Alejandro Lupian v. Joseph Cory Holdings LLC

Citation: 905 F.3d 127Docket: 17-2346

Court: Court of Appeals for the Third Circuit; September 27, 2018; Federal Appellate Court

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Alejandro Lupian, Juan Lupian, Isaias Luna, Jose Reyes, and Efrain Lucatero, professional delivery drivers, contracted with Joseph Cory Holdings LLC to provide services. They alleged that Joseph Cory unlawfully deducted wages from their paychecks without contemporaneous consent, violating the Illinois Wage Payment and Collection Act (IWPCA). In response, Joseph Cory sought to dismiss the claims, arguing that the Federal Aviation Administration Authorization Act of 1994 (FAAAAA) preempted the IWPCA. The District Court denied this motion, concluding that the connection between the IWPCA and the FAAAA was too tenuous for preemption. The Drivers claimed that despite contracts designating them as independent contractors, the nature of their work made them employees under the IWPCA. The contracts allowed for deductions termed 'chargebacks' for various expenses, which were made without the Drivers' consent. The Drivers filed a class action under the Class Action Fairness Act of 2005, and the District Court certified its order for interlocutory appeal, leading to Joseph Cory's appeal being granted. The Court of Appeals affirmed the District Court's denial of the motion to dismiss.

The complaint included allegations of violations under New Jersey law, which the District Court dismissed, applying Illinois law instead (Lupian v. Joseph Cory Holdings, LLC, 240 F. Supp. 3d 309, 313–14 (D.N.J. 2017)). On appeal, both parties agreed to the application of Illinois law, and the dismissal of the New Jersey law claims and the unjust enrichment claim under Illinois law was not contested by the Drivers. The District Court's jurisdiction was established under the Class Action Fairness Act (CAFA), 28 U.S.C. 1332(d)(2), and the appellate court has jurisdiction under 28 U.S.C. 1292(b) for discretionary interlocutory review.

Joseph Cory moved to dismiss the Drivers' Illinois Wage Payment and Collection Act (IWPCA) claim, citing federal preemption, which is subject to plenary review. The facts in the complaint are accepted as true for this motion, and preemption is an affirmative defense that the defendant must prove. To succeed in a Rule 12(b)(6) motion based on an affirmative defense, the defense must be evident from the complaint and supporting documents. 

Preemption arises from the Supremacy Clause of the Constitution, mandating that state laws conflicting with federal laws yield. There are three types of federal preemption: field preemption, implied conflict preemption, and express preemption. Express preemption involves determining if state actions are explicitly barred by federal law. When assessing federal statutes that preempt state law in areas of traditional state regulation, such as employment and wage laws, there is a presumption against preemption.

In City of Columbus v. Ours Garage, Wrecker Service, Inc., the Supreme Court addressed the preemption clause of the Federal Aviation Administration Authorization Act (FAAAA). The Court began with a presumption against preemption, rooted in the belief that state police powers are not to be overridden by federal law unless Congress's intent is explicit. To ascertain Congress's intent, the Court emphasized the importance of the plain language of the statute. Although a previous decision concerning the Bankruptcy Code did not engage with areas typically governed by states, the presumption against preemption would still apply to express preemption claims. The historical context revealed that prior to 1978, the federal government tightly regulated the airline industry. In response to the need for competitive markets, Congress enacted the Airline Deregulation Act (ADA) in 1978, aiming to enhance efficiency and consumer choice in air transportation. The ADA included a preemption provision prohibiting state laws related to air carrier rates, routes, or services. Similarly, while the Motor Carrier Act of 1980 deregulated the motor carrier industry, it did not preempt state regulation. However, due to complications arising from state economic regulations, Congress enacted the FAAAA in 1994, which expressly preempts certain state regulations concerning the trucking industry. The FAAAA's preemption clause prevents states from enacting laws related to the price, route, or service of motor carriers, specifically regarding property transportation, with a phrase that significantly narrows the scope of preemption, as recognized by the Supreme Court.

The Illinois Wage Payment and Collection Act (IWPCA) applies to all employees and employers in Illinois, defining an 'employee' as anyone permitted to work by an employer. The IWPCA imposes various wage-related obligations on employers, including timely payment of wages, compensation for separated employees, contributions to benefit trusts, notification of pay rates, and potential damages for improper compensation. In this case, the Drivers allege that Joseph Cory violated a specific provision of the IWPCA that prohibits wage deductions without the employee's express written consent at the time of the deduction.

Additionally, the excerpt discusses the preemption of state laws by the Federal Aviation Administration Authorization Act (FAAAAA) as interpreted by the Supreme Court. The FAAAA's preemption clause restricts state actions that relate to airline prices, routes, or motor carrier services, even if the state's impact is indirect. Preemption applies where state laws significantly affect federal deregulatory objectives, but not where the impact is only tenuous or remote. The court has ruled that certain local regulations, such as zoning, and laws against prostitution or gambling, do not qualify for preemption. The discussion includes a case involving the Airline Deregulation Act (ADA), where a court emphasized a presumption against preemption, suggesting that state laws should not be overridden unless Congress's intent is clear. The focus should be on whether a state law disrupts market competition to determine preemption applicability.

