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5

8 9 _ UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA)

12 || CALIFORNIA TRUCKING Case No.:. 3:18-cv-02458-BEN-BLM 3 ASSOCIATION, etal. .

44 Plaintiffs, ORDER ON MOTIONS TO DISMISS 15 Vv. . 16 ATTORNEY GENERAL XAVIER BECERRA, etal., - □ 7 _ Defendants, || INTERNATIONAL BROTHERHOOD 19 || OF TEAMSTERS, Pe 20 Intervenor-Defendant. □ 21 22 Pending before the Court are the State Defendants’ and Intervenor-Defendant’s 23 }|motions to dismiss Plaintiffs’ Second Amended Complaint in its entirety. Docs. 62, 91. 24 || For the following reasons, the motions are GRANTED IN PART AND DENIED IN PART.

26 27 28 .

1 I. BACKGROUND! 2 Plaintiff California Trucking Association (“CTA”) is an association of licensed 3 || motor-carrier companies that manage, coordinate, and schedule the movement of property 4 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 6 |,}owns and operates his own truck, and he contracts as an independent contractor with 7 || different motor carriers and brokers. in California to perform various trucking services, 8 ||Plaintif€ Thomas Odom. also owns and operates his own truck. He contracts as an _ 9 independent contractor with a national motor carrier to haul property within California and || between California and ‘Texas. . 1] decades, the trucking industry has used an owner-operator model to provide the 12 ||transportation of property in interstate commerce. That model generally involves a 13 licensed motor carrier contracting with an independent contractor driver to’ transport the 14 || carrier-customer’s property. The volume of trucking services needed within different 15 |/industries can vary over time based on numerous factors. Motor carriers meet the 16 fluctuating demand for highly varied services in part by relying upon independent- 17 || contractor drivers. 18 Individual owner-operators use a business model common in both California □□□ 19 |lacross the country. They typically buy or lease their own trucks. Then, the owner- 20 || operators typically work for themselves for some time to build up their experience and 21 ||reputation in the industry. Once the owner-operator is ready to expand their business, they 22 ||contract for or bid on jobs that require more than one truck, at which time, the owner- 23 || operator will subcontract with one or more other owner-operators to complete the job. 24 25 TTT 26 ' On a motion to dismiss, the Court accepts as true the factual allegations set forth in 27 ||the Complaint and reasonably construes the pleadings in the light most favorable to the nonmoving party. Manzarek v. St. Paul Fire & Marine Ins. Co.,

(9th 28 || Cir. 2008). . 3 .

1 |;Many individual owner-operators have invested in specialized equipment and have 2 || obtained the skills to operate that equipment efficiently. 3. Whether certain laws and regulations in the California Labor Code apply to truck 4 drivers, gencrally, depends on their status as employees or independent contractors. S.G. 5 || Borello & Sons, Inc. v. Dep’t of Indus. Relations,

(1989). For nearly 6 |ithree decades, California courts have used a test, based on the Bore/llo decision, to 7 determine whether workers are correctly classified as employees or independent 8 ||contractors. See

. The Borello standard considers the “right to control work,” as 9 as many other factors, including (a) whether the worker is engaged in a distinct 10 || occupation or business, (b) the amount of supervision required, (c) the skill required, (d) 11 || whether the worker supplies the tools required, (e) the length of time for which services 12 to be performed, (f) the method of payment, (g) whether the work is part of the regular 13 |] business of the principal, and (h) whether the parties believe they are creating an employer- 14 |}employee relationship. /d. at 355. In April of 2018, the California Supreme Court replaced 15 Borello classification test for Wage Order No. 9. with the “ABC test.” Dynamex. 16 Operations West v. Superior Court,

(2018). □□ 17 California’s Assembly Bill 5 (“AB-5”) codified the ABC test adopted in Dynamex 18 || and expanded its reach to contexts beyond Wage Order No. 9, including workers’ 19 || compensation, unemployment insurance, and disability insurance. As applied to the motor 20 carrier context, AB-5 provides a mandatory test for determining whether a person driving 21 hauling freight for another contracting person or entity is an independent contractor or 22 employee for all purposes under the California Labor Code, the Industrial Welfare 23 Commission wage orders, and the Unemployment Insurance Code. See Cal. Labor Code 24 2750.3(a)(1). Under AB-5’s ABC test, an owner-operator is presumed to be an employee 25 || unless the motor carrier establishes each of three requirements: □ 26 (A) The person is free from the control and direction of the hiring entity in 27 connection with the performance of the work, both under the contract for the performance of the work and in fact. . 28 . . .

