People Ex Rel. Harris v. Pac Anchor Transportation, Inc.

Filed 7/28/14

IN THE SUPREME COURT OF CALIFORNIA

THE PEOPLE ex rel. KAMALA D. )

HARRIS, as Attorney General, etc., )

)

Plaintiff and Appellant, )

) S194388

v. )

) Ct.App. 2/5 B220966

PAC ANCHOR TRANSPORTATION, )

INC., et al., ) Los Angeles County

) Super. Ct. No. BC397600

Defendants and Respondents. )

____________________________________

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

2

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, Inc. (2007) 155 Cal.App.4th 411, 423 (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

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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.) “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 (Brown); see Viva! Internat. Voice for

Animals v. Adidas Promotional Retail Operations, Inc. (2007) 41 Cal.4th 929,

935.) Express preemption occurs when Congress defines the extent to which its

enactments preempt state law. (Viva!, at p. 936.) 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

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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 (Rowe); see American Airlines, Inc. v.

Wolens (1995) 513 U.S. 219, 222-223 (Wolens) [construing similar express

preemption clause of the ADA]; Morales v. Trans World Airlines, Inc. (1992) 504

U.S. 374, 383-384 (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, supra, 51 Cal.4th at pp. 1059-1060; see

Wyeth v. Levine (2009) 555 U.S. 555, 565 (Wyeth); Morales, supra, 504 U.S. at p.

383; In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1265 (Tobacco Cases II).)

“ ‘Second, “[i]n all pre-emption cases, and particularly in those in which

Congress has ‘legislated . . . in a field which the States have traditionally

occupied,’ . . . we ‘start with the assumption that the historic police powers of the

States were not to be superseded by the Federal Act unless that was the clear and

manifest purpose of Congress.’ ” ’ [Citations.]” (Brown, supra, 51 Cal.4th at p.

1060.) This is known as the presumption against preemption, and its role is to “ ‘

“provide[] assurance that ‘the federal-state balance’ [citation] will not be disturbed

5

unintentionally by Congress or unnecessarily by the courts.” ’ [Citation.]” (Ibid.;

see Wyeth, supra, 555 U.S. at p. 565; Tobacco Cases II, supra, 41 Cal.4th at p.

1265.) The high court, however, in response to a state’s argument for a “ ‘public

health’ ” exception to FAAAA preemption, has stated that the FAAAA creates no

exemption for state “laws that it would otherwise pre-empt.” (Rowe, supra, 552

U.S. at p. 374; accord, DiFiore v. American Airlines, Inc. (1st Cir. 2011) 646 F.3d

81, 86 [neither Rowe, nor Morales, nor Wolens “adopted [the] position . . . that we

should presume strongly against preempting in areas historically occupied by state

law”].)

With these principles in mind, we turn to the FAAAA’s express preemption

provision. In analyzing the provision, we rely on the analytical framework

provided by the high court’s jurisprudence on the subject.

C. The FAAAA

The United States Supreme Court recently explained the history and

purpose of the FAAAA: “In 1978, Congress ‘determin[ed] that “maximum

reliance on competitive market forces” ’ would favor lower airline fares and better

airline service, and it enacted the [ADA].” (Rowe, supra, 552 U.S. at pp. 367-

368.) “In order to ‘ensure that the States would not undo federal deregulation with

regulation of their own,’ that Act ‘included a pre-emption provision’ that said ‘no

State . . . shall enact or enforce any law . . . relating to rates, routes, or services of

any air carrier.’ ” 1 (Rowe, at p. 368.)

1 “Reenacting Title 49 of the U.S. Code in 1994, Congress revised this clause

to read: [¶] ‘. . . related to a price, route, or service . . . .’ Congress intended the

revision to make no substantive change. Pub.L. 103-272, § 1(a), 108 Stat. 745.”

(Wolens, supra, 513 U.S. at p. 223, fn. 1.) The terms “rates” and “prices” will be

used interchangeably.

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“In 1980, Congress deregulated trucking.” (Rowe, supra, 552 U.S. at p.

