Johnson v. Diakon Logistics, Inc.

• Citation: 44 F.4th 1048
• Decision Date: 17 August 2022
• Docket Number: 21-2886
• Parties: Timothy JOHNSON and Darryl Moore, on behalf of a class, Plaintiffs-Appellants, v. DIAKON LOGISTICS, INC., and William C. Jarnagin, Jr., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

44 F.4th 1048

Timothy JOHNSON and Darryl Moore, on behalf of a class, Plaintiffs-Appellants,

v.DIAKON LOGISTICS, INC., and William C. Jarnagin, Jr., Defendants-Appellees.

No. 21-2886

United States Court of Appeals, Seventh Circuit.

Argued June 1, 2022

Decided August 17, 2022

Harold L. Lichten, Olena Savytska, Attorney, Lichten & Liss-Riordan, P.C, Boston, MA, Bradley Manewith, Attorney, Siegel Law Group Ltd., Chicago, IL, for Plaintiffs-Appellants.

Charles Andrewscavage, Andrew J. Butcher, Attorney, Scopelitis, Garvin, Light, Hanson & Feary, PC, Chicago, IL, James Anthony Eckhart, Attorney, Scopelitis, Garvin, Light, Hanson & Feary, P.C., Indianapolis, IN, Elizabeth Ashley Paynter, Attorney, Scopelitis, Garvin, Light, Hanson & Feary, P.C., Seattle, WA, for Defendants-Appellees Daikon Logistics, William C. Jarnagin, Jr.

Noah A. Finkel, Attorney, Seyfarth Shaw LLP, Chicago, IL, for Defendant Innovel Solutions Inc., formerly known as Sears Logistics Services, Inc. and Sears Roebuck and Co.

Sarah A. Hunger, Deputy Solicitor General, Office of the Attorney General, Chicago, IL, for Amicus Curiae State of Illinois.

Randall D. Schmidt, Attorney, Mandel Legal Aid Clinic, Chicago, IL, for Amici Curiae National Employment Lawyers’ Association, National Employment Law Project, Arise Chicago.

Before Easterbrook, Wood, and Scudder, Circuit Judges.

Easterbrook, Circuit Judge.

Diakon Logistics, Inc., coordinates 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 services 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.

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 Romeoville, 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 working out of both warehouses delivered merchandise to customers 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 drivers 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 parties’ 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 regard 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’ compensation coverage, and customers’ refused deliveries. As an example, one section of the Service Agreement provides:

Contractor will be liable for loss or damage to items intended for transport occurring while such items are in Contractor's possession or under his dominion and control. Before making deductions from settlements with Contractor ... to reflect such loss or damage, Company shall provide Contractor with a written explanation 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 Payment 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, 289 Ill.Dec. 892, 820 N.E.2d 967 (2004). The parties agree that this approach, known as the "ABC Test", is more likely to classify workers as employees than is the parallel test under Virginia law, which plaintiffs concede would treat them as contractors.

The Illinois Act allows deductions from pay only if the employees 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 reimbursement on behalf of a class of drivers in Illinois who signed similar Service Agreements with Diakon.

Federal subject-matter jurisdiction rests on the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2), which creates jurisdiction when three requirements are met: the amount in 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 independent contractors, and (3) who performed deliveries for Diakon and Sears in Illinois between June 28, 2006 and the present." 2020 WL 405636, 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 minimal diversity, so the presence of defendants with Illinois citizenship did not affect subject-matter 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 embodied 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 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 dismissed 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 Diakon's favor, concluding that the choice-of-law clauses mandate application of Virginia law. 2021 WL 4477893, 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 Agreements and instead concluded that plaintiffs’ claims fail because 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, 264 Ill.Dec. 283, 770 N.E.2d 177 (2002). Diakon embraces this argument on appeal, insisting that plaintiffs’ claims necessarily depend on their Service Agreements.

Plaintiffs maintain that Diakon has waived the benefit of the choice-of-law provisions. See Vukadinovich v. McCarthy , 59 F.3d 58, 62 (7th Cir. 1995) (choice of law normally is not jurisdictional 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 admission 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....