Sobaszkiewicz v. FedEx Ground Package System, Inc.

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA

7 HERMAN OVERPECK, et al., Case No. 18-cv-07553-PJH 8 Plaintiffs,

9 v. ORDER GRANTING IN PART AND DENYING PART MOTION TO AMEND 10 FEDEX CORPORATION, et al., COMPLAINT 11 Defendants. Re: Dkt. No. 110 12

13 14 Before the court is plaintiffs Herman Overpeck, Kevin Sterling, and Shannon 15 Sobaszkiewicz’s (“plaintiffs”) motion to amend complaint. The matter is fully briefed and 16 suitable for decision without oral argument. Having read the parties’ papers and carefully 17 considered their arguments and the relevant legal authority, and good cause appearing, 18 the court hereby rules as follows. 19 BACKGROUND 20 On December 14, 2018, plaintiffs Overpeck and Sterling filed a putative class 21 action against FedEx Corporation (“FedEx”) and FedEx Ground Package System, Inc. 22 (“FedEx Ground” and together with FedEx, “defendants”). Dkt. 1. On January 29, 2020, 23 plaintiffs filed a First Amended Complaint (“FAC”), which added Sobaszkiewicz, and 24 alleged twelve causes of action: (1) Common Law Fraudulent Misrepresentation; 25 (2) Common Law Conversion; (3) Failure to Pay for All Hours Worked, Cal. Labor Code 26 §§ 201, 202, 204, 221–23, and 226.2; (4) Failure to Provide Meal Periods, Cal. Labor 27 Code §§ 226.7, 512 and 8 Cal. Code Regs. § 11090; (5) Failure to Provide Rest Periods, 1 Wages, Cal. Labor Code §§ 1182.11–82.12, 1194, and 1197–97.1; (7) Failure to Pay 2 Overtime Compensation, Cal. Labor Code §§ 510, 515.5, 1194, and 1198 et seq.; (8) 3 Failure to Keep Accurate Payroll Records, Cal. Labor Code §§ 1174–74.5; (9) Failure to 4 Furnish Accurate Wage Statements, Cal. Labor Code § 226; (10) Waiting Time Penalties, 5 Cal. Labor Code §§ 201–03; (11) Unfair Competition and Unlawful Business Practices, 6 Cal. Bus. & Prof. Code § 17200, et seq.; and (12) Private Attorneys General Act 7 violations, Cal. Labor Code § 2698, et seq. Dkt. 85. 8 Defendant FedEx Ground, a subsidiary of FedEx, operates a network of package 9 handling terminals and freight transportation hubs. FAC ¶ 48. Plaintiffs are current or 10 former long-haul and local delivery drivers who provided transportation and delivery 11 services to FedEx Ground in California. Id. ¶ 40. Plaintiffs allege that previously FedEx 12 Ground’s labor force was made up of individual drivers that FedEx Ground hired directly 13 and labeled as independent contractors. Id. ¶ 7. At some point, FedEx Ground pivoted 14 to a so-called “Contract Service Provider” (“CSP”) model whereby a CSP entity employs 15 the drivers but then the drivers provide transportation and delivery services on behalf of 16 FedEx Ground pursuant to service agreements between the CSPs and FedEx Ground. 17 Id. The essence of plaintiffs’ claim is that they are actually FedEx (or FedEx Ground) 18 employees despite being employed by the CSPs, i.e., that defendants are joint employers 19 along with the CSPs. E.g., id. ¶ 98. In their FAC, plaintiffs did not sue any CSP—only 20 FedEx Ground and FedEx. 21 According to the FAC, FedEx and FedEx Ground treat the drivers as if they were 22 defendants’ employees. They do so by requiring drivers to report to work at FedEx hubs 23 or terminals; requiring drivers to use specific equipment and have such equipment on 24 their vehicles; requiring drivers to wear FedEx uniforms and use the FedEx logo on 25 drivers’ vehicles; supervising drivers’ routes and any customer complaints. Id. ¶ 8. 26 Plaintiffs accuse defendants of “subterfuge” by using intermediary CSPs to distance 27 themselves from the obligations of an employer under the California Labor Code. Id. 1 FedEx Ground previously moved under Federal Rule of Civil Procedure 19 to join 2 the CSPs that employed plaintiffs as necessary parties to this litigation. Dkt. 87. On April 3 1, 2020, this court issued an order in which it found that the CSPs were required parties 4 and that joinder of these parties was feasible. Dkt. 105 at 11–12. The court ordered 5 plaintiffs to file a second amended complaint within 21 days of the date of the order and 6 to serve the CSPs within 21 days of the newly filed second amended complaint. Id. at 7 12–13. Rather than filing a second amended complaint (“SAC”), plaintiffs filed the 8 present motion in which they attach a proposed SAC that would dismiss several claims 9 against defendants and add new factual allegations that would tend to establish 10 defendants’ direct (rather than vicarious) liability. Dkts. 110, 110-1. As relevant to the 11 court’s prior order on the Rule 19 motion, plaintiffs also seek to clarify whether the court’s 12 prior order applies only to the FAC or to the proposed SAC. Mtn. at 17. 