368, citing Motor Carrier Act of 1980 (Pub.L. No. 96-296 (July 1, 1980) 94 Stat.

793).) “[I]n 1994, Congress similarly sought to pre-empt state trucking

regulation.” (Rowe, at p. 368, citing FAAAA, 108 Stat. 1569, 1605-1606 &

Interstate Commerce Com. Termination Act of 1995 (Pub.L. No. 104-88 (Dec. 29,

1995) 109 Stat. 803, 899).) “In doing so, it borrowed language from the [ADA]

and wrote into its 1994 law language that says: ‘[A] State . . . may not enact or

enforce a law . . . related to a price, route, or service of any motor carrier . . . with

respect to the transportation of property.’ ” (Rowe, at p. 368, quoting 49 U.S.C.

§ 14501(c)(1); see ibid., citing 49 U.S.C. § 41713(b)(4)(A) [similar provision for

combined motor-air carriers)].)2 Specifically, the FAAAA was intended to

prevent state regulatory practices including “entry controls, tariff filing and price

regulation, and [regulation of] types of commodities carried.” (H.R. Conf. Rep.

No. 103-677, 2d Sess., p. 86 (1994), reprinted at 1994 U.S. Code Cong. & Admin.

News, p. 1758.)

In Morales, the Supreme Court set out fundamental principles that define

the scope of ADA preemption. (Morales, supra, 504 U.S at pp. 388-390.)

2 The full text of title 49 United States Code section 14501(c)(1) provides:

“(1) General rule.—Except as provided in paragraphs (2) and (3), a State, political

subdivision of a State, or political authority of 2 or more States 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 (other than a carrier

affiliated with a direct air carrier covered by section 41713(b)(4)) or any motor

private carrier, broker, or freight forwarder with respect to the transportation of

property.” Paragraph (2) discusses three exempt matters: (1) state regulation of

motor vehicle safety, highway controls, and minimum amounts of insurance; (2)

household goods; and (3) tow trucks. (Id., § 14501(c)(2).) Paragraph (3) deals

with “Continuation” of “State standard transportation practices,” such as “uniform

bills of lading or receipts” and “antitrust immunity for joint line rates . . . .” (Id.,

§ 14501(c)(3).)

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Morales called for an analysis of the underlying state regulations on advertising to

determine if they related to carrier prices. After finding that “every one” of the

state guidelines on advertising at issue bore a “ ‘reference to airfares,’ ” the court

held that the ADA preempted the claims of a coalition of state attorneys general

who threatened to use consumer protection laws to enforce state advertising

regulations against airlines. (Morales, at p. 388.) Morales did not address

whether the advertising guidelines derived from the enactment or enforcement of

state law. Instead, the court found that the state advertising regulations were

preempted because they required that advertisements referencing airfares clearly

state any applicable “variations in fares” as well as any “material restrictions on

the fares’ availability,” and that airlines make advertised fares “available in

sufficient quantities to ‘meet reasonably foreseeable demand.’ ” (Id. at p. 387.)

“[V]iolations of these requirements would give consumers a cause of action . . .

for an airline’s failure to provide a particular advertised fare — effectively

creating an enforceable right to that fare . . . .” (Id. at p. 388.)

In addition, the state regulations had a “forbidden significant effect on

fares” (Morales, supra, 504. U.S. at p. 388, italics added) because the restrictions

on fare advertising increased consumer difficulty in determining the lowest cost.

“ ‘[W]here consumers have the benefit of price advertising, retail prices often are

dramatically lower than they would be without advertising.’ ” (Id. at p. 388.)

Morales did suggest that “ ‘[s]ome state actions may affect [airline fares] in too

tenuous, remote, or peripheral a manner’ to have pre-emptive effect.” (Id. at p.

390.) But the court expressed “ ‘no views about where it would be appropriate to

draw the line’ ” because the case before it did “not present a borderline question.”

(Ibid.)

