Heath v. Egl Inc.

• Decision Date: 05 August 2010
• Docket Number: No. 07-16487.,07-16487.
• Citation: 616 F.3d 895
• Parties: Mohit NARAYAN; Hanna Rahawi; and Thomas Heath, Plaintiffs-Appellants, v. EGL, INC.; Eagle Freight Systems, Inc.; and Does 1-10, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

616 F.3d 895

Mohit NARAYAN; Hanna Rahawi; and Thomas Heath, Plaintiffs-Appellants,

v.EGL, INC.; Eagle Freight Systems, Inc.; and Does 1-10, Defendants-Appellees.

United States Court of Appeals,Ninth Circuit. Mohit NARAYAN; Hanna Rahawi; and Thomas Heath, Plaintiffs-Appellants,

v. EGL, INC.; Eagle Freight Systems, Inc.; and Does 1-10, Defendants-Appellees. No. 07-16487. Argued and Submitted Nov. 4, 2009.Filed July 13, 2010.Amended Aug. 5, 2010.

Stacey Leyton (argued) and Michael Rubin (briefed), Altshuler Berzon, LLP, San Francisco, CA, for the plaintiffs-appellants.

Aaron Kaufmann (briefed), David Pogrel, Hinton, Alfert & Sumner, Walnut Creek, CA, for the plaintiffs-appellants.

R. Ted Cruz (argued), Morgan, Lewis & Bockius, LLP, Houston, TX, and Y. Anna Suh (briefed), Hunton & Williams LLP, San Francisco, CA, for the defendants-appellees.

Robert R. Roginson, Division of Labor Standards Enforcement, Department of Industrial Relations, State of California, San Francisco, CA, Amicus Curiae in support of the plaintiffs-appellants.

Matthew Goldberg, The Legal Aid Society-Employment Law Center, San Francisco, CA, and Cynthia Rice, California Rural Legal Assistance Foundation, Sacramento, CA, Amici Curiae in support of the plaintiffs-appellants.

Appeal from the United States District Court for the Northern District of California, Ronald M. Whyte, United States District Judge, Presiding. D.C. No. CV-05-04181-RMW.

Before: HAWKINS and SIDNEY R. THOMAS, Circuit Judges, and EDWARD R. KORMAN, ^* District Judge.

ORDER

Appellees' Petition for Panel Rehearing is granted for the limited purpose of amending the Opinion, without further oral argument.

The Opinion filed July 13, 2010, slip op. 10069, is amended as follows:

On page 10084, line 20: is deleted.

On page 10085, second indented paragraph, first sentence:

Drivers here had contracts “expressly acknowledging that they were independent contractors” is simply not significant under California's test of employment.> is replaced with 835 F.2d 1529, 1545 (7th Cir.1987) (Easterbook, J., concurring).

This appeal from a judgment of the United States District Court for the Northern District of California granting the motion of an employer for summary judgment dismissing claims for benefits under the Labor Code principally presents the issue whether, assuming the existence of an employer-employee relationship in California, the employer may avoid its obligations under the Labor Code by inserting a clause in an employer-drafted pre-printed form contract in which: (1) the employee acknowledges that he is an independent contractor and (2) agrees that the contract would be interpreted in accordance with the laws of another jurisdiction where such an agreement is generally enforceable.

BACKGROUND

EGL, the employer, is a global transportation, supply chain management and information services company incorporated under the laws of Texas and headquartered in Texas. ¹ EGL's services include, inter alia, “air and ocean freight forwarding, customs brokerage, [and] local pickup and delivery service.” EGL operates through a network of over 400 facilities located in over 100 countries. One of the many aspects of EGL's business is domestic delivery services. Such services may be provided either as part of EGL's freight-forwarding operations or for customers requiring local pick-up and delivery services.

Mohit Narayan, Hanna Rahawi and Thomas Heath (the “Drivers”) were residents of California who were engaged to provide freight pick-up and delivery services for EGL in California. All three Drivers signed agreements with EGL for “Leased Equipment and Independent Contractor Services” (the “Agreements”). The Agreements provided that the “intention of the parties is to ... create a vendor/vendee relationship between Contractor and [EGL],” and acknowledged that “[n]either Contractor nor any of its employees or agents shall be considered to be employees of” EGL. The terms of the Agreements provide, inter alia, that the Drivers “shall exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations,” although EGL retained the right to “issue reasonable and lawful instructions regarding the results to be accomplished.”