13 DISCUSSION 14 A. Legal Standard 15 Federal Rule of Civil Procedure 15 requires that a plaintiff obtain either consent of 16 the defendant or leave of court to amend its complaint once the defendant has answered, 17 but “leave shall be freely given when justice so requires.” Fed. R. Civ. P. 15(a); see, e.g., 18 Chodos v. W. Pub. Co., 292 F.3d 992, 1003 (9th Cir. 2002) (leave to amend granted with 19 “extreme liberality”). Leave to amend is thus ordinarily granted unless the amendment is 20 futile, would cause undue prejudice to the defendants, or is sought by plaintiffs in bad 21 faith or with a dilatory motive. Foman v. Davis, 371 U.S. 178, 182 (1962); Smith v. Pac. 22 Props. & Dev. Corp., 358 F.3d 1097, 1101 (9th Cir. 2004). While the court should 23 consider all those factors, “the crucial factor is the resulting prejudice to the opposing 24 party.” Howey v. United States, 481 F.2d 1187, 1190 (9th Cir. 1973). 25 B. Analysis 26 1. Summary of Plaintiffs’ Proposed Second Amended Complaint 27 Plaintiffs attach a proposed SAC to their motion in which they propose two broad 1 action: the third cause of action for failure to pay for all hours worked, Cal. Labor Code 2 §§ 201, 202, 204, 221–23, and 226.2; the sixth cause of action for failure to pay minimum 3 wages, Cal. Labor Code §§ 1182.11–82.12, 1194, and 1197–97.1; the seventh cause of 4 action for failure to pay overtime compensation, Cal. Labor Code §§ 510, 515.5, 1194, 5 and 1198 et seq.; the eighth cause of action for failure to keep accurate payroll records, 6 Cal. Labor Code §§ 1174–74.5; and the tenth cause of action for waiting time penalties, 7 Cal. Labor Code §§ 201–03. Mtn. at 3. 8 Second, plaintiffs propose to add factual allegations and refine existing allegations 9 to clarify that FedEx1 is directly responsible (rather than vicariously liable or liable through 10 an agency theory) for the injuries for which plaintiffs seek relief. Id. at 3–4. Plaintiffs 11 assert that they are not alleging that the CSPs have caused the violations of California 12 law; rather, plaintiffs analogize the CSPs to hiring recruiters and middle managers of 13 FedEx. Id. at 5. According to plaintiffs, it is FedEx’s policies and edicts that control the 14 hours and working conditions of plaintiffs and the proposed class members. Id. Further, 15 FedEx decided to exclude plaintiffs and class members from the FedEx employer- 16 sponsored benefit plans. Id. at 7–8. As a result of these proposed new allegations, 17 plaintiffs’ proposed SAC would not name the CSPs as defendants. 18 2. Whether Rule 16 Applies to Plaintiffs’ Motion 19 Briefly, the court discusses the applicable legal standard. Defendants submit that 20 the applicable standard to grant plaintiffs’ motion is Rule 16(b)’s “good cause” standard. 21 Dkt. 113 at 8–9; Dkt. 114 at 5–6. Yet, as plaintiffs point out in their reply brief, no 22 deadline for amending the pleadings was ever set in a case management or pretrial 23 scheduling order. See Dkts. 37, 38, 73, 80. Accordingly, Rule 16(b)(4) does not apply to 24 the present motion and the applicable standard is provided by Rule 15(a). See Moeller v. 25

