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CALIFORNIANS v. MENDONCA

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA


February 4, 1997

CALIFORNIANS FOR SAFE AND COMPETITIVE DUMP TRUCK TRANSPORTATION, et al., Plaintiffs,
v.
ROBERTA MENDONCA, et al., Defendants.

The opinion of the court was delivered by: PATEL

MEMORANDUM AND ORDER

 Plaintiffs Californians for Safe and Competitive Dump Truck Transportation and others brought this action against defendants Roberta E. Mendonca and other directors of certain state agencies of the State of California seeking (1) a declaration that California Labor Code sections 1770-80 ("Prevailing Wage Law") are unconstitutional as preempted by 49 U.S.C. section 14501 and as an impermissible burden on interstate commerce; and (2) an injunction preventing enforcement of the Prevailing Wage Law against plaintiffs. Now before the court is defendants' motion to dismiss plaintiffs' claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The International Brotherhood of Teamsters has moved to intervene as a defendant in this action and has filed a brief as amicus curiae in support of defendants' motion to dismiss. The court granted the motion to intervene and has reviewed the submissions of the intervenors.

 Having considered the parties' arguments and submissions, and for the reasons set forth below, the court enters the following memorandum and order.

  BACKGROUND1

 Plaintiff Californians for Safe and Competitive Dump Truck Transportation (CSCDTT) is an association of motor carriers operating in California, formed to improve dump truck transportation in California and to help its members resolve common problems and grievances. The two additional plaintiffs, Lindeman Brothers, Inc. and Yuba Trucking, Inc., are California corporations that provide dump trucks to move various construction materials in both intrastate and interstate commerce.

 Collectively, plaintiffs brought this action against several individuals and the state agencies they represent. Defendant Roberta E. Mendonca is Director of the California Division of Labor Standards Enforcement, *fn2" defendant Lloyd Aubry, Jr. is Director of the California Department of Industrial Relations and defendant James W. Van Loben Sels is Director of the California Department of Transportation. Under the authority of their respective agencies, defendants regulate wages on public works projects in the State of California.

 Plaintiffs provide, among other things, motor carrier services to publicly-funded projects in the state and calculate their rates for such services based on: (1) costs, including cost of labor, permits, insurance, tax and license; (2) performance factors; and (3) conditions, including prevailing wage requirements.

 Two statutes are involved in this action: (1) California's prevailing wage law, Labor Code §§ 1770-80 ("Prevailing Wage Law"); and (2) 49 U.S.C. § 14501 ("section 14501"). Enacted in 1937, the Prevailing Wage Law requires payment of a general prevailing wage based on wages in the "locality" for various "crafts" to persons performing public works contracts and the disclosure of certified employee payroll records to ensure compliance. See Cal. Labor Code §§ 1770, 1776. Enacted in the Federal Aviation Administration Authorization Act of 1994 ("FAAA Act"), Section 14501 establishes preemption of state economic regulation "related to a price, route, or service" of motor carriers. FAAA Act, Pub. L. No. 103-305, § 601(c), 108 Stat. 1569 (1994) (currently codified at 49 U.S.C. § 14501(c)). *fn3"

 Defendants have notified plaintiffs that they are subject to various penalties for failing to pay prevailing wages and provide payroll records as required by the Prevailing Wage Law. Plaintiffs contend that enforcement of the Prevailing Wage Law will result in irreparable harm because compliance requires them to increase their rates by 25% for transportation services provided from non-commercial sources to public works projects, and from public works projects to other public and private sites ("disputed transportation"). *fn4"

 Plaintiffs filed this action on September 20, 1996, claiming that enforcement of the Prevailing Wage Law with respect to the disputed transportation is unconstitutional in two ways: (1) the Prevailing Wage Law constitutes an impermissible burden on interstate commerce; and (2) enforcement of the Prevailing Wage Law violates the supremacy clause because it is preempted by section 14501. Defendants filed the instant motion to dismiss on October 18, 1996.

  LEGAL STANDARD

 Under Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss for failure to state a claim will be denied unless it appears that the plaintiff can prove no set of facts which would entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Fidelity Financial Corp. v. Federal Home Loan Bank of San Francisco, 792 F.2d 1432, 1435 (9th Cir. 1986), cert. denied, 479 U.S. 1064, 93 L. Ed. 2d 998, 107 S. Ct. 949 (1987). All material allegations in the complaint will be taken as true and construed in the light most favorable to the plaintiff. NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). Although the court is generally confined to consideration of the allegations in the pleadings, when the complaint is accompanied by attached documents, such documents are deemed part of the complaint and may be considered in evaluating the merits of a Rule 12(b)(6) motion. Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987), cert. denied sub. nom. Wyoming Community Dev. Auth. v. Durning, 484 U.S. 944, 98 L. Ed. 2d 358, 108 S. Ct. 330 (1987). Each ground for dismissal will be considered in turn.

