Max Trucking, LLC v. Liberty Mut. Ins. Corp.

• Decision Date: 21 September 2015
• Docket Number: No. 14–2115.,14–2115.
• Citation: 802 F.3d 793
• Parties: MAX TRUCKING, LLC, a Michigan limited liability company, Plaintiff–Appellant, v. LIBERTY MUTUAL INSURANCE CORPORATION, a Wisconsin corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

802 F.3d 793

MAX TRUCKING, LLC, a Michigan limited liability company, Plaintiff–Appellant

v.LIBERTY MUTUAL INSURANCE CORPORATION, a Wisconsin corporation, Defendant–Appellee.

No. 14–2115.

United States Court of Appeals, Sixth Circuit.

Argued: June 11, 2015.

Decided and Filed: Sept. 21, 2015.

ARGUED:Christopher M. Gibbons, Gibbons & Boer, PLC, Grand Rapids, Michigan, for Appellant. Graham K. Crabtree, Fraser, Trebilcock, Davis & Dunlap, P.C., Lansing, Michigan, for Appellee. ON BRIEF:Christopher M. Gibbons, Gibbons & Boer, PLC, Grand Rapids, Michigan, for Appellant. Graham K. Crabtree, Michael P. Donnelly, Fraser, Trebilcock, Davis & Dunlap, P.C., Lansing, Michigan, for Appellee.

Before: KEITH and CLAY, Circuit Judges; MARBLEY, District Judge.^*

OPINION

MARBLEY, District Judge.

Plaintiff–Appellant and Counter–Defendant, Max Trucking, LLC (“Max Trucking”), appeals the district court's findings of fact and conclusions of law following a bench trial, pursuant to Fed.R.Civ.P. 52. Plaintiff–Appellant filed this law suit seeking a declaratory judgment stating that it did not owe workers compensation premiums to Defendant–Appellee and Counter–Plaintiff Liberty Mutual Insurance Corporation (“Liberty Mutual”) because the truck drivers at issue were employees and not independent contractors under the Michigan Worker's Disability Compensation Act, Mich. Comp. Laws §§ 418.1 –418.400 (the “WDCA”). The district court ruled in favor of Defendant, and adopted Defendant's calculation of the outstanding premium owed, totaling $101,592.

We hold the district court properly determined the drivers are employees pursuant to the applicable test under Mich. Comp. Laws 418.161(1)(n), as recently amended by 2011 P.A. 266, and rendered an appropriate award of damages for unpaid premiums. Accordingly, the district court's judgment in this case is hereby AFFIRMED.

I. BACKGROUND

Max Trucking transports dry goods and freight by truck throughout the United States. Max Trucking maintains a staff of six dispatchers at its headquarters in Kentwood, Michigan. The dispatchers find jobs on various websites and then contact one of the 76 truck drivers living throughout the United States who haul freight for Max Trucking, and offer the load to that driver. About twenty of these drivers are based in Michigan.

The WDCA requires employers in Michigan to maintain worker's compensation insurance coverage for their employees. If an employer is unable to obtain worker's compensation insurance through the voluntary market, the employer may purchase worker's compensation insurance through Michigan's involuntary market. The Michigan Worker's Compensation Placement Facility (“the Facility”) administers the involuntary market in Michigan, pursuant to Chapter 23 of the Insurance Code of 1956, Mich. Comp. Laws § 500.2301, et seq.

In 2006, Max Trucking applied for worker's compensation insurance in the involuntary market through the Facility. Liberty Mutual received the request from the Facility and issued a policy to Max Trucking. Liberty Mutual renewed the policy annually for several years. Effective December 5, 2010, Liberty Mutual issued a renewal policy with coverage dates from December 5, 2010 through December 5, 2011 (the “WC 010 Policy”). When the WC 010 Policy expired on December 5, 2011, it was renewed for an additional year (the “WC 021” Policy”).

In March 2011, Liberty Mutual audited Max Trucking and determined that 16–18 Michigan-based drivers who leased trucks from Max Trucking through a lease-to-buy program (hereafter referred to as the “drivers”) were employees, not independent contractors, for the purposes of Michigan's worker's compensation laws. Based on this determination, Liberty Mutual increased Max Trucking's policy premium. Max Trucking disputes the propriety of the premium increase and has not paid Liberty Mutual the additional amounts associated with the premium increase. Late in 2011, Liberty Mutual cancelled the WC 021 Policy. Early in 2012, Max Trucking filed this lawsuit seeking a declaratory judgment that states the drivers operating under the lease-to-buy program are not employees of Max Trucking but are independent contractors for purposes of the WDCA. Max Trucking also sought a declaratory judgment stating that Liberty Mutual is not entitled to increased premiums associated with the drivers and that Max Trucking is not obligated to carry worker's compensation insurance for the drivers under the WDCA. Liberty Mutual filed a counterclaim on March 15, 2012, seeking unpaid premiums totaling $101,592, which it claims Max Trucking owes it under the WC 010 and WC 021 policies.