The Supreme Court’s “second encounter with the ADA’s preemption

clause” arose in the context of a consumer fraud claim that sought to enjoin

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American Airlines from devaluing the benefits associated with its frequent flyer

program. (Wolens, supra, 513 U.S. at p. 223.) Wolens decided whether a claim

brought under the Illinois consumer fraud act fell within the ADA’s proscription

that “ ‘[N]o State . . . shall enact or enforce any law’ ” relating to price, route, or

service. (Wolens, at pp. 222-223.) The court held that the consumer fraud act

constituted state enforcement of a law relating to price, because it “serve[d] as a

means to guide and police the marketing practices of airlines.” (Wolens, at p. 228;

see Northwest, Inc. v. Ginsberg (2014) 572 U.S. ___ [134 S.Ct. 1422] [ADA

preempts state law claim for Northwest Airlines’s breach of implied covenant of

good faith and fair dealing regarding changes to its frequent flyer program].)

The Supreme Court incorporated the holdings of Morales and Wolens in the

FAAAA context when it decided Rowe, supra, 552 U.S. 364. Because in Morales

the high court had previously interpreted the same language as contained in the

1978 ADA, and Congress endorsed this interpretation, the Rowe court followed

Morales’s interpretation of the ADA in order to interpret the FAAAA. (Rowe,

supra, 552 U.S. at pp. 370-371.) Initially, Rowe observed that FAAAA

preemption applies only to claims that (1) derive from the enactment or

enforcement of state law, and (2) relate to a motor carrier’s prices, routes, or

services with respect to the transportation of property. (Rowe, supra, 552 U.S. at

pp. 370-372.) Rowe held that the FAAAA preempted a provision of Maine’s

tobacco delivery law that required tobacco distributors to utilize a delivery service

that would verify whether “the person to whom the package [was] addressed [was]

of legal age to purchase tobacco.” (Rowe, at p. 368.) The court conceded that an

initial review of the regulation might make it appear applicable to shippers rather

than carriers. However, the court observed that the effect of Maine’s law would

be substantial because “carriers will have to offer tobacco delivery services that

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differ significantly from those that, in the absence of the regulation, the market

might dictate.” (Id. at p. 372.)

More recently, in Dan’s City Used Cars, Inc. v. Pelkey (2013) 569 U.S. ___

[133 S.Ct. 1769] (Dan’s City), the plaintiff brought suit under various state laws,

including the New Hampshire Consumer Protection Act, to recover damages from

a defendant who towed the plaintiff’s car and traded it to a third party without

compensating the plaintiff. (Dan’s City, supra, 569 U.S. at p.___ [133 S.Ct. at p.

1775].) The court initially noted that where Congress has superseded state

legislation by statute, its duty is to focus on the statutory language in order to

“ ‘identify the domain expressly pre-empted.’ ” (Id. at p. __ [133 S.Ct. at p.

1778].) The court observed that “it is not sufficient that a state law relates to the

‘price, route, or service’ of a motor carrier in any capacity; the law must also

concern a motor carrier’s ‘transportation of property.’ [Citation.] [¶] Title 49

defines ‘transportation,’ in relevant part, as ‘services related to th[e] movement’ of

property, ‘including arranging for . . . storage [and] handling . . . .’ ” (Dan’s City,

at p. __ [133 S.Ct. at pp. 1778-1779].) These fall within the FAAAA’s ambit

“only when those services ‘relat[e] to th[e] movement” of property.” (Id. at p. __

[133 S.Ct. at p. 1779].) Because the FAAAA preempts only state laws that relate

to motor carrier “ ‘price, route, or service . . . with respect to the transportation of

property,’ ” a unanimous court held that the plaintiff’s state law claims, including

his claim under New Hampshire’s consumer protection act, were unrelated to the

transportation or service of a motor carrier. (Id. at p. __ [133 S.Ct. at p. 1775],

italics omitted.)