26 1 The court notes that throughout their motion plaintiffs refer to defendants collectively as FedEx without differentiating between FedEx Corporation and FedEx Ground. While the 27 court uses the term “FedEx” in this section to summarize plaintiffs’ arguments, such 1 Taco Bell Corp., No. C 02-5849 PJH, 2013 WL 6140730, at *1 (N.D. Cal. Nov. 21, 2013) 2 (“In this case, apart from a deadline to amend to add parties, no deadline for amending 3 the pleadings was ever set in a case management or pretrial scheduling order. . . . 4 [G]iven that no deadline for amending pleadings was ever set, the court finds that the 5 applicable standard is provided by Rule 15(a).”). 6 3. Whether Plaintiffs Meet the Requirements of Rule 15 7 Under Rule 15, “[t]he court should freely give leave [to amend the complaint] when 8 justice so requires.” Fed. R. Civ. P. 15(a)(2). This policy is “to be applied with extreme 9 liberality.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003). 10 The “party opposing amendment ‘bears the burden of showing prejudice.’” Id. at 1052 11 (quoting DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 185 (9th Cir. 1987)). 12 Plaintiffs argue defendants will suffer no undue prejudice because they propose to 13 reduce the causes of action asserted against defendants. Mtn. at 15. Plaintiffs further 14 contend that the additional factual allegations clarify that they are only challenging acts 15 directly attributable to defendants. Id. Finally, they argue that because the challenged 16 conduct remains unchanged, the proposed amendments will not expand the scope of 17 discovery. Id. 18 Defendant FedEx Ground responds that it will be unduly prejudiced by the 19 proposed second amended complaint because the parties have expended significant 20 effort in discovery and litigation on the merits of plaintiffs’ claims. Dkt. 113 at 10. FedEx 21 Ground characterizes the proposed amendments to be a fundamental change in 22 plaintiffs’ legal theories and changing legal theories at this stage in the litigation would 23 constitute prejudice. Id. 24 Both FedEx Ground and FedEx also argue that the proposed amendments are 25 futile. Id. at 11; Dkt. 114 at 7. Defendants contend that plaintiffs’ fraud and conversion 26 claims are not alleged with any particularity as required by Federal Rule of Civil 27 Procedure 9(b). Defendants further argue that the California Labor Code provides the 1 plaintiffs’ fraud and conversion claims. Dkt. 113 at 15–17; Dkt. 114 at 8–9. Next, both 2 defendants contend that plaintiffs’ claims related to FedEx’s benefit plans are only 3 asserted under the fraud, conversion, and derivative UCL causes of action and because 4 the fraud and conversion claims are futile, the claim for benefits is futile. Dkt. 113 at 17– 5 18; Dkt. 114 at 9. Finally, they contend that the proposed amendments are futile 6 because they exclude the CSPs and plaintiffs’ UCL and PAGA claims are derivative of 7 the other claims. Dkt. 113 at 18–23; Dkt. 114 at 9–11. 8 The court begins with an observation that, to some extent, plaintiffs’ request to 9 amend its complaint was already encompassed by the court’s prior order, which directed 10 plaintiffs to amend their complaint and serve the CSPs. See Dkt. 105 at 12–13. With 11 that broad observation in mind, defendants’ arguments as to undue prejudice are 12 unconvincing. Plaintiffs’ theory of the case has been consistent since their initial 13 complaint: they are seeking to hold FedEx Ground and FedEx liable as joint employers 14 and allege that defendants (rather than the CSPs) are ultimately responsible for the 15 Labor Code violations they allege. See, e.g., Dkt. 1, ¶¶ 6–8. Fed Ex Ground contends 16 that the parties have expended significant effort in discovery and litigation of plaintiffs’ 17 claims. Dkt. 113. at 10. Accepting this premise as true, defendants have not 18 demonstrated how the previously conducted discovery and litigation is now inapplicable 19 to the proposed SAC. Plaintiffs propose to eliminate several causes of action but have 20 not added any new causes of action. For that reason, this case is unlike McCoy v. 21 Iberdrola Renewables, Inc., 760 F.3d 674, 687 (7th Cir. 2014), where the Seventh Circuit 22 affirmed a denial of leave to amend where a party proposed to add seven new 23 counterclaims that advanced three new theories. See id. (“Undue delay is unusual at the 24 pleading stage . . . .” (citing Dubicz v. Commonwealth Edison Co., 377 F.3d 787, 793 (7th 25 Cir. 2004))). 26 Additionally, defendants have not established that plaintiffs’ proposed 27 amendments are clearly futile. “This court normally will not rule on the futility of an 1 amendment is clearly and unambiguously futile. In general, the futility of an amendment 2 is better tested in a motion to dismiss for failure to state a claim or a summary judgment 3 motion.” Bd. of Trustees of the Auto. Indus. Welfare Fund v. Groth Oldsmobile/Chevrolet, 4 Inc., No. C 09-0465 PJH, 2010 WL 760452, at *3 (N.D. Cal. Mar. 4, 2010). 