The travel agency's defamation claim was determined not to be preempted by the Airline Deregulation Act (ADA) as it did not frustrate Congressional intent nor impose utility-like regulations on airlines. The agency's suit was deemed too tenuous to fall under preemption. Similarly, in Gary v. Air Group, Inc., the Third Circuit addressed whether the ADA's preemption clause barred a wrongful termination lawsuit under New Jersey's whistleblower statute. The Court emphasized the presumption against preemption in employment law, asserting that Gary's claim, characterized as a typical employment dispute, was not preempted due to its remote connection to the airline's service.

In examining Joseph Cory's Rule 12(b)(6) motion to dismiss regarding the Federal Aviation Administration Authorization Act (FAAAAA) and the Illinois Wage Payment and Collection Act (IWPCA), it was noted that the FAAAA's preemption clause aims to prevent states from re-regulating the trucking industry while promoting reliance on competitive market forces. Although the FAAAA applies to state laws that directly or indirectly affect motor carrier rates, routes, or services, it could not be concluded at this procedural stage that the IWPCA significantly impacted such areas or undermined the FAAAA's objectives. Joseph Cory's claim of substantial impact from the IWPCA was challenged, particularly in relation to the Wolens decision, which differentiated between state-imposed dictates and airline agreements, finding that while ADA preempted certain claims, it did not preempt breach of contract claims when they were based solely on the airlines' own undertakings.

Joseph Cory references a statement from the U.S. Brief in Wolens regarding the importance of enforcing freely made agreements in contract law, which is acknowledged but deemed irrelevant to the current case that does not involve a breach of contract claim. The court argues that modifying compensation arrangements for drivers would disrupt Cory’s business model and contradict the deregulatory goals of the FAAAA preemption clause. The IWPCA claims, which relate to wage laws, are recognized as traditional state regulations that do not specifically target trucking firms and primarily govern employer-employee relationships. The court finds that the IWPCA's operation is sufficiently distanced from the regulations the FAAAA seeks to preempt. 

It acknowledges that although changes to labor models could have adverse effects on employers, similar to zoning regulation changes that the Supreme Court has ruled are not preempted, the IWPCA's impact is too indirect and minor to invoke preemption. Citing the Seventh Circuit's decision in Costello v. BeavEx, the court concurs that the IWPCA does not significantly affect prices, routes, or services offered by motor carriers. BeavEx's claims of increased labor costs leading to higher customer prices were deemed insufficiently persuasive, as the court concluded the IWPCA's regulation of employers does not have a significant impact on customer pricing.

The BeavEx court highlighted that the Illinois Wage Payment and Collection Act (IWPCA) permits employers to bypass the prohibition on wage deductions if they obtain the employee's express written consent at the time of the deduction. This provision was deemed significant in light of the Supreme Court’s ruling in Nw. Inc., which stated that state law is not preempted when it allows parties to contract around certain rules. Joseph Cory contends that Nw. Inc. does not apply because the IWPCA's consent requirement is fundamentally different from allowing parties to contract around its provisions. The court disagreed, supporting BeavEx's position that denying it the ability to deduct wages would not significantly impact its operational costs or services. 

The discussion also references the Ninth Circuit's decision in Dilts v. Penske Logistics, where the court affirmed that wage and hour laws reflect traditional state regulation, thus applying a presumption against preemption by the FAAAA. The court noted that general regulations, such as meal and rest break laws, are not typically preempted even if they influence an employer’s pricing or operational decisions. The employer in that case demonstrated that compliance would necessitate a price increase of about 3.4% annually. 

The court ultimately ruled that California's law was not preempted by the FAAAA, indicating that state laws must not be sufficiently "related to" motor carrier operations to trigger preemption. Joseph Cory referenced two First Circuit cases where state laws were preempted by the ADA and FAAAA; however, the court distinguished these cases from the IWPCA. In DiFiore v. American Airlines, Inc., the law directly regulated airline services rather than merely employer conduct, while Schwann v. FedEx Ground Package Systems involved misclassification of workers, which is not directly comparable to the IWPCA’s provisions.

The court ruled that the Federal Aviation Administration Authorization Act (FAAAA) preempted the Massachusetts Independent Contractor Statute (MICS) due to the latter's extensive regulation of independent contractors, which would effectively prevent FedEx from utilizing independent contractors. The court distinguished the MICS from the Illinois Wage Payment and Collection Act (IWPCA), noting that while the IWPCA only minimally affects employee compensation, the MICS imposes a comprehensive regulatory framework that significantly interferes with FedEx's pricing, routes, and services. This interference was deemed substantial enough to justify preemption under federal law, as state laws with a significant impact on carrier operations are forbidden. The court found that the Drivers' case was not comparable to previous cases like Schwann, as the IWPCA did not demonstrably affect carrier operations to a significant degree. The court emphasized that the IWPCA's limited scope fell short of the sweeping nature of MICS regulations. Joseph Cory's motion to dismiss under Rule 12(b)(6) was rejected, as the court maintained that the IWPCA's impact was too weak to disrupt the FAAAA's intent, leading to the affirmation of the District Court's order.