O'Connor v. UBER Techs., Inc.

DOUGLAS O'CONNOR, et al., Plaintiffs, v. UBER TECHNOLOGIES, INC., et al., Defendants.

No. C-13-3826 EMC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

Dated: December 5, 2013

ORDER GRANTING IN PART AND

DENYING IN PART DEFENDANTS'

MOTION TO DISMISS

(Docket No. 39)

Plaintiffs Douglas O'Connor and Thomas Colopy seek to represent a nationwide class of drivers who provide passenger car service for customers who hail them through Defendant Uber Technologies, Inc.'s mobile phone application. They allege that Uber discourages passengers from tipping by falsely advertising that gratuity is included in the fare, even though the full gratuity is not passed along to the drivers. Plaintiffs allege various California statutory and common law causes of action against Uber and its president and vice president, Travis Kalanick and Ryan Graves: statutory employee reimbursement violation, statutory gratuity violation, breach of implied-in-fact contract, unjust enrichment/quantum meruit, tortious interference with contractual and economic relations, and unfair business practices. Pending before the Court is Defendants' Motion to dismiss all of these claims, to dismiss non-California putative class members, and to dismiss the individually named Defendants.

Having considered the parties' briefs and accompanying submissions, as well as the oral argument of counsel, the Court hereby GRANTS in part and DENIES in part Uber's motion.

I. FACTUAL BACKGROUND

Plaintiffs are California drivers participating in the Uber service who bring this action on behalf of a putative class of "Uber drivers anywhere in the United State (other than Massachusetts)." Compl. ¶¶ 1, 4-5. Uber provides a mobile phone application permitting customers to hail a driver participating in the car service "on demand." Id. ¶¶ 11-12. Plaintiffs allege that Uber advertises on its website and in marketing materials that gratuity is included in the total cost of the service to passengers and that there is no need to tip the driver. Id. ¶ 14. In some instances, Uber has advertised that the gratuity is a set amount, such as 20 percent, which is customary in the car service industry. Id. ¶¶ 17, 19. In other instances, Plaintiffs allege that Uber does not specify a percentage or amount. Id. ¶ 18. Plaintiffs allege that Uber does not remit the entirety of the gratuity to drivers in violation of various California statutes and common law. Id. at ¶¶ 15-16.

The drivers operate under a Licensing Agreement with Uber. Def.'s Mot., Ex. 1.¹ The agreement includes a choice-of-law clause designating that California law governs the agreement. Id. at 11. It also refers to drivers as "independent contractors" and disclaims the creation of an employment relationship. Id. at 7, 8, iii. It sets forth the general terms by which fares will be collected and disbursed to drivers after Uber extracts its fee, id. at 5-6, and does not mention the handling of gratuities.

Plaintiffs allege that they have been misclassified as independent contractors and are actually employees because they are required to follow a "litany of detailed requirements imposed on them by Uber," and because "[t]he drivers' services are fully integrated" into Uber's business of "providing car service to customers." Compl. ¶¶ 22-24. As such, they should be reimbursed for their employment-related expenses pursuant to California Labor Code § 2802. Id. They also bring a claim for violation of California Labor Code § 351, for failing to remit full gratuities to the drivers.Id. at ¶ 39. They further allege Uber's breach of an implied-in-fact contract between themselves and Uber requiring Uber to remit tip revenue to the drivers in full, and/or breach of an implied-in-fact contract between Uber and customers to which the drivers are third-party beneficiaries. Id. at ¶ 38. Plaintiffs also seek restitution under quantum meruit, and allege Uber's tortious interference with drivers' contractual and/or advantageous economic relations with passengers. Id. at ¶¶ 36, 37. Finally, Plaintiffs claim violation of California's Unfair Competition Law (UCL), alleging that the above violations constitute "unlawful, unfair, or fraudulent business acts or practices." Id. at ¶ 41.