Dan’s City determined that the New Hampshire law did not run afoul of the

congressional purpose behind the FAAAA, namely, to prevent individual states

from substituting their “ ‘own governmental commands for competitive market

forces in determining . . . the services that motor carriers will provide.’ ” (Dan’s

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City, supra, 569 U.S. at p. __ [133 S.Ct. at p. 1780].) The law in question did not

“constrain participation in interstate commerce by requiring a motor carrier to

offer services not available in the market. Nor [did it] ‘freez[e] into place services

that carriers might prefer to discontinue in the future.’ ” (Ibid.)

Morales, Wolens, Rowe, and Dan’s City each establish when a claim is

expressly preempted. (See, e.g., Tanen v. Southwest Airlines Co. (2010) 187

Cal.App.4th 1156, 1166-1167.) Based on these cases, in order to find FAAAA

preemption here, defendants must show that the People’s UCL claim (1) derives

from the enactment or enforcement of state law, and (2) relates to Pac Anchor’s

prices, routes, or services with respect to the transportation of property. (Rowe,

supra, 552 U.S. at pp. 370-372.) Because the People concede the UCL claim

against Pac Anchor derives from the enforcement of state law, the issue narrows to

whether the People’s claim “relate[s] to” Pac Anchor’s price, route, or service

“with respect to the transportation” of property. (49 U.S.C. § 14501(c)(1).)

Defendants make two preemption arguments: First, they assert that the

FAAAA facially preempts all claims against motor carriers brought under

California’s UCL; second, they argue that the People’s particular UCL claim is

preempted as applied to this case. We turn to the facial preemption argument first.

D. Facial Preemption of California’s UCL

Defendants contend that UCL claims against motor carriers are facially

preempted because they regulate the effect that unfair business practices have on

the quality and price of goods and services. They rely on Fitz-Gerald, which held

that the ADA preempted a UCL claim based on state minimum wage laws because

Morales and Wolens “held that claims under a state unfair business practices

statute are preempted.” (Fitz-Gerald, supra, 155 Cal.App.4th at p. 423.) The

Court of Appeal here rejected the argument, holding that when a cause of action is

based on allegations of unlawful violations of the state’s labor and employment

11

laws, there is no reason to find preemption simply because the pleading raises

these issues under the UCL, as opposed to separate causes of action. The People

add that the UCL’s application here does not interfere with the FAAAA’s

regulations because that act preempts only state regulations that are specifically

“related to” the “price, route, or service” of motor carriers for violations involving

the “transportation of property.” (See 49 U.S.C. § 14501(c)(1).) As we explain,

the Court of Appeal and the People have the better interpretation.

The UCL’s “scope is broad,” and its coverage is “ ‘sweeping.’ ” (Cel-Tech,

supra, 20 Cal.4th at p. 180; see Zhang v. Superior Court (2013) 57 Cal.4th 364

[analyzing a UCL claim against an insurance company].) It defines unfair

competition to “mean and include any unlawful, unfair or fraudulent business act

or practice and unfair, deceptive, untrue or misleading advertising.” (Bus. & Prof.

Code, § 17200.) The UCL does not mention motor carriers, or any other industry

for that matter; it is a law of general application. In Tobacco Cases II, we held

that, as a general matter, the UCL is not subject to preemption on its face by the

Federal Cigarette Labeling and Advertising Act (15 U.S.C. § 1331 et seq.), which

governs cigarette sales to minors, because it “is a law of general application, and it

is not based on concerns about smoking and health.” (Tobacco Cases II, supra, 41

Cal.4th at p. 1272; see Dan’s City, supra, 569 U.S. at pp. __ [133 S.Ct. at pp.

1778-1779] [FAAAA does not preempt state consumer protection law of general

application].) Similarly, here the FAAAA embodies Congress’s concerns about

regulation of motor carriers with respect to the transportation of property; a UCL

action that is based on an alleged general violation of labor and employment laws

does not implicate those concerns.

