Cal. Trucking Ass'n v. Becerra

438 F.Supp.3d 1139

CALIFORNIA TRUCKING ASSOCIATION, et al., Plaintiffs,

v.Attorney General Xavier BECERRA, et al., Defendants,International Brotherhood of Teamsters, Intervenor-Defendant.

Case No.: 3:18-cv-02458-BEN-BLM

United States District Court, S.D. California.

Signed February 10, 2020

Robert R. Roginson, Alexander Miller Chemers, Los Angeles, CA, Spencer C Skeen, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., San Diego, CA, for Plaintiffs.

Jose A. Zelidon-Zepeda, California Department of Justice, San Francisco, CA, for Defendants.

ORDER ON MOTIONS TO DISMISS

HON. ROGER T. BENITEZ, United States District Judge

Pending before the Court are the State Defendants' and Intervenor-Defendant's motions to dismiss Plaintiffs' Second Amended Complaint in its entirety. Docs. 62, 91. For the following reasons, the motions are GRANTED IN PART AND DENIED IN PART.

I. BACKGROUND¹

Plaintiff California Trucking Association ("CTA") is an association of licensed motor-carrier companies that manage, coordinate, and schedule the movement of property throughout California and beyond. Many of CTA's motor-carrier members contract with owner-operators as independent contractors. Plaintiff Ravinder Singh is one example. He owns and operates his own truck, and he contracts as an independent contractor with different motor carriers and brokers in California to perform various trucking services. Plaintiff Thomas Odom also owns and operates his own truck. He contracts as an independent contractor with a national motor carrier to haul property within California and between California and Texas.

For decades, the trucking industry has used an owner-operator model to provide the transportation of property in interstate commerce. That model generally involves a licensed motor carrier contracting with an independent contractor driver to transport the carrier-customer's property. The volume of trucking services needed within different industries can vary over time based on numerous factors. Motor carriers meet the fluctuating demand for highly varied services in part by relying upon independent-contractor drivers.

Individual owner-operators use a business model common in both California and across the country. They typically buy or lease their own trucks. Then, the owner-operators typically work for themselves for some time to build up their experience and reputation in the industry. Once the owner-operator is ready to expand their business, they contract for or bid on jobs that require more than one truck, at which time, the owner-operator will subcontract with one or more other owner-operators to complete the job. Many individual owner-operators have invested in specialized equipment and have obtained the skills to operate that equipment efficiently.

Whether certain laws and regulations in the California Labor Code apply to truck drivers, generally, depends on their status as employees or independent contractors. S.G. Borello & Sons, Inc. v. Dep't of Indus. Relations , 48 Cal. 3d 341, 350, 256 Cal.Rptr. 543, 769 P.2d 399 (1989). For nearly three decades, California courts have used a test, based on the Borello decision, to determine whether workers are correctly classified as employees or independent contractors. See id. at 341, 256 Cal.Rptr. 543, 769 P.2d 399. The Borello standard considers the "right to control work," as well as many other factors, including (a) whether the worker is engaged in a distinct occupation or business, (b) the amount of supervision required, (c) the skill required, (d) whether the worker supplies the tools required, (e) the length of time for which services are to be performed, (f) the method of payment, (g) whether the work is part of the regular business of the principal, and (h) whether the parties believe they are creating an employer-employee relationship. Id. at 355, 256 Cal.Rptr. 543, 769 P.2d 399. In April of 2018, the California Supreme Court replaced the Borello classification test for Wage Order No. 9 with the "ABC test." Dynamex Operations West v. Superior Court , 4 Cal. 5th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1 (2018).

California's Assembly Bill 5 ("AB-5") codified the ABC test adopted in Dynamex and expanded its reach to contexts beyond Wage Order No. 9, including workers' compensation, unemployment insurance, and disability insurance. As applied to the motor carrier context, AB-5 provides a mandatory test for determining whether a person driving or hauling freight for another contracting person or entity is an independent contractor or an employee for all purposes under the California Labor Code, the Industrial Welfare Commission wage orders, and the Unemployment Insurance Code. See Cal. Labor Code § 2750.3(a)(1). Under AB-5's ABC test, an owner-operator is presumed to be an employee unless the motor carrier establishes each of three requirements:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity's business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

AB-5 also includes certain exceptions that were not part of the Dynamex test, including an exception for "business-to-business contracting relationship[s]."² Id. at § 2750.3(a)(1)(e). The statute additionally provides that "[i]f a court of law rules that the three-part [ABC] test ... cannot be applied to a particular context" due, for example, to federal preemption, "then the determination of employee or independent contractor status in that context shall instead be governed by [ Borello ]." Id. at § 2750.3(a)(1)(3).