II. DISCUSSION

A. Legal Standard

Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss based on the failure to state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6). A motion to dismiss based on Rule 12(b)(6) challenges the legal sufficiency of the claims alleged. See Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). In considering such a motion, a court must take all allegations of material fact as true and construe them in the light most favorable to the nonmoving party, although "conclusory allegations of law and unwarranted inferences are insufficient to avoid a Rule 12(b)(6) dismissal." Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). While "a complaint need not contain detailed factual allegations . . . it must plead 'enough facts to state a claim to relief that is plausible on its face.'" Id. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than sheer possibility that a defendant acted unlawfully." Iqbal, 556 U.S. at 678. If the Court determines that the plaintiff has failed to state a claim under Rule 12(b)(6), the court "should grant the plaintiff leave to amend if the complaint can possibly be cured by additional factual allegations." Somers v. Apple, Inc., 729 F.3d 953, 960 (9th Cir. 2013) (citing Doe v. United States, 58 F.3d 494, 497 (9th Cir.1995)). Conversely, "[d]ismissal without leave to amend is proper if it is clear that the complaint could not be saved by amendment." Id. (quoting Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051 (9th Cir. 2008)).

B. Dormant Commerce Clause: Applying California Law to Non-California Drivers

Uber first argues that the dormant Commerce Clause prevents the application of California law to drivers outside of California who are members of the putative class, and therefore those drivers should be dismissed from the suit. Plaintiffs respond that Uber and its associated drivers contractually agreed to resolve their disputes arising out of their Licensing Agreement in California courts, applying California law. Uber responds that the choice-of-law provision only extends to adjudicating the terms of the agreement, not to all disputes between Uber and drivers.

"A state law violates the [dormant] Commerce Clause if its practical effect is to control conduct beyond the boundaries of the state." Gravquick A/S v. Trimble Navigation Int'l Ltd., 323 F.3d 1219, 1224 (9th Cir. 2003) (quoting Healy v. Beer Institute, 491 U.S. 324, 336 (1989)). Nonetheless, applying a state's law to conduct for which parties have chosen to be bound by that state's law through contract does not violate the Commerce Clause. See id.

Plaintiffs assert a number of California statutory and common law violations based on Uber's alleged practices of misleading passengers into believing that gratuity is included in the price of the service and then failing to remit that gratuity in full to the drivers, as well as failing to reimburse drivers for expenses because they have been misclassified as independent contractors. Compl. ¶¶ 21, 22, 24. The essential question is whether these claims fall within the purview of the choice-of-law clause in the Licensing Agreement between Uber and drivers.

The choice-of-law clause reads as follows:

This Agreement shall be governed by California law, without regard to the choice or conflicts of law provisions of any jurisdiction, and any disputes, actions, claims or causes of action arising out of or in connection with this Agreement or the Uber Service or Software shall be subject to the exclusive jurisdiction of the state and federal courts located in the City and County of San Francisco, California.

Def.'s Mot., Ex. 1 at 11. The scope of the choice-of-law clause is a matter of contract interpretation, which is governed by the law of the jurisdiction chosen by the parties to govern their agreement. See Narayan v. EGL, Inc., 616 F.3d 895, 898 (9th Cir. 2010) ("California . . . ordinarily examines the scope of a choice-of-law provision in a contract under the law designated in that contract."); Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459, 469 (1992) ("[T]he question of whether [thechoice-of-law] clause is ambiguous as to its scope . . . is a question of contract interpretation that in the normal course should be determined pursuant to [the choice-of-law clause jurisdiction's] law."). Thus, California law determines the reach of the choice-of-law clause since that clause selects California law to govern the agreement.

In Nedlloyd Lines, the choice-of-law clause provided, "This agreement shall be governed by and construed in accordance with Hong Kong law." 3 Cal. 4th at 463. The California Supreme Court, applying California choice-of-law rules,² held that the choice-of-law clause, "which provides that a specified body of law 'governs' the 'agreement' between the parties, encompasses all causes of action arising from or related to that agreement, regardless of how they are characterized, including tortious breaches of duties emanating from the agreement or the legal relationships it creates." 3 Cal. 4th at 470 (emphasis added). Accordingly, the Court applied Hong Kong law agreement - to claims alleging breach of contract and tort law violations arising from contractual relationships, as well as breaches of fiduciary duties. Id. at 463. Although fiduciary duties from one party to another were not explicitly identified in...