People ex rel. Harris v. Pac Anchor Transp., Inc.

• Decision Date: 28 July 2014
• Docket Number: No. S194388.,S194388.
• Citation: 174 Cal.Rptr.3d 626,329 P.3d 180,59 Cal.4th 772
• Court: California Supreme Court
• Parties: The PEOPLE ex rel. Kamala D. HARRIS, as Attorney General, etc., Plaintiff and Appellant, v. PAC ANCHOR TRANSPORTATION, INC., et al., Defendants and Respondents.

59 Cal.4th 772

329 P.3d 180

174 Cal.Rptr.3d 626

The PEOPLE ex rel. Kamala D. HARRIS, as Attorney General, etc., Plaintiff and Appellant,

v.PAC ANCHOR TRANSPORTATION, INC., et al., Defendants and Respondents.

No. S194388.

Supreme Court of California

July 28, 2014.

Edmund G. Brown, Jr., and Kamala D. Harris, Attorneys General, Dane R. Gillette and Mark J. Breckler, Chief Assistant Attorneys General, Martin Goyette, Assistant Attorney General, Jon M. Ichinaga, Amy J. Winn and Satoshi Yanai, Deputy Attorneys General, for Plaintiff and Appellant.

Davis Cowell & Bowe, San Francisco, Richard G. McCracken and Andrew J. Kahn for Los Angeles Alliance for a New Economy and International Brotherhood of Teamsters as Amici Curiae on behalf of Plaintiff and Appellant.

Law Offices of Stephen Glick, Los Angeles, Stephen Glick and Anthony Jenkins for Salvador Rodriguez as Amicus Curiae on behalf of Plaintiff and Appellant.

Sands Lerner, Cox Wootton Lerner Griffin Hansen & Poulos, Neil S. Lerner, Los Angeles; Trident Law and Arthur A. Severance, Los Angeles, for Defendants and Respondents.

Fred J. Hiestand, Sacramento, for the Civil Justice Association of California as Amicus Curiae on behalf of Defendants and Respondents.

Holland & Knight and Linda Auerbach Allderdice, Los Angeles, for California Trucking Association as Amicus Curiae on behalf of Defendants and Respondents.

CHIN, J.

The narrow question presented is whether an action under the unfair competition law ( Bus. & Prof.Code, § 17200 et seq. (UCL)) that is based on a trucking company's alleged violation of state labor and insurance laws is "related to a price, route or service" ( 49 U.S.C. § 14501 (c)(1) ) of the company and, therefore, preempted by the Federal Aviation Administration Authorization Act of 1994 ( Pub.L. No. 103–305 (Aug. 23, 1994) 108 Stat. 1569) (FAAAA). The FAAAA provides that a state "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 ... with respect to the transportation of property." ( 49 U.S.C. § 14501(c)(1).) The People, on behalf of the State of California, filed this action against defendants Pac Anchor Transportation, Inc. (Pac Anchor) and Alfredo Barajas (Barajas) for misclassifying drivers as independent contractors and for other alleged violations of California's labor and unemployment insurance laws. As we explain, we conclude that the FAAAA does not preempt the People's UCL action against defendants. We therefore affirm the Court of Appeal's judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Defendant Pac Anchor is a trucking company in Long Beach, California. Defendant Barajas is the company's owner, manager, and truck dispatcher. Barajas also separately owns approximately 75 trucks. He recruits drivers to drive his trucks for his independent company. He also enters into lease agreements with Pac Anchor in order to utilize the trucks and drivers he supplies. Both defendants classify these drivers as independent contractors, even though they invest no capital, own no trucks, and do not use their own tools or equipment. The drivers rely instead on defendants to supply those items. Drivers are often employed for extended time periods, but they can be discharged without cause, have no operational control, have no other customers, take all instruction from defendants, and have no Department of Transportation operating authority or permits to engage independently in cargo transport. In addition, the drivers are an integrated part of defendants' trucking business because they perform the core activity of delivering cargo.

On September 5, 2008, the People filed a complaint against defendants for violating the UCL. The complaint alleged that defendants misclassified drivers as independent contractors and therefore illegally lowered their costs of doing business by engaging in acts of unfair competition including, but not limited to, failing to take the following statutorily mandated actions: (1) pay unemployment insurance taxes ( Unemp.Ins.Code, § 976 ); (2) pay employment training fund taxes (id., § 976.6 ); (3) withhold state disability insurance taxes (id., § 984 ); (4) withhold state income taxes (id., § 13020); (5) provide worker's compensation ( Lab.Code, § 3700 ); (6) provide employees with itemized written wage statements (id., § 226 ) and provide employees with certain records that California's Industrial Welfare Commission wage order No. 9–2001, section 7, requires ( Cal.Code Regs., tit. 8, § 11090 (hereafter IWC Wage Order No. 9)); (7) reimburse employees for business expenses and losses ( Lab.Code, § 2802 ); and (8) ensure payment at all times of California's minimum wage ( Lab.Code, § 1194 ; IWC Wage Order No. 9, § 4). The People specifically noted that as a result of failing to follow the above statutes, defendants obtained an unfair advantage over their competitors, deprived employees of benefits and protections to which they are entitled under California law, harmed their truck driver employees, harmed the general public, and deprived the state of payments for California state payroll taxes, all in violation of the UCL. The People seek injunctive relief, civil penalties, and restitution.