5 Defendants have not argued bad faith or dilatory motive on the part of plaintiffs. 6 In sum, “[t]he standard for granting leave to amend is generous.” United States v. 7 Corinthian Colls., 655 F.3d 984, 995 (9th Cir. 2011) (quoting Balistreri v. Pacifica Police 8 Dep’t, 901 F.2d 696, 701 (9th Cir. 1990)). Defendants have not met their burden to deny 9 leave to amend. To the extent that plaintiffs seek to sidestep the court’s prior order on 10 FedEx Ground’s Rule 19 motion, those issues are addressed below. 11 For the forgoing reasons, plaintiffs meet the Rule 15 standard for amending their 12 complaint. 13 4. Whether Plaintiffs Must Serve Necessary Parties 14 The final issue is the status of the CSPs as necessary parties to this action. As 15 part of their motion, plaintiffs request that the court clarify whether its order on defendant 16 FedEx Ground’s Rule 19 motion applies only to the FAC or to the proposed SAC. Mtn. at 17 1. For their part, defendants contend that any amendment without the CSPs would be 18 futile. Dkt. 113 at 18–20. 19 In its prior order, the court determined that the CSPs were necessary parties using 20 the three-step Rule 19 analysis. At the first step, the court found that complete relief 21 could not be afforded between the current parties. As the FAC demonstrated, the CSPs 22 purportedly employed plaintiffs and the putative class members and the Labor Code 23 sections under which plaintiffs brought their claims imposes liability on employers. Dkt. 24 105 at 7–8. The court cited the rule that unless the language of the particular statutory 25 section of the Labor Code so provides, employers are not joint and severally liable for 26 violations of other joint employers. Id. at 8 (citing Noe v. Superior Court, 237 Cal. App. 27 4th 316, 333–34 (Ct. App. 2015)). The court determined that if plaintiffs succeeded in 1 respective obligations under the Labor Code (while the CSPs did not fulfill their 2 obligations), then plaintiffs would not be accorded complete relief. Id. at 11. At the 3 second step, the court then found that it would be feasible to order that the absentee 4 parties be joined and, therefore, it was not necessary, at the third step, to determine 5 whether the absentee parties were indispensable under Rule 19(b). Id. at 11–12. 6 By proposing to remove five causes of action and alleging additional factual 7 allegations concerning the purported direct liability of FedEx Ground and FedEx, plaintiffs 8 seek to avoid the conclusions of this court’s prior order and hope to “alleviate the need to 9 join the CSPs as defendants.” Mtn. at 17. Despite the proposed changes, both the 10 remaining factual matter and causes of action under the Labor Code do not alter the 11 court’s prior order. 12 As both the FAC and the proposed SAC demonstrate, the CSPs are alleged to 13 employ plaintiffs and the proposed class members and FedEx Ground and/or FedEx are 14 alleged to be joint employers. See, e.g., Dkt. 110-1, ¶¶ 8–9 (“Despite labeling the Drivers 15 as just the ‘employee’ of its so-called ‘CSPs’ FedEx treats the Drivers as its own 16 employees under the applicable legal standard.”). FedEx Ground submitted evidence in 17 support of its prior motion that demonstrated that the CSPs were distinct legal entities 18 from defendants and, further, that FedEx Ground and the CSPs entered into agreements 19 that governed the terms by which the CSPs would provide drivers to FedEx Ground. See 20 Dkts. 86, 87-3. Plaintiffs’ proposed SAC does not fundamentally alter the nature of the 21 arrangement between plaintiffs, defendants, and the CSPs. Defendants and the CSPs 22 enter into contractual arrangements to which plaintiffs and putative class members are 23 not a party; the CSPs and the drivers have some sort of employment relationship; and 24 plaintiffs allege that defendants are also employing the drivers. Plaintiffs’ additional 25 factual allegations speak to the magnitude and degree of defendants’ relationship with 26 plaintiffs but do not alter the separate corporate existence of the CSPs, their contractual 27 arrangements with defendants, or their relationship with plaintiffs. 