I (B) The person performs work that is outside the usual course of the hiring entity’s business. 3 (C) The person is customarily engaged in an independently established trade, 4 occupation, or business of the same nature as that involved in the work _ performed. . □ 5 . 6 || AB-5 also includes certain exceptions that were not part of the Dynamex test, including an 7 || exception for “business-to-business contracting relationship[s].”? Jd. at § 2750.3(a)(1)(e). 8 || The statute additionally provides that “[i]f a court of law rules that the three-part [ABC] 9 test... cannot be applied to a particular context” due, for example, to federal preemption, 10 |j “then the determination of employee or independent contractor status in that context shall 11 |linstead be governed by [Borello].” Id. at § 2750.3(a\(1)3). 12 On September 18, 2019, California Governor Gavin Newsom signed AB-5 into law. 13 || AB-5 went into effect on J anuary 1, 2020. On December 2, 2019, Plaintiffs moved for a 14 preliminary injunction with a hearing set for December 30, 2019. When the Court 15 |/continued the hearing to January 13, 2020, Plaintiffs filed a motion for a temporary 16 ||restraining order on December 24, 2019. After considering the parties’ arguments in their 17. || briefing, the Court granted the temporary restraining order and enjoined Defendants from 18 enforcing AB-5 as to.any motor carrier operating in California until this Court’s resolution 19 Plaintiffs’ motion for a preliminary injunction. On January 16, 2020, the Court granted 20 || Plaintiffs’ motion for a preliminary injunction, enjoining Defendants from enforcing □□□□ 21 ||5 as to any motor carrier operating in California. 22 23 || 24

26 * The statute identifies numerous exempted occupations to which Borello, rather than 77 ABC test, will continue to apply. The exempted occupations include doctors, lawyers, accountants, investment advisers, commercial fishermen, and others. See Cal. Labor Code 28 |! § 2750.3(b)( 1)-(6). Motor carriers are not exempted.

I Il. DISCUSSION 2 The State Defendants and Intervenor-Defendant (collectively “Defendants”) move 3 dismiss Plaintiffs’ Second Amended Complaint for lack of subject matter jurisdiction 4 |/under Rule 12(b)(1) and for failure to state a claim under Rule 12(b)(6). As a threshold 5 matter, the Court first addresses Plaintiffs’ standing and then turns to their claims under 6 1206\6). 7 A. Article III Standing 8 “One of the essential elements of a legal case or controversy is that the plaintiff have 9 || standing to sue.” Trump v. Hawai i,

(2018). To demonstrate Article 10 |) I standing, a plaintiff must show a “concrete and particularized” injury that is “fairly 11 || traceable” to the defendant’s conduct and “that is likely to be redressed by a favorable 12 || decision.” Spokeo, Ine. v. Robins,

(2016). “Where, as here, a 13 || case is at the pleading stage, the plaintiff must clearly allege facts demonstrating each 14 ||element.” /d. at 1547 (internal quotation marks and citations omitted). The State Defendants and Intervenor contend Plaintiffs lack standing because their 16 claimed “pre-enforcement” injury is speculative. According to Defendants, because 17 || Plaintiffs do not allege any actual enforcement against them of the State’s AB-5 ABC test, 18 |/ their injury is not “certainly impending.” Doc. 62-1 at 17-19. As the Supreme Court has 19 |) explained, however, “[w]hen an individual is subject to [the threatened enforcement of a 20 law], an actual arrest, prosecution, or other enforcement action is not a prerequisite to 21 || challenging the law.” Susan B, Anthony List v. Driehaus,

(2014). Thus, 22 the same reasons addressed in its January 16, 2020 preliminary Injunction order, the 23 || Court is not persuaded by Defendants’ position. See Doc. 89 at6 (“Plaintiffs have satisfied 24 ||the imminent injury requirement where, assuming their interpretation of AB-S is correct, 25 j|they face the choice of either implementing significant, costly compliance measures or 26 risking criminal-and civil prosecution. See, e.g,

; Cal. Labor 27 § 119.5;

and 226.8.”). 28 . yee a nnace DUNT □□□

1 _ Intervenor also attacks Plaintiffs’ standing on two additional grounds, neither of 2 || which have merit. First, Intervenor argues that CTA does not have standing because it has 3 shown that any single CTA member will be injured by use of the ABC test to determine 4 ||whether drivers are employees. See Summers v. Earth Island Inst.,

, 498 5 (2009) (An association has standing to represent its members’ interests only when “at least 6 || 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 8 in SG. Borello & Sons, Inc. v. Dep’t of Indus. Rel.,