In August 2009, defendants filed a motion for judgment on the pleadings. After a hearing in September 2009, the trial court concluded that the FAAAA preempted the People's action. It issued an order granting judgment on the pleadings in defendants' favor on three grounds. First, it cited Fitz–Gerald v.

SkyWest Airlines, Inc.

(2007) 155 Cal.App.4th 411, 423, 65 Cal.Rptr.3d 913 (Fitz–Gerald ). That case held that the similar provision of the earlier Airline Deregulation Act of 1978 (ADA) ( 49 U.S.C. § 41713(b)(1), now the FAAAA) preempted UCL causes of action against an airline for alleged wage and rest/meal break violations because they related to the airline's "price, route, or service." Second, the court found that requiring defendants to treat truck drivers as employees would increase their operational costs. Therefore, the action also related to their price, route, or service. Third, the court concluded that the action threatened to interfere with the forces of competition by discouraging independent contractors from competing in the trucking market. The People filed a timely notice of appeal. The Court of Appeal reversed the trial court judgment, holding that because the People's UCL action is not related to Pac Anchor's price, route, or service as a motor carrier, the FAAAA does not preempt this action against defendants. We granted defendants' petition for review.

DISCUSSION

A. Standard of Review

"A judgment on the pleadings in favor of the defendant is appropriate when the complaint fails to allege facts sufficient to state a cause of action. ( Code Civ. Proc., § 438, subd. (c)(3)(B)(ii).) A motion for judgment on the pleadings is equivalent to a demurrer and is governed by the same de novo standard of review." ( Kapsimallis v. Allstate Ins. Co. (2002) 104 Cal.App.4th 667, 672, 128 Cal.Rptr.2d 358.)

"All properly pleaded, material facts are deemed true, but not contentions, deductions, or conclusions of fact or law...." (Ibid. ) Courts may consider judicially noticeable matters in the motion as well. (Ibid. )

B. Federal Preemption Principles

The supremacy clause of the United States Constitution establishes that federal law "shall be the supreme law of the land ..., any thing in the Constitution or laws of any state to the contrary notwithstanding." ( U.S. Const., art. VI, cl. 2.) Consequently, the supremacy clause vests Congress with the power to preempt state law. "Congress may exercise that power by enacting an express preemption provision, or courts may infer preemption under one or more of three implied preemption doctrines: conflict, obstacle, or field preemption." ( Brown v. Mortensen (2011) 51 Cal.4th 1052, 1059, 126 Cal.Rptr.3d 428, 253 P.3d 522 (Brown ); see Viva! Internat. Voice for Animals v. Adidas Promotional Retail Operations, Inc. (2007) 41 Cal.4th 929, 935, 63 Cal.Rptr.3d 50, 162 P.3d 569.) Express preemption occurs when Congress defines the extent to which its enactments preempt state law.

Viva!, at p. 936, 63 Cal.Rptr.3d 50, 162 P.3d 569.) Conflict preemption is found when it is impossible to comply with both state and federal law simultaneously. (Ibid. ) Obstacle preemption occurs when state law stands as an obstacle to the full accomplishment and execution of congressional objectives. (Ibid. ) Field preemption applies when federal regulation is comprehensive and leaves no room for state regulation. (Ibid. ) Here, all parties agree that our review is limited to the express preemption provision of the FAAAA. ( Rowe v. New Hampshire Motor Transp. Assn. (2008) 552 U.S. 364, 368, 128 S.Ct. 989, 169 L.Ed.2d 933 (Rowe ); see American Airlines, Inc. v. Wolens (1995) 513 U.S. 219, 222–223, 115 S.Ct. 817, 130 L.Ed.2d 715 (Wolens ) [construing similar express preemption clause of the ADA]; Morales v. Trans World Airlines, Inc. (1992) 504 U.S. 374, 383–384, 112 S.Ct. 2031, 119 L.Ed.2d 157 (Morales ) [same].)

We recently observed that "[t]he United States Supreme Court has identified ‘two cornerstones' of federal preemption analysis. [Citation.] First, the question of preemption ‘ "fundamentally is a question of congressional intent." ’ [Citations.] If a statute ‘contains an express pre-emption clause, our "task of statutory construction must in the first instance focus on the plain wording of the clause, which necessarily contains the best evidence of Congress's pre-emptive intent." ’ [Citations.] ‘ "Also relevant, however, is the ‘structure and purpose of the statute as a whole,’ [citation] as revealed not only in the text, but through the reviewing court's reasoned understanding of the way in which Congress intended the statute and its surrounding regulatory scheme to affect business, consumers, and the law." ' [Citation.]" ( Brown, s...