1 for the failure to provide meal periods pursuant to sections 226.7 and 512; failure to 2 provide rest periods under section 226.7; and failure to furnish accurate wage statements 3 under section 226. In its prior order, the court examined the California Court of Appeal’s 4 decision in Serrano v. Aerotek, Inc., 21 Cal. App. 5th 773, 775–76 (Ct. App. 2018), which 5 dealt with vicarious liability between a temporary staffing agency and a food production 6 company to which the staffing agency provided the plaintiff’s services. The plaintiff in 7 Serrano brought claims under Labor Code § 226.7 against both the temporary staffing 8 agency and the food production company and the trial court determined that the food 9 production company satisfied its duty to provide meal periods to the plaintiff. Id. at 780. 10 The Court of Appeal rejected the plaintiff’s contention that, under section 226.7, the food 11 production company was vicariously liable for the staffing agency’s alleged violations 12 because the two entities were joint employers. The court held there was no vicarious 13 liability based on joint and several liability because the plaintiff “point[ed] to nothing in the 14 language of the applicable wage order or statutes to support the conclusion that an 15 employer is liable not only for a breach of its own duty but also for a coemployer’s breach 16 of the coemployer’s own duty.” Id. at 784; see also Noe, 237 Cal. App. 4th at 334 17 (“[W]hether an employer is liable under the Labor Code depends on the duties imposed 18 under the particular statute at issue.”). 19 The holding in Serrano informs the analysis here. As the Serrano court observed, 20 a joint employer who satisfies its duty under Labor Code § 226.7 is not vicariously liable 21 for the breaches of a joint employer. As this court reasoned in its previous order, if 22 FedEx Ground (and FedEx) were to demonstrate either at a dispositive motion or at trial 23 that it fulfilled its obligations under the Labor Code but the CSPs did not, then the court 24 would not be able to accord complete relief between the parties. Dkt. 105 at 11. The 25 additional allegations in the SAC do not change the court’s analysis in its prior order. 26 Because plaintiffs continue to bring a cause of action under section 226.7, the CSPs 27 1 remain necessary parties.2 2 In sum, plaintiffs’ proposed SAC does not alter this court’s analysis in its prior 3 order. The CSPs were and remain necessary parties to this litigation. 4 CONCLUSION 5 For the foregoing reasons, the plaintiffs’ motion is GRANTED IN PART AND 6 DENIED IN PART. Plaintiffs’ motion is granted to the extent they seek to amend their 7 complaint but denied to the extent it seeks relief from the court’s prior order. Accordingly, 8 plaintiffs shall avail themselves of one of the following three options: (1) they may file the 9 proposed second amended complaint (Dkt. 110-1) and name and serve the CSPs as 10 defendants; (2) they may amend the current First Amended Complaint and name and 11 serve the CSPs as defendants; or (3) to the extent they wish to amend the First Amended 12 Complaint in some other way, plaintiffs must file another motion to amend; however, such 13 amended complaint attached to any further motion to amend shall name the CSPs as 14 defendants. In any case, plaintiffs shall file and serve their amended complaint (or 15 motion to amend) within 7 days of the filing of this Order and summons shall be issued by 16 the Clerk of Court ordering Bondz, Inc.; G2 Logistics Inc; Dourado Transport Inc.; Dane 17 Logistics, Inc.; Smart Choice Enterprise; Soumir Inc.; and Turner Holdings to appear in 18 this action, and that the summons and a copy of the amended complaint, together with a 19 copy of this Order and the court’s April 1, 2020 Order, be served on those entities within 20 21 days from the date of the filing of the amended complaint. 21 IT IS SO ORDERED. 22 Dated: May 19, 2020 23 /s/ Phyllis J. Hamilton PHYLLIS J. HAMILTON 24 United States District Judge

27 2 Because the court’s prior reasoning and conclusion remains unchanged with respect to