 DISCUSSION

 Plaintiffs contend that enforcement of the Prevailing Wage Law with respect to the disputed transportation is unconstitutional on two grounds: (1) such regulation is preempted by 49 U.S.C. § 14501(c) and therefore violates the supremacy clause; and (2) such regulations place an unconstitutional burden on interstate commerce under the commerce clause. Defendants have moved to dismiss on both grounds. *fn5"

 I. Preemption

 Plaintiffs argue that 49 U.S.C. § 14501 preempts the Prevailing Wage Law because its enforcement has a direct effect on the price of the services they provide. Specifically, plaintiffs ask the court to declare the Prevailing Wage Law preempted by section 14501 and to enjoin its enforcement with respect to the disputed transportation. In response, defendants argue that the Prevailing Wage Law is not preempted by section 14501 because its provisions only indirectly affect plaintiffs' rates and prices and its legislative history does not support preemption of general wage regulation traditionally governed by state law.

 Under the supremacy clause, federal law may preempt state law either by express provision, by implication, or by a conflict between federal and state law. N.Y. Conference of Blue Cross v. Travelers Ins., 514 U.S. 645, 115 S. Ct. 1671, 1676, 131 L. Ed. 2d 695 (1995) (citations omitted). An analysis of whether a state law is preempted begins with "the starting presumption that Congress does not intend to supplant state law." Id. It is "never assumed lightly that Congress has derogated state regulation." 115 S. Ct. at 1677. When addressing preemption claims, "the question whether a certain state action is pre-empted by federal law is one of congressional intent. The purpose of Congress is the ultimate touchstone." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137-38, 112 L. Ed. 2d 474, 111 S. Ct. 478 (1990) (citations omitted). Furthermore, "where federal law is said to bar state action in fields of traditional state regulation," it is assumed 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." Blue Cross, 115 S. Ct. at 1676 (citations omitted); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 740, 85 L. Ed. 2d 728, 105 S. Ct. 2380 (1985).

 California's Prevailing Wage Law encompasses two areas of law traditionally regulated by states. *fn6" Defendants are correct in stating that the regulation of wages is a subject of traditional state concern. See WSB Elec., Inc. v. Curry, 88 F.3d 788 (9th Cir. 1996), petition for cert. filed, 65 U.S.L.W. 3400 (1996) (explaining that this fact is "well settled"). The regulation of public works has also been recognized as an area of state concern. See Atkin v. Kansas, 191 U.S. 207, 222-23, 48 L. Ed. 148, 24 S. Ct. 124 (1903) (stating that "it belongs to the state, as the guardian and trustee for its people . . . to prescribe the conditions on which it will permit public work to be done on its behalf, or on behalf of its municipalities.").

 Defendants argue that because the Prevailing Wage Law involves these areas of law, it cannot be preempted by section 14501. *fn7" This is a bit conclusory. To determine if section 14501 preempts California's Prevailing Wage Law, the court must first analyze the text of the federal provision, then determine congressional intent as expressed in the statute's legislative history. See Blue Cross, 115 S. Ct. at 1677 (statutory construction "begins . . . with the text of the provision in question, [then], as need be, to the structure and purpose of the Act in which it occurs").

 A. Interpreting Congressional Intent

 Defendants argue that the Prevailing Wage Law is not preempted because (1) neither the plain language of section 14501 nor its legislative history support plaintiffs' contention that the Prevailing Wage Law is the type of law intended to be preempted by the statute; and (2) the Prevailing Wage Law is not sufficiently "related to" the prices and rates of plaintiffs' motor carrier services to require preemption. Plaintiffs read the legislative history of section 14501 in a different light, arguing that (1) the use of the phrase "related to" and the legislative history of section 14501 indicate that Congress intended the statute to have broad preemptive effect; and (2) the Prevailing Wage Law has a direct effect on their rates of service and therefore is sufficiently "related to" section 14501 to require preemption.

 49 U.S.C. § 14501 states in relevant part:

 

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 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.

 49 U.S.C. § 14501(c)(1). This language does not, on its face, encompass state regulation of wages such as the Prevailing Wage Law. Because it is not entirely clear that regulation of wages is "related to" motor carriers' prices, routes, or services, the court must next consider the legislative history of section 14501 to determine if it was Congress's "clear and manifest" intent that the Prevailing Wage Law be preempted. In determining intent, the regulation of labor on state-funded construction projects is deemed within the state's traditional police power which courts must presume Congress did not intend to preempt. See Minnesota Chapter of Assoc. Builders v. Minnesota Dept. of Labor, 47 F.3d 975, 979 (8th Cir. 1995) (citing Metropolitan Life, 471 U.S. at 740).