(1989). Thus, 9 Intervenor posits that because CTA does not submit evidence that its members’ drivers are 10 employees under Borello, there is no evidence that the ABC test injures a single CTA 11 ||member. □ 12 As it did in its preliminary injunction order, the Court disagrees. See Doc. 89 at 6- {3 |}9. CTA has plausibly alleged that many of its members have been injured, including by ||pleading that many of its members regularly contract with individual independent 15 || contractors, that its members did so lawfully prior to Dynamex, and that CTA’s members 16 can no longer do so. See SAC Ff 5, 6. Construing the allegations in the light most favorable 17 CTA, the association has pled sufficient facts to show how its members are injured. 18 Moreover, at the current, pleadings stage, the Court is not persuaded that the identity of 19 || specific members is somehow required for fair notice of CTA’s claims. See also League 20 Women Voters of Cal. v. Kelly,

, at *8 (N.D. Cal. Aug. 25, 2017) 21 (concluding that “[t]he court cannot discern why—at the pleadings stage—the identity of 22 |/particular members is required for fair notice of the claims” but finding that because 23 ||plaintiffs alleged only their “belief” that members were injured, they did not allege 24 || associational standing that is relatively clear, rather than speculative). 25 Next, Intervenor argues the individual plaintiffs, Singh and Odom, lack standing to 26 |/challenge AB-5 because they falsely claim that they can no longer “lawfully contract as 27 |jindividual owner-operators” under California law. SAC 468. The Court is not persuaded 28 | by Intervenor’s challenge for several reasons. First, Intervenor lodges its challenge at the 6 .

I ||pleadings stage, not at the summary judgment stage. Thus, when evaluating Singh and 2 ||Odom’s standing, their factual allegations are presumed to be true. See Lujan v. Defenders 3 Wildlife,

(1992) (“At the pleading stage, general factual allegations 4 |/of injury resulting from the defendant’s conduct may suffice, for on a motion to dismiss 5 |lwe ‘presum[e] that general allegations embrace those specific facts that are necessary to 6 || support the claim.’”). . 7 Those allegations include the following. Singh and Odom own and operate their 8 |fown trucks. SAC “4 16-17. Singh and Odom contract with and are treated by motor 9 || carriers as independent contractors. Jd. “Under the ABC test adopted in Dynamex and 10 codified by AB-5, Plaintiffs SINGH and ODOM will, by operation of law, be deemed 11 to be the employees of any motor carrier that enters into a contract with them to provide 12 trucking services in California. Because it would be impracticable for motor carriers to 13 |) contract with individual owner-operators to provide such services, motor carriers will risk 14 || potential liability whenever they contract with owner-operators to provide trucking 15 |/services.” Id. at 78. “If they wish to avoid incurring such liability, motor carriers will be 16 || forced to cease using independent contractors to provide trucking services.” Jd. at J 67. 17 ||“[Ujnder the new ABC test, Plaintiffs SINGH and ODOM face the threat of losing their: 18 || businesses because they are not able to lawfully contract as individual owner-operators 19 with motor carriers to provide trucking services in California to the motor carriers’ 20 || customers.” /d. at 168. Construing these allegations as true and in the light most favorable 21 ||to Odom and Singh, the SAC adequately alleges their injuries: damage to their businesses 22 || because AB-5 prohibits motor carriers from contracting with individual owner-operators 23 ||as independent contractors. At the current pleading stage, that theory is sufficient for 24 || standing. . 25 Finally, Defendants argue in the alternative that the Court should exercise its 26 || discretion to not hear this case. The Court declines. Defendants’ invitation. Defendants’ 27 ||}own authority, Government Employees Insurance Co. v. Dizol, cautions that “there is no 28 || presumption in favor of abstention in declaratory actions generally.”

, 1225 7 .

1 (9th Cir. 1998). Rather, a district court should consider several factors when exercising its 2 discretion, including (1) avoiding ‘the needless determination of state law issues; (2) 3 ||discouraging the filing of declaratory actions as a means of forum shopping; and (3) 4 || avoiding duplicative litigation. 7d. at 1226. Here, each of those factors weigh in favor of 5 ||the Court exercising its jurisdiction over this case. First, this matter turns on federal 6 || preemption, not state law issues. Second, Defendants offer no evidence of forum shopping. 7 Third, a ruling on this matter will likely reduce duplicative litigation by making 8 |j unnecessary other courts’ decisions on the same claims. Accordingly, the Court finds the 9 |} instant matter warrants judicial resolution. | 10 B. Plaintiffs’ Claims 11 Defendants move to dismiss for failure to state a claim each of Plaintiffs’ three 12 ||claims: (1) FAAAA preemption, (2) violation of the dormant Commerce Clause, and (3) 13 || preemption by the FMCSA. On a motion to dismiss under Rule 12(b)(6), the Court must 14 accept the complaint’s allegations as true and construe all reasonable inferences in favor 15 ||of the nonmoving party. Ashcroft v. Igbal,

