised the choice-of-law clauses directly, and
plaintiffs say that Diakon’s prior arguments amount to an ad-
mission that Illinois law controls.
The district judge remarked that Diakon would have
waived reliance on Virginia law had it first sought a ruling on
the merits under Illinois law and changed course only after an
adverse decision. But the district judge found that Diakon had
consistently maintained that the Illinois law does not apply,
either because federal law preempts it or because it is other-
wise inapplicable. As for delay, the district judge concluded
that Diakon contemplated choice-of-law defenses early on.
Diakon at one point notified plaintiffs’ counsel that it in-
tended to amend its answer to include the choice-of-law ar-
gument, but ultimately did not amend after plaintiffs’ counsel
assured Diakon’s lawyers that it did not consider the defense
waived. Plaintiffs say that might have been true then, but the
defense is waived now, with many briefs having come and
gone in the district court without a direct choice-of-law argu-
ment. Here too the district judge was unpersuaded, noting
that Diakon mentioned choice of law in its opposition to class
certification and concluding that Diakon did not sit on the de-
fense until after other arguments had failed. The district
court’s reasoning persuades us.
Now consider the language of the Service Agreements. Re-
call that the pre-2015 versions (which, by the way, are the only
signed versions in the parties’ appendices) provide that
“[t]his Agreement shall be governed by and construed in
No. 21-2886 7
accordance with the laws of the Commonwealth of Virginia”.
Under the Act, however, whether a person qualifies as an
“employee” has liile to do with how any contract describes
the work. Courts in Illinois routinely disregard contractual
language classifying workers as contractors or consultants.
See, e.g., O’Malley v. Udo, 2022 IL App (1st) 200007 ¶48 (Jan.
14, 2022) (“However, it is also well established that plaintiff’s
status under the [Act] is not controlled by how the parties re-
ferred to themselves in their agreement.”); Cohen Furniture Co.
v. Department of Employment Security, 307 Ill. App. 3d 978, 982
(1999) (interpreting equivalent provisions of the Unemploy-
ment Insurance Act, 820 ILCS 405/100 to 405/3200). Instead,
state courts apply the definition of “employee” contained in
the Act itself, 820 ILCS 115/2, which O’Malley deemed “much
broader” than common-law tests for employee status. See
2022 IL App (1st) 200007 ¶48.
If the critical test for determining whether plaintiffs count
as employees for purposes of the Act comes from the statute
rather than a contract, then the Service Agreement is irrele-
vant, no maier what it says. This means that Illinois would
not honor either the declaration of independent-contractor
status or the choice-of-Virginia-law clause. Cf. Byrne v. Hayes
Beer Distributing Co., 2018 IL App (1st) 172612 ¶32 (Dec. 4,
2018) (a contention “that the [Act] prevents [an employer]
from deducting money … does not require reference to or an
interpretation of the [contract]” and “derive[s] solely out of
section 9 of the [Act]”). Diakon does not contend that Illinois
would violate the Constitution’s Full Faith and Credit Clause
by preferring its domestic law over another state’s for work
done within its borders.
8 No. 21-2886
Another way of saying this is that plaintiffs’ claims to un-
diminished wages arise from their work in Illinois, not from
their contracts. The Act governs payment for work in Illinois
regardless of what state’s law governs other aspects of the
parties’ relations. Byrne described claims under the Act as “ex-
ist[ing] independently of” any contract. Ibid. And a valid
claim under the Act does not require the presence of a formal
contract at all. See Landers-Scelfo v. Corporate Office Systems,
Inc., 356 Ill. App. 3d 1060, 1067 (2005) (claim under the Act
need not include “a formally negotiated contract”); Zabinsky
v. Gelber Group, Inc., 347 Ill. App. 3d 243, 249 (2004) (Act “re-
quires only a manifestation of mutual assent on the part of
two or more persons; parties may enter into an ‘agreement’
without the formalities and accompanying legal protections
of a contract”).
Diakon contends that the post-2015 version of the Service
Agreement should be treated differently. But given the anal-
ysis above, it is hard to see how any contractual language
moves the needle. The test for employee status under the Act
does not depend on (and often disregards) contractual desig-
nations. While the contracts create certain obligations, such as
the drivers’ duty to take care when making deliveries (and so
to avoid deductions if possible), Diakon’s duty to make only
proper deductions from the drivers’ wages flows from the
Act, not the contracts. It follows that nothing about choosing
Virginia law affects plaintiffs’ claims under the Act.
A national firm such as Diakon wants a single state’s law
to govern its labor force because it is simpler to learn and fol-
low one state’s rather than fifty states’ laws. And when work-
ers cross state borders in the course of their duties, the benefits
of choosing one state’s law are even greater. Imagine a driver
No. 21-2886 9
who loads up in Romeoville with refrigerators bound for cus-
tomers in both Indiana and Illinois. Somewhere along the
way, it is impossible to say exactly where, a bump in the road
damages some of the merchandise. After arriving in Indiana,
the driver discovers the problem and a customer refuses de-
livery. The driver returns to Romeoville with the damaged re-
frigerator. Does Illinois’ law or Indiana’s determine what, if
anything, Diakon may deduct from the driver’s pay? Given
the complexities of such a situation, we could imagine Illinois
introducing special considerations for interstate work. But
Diakon does not contend that Illinois has done so; Diakon
does not make anything of the fact that drivers leave from the
warehouses in Illinois with merchandise bound for multiple
states. See United States v. Sineneng-Smith, 140 S. Ct. 1575(2020) (discussing the principle of party presentation).
Earlier in the case Diakon did argue that the multistate na-
ture of the drivers’ work meant that Illinois law is preempted
by the Federal Aviation Administration Authorization Act of
1994 and federal truck-leasing regulations. But the district
judge ruled that the Illinois Wage Payment and Collection Act
affects carriers’ rates, routes, or services only indirectly and so
is not preempted. 2018 U.S. Dist. LEXIS 52149 (N.D. Ill. Mar.
28, 2018). The judge added that the regulations set guidelines
for allowing certain types of deductions but do not mean that
such deductions are always permissible. Diakon has aban-
doned these contentions on appeal, and we do not address
them one way or another.
The contractual clauses on which Diakon relies do not ap-
ply to claims brought under the Act based on work done in
Illinois. The judgment of the district court is reversed, and the
case is remanded for further proceedings.