The district court conducted a bench trial on February 4, 2014. As the district court properly noted, the “dispute hinges on whether under Michigan's workers compensation insurance laws the truck drivers at issue are properly categorized as employees or independent contractors.” Max Trucking, LLC v. Liberty Mut. Ins. Corp., No. 1:12–CV–60, 2014 WL 3756129, at *1 (W.D.Mich. July 31, 2014).

Max Trucking first presented the testimony of its general manager, Dalibor Kovacevic. Kovacevic testified that Max Trucking has three different types of drivers: those who own their trucks outright; those who are leasing or purchasing their truck from a third-party; and, those who use the lease-to-buy program offered by Max Trucking. Kovacevic explained that when Mario Banozic first purchased the company in 2006, he employed a driver to operate a truck owned by the company, and he purchased worker's compensation insurance for that driver. In April 2006, the driver was in a bad accident, and Banozic incurred a high worker's compensation cost. At that point, Banozic decided only to use owner-operators, and not to hire employee-operators. In 2008, however, many of Banozic's drivers lost their trucks due to the economic downturn, and Banozic's fleet diminished considerably. As a result, in 2010 Max Trucking developed a financing scheme whereby Max Trucking purchased trucks, and offered them to drivers on a lease-to-buy basis.

Kovacevic testified that 16–18 Michigan drivers acquired their trucks through this lease-to-buy program, and he explained the parameters of the program. Under the lease-to-buy program, Max Trucking purchased trucks, and then leased the trucks to drivers with the understanding that at the end of the lease term, the drivers could purchase the tractor-trailers for a single dollar. The drivers paid Max Trucking—in addition to all the expenses incurred on an individual load—a $4,000 down payment, and then a monthly payment for lease of the truck. A written contract governed each of these lease-to-buy arrangements. Max Trucking, therefore, officially held the title to the trucks, and the loan from the bank for each truck was issued to Max Trucking. Under the program, Max Trucking does not refund the down payment or any lease payments if a driver ceases to make lease payments and transport freight using the leased truck. As the district court explained, “the arrangement is essentially a financing vehicle in which a driver acquires a truck on the strength of Max Trucking's credit, and then bears the cost of acquisition through monthly lease payments to Max Trucking.” 2014 WL 3756129, at *2. Further “these drivers are effectively economically dependent on Max Trucking for their ability to operate as truckers,” because they would not have otherwise had the credit to purchase the trucks. Id.

In one instance, a driver sold his leased truck, and Max Trucking received the payment because the registration was in its name; but, Max Trucking then paid the trucker for his equity in the truck. On a separate occasion, a trucker went to work for another trucking company, while still making lease payments to Max Trucking. Further, three of Max Trucking's dispatchers purchased trucks from Max Trucking under the lease-to-buy program and hired drivers to drive the leased trucks for them.

Max Trucking has a written contract with all of its drivers:

The contracts for the drivers at issue in this case are part of the trial record.

The contracts detail terms on which Max Trucking hires drivers to transport commodities on behalf of Max Trucking. The contracts suggest that the individuals contracting with Max Trucking may opt to hire other drivers to perform the services the contracts describe, but in actual practice, the individuals who enter these contracts with Max Trucking are the drivers themselves. The contracts provide that the drivers will use motor vehicles the drivers own or are leasing from Max Trucking to load, transport, and unload commodities that Max Trucking makes available to the drivers for this purpose. The contracts describe the terms of payment from Max Trucking to drivers for transporting commodities, outline costs the drivers will bear, and specify regulatory requirements with which the parties agree to comply. The contracts recite that the drivers are independent contractors and not employees of Max Trucking. The contracts also recite that the drivers are responsible for obtaining their own workers compensation coverage, and that Max Trucking will not cover them. There is no evidence, however, that any driver actually obtained his or her own coverage, and the Court finds as a matter of fact that no driver obtained coverage for himself or herself.

Id. at *1.

When the dispatchers identify loads they believe Max Trucking drivers are available to transport and deliver, they contact drivers and offer the opportunity to take on these loads. The drivers may accept or decline the opportunity. On accepted loads, Max Trucking and the driver divide the amount paid for each individual job, with Max Trucking taking 10%–12% and the driver taking the remaining 88%–90%. In addition, all drivers on a haul have daily contact with dispatchers to report their status and location; this information is required by the brokers and is necessary to arrange shipments.

Kovacevic testified that the trucks used in its...