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Soto v. Diakon Logistics

March 13, 2009

JOSUE SOTO ET AL. INDIVIDUALLY , ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, AND ON BEHALF OF THE GENERAL PUBLIC , PLAINTIFFS,
v.
DIAKON LOGISTICS (DELAWARE), DEFENDANT,



The opinion of the court was delivered by: M. James Lorenz, United States District Court Judge

ORDER (1) DENYING MOTION TO DISMISS FIRST AMENDED COMPLAINT; (2) GRANTING MOTION DISMISS AMENDED COUNTERCLAIM; (3) GRANTING MOTION TO DISMISS FIRST AMENDED THIRD-PARTY COMPLAINT; AND (4) DISMISSING WITH PREJUDICE AMENDED COUNTERCLAIM AND FIRST AMENDED THIRD-PARTY COMPLAINT AND RELATED COUNTERCLAIM AND THIRD-PARTY COMPLAINT.

Pending before the court are motions pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the First Amended Complaint for Compensatory Damages, Injunctive Relief, Restitution, Disgorgement of Profits & Civil Penalties ("Complaint"), Diakon Logistics (Delaware) Inc.'s Amended Counterclaim for Indemnity Against Josue Soto ("Counterclaim"), and the First Amended Third-Party Complaint of Diakon Logistics (Delaware) Inc. Against Saybe's LLC, Abdul Trucking, Inc. and Rashid Trucking, Inc. ("Third-Party Complaint"). For the reasons which follow, the motion to dismiss the Complaint is DENIED and the motions to dismiss the Counterclaim and the Third-Party Complaint are GRANTED. The Counterclaim and the Third-Party Complaint are DISMISSED WITH PREJUDICE.

Defendant, Counterclaimant and Third-Party Plaintiff Diakon Logistics (Delaware), Inc. ("Diakon") provides home delivery services to various retailers, including Sears, Ethan Allen and other retailers selling large items. Plaintiffs Josue Soto, Ghazi Rashid and Mohamed Abdelfattah ("Soto," "Rashid," and "Abdelfattah," respectively and "Plaintiffs" collectively) are truck drivers who worked for Diakon in California. They claim they were inappropriately classified by Diakon as independent contractors when they were in fact non-exempt employees.

Soto filed a complaint in state court seeking recovery from Diakon for failure to pay minimum wages, provide proper meal breaks and rest periods, reimburse for reasonable business expenses, issue itemized wage statements and for other alleged violations of the California Labor Code provisions. He also alleged that Diakon violated California Business and Professions Code Sections 17200 et seq. Diakon removed the action to this court pursuant to 28 U.S.C. § 1441, and based federal subject matter jurisdiction on diversity as provided in 28 U.S.C. § 1332(a)(1) and (d)(2).

Subsequently, the complaint was amended to add Rashid and Abdelfattah as Plaintiffs. Diakon filed a motion to dismiss, arguing that it neither employed nor contracted with Plaintiffs, except that it contracted for a short time with Soto. Diakon claims it entered into Service Agreements with business entities formed by each Plaintiff. Soto allegedly formed Saybe's, LLC ("Saybe's"), Rashid formed Rashid Trucking, Inc. ("Rashid Trucking"), and Abdelfattah formed Abdul Trucking, Inc. ("Abdul Trucking").

Diakon also filed the Counterclaim against Soto and the Third-Party Complaint against Saybe's, Rashid Trucking and Abdul Trucking (Saybe's, Rashid Trucking and Abdul Trucking are collectively referred to as "Third-Party Defendants"). The Counterclaim and the Third-Party Complaint are based entirely on the indemnity clause contained in the Service Agreements Diakon entered into with Soto and each of the Third-Party Defendants. Diakon claims it should be indemnified based on the filing of Plaintiffs' claims. Soto and Third-Party Defendants filed motions to dismiss the Counterclaim and the Third-Party Complaint arguing that the indemnity clause does not apply in this case.

A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc.,749 F.2d 530, 534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) ("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law"). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534. "[A] plaintiff's obligation to provide the grounds for his entitlement to relief requires more than labels and conclusions, and formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level . . .." Bell Atl. Corp. v. Twombly, 550 U.S. 544, ___; 127 S. Ct. 1955, 1964-65 (2007) (internal quotation marks and citations omitted).

In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998.)

Diakon's motion to dismiss is based entirely on the theory that Plaintiffs are not real parties in interest as required by Federal Rule of Civil Procedure 17(a) because, contrary to the allegations in the Complaint, Diakon did not employ or contract with them, except that it contracted for a short time with Soto. Diakon claims it contracted with Third-Party Defendants. In support of this theory, Diakon submits the Service Agreements it entered into with Third-Party Defendants (Mem. of P. & A. in Supp. of Mot. to Dismiss Ex. C-E), along with California Secretary of State documents showing that each Plaintiff formed one of the Third-Party Defendant business entities (id. Ex. B). None of these documents are attached to the Complaint. Diakon therefore requests the court to judicially notice them.

When ruling on a motion to dismiss, the court may consider the facts alleged in the complaint, documents attached to the complaint, documents relied upon but not attached to the complaint when authenticity is not contested, and matters of which the court takes judicial notice. Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998), superseded by statute on other grounds as stated in Abrego v. The Dow Chem. Co., 443 F.3d 676, 681 (9th Cir. 2006); Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), overruled on other grounds by Gailbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002); MGIC Indem. Co. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986).

A matter of public record outside the pleadings may be considered along with the complaint when deciding a motion to dismiss. See MGIC Indem., 803 F.2d at 504. Records and reports of administrative agencies are matters of public record which can be judicially noticed. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). The court therefore takes judicial notice of the Secretary of State records filed by Diakon.

With respect to the Service Agreements, "a district court ruling on a motion to dismiss may consider a document the authenticity of which is not contested, and upon which the plaintiff's complaint necessarily relies." Parrino, 146 F.3d at 705-06. The Complaint does not attach or incorporate any Service Agreements, however, it references them (see Am. Compl. ¶¶ 30, 34), and Plaintiffs do not dispute the authenticity of the Service Agreements included in Diakon's Exhibits C, D and E. The court therefore grants Diakon's request to consider them.

Nevertheless, taking the Service Agreements and Secretary of State documents at their face value, Diakon has not presented any judicially noticeable fact or cited any authority to conclusively negate Plaintiffs' allegations that they personally performed delivery work for Diakon. (See, e.g., First Am. Compl. ¶¶ 8-10 and 21-27.) The California Labor Code does not define the terms "employee" and "independent contractor" for purposes of the claims asserted in the Complaint. See Estrada v. FedEx Ground Package Sys., Inc., 154 Cal. App. 4th 1, 10 (2007). The relevant determination is made based on a fact intensive analysis.*fn1 See id. (listing factors). A contract such as a Service Agreement, which designates a contracting party as an independent contractor and not an employee, does not necessarily negate a finding of an employment relationship. See id.

Furthermore, Diakon has not cited any legal authority showing that the Third-Party Defendant business entities as a matter of law preclude the finding of an employment relationship. In a similar context and applying a similar fact intensive analysis, the existence of business entities did not per se preclude the finding. See Merchants Home Delivery Serv., Inc. v. NLRB, 580 F.2d 966 (9th Cir. 1978). Although the business entities weighed against the finding of an employment relationship, their existence alone was not ...


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