(2009). To avoid dismissal, 16 plaintiff's complaint must plead “enough facts to state a claim to relief that is plausible 17 its face.” Bell Atl. Corp. v. Twombly,

(2007). 18 1. FAAAA Preemption (Count 1) □ □ 19 Defendants move to dismiss Plaintiffs’ FAAAA preemption claim, arguing that 20 || Plaintiffs rely upon an invalid legal theory for their claim. According to Defendants, as a 21 matter. of law, the FAAAA cannot preempt AB-5, and thus, Plaintiffs fail to state a claim 22 under Rule 12(b)(6). The Court disagrees. In its preliminary injunction order, the Court 23 already considered at length the same challenges to Plaintiffs’ FAAAA preemption claim 24 ||made by Defendants. In so doing, the Court found that Plaintiffs established a “likelihood 25 || of success on the merits” as to the FAAAA preemption claim, thereby satisfying an even 26 || higher burden than the mere plausibility standard imposed by Rule 12(b)(6). Accordingly, 27 the same reasons stated in its January 16, 2020 order, the Court finds Plaintiffs have 28 |/alleged sufficient facts to state a claim for relief that is plausible on its face—that the

1 || FAAAA preempts AB-5. See Doc. 89 at 10-20. The motion to dismiss is DENIED as to 2 Count 1. 3 2. Dormant Commerce Clause (Count 2) _ 4 Defendants next move to dismiss Plaintiffs’ claim that AB-5’s ABC test violates the 5 || dormant Commerce Clause by forcing them to “cease contracting with individual owner- 6 j|operators.” SAC at 99 76-77. The Commerce Clause, found in Article I, Section 8, clause 7 |13 of the United States Constitution, gives Congress the power “[t]o regulate commerce . . 8 . among the several states.” Courts have consistently held that this affirmative grant of 9 || power to Congress includes a negative implication, which restricts the ability of states to 10 ||regulate interstate commerce. Camps Newfound/Owatonna, Inc. vy. Town of Harrison, 11 || Maine,

(1997). That restriction upon the states, referred to as the 12 ||dormant Commerce Clause, “prohibits economic protectionism—that iS, ‘regulatory 13 ||measures designed to benefit in-state economic interests by burdening out-of-state 14 ||competitors.”” Fulton Corp. v. Faulkner, 516 USS. 325, 330 (1996). Under the dormant 15 Commerce Clause, courts “protect[] the free flow of. commerce, and thereby safeguard[] 16 |} Congress’ latent power from encroachment by the several States[]” when Congress has not. 17 affirmatively exercised its Commerce Clause power. Merrion v. Jicarilla Apache Indian 18 || Tribe,

(1982). 19 - A state law like AB-5 may violate the “negative implications” of the Commerce 20 || Clause by unduly burdening or discriminating against interstate commerce. Judicial review 21 ||of a state law under the dormant Commerce Clause “is intended to ensure that States do ||not disrupt or burden interstate commerce when Congress’ power remains unexercised.” 23 || Merrion,

. “However, we only engage in this review when Congress has 24 acted or purported to act.” /d: “Once Congress acts, courts are not free to review state 25 [laws] under the dormant Commerce Clause.”

Put another way, “[cJourts are final 26 |{arbiters under the Commerce Clause only when Congress has not acted.” Jd. at □□□□ 27 Here, Plaintiffs fail to state a claim under the dormant Commerce Clause because 28 | Congress has acted: the FAAAA’s express preemption provision provides that all state

| that “relate[] to a price, route, or service of any motor carrier . . . with respect to the 2 || transportation of property” are preempted.

(c)(1). Thus, by enacting the 3 ||FAAAA, Congress affirmatively exercised its Commerce Clause power to regulate 4 |linterstate trucking, rendering a separate dormant Commerce Clause review of AB-5’s 5 }limpact on interstate commerce unnecessary. See also Schwann FedEx Ground Package 6 || System, Inc.,

(1st Cir. 2016) (“The Supreme Court has identified the 7 objectives that account for th[e] [FAAAA’s] broad reach: to ensure that the States 8 || would not undo federal deregulation with regulation of their own, and to avoid a patchwork 9 of state service-determining laws, rules, and regulations.”) (internal quotation marks and 10 ||citations omitted). Put another way, because Congress has affirmatively exercised its 11 Commerce-Clause power in the area within which Plaintiffs bring their challenge to AB-5, 12 is no need for the dormant Commerce Clause to safeguard Congress’s latent power 13 || from encroachment by the states. Congress has already done so. Accordingly, Defendants’ 14 |/motion to dismiss Count 2 for violation of the dormant: Commerce Clause is GRANTED. 15 3. FMCSA Preemption (Count3) 16 On December 28, 2018, the Federal Motor Carrier Safety Administration 17 1|(“FMCSA”), an agency of the United States Department of Transportation, published an 18 || Order concluding that California’s meal and rest period rules,