On September 18, 2019, California Governor Gavin Newsom signed AB-5 into law. AB-5 went into effect on January 1, 2020. On December 2, 2019, Plaintiffs moved for a preliminary injunction with a hearing set for December 30, 2019. When the Court continued the hearing to January 13, 2020, Plaintiffs filed a motion for a temporary restraining order on December 24, 2019. After considering the parties' arguments in their briefing, the Court granted the temporary restraining order and enjoined Defendants from enforcing AB-5 as to any motor carrier operating in California until this Court's resolution of Plaintiffs' motion for a preliminary injunction. On January 16, 2020, the Court granted Plaintiffs' motion for a preliminary injunction, enjoining Defendants from enforcing AB-5 as to any motor carrier operating in California.

II. DISCUSSION

The State Defendants and Intervenor-Defendant (collectively "Defendants") move to dismiss Plaintiffs' Second Amended Complaint for lack of subject matter jurisdiction under Rule 12(b)(1) and for failure to state a claim under Rule 12(b)(6). As a threshold matter, the Court first addresses Plaintiffs' standing and then turns to their claims under Rule 12(b)(6).

A. Article III Standing

"One of the essential elements of a legal case or controversy is that the plaintiff have standing to sue." Trump v. Hawai'i , ––– U.S. ––––, 138 S.Ct. 2392, 2416, 201 L.Ed.2d 775 (2018). To demonstrate Article III standing, a plaintiff must show a "concrete and particularized" injury that is "fairly traceable" to the defendant's conduct and "that is likely to be redressed by a favorable decision." Spokeo, Inc. v. Robins , ––– U.S. ––––, 136 S.Ct. 1540, 1547-48, 194 L.Ed.2d 635 (2016). "Where, as here, a case is at the pleading stage, the plaintiff must clearly allege facts demonstrating each element." Id. at 1547 (internal quotation marks and citations omitted).

The State Defendants and Intervenor contend Plaintiffs lack standing because their claimed "pre-enforcement" injury is speculative. According to Defendants, because Plaintiffs do not allege any actual enforcement against them of the State's AB-5 ABC test, their injury is not "certainly impending." Doc. 62-1 at 17-19. As the Supreme Court has explained, however, "[w]hen an individual is subject to [the threatened enforcement of a law], an actual arrest, prosecution, or other enforcement action is not a prerequisite to challenging the law." Susan B. Anthony List v. Driehaus , 573 U.S. 149, 168, 134 S.Ct. 2334, 189 L.Ed.2d 246 (2014). Thus, for the same reasons addressed in its January 16, 2020 preliminary injunction order, the Court is not persuaded by Defendants' position. See Doc. 89 at 6 ("Plaintiffs have satisfied the imminent injury requirement where, assuming their interpretation of AB-5 is correct, they face the choice of either implementing significant, costly compliance measures or risking criminal and civil prosecution. See, e.g. , Cal. Unemp. Ins. Code § 2117 ; Cal. Labor Code § 119.5; Cal. Labor Code § 226.6 and 226.8.").

Intervenor also attacks Plaintiffs' standing on two additional grounds, neither of which have merit. First, Intervenor argues that CTA does not have standing because it has not shown that any single CTA member will be injured by use of the ABC test to determine whether drivers are employees. See Summers v. Earth Island Inst. , 555 U.S. 488, 498, 129 S.Ct. 1142, 173 L.Ed.2d 1 (2009) (An association has standing to represent its members' interests only when "at least one identified member had suffered or would suffer harm."). Intervenor reasons that, if the ABC test were enjoined, employment status would be decided based on the prior test set forth in S.G. Borello & Sons, Inc. v. Dep't of Indus. Rel. , 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d 399 (1989). Thus, Intervenor posits that because CTA does not submit evidence that its members' drivers are not employees under Borello , there is no evidence that the ABC test injures a single CTA member.

As it did in its preliminary injunction order, the Court disagrees. See Doc. 89 at 6-9. CTA has plausibly alleged that many of its members have been injured, including by pleading...