Indeed, defendants have conceded, as they must, that the FAAAA does not

preempt generally applicable employment laws that affect prices, routes, and

services. (See, e.g., Californians for Safe Dump Truck Transp. v. Mendonca (9th

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Cir. 1998) 152 F.3d 1184, 1190 (Mendonca) [holding that the FAAAA does not

preempt California’s prevailing wage law when enforced against transportation

companies].) Mendonca emphasized that in drafting the FAAAA, Congress

observed that 10 jurisdictions had not enacted laws to regulate intrastate prices,

routes, or services, despite the fact that seven of those states had wage and hour

provisions similar to California’s. (Mendonca, at p. 1187.) Mendonca concluded

that Congress’s observation that those seven states did not regulate prices, routes,

or services “constitute[d] indirect evidence that Congress did not intend to

preempt” the regulations there at issue. (Id. at p. 1188.) We observe that all 10 of

the jurisdictions identified in Mendonca had unfair competition laws or deceptive

trade practices statutes in force at the time Congress passed the FAAAA and that

Congress did not perceive these laws as implicating regulation of prices, routes, or

services. (See Alaska Stat. § 45.50.471 [prohibiting “unfair methods of

competition” and “unfair or deceptive acts or practices]; Ariz. Rev. Stat. § 44-

1522 [prohibiting deceptive practices in employment]; see also Del. Code Ann. tit.

6, § 2513 [prohibiting deceptive practices in employment]; D.C. Code § 28-3904

[enacting a broad deceptive practices prohibition]; Fla. Stat. § 501.204 [broadly

prohibiting deceptive and unconscionable trade practices]; Me. Rev. Stat. Ann. tit.

5, § 207 [prohibiting unfair or deceptive practices in competition]; Md. Code

Ann., Com. § 13-303 [restricting unfair or deceptive trade practices]; N.J. Stat.

Ann. § 56:8-2 [prohibiting fraud and deceptive trade practices]; Vt. Stat. Ann. tit.

9, § 2453 [prohibiting unfair trade practices in commerce]; Wis. Stat. § 100.20

[providing that business methods and competition in business must be fair].)

Dan’s City impliedly approved Mendonca’s reasoning on this point. Like

Mendonca, Dan’s City expressly incorporated an earlier federal employee

retirement income security act (ERISA) preemption case into its FAAAA analysis.

(Dan’s City, supra, 569 U.S. at p. __ [133 S.Ct. at p. 1778], citing New York State

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Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co. (1995) 514

U.S. 645, 655-656 (Travelers); see Mendonca, supra, 152 F.3d at pp. 1188-1189.)

As Mendonca noted, Travelers rejected the notion that under ERISA’s broad

preemption provision, Congress intended to preempt “basic regulation of

employment conditions” even though such regulation “will invariably affect the

cost and price of services.” (Travelers, supra, 514 U.S. at p. 660.) Thus, we hold

that the FAAAA does not facially preempt the People’s UCL action in this case.

To the extent Fitz-Gerald v. SkyWest, Inc., supra, 155 Cal.App.4th 411, is

inconsistent with the above analysis and conclusion, we disapprove it.

E. The People’s UCL Action as Applied

Defendants also challenge the People’s action as applied under the

FAAAA. They note that the People assert a single cause of action under the UCL,

premised on violations of the Unemployment Insurance Code, the Labor Code,

and IWC Wage Order No. 9. Defendants contend that under the facts of this case,

the People’s action actually seeks to regulate motor carrier competition (i.e.,

prices, routes, or services) directly, by coupling the UCL with various provisions

of Unemployment Insurance Code, Labor Code, and IWC Wage Order No. 9. The

People counter that they filed the UCL claim because defendants sought to evade

the financial and administrative responsibilities of these laws, and compete

unfairly, by misclassifying their truck drivers as independent contractors. The

UCL action, the People argue, is independent of defendants’ prices, routes, or

services with respect to the transportation of property. We agree.

In Morales, the high court held that state airline advertising guidelines

related to airfares, because the guidelines required airlines to disclose material

restrictions on price, and “effectively creat[ed] an enforceable right to that fare

when the advertisement fail[ed] to include the mandated . . . disclaimers.”

(Morales, supra, 504 U.S. at p. 388.) Morales calls for an analysis of the

14

underlying state regulations to see if they relate to motor carrier prices, routes, or

services when enforced through the UCL.