 Plaintiff is correct in stating that Congress intended the preemption provision in section 14501 to be interpreted in the same manner as the preemption clause of the Airline Deregulation Act ("ADA") discussed in Morales v. Trans World Airlines, Inc., 504 U.S. 374, 119 L. Ed. 2d 157, 112 S. Ct. 2031 (1992). H.R. Conf. Rep. No. 677, 103d Cong., 2d Sess. 85 (1994) (preemption provision concerning motor carriers "is identical to the preemption provision deregulating air carriers . . . and is intended to function in the exact same manner with respect to its preemptive effects."). In Morales, the Supreme Court found that the ADA preempted state enforcement of consumer protection laws governing the advertisement of airline fares, finding that the state laws unavoidably "related to" airline rates. Morales, 504 U.S. at 388. Plaintiffs contend that Morales provides an extremely broad interpretation of the phrase "relating to" that justifies giving broad preemptive effect to section 14501. In response, defendants argue that the scope of preemption in both the ADA and section 14501 is limited, and neither statute specifically refers to preemption of wage laws.

 The scope of preemption under section 14501 has been specifically limited by Congress. *fn8" For example, in enacting the section, Congress stated that only "certain aspects of the State regulatory process should be preempted." FAAA Act § 601(a)(2). In addition, section 14501 itself provides various exceptions for state regulation of insurance, safety concerns, and other areas of state law. See 49 U.S.C. § 14501(c)(2)-(3). The statute's legislative history also undercuts plaintiffs' broad reading of the preemption clause; when discussing the background and purpose for enacting the section, Congress noted that:

 

currently, 41 jurisdictions regulate, in varying degrees, intrastate prices, routes and services of motor carriers. . . . Typical forms of regulation include entry controls, tariff filing and price regulation, and types of commodities carried. . . . The sheer diversity of [state] regulatory schemes is a huge problem for national and regional carriers attempting to conduct a standard way of doing business. In hearings held on this issue, numerous examples have been cited in which rates for shipments within a state exceed rates for comparable distances across state lines.

 H.R. Conf. Rep. at 86, 87. Defendants argue that had Congress intended to preempt state wage regulation, they would have done so in the conference report. Whether or not this is true, the legislative history of section 14501 does not establish that it was Congress's "clear and manifest" intent to preempt state wage regulation; rather, it appears that Congress intended to preempt state law that more directly affects motor carrier prices and rates, such as entry controls, tariffs charged for transportation services and similar regulation. *fn9" In discussing state regulatory practices, the legislation speaks to regulatory schemes typically reserved to state transportation or commercial agencies, not regulations that generally govern many employers, including motor carriers.

 Furthermore, the legislative history discloses another reason behind Congress's enactment of this section: the unequal treatment of common carriers organized as motor carriers and those organized as air carriers arising from the Ninth Circuit's decision in Federal Express Corp. v. California Public Utilities Comm'n, 936 F.2d 1075 (9th Cir. 1991), cert. denied, 504 U.S. 979, 119 L. Ed. 2d 578, 112 S. Ct. 2956 (1992). *fn10" Defendants correctly point out that in Federal Express, the state economic regulation preempted by the ADA was clearly related to price. See Federal Express, 936 F.2d at 1078 (discussing the PUC's regulation of rates, discounts and promotional pricing, and other fees "obviously" preempted by the ADA). Defendants argue that, in contrast, the connection between section 14501 and the Prevailing Wage Law is too tenuous to trigger preemption.

 B. The Scope of Section 14501's "Related To" Provision

 A finding of preemption under section 14501 also turns on whether the Prevailing Wage Law is sufficiently "related to" plaintiffs' prices, routes and services. Defendants argue that the Prevailing Wage Law has only indirect effects on the prices that plaintiffs charge for their services and that therefore it is not adequately "related to" the prices, routes, or services of motor carriers so as to trigger preemption under section 14501. In response, plaintiffs contend that the Prevailing Wage Law directly affects the prices they charge for services and is therefore "related to" price, route, and service under section 14501. Plaintiffs claim that the Prevailing Wage Law increases wage costs by 75%, which in turn increases prices by 25%; due to this increase in price, plaintiffs argue that the Prevailing Wage Law subjects them to forfeiture of all or part of their contract price, alters their price structure to absorb additional cost, forces them to use independent owner-operators instead of employees to avoid the Prevailing Wage Law's effects, requires them to redirect and reroute equipment to compensate for the additional costs imposed on them by the Prevailing Wage Law, and interferes with their California segment of operations, which in turn disrupts their interstate services. *fn11"

