Ali v. Daylight Transp., LLC

59 Cal.App.5th 462

273 Cal.Rptr.3d 544

Sabid ALI et al., Plaintiffs and Respondents,

v.DAYLIGHT TRANSPORT, LLC, Defendant and Appellant.

A157104

Court of Appeal, First District, Division 2, California.

Filed December 4, 2020

Certified for Partial Publication.^*

Ogletree, Deakins, Nash, Smoak & Stewart, Robert R. Roginson, Christopher W. Decker, Julia A. Luster, Los Angeles, for Appellant.

Leonard Carder Law Office, Aaron D. Kaufmann, David P. Pogrel, Elizabeth R. Gropman, Oakland, Sarah B. Tosdal, for Respondents.

Gupta Wessler, Jennifer D. Bennett, San Francisco, Public Justice Karla A. Gilbride, for Amicus Curiae Gupta Wessler on behalf of Respondents.

Kline, P.J. Daylight Transport, LLC (appellant) appeals from the trial court's order denying its motion to compel arbitration and stay the underlying action in this matter arising from the proposed class action lawsuit filed by Sabid Ali and Eric Bland (collectively respondents), alleging they were misclassified as independent contractors and, therefore, denied certain wage and hour protections under California law. On appeal, appellant challenges the trial court's findings that (1) respondents are exempt from the Federal Arbitration Act (FAA) ( 9 U.S.C. § 1, et seq. ) because they are transportation workers engaged in interstate commerce, and (2) the agreement to arbitrate between appellant and each respondent was unconscionable and unenforceable. We shall affirm the trial court's order.

FACTUAL BACKGROUND

Evidence submitted in support of and opposition to the motion to compel arbitration—which includes, inter alia, documentary evidence; the declaration and deposition of Jim McCarthy, appellant's vice president of finance and chief financial officer; and the declarations of both respondents—is as follows.

Appellant is "an established expedited less-than-truck load (‘LTL’) carrier" that is "in the business of managing, coordinating, and scheduling expedited LTL shipments across the country." Appellant has locations throughout California and the United States. The "vast majority" of appellant's work involves interstate transport.

For pick-up and delivery services, appellant contracts with independent truck drivers. Although the freight transported by these truck drivers "is predominantly interstate freight, [it] also includes intrastate freight." Documents McCarthy had reviewed showed that the freight respondents handled "either originated out of state or had final delivery destination out of state." However, appellant's independent contractor truck drivers in California, including respondents, "only provided pick-up and delivery services within the state of California" and respondents "never crossed state lines in moving freight for [appellant's] customers."¹

Respondents Ali and Bland each entered into an "Independent Contractor Service Agreement" (Agreement) before beginning to drive freight for appellant, and regularly signed materially identical Agreements or contract extension addenda over the time they drove for appellant.

All of the Agreements respondents signed contained an identical arbitration provision, which stated:

"6.02 Arbitration. Any claim, dispute or controversy including, but not limited to the interpretation of any federal, statutory or regulatory provisions purported to be encompassed by this Agreement (i.e., the Leasing Regulations), any alleged breach of this Agreement, or the enforcement of any statutory rights emanating or relating to this Agreement shall be resolved on an individual basis (and not as part of a class action) exclusively between Contractor and Company by final and binding arbitration to be held in the County and State of Contractor's domicile before the American Arbitration Association (‘AAA’). The arbitration proceeding shall be governed by the following rules:

"(a) A written demand for arbitration must be filed with the AAA and a copy of the filing provided to the other party within one hundred twenty (120) days of the occurrence of the claimed breach or other event giving rise to the controversy or claim. Failure to make such timely demand for arbitration shall constitute an absolute bar to the institution of any proceedings and a waiver of the claim.

"(b) The demand for arbitration shall identify the provision(s) of this Agreement alleged to have been breached and shall state the issue proposed to be submitted to arbitration and the remedy sought. The copy of the demand shall be filed with the American Arbitration Association at 1750 Two Galleria Tower, 13455 Noel Road, Dallas, Texas 75240-6636 with a request that the demand be forwarded to the appropriate AAA Regional Office.

"(c) As to any dispute or controversy which under the terms of this Agreement is a proper subject of arbitration, no suit at law or in equity based on such dispute or controversy shall be instituted by either party other than a suit to conform, enforce, vacate, modify or correct the award of the arbitrator(s) as provided by law; provided, however, that this clause shall not limit Company's right to obtain any provisional remedy including, without limitation, injunctive relief, writ for recovery of possession or similar relief from any court of competent jurisdiction, as may be necessary in Company's sole subjective judgment to protect its property rights ....