Notwithstanding the terms of the Agreements, the Drivers filed a complaint in California against EGL and one of its subsidiaries, Eagle Freight Services (collectively, “EGL”), alleging that they were EGL employees who were deprived of benefits conferred upon them by the Labor Code. They sought money damages for unpaid overtime wages, business expenses, meal compensation and unlawful deductions from wages as well as other relief, including statutory penalties.

After the case was removed pursuant to 28 U.S.C. § 1332, EGL moved for summary judgment arguing that, under the terms of the Agreements, the Drivers were not employees. Instead they were independent contractors who were not entitled to the benefits conferred upon employees by the Labor Code. Relying on a choice-of-law clause in the Agreements, the district court held that the law of Texas applied, and that declarations in the Agreements that the Drivers were independent contractors rather than employees, compelled the holding that they were independent contractors as a matter of law. Moreover, although California does not regard such declarations as controlling, and applies a multi-factor analysis in which the intent of the parties is one of over a dozen and a half factors, the district court held, without undertaking any analysis of the relevant factors, that the result would be the same under California law. Narayan v. EGL, Inc., No. CV-05-04181-RMW, 2007 WL 2021809, at *9 n. 12 (N.D.Cal. July 10, 2007). Consequently, the district court granted EGL's motion for summary judgment.

DISCUSSIONI. Choice-of-Law

EGL argues that the choice-of-law clause in the Agreements, which provides that the contracts “shall be interpreted under the laws of the State of Texas,” applies to the current dispute. The district court agreed. We review questions regarding choice of law de novo. Paulsen v. CNF Inc., 559 F.3d 1061, 1072 (9th Cir.2009).

To determine the applicable substantive law, a federal court sitting in diversity applies the choice-of-law rules of the forum. Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir.2005). California, the forum state, ordinarily examines the scope of a choice-of-law provision in a contract under the law designated in that contract. Wash. Mut. Bank, FA v. Super. Ct., 24 Cal.4th 906, 103 Cal.Rptr.2d 320, 15 P.3d 1071, 1078 n. 3 (2001). In this case, that is Texas law.

Under Texas law, similarly narrow choice-of-law clauses, providing under what law an agreement “shall be interpreted and enforced,” apply only to the interpretation and enforcement of the contract itself; they do not “encompass all disputes between the parties.” Stier v. Reading & Bates Corp., 992 S.W.2d 423, 433 (Tex.1999); accord Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 727 (5th Cir.2003) (calling similar provision “narrow”). They govern claims that “rise or fall on the interpret[ation] and enforce[ment] of any contractual provision.” Stier, 992 S.W.2d at 434 (internal quotations omitted) (alterations in original); see also Busse v. Pac. Cattle Feeding Fund # 1, Ltd., 896 S.W.2d 807, 812-13 (Tex.App.1995) (“The rights, obligations, and cause of action do not arise from the contracts but from the Deceptive Trade Practices Act, the Texas Securities Act, and the common law.”).

The Drivers' claims involve entitlement to benefits under the California Labor Code. Whether the Drivers are entitled to those benefits depends on whether they are employees of EGL, which in turn depends on the definition that the otherwise governing law-not the parties-gives to the term “employee.” While the contracts will likely be used as evidence to prove or disprove the statutory claims, the claims do not arise out of the contract, involve the interpretation of any contract terms, or otherwise require there to be a contract. See S.G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d 399, 403-07 (1989) (listing over one dozen factors “logically pertinent to the inherently difficult determination whether a provider of service is an employee or an excluded independent contractor”).

CBS Corp. v. FCC, 535 F.3d 167 (3d Cir.2008), vacated on other grounds, --- U.S. ----, 129 S.Ct. 2176, 173 L.Ed.2d 1153 (2009), is instructive. There, the Third Circuit held that federal rather than New York law governed the question of whether performers were independent contractors or employees despite the presence of a choice-of-law clause in a contract defining performers as “independent contractors” because the claims arose under a federal regulatory scheme, and “defining the boundaries of permissible vicarious liability under that scheme is ... a federal matter.” Id. at 190-92. Similarly here, appellants claims arose under the Labor Code, a California regulatory scheme, and consequently, California law should apply to define the boundaries of liability under that scheme.

II. Propriety of Summary Judgment Under California Law

Although the district judge applied Texas law to determine that the Drivers were independent contractors as a matter of law, he observed in a conclusory footnote that “[t]he result would be no different if California law governed.” Narayan, 2007 WL 2021809, at *9 n. 12. This conclusion is erroneous. We review a district court's grant of summary judgment de novo. Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). In doing so, we determine, “viewing the evidence in the light most favorable to the nonmoving party, whether genuine issues of material fact exist and whether the district court correctly applied the relevant substantive law.” Id. Summary judgment is not appropriate if a reasonable jury viewing the summary...