 The meaning of the phrase "relate to" has been interpreted by the U.S. Supreme Court in the preemption clauses of ERISA *fn12" and the ADA. *fn13" Blue Cross, 115 S. Ct. at 1676-80 (discussing the meaning of "relate to" in the context of ERISA); Morales, 504 U.S. at 383-92 (interpreting the meaning of "relating to" in the preemption clause of the ADA). *fn14" State laws having a "connection with or reference to" the object of the federal statute have been deemed preempted. See Blue Cross, 115 S. Ct. at 1677; Morales, 504 U.S. at 384. It is true that ADA and ERISA preemption clauses have been broadly interpreted. See, e.g., Harris v. American Airlines, Inc., 55 F.3d 1472, 1474 (9th Cir. 1995) (ADA's "related to" provision has "an expansive reach" that preempts state law, finding that in-flight conduct was sufficiently "related to" airline's services to require preemption of state law). Nevertheless, the Court recently cautioned against construing the phrase too broadly:

 

if 'relate to' were taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes pre-emption would never run its course, for "really, universally, relations stop nowhere" [citation omitted]. But that, of course, would be to read Congress's words of limitation against pre-emption out of the law whenever Congress speaks to the matter with generality.

 Blue Cross, 115 S. Ct. at 1677. Furthermore, "some state action may affect [airline fares] in too tenuous, remote, or peripheral a manner" to have preemptive effect. Morales, 504 U.S. at 390 (interpreting the ADA).

 Both parties discuss ERISA cases illustrating that prevailing wage laws in several states, including California, are not preempted by ERISA. See WSB Elec., 88 F.3d at 796 (finding that California's prevailing wage law did not sufficiently "relate to" ERISA plans to trigger preemption); Minnesota Chapter of Assoc. Builders, 47 F.3d at 979 (finding that "the incidental impact" on ERISA plans worked by the prevailing wage law was too remote to require preemption); Keystone Chapter, Assoc. Builders and Contractors, Inc. v. Foley, 37 F.3d 945, 956 (3rd Cir. 1994), cert. denied, 131 L. Ed. 2d 244, 115 S. Ct. 1393 (1995) (finding Pennsylvania's prevailing wage law was not preempted because it had only "incidental and insignificant relations" to ERISA plans).

 Additionally, the parties dispute the significance of a different line of ERISA cases involving preemption of state apprenticeship programs. See Dillingham Construction N.A., Inc. v. County of Sonoma, 57 F.3d 712, 718-19 (9th Cir. 1995), cert. granted, 116 S. Ct. 1415 (1996) (requiring payment of prevailing wages under California's prevailing wage law to employees in certain apprenticeship programs sufficiently "relates to" ERISA to require preemption); Hydrostorage v. Northern Cal. Boilermakers, 891 F.2d 719, 729-30 (9th Cir. 1989), cert. denied, 498 U.S. 822, 112 L. Ed. 2d 46, 111 S. Ct. 72 (1990) (finding that state order requiring employer to participate in a state apprenticeship program "related to" employee benefit plan under ERISA). As defendants correctly point out, this unique line of cases is distinguishable from the present case because apprenticeship programs have been interpreted to fall within ERISA's definition of "employee welfare benefit plans," therefore presenting a clearer case in favor of preemption. See Dillingham, 57 F.3d at 718. Although the payment of prevailing wages in apprenticeship programs has been preempted by ERISA, the payment of prevailing wages outside of apprenticeship programs has never been determined to fall within ERISA's preemptive scope.

 Turning to ADA cases, courts have broadly interpreted the ADA's preemption clause, finding state statutory and tort claims against air carriers preempted. See American Airlines, Inc. v. Wolens, 513 U.S. 219, 115 S. Ct. 817, 823-24, 130 L. Ed. 2d 715 (1995) (state consumer fraud provision involving frequent flyer miles programs preempted); Morales, 504 U.S. at 391 (state consumer fraud law regulating airline rates advertising preempted by ADA); Harris, 55 F.3d at 1476-77 (Oregon Public Accommodations Law preempted where in-flight crew's behavior found to "relate to" services). However, the scope of ADA preemption has been limited in some areas of state regulation. See Wolens, 115 S. Ct. at 826-27 (although consumer fraud claims preempted, breach of contract claims not preempted by ADA). This has been the case where the state law was insufficiently related to the rates, routes or services of air carriers. See Anderson v. American Airlines, 2 F.3d 590, 597-98 (5th Cir. 1993) (state claim against employer for retaliation had "too remote" an effect on air carrier service to trigger ADA preemption). These cases suggest that there are limits on the preemptive scope of both the ADA and section 14501 where the state regulation and claims made under it only indirectly affect motor carriers' prices, routes and services.

