Supreme Court of California Justia
Docket No. S194388A
P. ex rel. Harris v. Pac Anchor Transportation, Inc.

Filed 7/28/14 Reposted to correct counsel listing; no change to opinion text


HARRIS, as Attorney General, etc.,
Plaintiff and Appellant,
Ct.App. 2/5 B220966
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.
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
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
does not preempt this action against defendants. We granted defendants’ petition
for review.
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
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
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
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.
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.)

“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.

“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.)

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).)

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.”
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
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
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
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
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
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
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
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
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;
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
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.
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.)


* 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.

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.

Date Filed: July 28, 2014


County: Los Angeles
Judge: Elizabeth Allen White



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.

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

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

Opinion Information
Date:Docket Number:
Mon, 07/28/2014S194388A