"(d) General pleadings and discovery processes related to the arbitration proceeding shall comply with the Federal Rules of Civil Procedure.

"The Arbitration proceeding shall be governed by the AAA's Commercial Arbitration Rules to the extent that such Rules are not inconsistent with the immediately preceding subparts (a) through (d)." (Agreement, § VI., cl. 6.02.)

Ali worked for appellant from 2007 to September 2016, and Bland worked for appellant from August 2014 to January 2018, as pickup and delivery drivers. Appellant classified and paid both respondents as independent contractors during the entire time of their work for appellant. Appellant required them to sign the Agreements in order to work as drivers. Ali signed approximately 10 agreements and Bland signed approximately six Agreements and extension addenda over the course of their work for appellant in order to continue driving for the company. Each of the Agreements contained the identical arbitration provision.

Appellant's terminal service managers presented the Agreements to both Ali and Bland, who were not involved in drafting any part of them. Nor were they given any opportunity to negotiate the terms of the Agreements, including the arbitration provision, or review the terms with an attorney before signing them. Ali, for example, would receive the Agreement or extension addendum "the night before he had to sign it" and "could not be dispatched to make pickups or deliveries without signing" the Agreement "as presented to [him]." If he failed to do so, he would lose his job with appellant. In another example, in late 2017, Bland received notice of an extension addendum two to three days before the New Year's holiday, which he was directed to sign by New Years’ Eve, in order to continue working. In addition, appellant did not provide either respondent with a copy of the AAA commercial arbitration rules referred to in the Agreements.

PROCEDURAL BACKGROUND

On August 2, 2018, respondents filed a complaint against appellant on behalf of themselves and a putative class of California delivery drivers, requesting relief from appellant's "unlawful misclassification of former and current Daylight delivery drivers as ‘Independent Contractors,’ " and alleging that, as a result of the misclassification, appellant had violated a number of Labor Code and wage order provisions, as well as the law against unfair competition. The causes of action included (1) failure to pay minimum wage ( Lab. Code, §§ 226.2, 1182.11, 1182.12, 1194, 1104.2, 1197 et seq. ; Industrial Welfare Commission (IWC) Wage Order No. 9; Minimum Wage Order); (2) failure to reimburse employment expenses ( Lab. Code, §§ 2802, 2804 ; IWC Wage Order No. 9); (3) unlawful deductions from wages ( Lab. Code, §§ 221, 223 ; IWC Wage Order No. 9); (4) failure to provide off-duty meal periods ( Lab. Code, §§ 226.7, 512 ; IWC Wage Order 9); (5) failure to provide off-duty paid rest periods ( Lab. Code, §§ 226.2, 512 ; IWC Wage Order No. 9); (6) failure to furnish accurate wage statements ( Lab. Code, §§ 226, 226.3 ; IWC Wage Order No. 9); (7) waiting time penalties ( Lab. Code, §§ 201 – 203 ); and (8) violations of California's Unfair Competition Law ( Bus. & Prof. Code, § 17200 et seq. ).

On October 19, 2018, appellant filed a motion to compel arbitration and stay the underlying action, arguing chiefly that (1) the FAA applied to the Agreements between the parties and the FAA's exemption for transportation workers engaged in interstate commerce was inapplicable to respondents, and (2) under the FAA, the arbitration provision applied to the claims asserted in respondents’ lawsuit, respondents had agreed to arbitrate those claims, and no grounds—including, in particular, unconscionability—existed for revocation of the arbitration provision.

On November 26, 2018, respondents filed a first amended complaint, adding a cause of action under the Private Attorneys General Act ( Lab. Code, § 2698 et seq. ), based on appellant's alleged Labor Code violations.

On March 1, 2019, the trial court denied appellant's motion to compel arbitration and stay the action, after finding that the arbitration provision in the Agreements was unenforceable. First, the court found that the FAA did not apply to the Agreements between the parties because respondents fell within the FAA's exemption for transportation workers engaged in interstate commerce. ( 9 U.S.C. § 1.)² Second, the court found that the arbitration provision was both procedurally and substantively unconscionable and unenforceable under applicable state law.

On March 26, 2019, appellant filed a notice of appeal.³

DISCUSSION

I. FAA Preemption and Appellant's...