 The Prevailing Wage Law can be distinguished from the types of state laws found to be preempted by the ADA: *fn15" (1) preemption has been found in the context of state tort regulation where the tortious conduct directly involved rates or services; and (2) the state statutes have been deemed preempted where they either made reference to or more directly related to the rates of air carriers. In the case at bar, the relationship between section 14501 and the Prevailing Wage Law appears to be far more attenuated.

 Of the few cases discussing section 14501, none involve state wage laws; preemption has been found only in areas of state regulation that make reference to or are clearly related to motor carrier rates, routes or services. See Harris County Wrecker Owners for Equal Opportunity v. City of Houston, 943 F. Supp. 711, 724-725, 732 (S.D. Tex. 1996) (finding that local regulations limiting the areas where tow trucks could operate were sufficiently related to section 14501 to be preempted, but holding them to be exempt from preemption as permissible state safety regulations); Carsten v. United Parcel Service, Inc., 1996 U.S. Dist. LEXIS 5798 (E.D. Cal. 1996) (section 14501 preempts California law prohibiting preferential pricing by common carriers).

 In light of the cases interpreting the meaning of "related to," it remains unclear whether the Prevailing Wage Law is sufficiently related to plaintiffs' prices to "trigger" section 14501 preemption. Anderson, 2 F.3d at 597 (state law claim's effect on services "far too remote to trigger pre-emption"). However, in light of the presumption against preemption in this area of traditional state concern, the court is not convinced that the Prevailing Wage Law adequately "relates to" the prices of plaintiffs' services in the way that Congress intended, thereby triggering preemption.

 Although plaintiffs contend that the Prevailing Wage Law "directly impacts" the prices they charge their customers for their services, they list a rather lengthy chain of events describing how the Prevailing Wage Law increases wages, which increases their costs, which in turn, increases their prices, therefore requiring preemption under section 14501. Admittedly, any state regulation of the employer-employee relationship will have at least some effect on the operating costs of a business, which in turn affects the rates and prices charged. After all, "any wage regulation has the potential to increase costs to the employer." Minnesota Chapter of Assoc. Builders, 47 F.3d at 979. However, in this case, the Prevailing Wage Law's effect, as identified by plaintiffs, appears "too tenuous, remote, or peripheral" to trigger preemption. Morales, 112 S. Ct. at 2040.

 Moreover, both the legislative history and the language of section 14501 suggests Congress did not intend to preempt all state laws that raise the operation costs of motor carrier businesses. For example, state regulation of insurance and safety requirements undoubtedly affects the rates and prices charged by motor carriers, but is not preempted by section 14501. In addition, Congress sought to prevent de facto state regulation of motor carrier prices, routes and services by enacting section 14501. H.R. Conf. Rep. at 84. As defendants point out, because the Prevailing Wage Law applies to all employers involved in public works, the fifty year-old Prevailing Wage Law cannot be construed as the state's de facto attempt to regulate motor carriers as prohibited by section 14501.

 Preemption of the Prevailing Wage Law is unsupported by the legislative history of section 14501 and the tenuous connection between the Prevailing Wage Law and motor carrier's prices, routes and services. During oral argument, plaintiffs urged the court find preemption in an area of state law Congress did not clearly intend to preempt. The court agrees with defendants that plaintiffs' interpretation of section 14501's knows no bounds, and leads the court down a dangerously slippery slope. Permitting preemption in this case would overextend the meaning of the "relate to" language of section 14501, while expanding the scope of preemption to areas of traditional state control where Congress has not expressed its "clear and manifest" intent to preempt.

 II. Interstate Commerce

 Because neither the parties nor amicus curiae have adequately briefed this issue, the court does not reach the interstate commerce claim raised in plaintiffs' complaint and briefly mentioned in defendants' motion to dismiss.

 CONCLUSION

 This court finds that 49 U.S.C. § 14501 does not preempt California's prevailing wage law, Labor Code §§ 1770-80. For the foregoing reasons, IT IS HEREBY ORDERED that defendants' motion to dismiss is GRANTED IN PART AND DENIED IN PART without prejudice. Defendants' motion is GRANTED on supremacy clause grounds, and DENIED without prejudice on commerce clause grounds.

 IT IS SO ORDERED.

 Dated: 2/4/97

 MARILYN HALL PATEL

 United States District Judge


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