The sections of the Labor Code and the Unemployment Insurance Code

that anchor the People’s UCL claim make no reference to motor carriers, or the

transportation of property. Rather, they are laws that regulate employer practices

in all fields and simply require motor carriers to comply with labor laws that apply

to the classification of their employees. In fact, defendants concede “that those

state employment laws . . . are laws of general application whose effects on the

carriers’ prices, routes, and services is remote.” Defendants do not concede the

point with respect to IWC Wage Order No. 9. Although IWC Wage Order No. 9

regulates wages, hours, and working conditions “in the transportation industry,”

the sections on which the People rely do not refer to prices, routes, or services.

Section 4 governs minimum wage requirements, and section 7 governs employer

recordkeeping. If sections 4 and 7 have an effect on defendants’ prices, routes, or

services, that effect is indirect, and thus falls outside the scope of the test set forth

in Morales. For this reason, we also reject defendants’ argument that the FAAAA

facially preempts sections 4 and 7 of IWC Wage Order No. 9.

Defendants next argue that the People’s UCL claim, will significantly

affect motor carrier prices, routes, and services because its application will prevent

their using independent contractors, potentially affecting their prices and services.

Defendants claim that if the People’s UCL action is successful, they will have to

reclassify their drivers as employees, driving up their cost of doing business and

thereby affecting market forces.

The defendants’ assertion that the People may not prevent them from using

independent contractors is correct, but its characterization of the People’s UCL

claim is not. Nothing in the People’s UCL action would prevent defendants from

using independent contractors. The People merely contend that if defendants pay

15

individuals to drive their trucks, they must classify these drivers appropriately and

comply with generally applicable labor and employment laws.

Dan’s City observed that the “target at which [Congress] aimed” the

FAAAA was “ ‘a State’s direct substitution of its own governmental commands

for competitive market forces in determining (to a significant degree) the services

that motor carriers will provide.’ ” (Dan’s City, supra, 569 U.S. at p. __ [133

S.Ct. at p. 1780]; see Columbus v. Ours Garage & Wrecker Service, Inc. (2002)

536 U.S. 424, 449 (dis. opn. of Scalia, J.) [recognizing FAAAA preemption is

limited to laws and regulations that single out for special treatment motor carriers

of property; states remain free to enforce general regulations not targeting motor

carriers regarding transportation of property].)

Dan’s City emphasized the FAAAA limiting phrase “with respect to the

transportation of property,” which strongly supports a finding that California labor

and insurance laws and regulations of general applicability are not preempted as

applied under the FAAAA, even if they form the basis of the People’s UCL action.

(See California Div. of Labor Standards Enforcement v. Dillingham Constr., N.A.,

Inc. (1997) 519 U.S. 316, 334 [relying on Travelers to conclude that ERISA does

not preempt California’s prevailing wage law].) The laws invoked here apply to

all employers, not just trucking companies. As we noted earlier, Mendonca

concluded that California’s generally applicable prevailing wage laws were not

preempted by the FAAAA in part because several states Congress identified as not

having laws regulating interstate trucking had prevailing wage laws in place at the

time the FAAAA was enacted. (Ante, at p. 13.) Similarly, eight out of the 10

jurisdictions identified in Mendonca had generally applicable laws governing

when a worker is an independent contractor (or the equivalent) and when a worker

is an employee. (See Alaska Stat. § 23.20.525; Ariz. Rev. Stat. § 23-902; Del.

Code Ann. tit. 19, § 3302; Fla. Stat. § 440.02; Me. Rev. Stat. Ann. tit. 26, § 1043;

16

N.J. Stat. Ann. § 43.21-19; Vt. Stat. Ann. tit. 21, § 1301; Wis. Stat. §§ 102.07,

108.02.) Thus even though the People’s UCL action may have some indirect

effect on defendants’ prices or services, that effect is “ ‘too tenuous, remote, [and]

peripheral . . . to have pre-emptive effect.’ ” (Morales, supra, 504 U.S. at p. 390.)