, 19 |1512, 516, and Cal. Code Regs., title 9 §§ 11090(11)-(12) (“MRB Rules”), are preempted 20 |j by

as applied to drivers of property-carrying commercial motor vehicles 21 ||subject to FMCSA’s Hours-of-Service (“HOS”) regulations. See California’s Meal and 22 || Rest Break Rules for Commercial Motor Vehicle Drivers,

-1,

6809341 (Dec. 28, 2018). The Order concluded that California’s MRB Rules cannot be 24 || enforced against such drivers. □ 25 Plaintiffs’ Count 3 asks the Court to enforce the FMCSA’s December 2018 Order 26 || by issuing a declaration that California’s meal and rest period requirements may not be 27 |\enforced as to-drivers of property-carrying commercial motor vehicles subject to ‘the 28 federal HOS rules. See Doc. 90 at 42:7-8; SAC at J 3. Plaintiffs theorize that the Order is 10 ne pmace □□□□□□□□□

1 || dispositive because under

(a), “A State may not enforce a State law or 2 regulation on commercial motor vehicle safety that the Secretary of Transportation decides 3 || under this section may not be enforced.” 4 Defendants, however, contend Plaintiffs’ claim must be dismissed because there is 5 private right of action to enforce Section 31141. Plaintiffs do not disagree. Instead, 6 ||they respond that they are seeking to enforce the FMCSA’s Order, not enforce Section 7 {|31141. Regardless of which theory of recovery the Court considers, however, Plaintiffs’ 8 || FMCSA claim fails as a matter of law. First, as Defendants contend, the FMCSA does not 9 || create a private right of action. See

. Second, to the extent Plaintiffs 10 |/rely upon the Supremacy Clause for their claim, it, too, does not create a cause of action 11 || for preemption claims. “See Armstrong v. Exceptional Child Ctr., Inc.,

, 324- ‘12 (2015) “[T]he Supremacy Clause is not the source of any federal rights . .. and certainly 13 not create a cause of action.”) (quotation marks omitted). Finally, Plaintiffs cannot 14 ||state a claim for an order “enforcing” the FMCSA decision because enforcing the decision 15 || would offer no relief beyond the decision itself. See, e.g., Rosemere Neighborhood □□□□□ 16 U.S. Environmental Protection Agency,

(9th Cir. 2009) (“In 17 |) general, when an administrative agency has performed the action sought by a plaintiff in 18 || litigation, a federal court ‘lacks the ability to grant effective relief,’ and the claim is 19 || moot.”). Accordingly, the motion to dismiss is GRANTED as to Count 32 20 . □ 21 ———_________ oe 73 . Notably, if the claim went forward, Defendants would have no other choice but to 24 jichallenge the merits of the 2018 FMCSA Order. The Court, however, would lack 25 ||Jjurisdiction to review the Order because

(f) and

(3)(A) federal appeals courts with exclusive jurisdiction to enjoin, set aside, suspend, or 26 determine the validity of FMCSA preemption determinations. Defendants’ inability to 97 ||challenge the Order before this Court further supports dismissal of Plaintiffs’ Count 3. Indeed, multiple petitions challenging that FMCSA order are currently before the Ninth 28 Circuit. See Labor Commissioner State of Cal. v. FMCSA, No. 19-70329 (9th Cir.). Al □

1 Ill. CONCLUSION 2 For the previous reasons, Defendants and Intervenor-Defendant’s motions to dismiss 3 GRANTED IN PART AND DENIED IN PART. The motions are denied as to the 4 || 12(b)(1) challenges to Plaintiffs’ standing, denied as to the 12(b)(6) challenge to Count 1, 5 granted as to the 12(b)(6) challenges to Counts.2 and 3. Accordingly, Plaintiffs’ 6 dormant Commerce Clause and FMCSA claims are DISMISSED with prejudice. 7 IT IS SO ORDERED. g , 9 ||Date: February 2020 Sd 10 / OGER ¢ é PNITEZ : United States Distriét Judge 11 / 12 13 14 . 15 . . □ 16 17 / 18 || 19 . . □ . 20 21 22 || 23 □ 24 . . 25 26 27 28 12