Defendants also contend that the People’s UCL claim should be preempted,

even if its effect on motor carrier transportation is remote, because it threatens

Congress’s deregulatory purpose. In Rowe, the high court stated that “pre-emption

occurs at least where state laws have a ‘significant impact’ related to Congress’s

deregulatory and pre-emption-related objectives.” (Rowe, supra, 552 U.S. at p.

371.) Congress passed the FAAAA in order to end a patchwork of state

regulations. However, nothing in the congressional record establishes that

Congress intended to preempt states’ ability to tax motor carriers, to enforce labor

and wage standards, or to exempt motor carriers from generally applicable

insurance laws. (See Mendonca, supra, 152 F.3d at pp. 1187-1188 [Congress did

not intend ADA to preempt Cal. prevailing wage law]; see also Rice v. Santa Fe

Elevator Corp. (1947) 331 U.S. 218, 230 [matters traditionally within state’s

police powers not preempted unless Congress’s intent to do so is manifest].)

Defendants argue additionally that the People’s UCL claim conflicts with

Congress’s deregulatory purpose because it erects the very entry control that

Congress intended to dismantle. The congressional record does show that

Congress disapproved of a California law that denied advantageous regulatory

exemptions to motor carriers who used a large proportion of independent

contractors. (See H.R. Conf. Rep. No. 103-677, 2d Sess., p. 87, supra, reprinted at

1994 U.S. Code Cong. & Admin. News, p. 1759.) As we have noted, however,

defendants’ claim is factually inaccurate because the People’s UCL action does

not encourage employers to use employee drivers rather than independent

contractors. Defendants are free to use independent contractors as long as they are

17

properly classified. The People’s sole premise for invoking the UCL is to ensure

that employers properly classify their employees or independent contractors in

order to conform to state law.

CONCLUSION

For the reasons stated, we hold that 49 U.S.C. section 14501(c) does not

preempt the People’s UCL action. We therefore affirm the Court of Appeal’s

judgment. We leave it to that court to decide how to address the remaining issues

on remittitur. (On remand, the trial court will have to address the merits of the

case, i.e., whether the defendants actually misclassified their employees as

independent contractors.)

CHIN, J.

WE CONCUR:

CANTIL-SAKAUYE, C. J.

BAXTER, J.

WERDEGAR, J.

CORRIGAN, J.

LIU, J.

ARONSON, J.*

_____________________________

* Associate Justice of the Court of Appeal, Fourth Appellate District, Division

Three, assigned by the Chief Justice pursuant to article VI, section 6 of the

California Constitution.

18

See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion People ex rel. Harris v. Pac Anchor Transportation, Inc.

__________________________________________________________________________________

Unpublished Opinion

Original Appeal

Original Proceeding

Review Granted XXX 195 Cal.App.4th 765

Rehearing Granted

__________________________________________________________________________________

Opinion No. S194388

Date Filed: July 28, 2014

__________________________________________________________________________________

Court: Superior

County: Los Angeles

Judge: Elizabeth Allen White

__________________________________________________________________________________

Counsel:

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, 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.

Sands Lerner, Cox Wootton Lerner Griffin Hansen & Poulos, Neil S. Lerner; Trident Law and Arthur A.

Severance for Defendants and Respondents.

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

and Respondents.

Law Offices of Stephen Glick, Stephen Glick and Anthony Jenkins for Salvador Rodriguez as Amicus

Curiae on behalf of Defendants and Respondents.

Holland & Knight and Linda Auerach Allderdice for California Trucking Association as Amicus Curiae on

behalf of Defendants and Respondents.

Counsel who argued in Supreme Court (not intended for publication with opinion):

Satoshi Yanai

Deputy Attorney General

300 South Spring Street, Suite 1702

Los Angeles, CA 90013

(213) 897-0015

Neil S. Lerner

Cox Wootton Lerner Griffin Hansen & Poulos

12400 Wilshire Boulevard, Suite 1300

Los Angeles, CA 90025

(310) 979-9144