California Court of Appeals, Second District, Fourth Division
APPEAL from a judgment of the Superior Court of Los Angeles County, Super. Ct. Nos. BC182763 & BC182764 Emilie Elias, Judge.
Miles L. Kavaller for Defendant and Appellant.
Law Offices of Stephen Glick, Stephen Glick, and Anthony Jenkins for Plaintiffs and Appellants.
Defendant RWA Trucking Company, Inc. (RWA) appeals from the trial court’s judgment that it violated the unfair competition law, Business and Professions Code section 17200 (UCL or section 17200), by charging its drivers for automobile liability insurance, physical damage insurance, cargo insurance, and workers’ compensation insurance from 1993 to 2011. RWA contends that the UCL causes of action and the state laws on which they are based are preempted by federal law. We affirm in part, reverse in part, and remand the matter to the trial court.
FACTUAL AND PROCEDURAL BACKGROUND
I. The Parties and the Dispute
RWA is an interstate trucking company registered as a “for-hire interstate motor carrier” with the Federal Motor Carrier Safety Administration (FMCSA). At all relevant times, RWA conducted its trucking business from facilities in Long Beach, California, transporting containers and other cargo from the ports of Los Angeles and Long Beach.
RWA contracted with plaintiff Salvador Rodriguez and other drivers who owned their own tractors (drivers) under written lease agreements (Agreements). Under the Agreements, RWA leased the tractors from the drivers and dispatched the drivers to transport cargo. The Agreements characterized the drivers as independent contractors.
The Agreements required each driver to carry automobile liability insurance, physical damage insurance, and cargo insurance (collectively, liability insurance), and it gave the drivers the option either to obtain their own policies or elect coverage under RWA’s fleet policies. If the drivers elected coverage under RWA’s fleet policies, RWA deducted from the drivers’ earnings (or “charged back” from his or her compensation) the costs of the insurance. RWA also deducted from the drivers’ earnings the cost of workers’ compensation insurance. The chargebacks were reflected on weekly settlement statements given to each driver.
The Agreements authorized RWA to charge an administrative fee for arranging insurance for the drivers. An administrative fee for that purpose of at least 1 percent was deducted from the drivers’ compensation during some years.
RWA deducted the following amounts from the drivers for workers’ compensation: December 12, 1993, to December 31, 1994: $71, 688.60; December 31, 1994, to December 31, 1995: $71, 688.60.
During the years 1993 to 1995, RWA collected from its drivers a 1 percent administration fee for automobile liability insurance, physical damage insurance, and cargo insurance. During the years 1996 to 2002, RWA collected significantly less from its drivers than it paid in insurance premiums, ranging from $2, 611.48 in 2002 to $244, 269.55 in 1997. During the years 2003 to 2009, RWA deducted more from its drivers than it paid in insurance premiums.
II. The Present Litigation
A. The Pleadings and Class Certification
Plaintiff filed the present action in Los Angeles Superior Court in 1997. The complaint alleged: (1) plaintiff was an employee, not an independent contractor, but was denied employee benefits; (2) defendants failed to comply with federal Truth-in-Leasing regulations, thereby breaching fiduciary duties to plaintiff; and (3) defendants sold insurance to plaintiff without a license. (Rivas v. Rail Delivery Serv. (9th Cir. 2005) 423 F.3d 1079, 1081.) On January 16, 1998, defendants removed the case to federal court; on September 8, 2005, the Ninth Circuit held plaintiff lacked article III standing and remanded the case back to state court. (Id. at p. 1084.)
Plaintiff filed the operative fourth amended complaint on May 12, 2009. The first cause of action alleged RWA “transacted insurance” within the meaning of Insurance Code section 1631 by “selling insurance to Plaintiff for compensation” and “charging Plaintiff an administrative fee of at least 1% on the aforementioned insurance that Defendant sold to Plaintiff.” Such transactions were unlawful, plaintiff alleged, because RWA was not licensed to transact insurance in California. Further, RWA “failed to properly disclose the total premium it charged Plaintiff and each Class Member by failing to properly disclose the at least 1% commission Defendants earned, violating California Insurance Code § 381(f).” These Insurance Code violations were alleged to be unlawful and to constitute unfair business practices in violation of the UCL. The second cause of action alleged RWA violated section 17200 by charging plaintiff for workers’ compensation insurance, in violation of Labor Code section 3751 (section 3751) and Albillo v. Intermodal Container Services, Inc. (2003) 114 Cal.App.4th 190 (Albillo).
The court granted plaintiff’s motion for class certification and, on June 9, 2011, it issued an order certifying the following class: “All persons and entities in California that provided trucking services, including the transport of cargo and freight, for RWA Trucking Co., Inc., from December 12, 1993 through the present, who had money deducted from their earnings by RWA Trucking Co., Inc. to pay for Liability Insurance Coverage, Property Damage Insurance Coverage, Cargo Loss Insurance Coverage, or Workers’ Compensation Insurance Coverage.”
B. Trial and Decision
The case went to trial on stipulated facts. On December 6, 2011, the court filed a statement of decision. Following is a summary.
1. First Cause of Action: Transacting Insurance Without a License
Prior to trial, the court found that RWA was transacting insurance and receiving compensation for doing so within the meaning of the Insurance Code. The court explained: “It is undisputed that RWA received compensation in connection with obtaining insurance for Rodriguez. Accordingly, RWA was required to have a license to transact insurance, but, undisputedly, RWA did not have a license. [¶] The Court finds that Albillo v. Intermodal Container Services, Inc.[, supra, ] 114 Cal.App.4th 190 does not compel a different result as to the transacting insurance without a license issue.” (Fn. omitted.)
Following trial, the court further found that RWA did not comply with the Insurance Code’s disclosure requirements: “RWA stipulated that it did not comply with Insurance Code § 381.... RWA did not give any class member an insurance policy or certificate of insurance, nor any of the items listed in Insurance Code Section 381, i.e., nothing was given to the class members that showed the insurance premium, rates, or criteria used to determine how much to charge the truck driver for insurance.
“... RWA stipulated in Fact Nos. 38, 47 and 48, just as Farmers did in the Troyk case, that it charged Plaintiff an ‘administrative fee’ for providing insurance to Plaintiff. Troyk [v. Farmers Group, Inc. (2009)] 171 Cal.App.4th [1305, ] 1324-1325. RWA, like Farmers, did not comply with the disclosure requirement in Insurance Code § 381(f). Following Troyk, RWA violated Insurance Code § 381(f) and Plaintiff has established through Stipulated Fact No. 48 that Plaintiff and each class member has standing to sue RWA under California’s Unfair Competition Laws for RWA’s violation of Insurance Code § 381(f).
“... The Court also rejects RWA’s argument that its practice of violating Insurance Code § 381 is permitted by the ‘Truth-in-Leasing’ regulation in 49 C.F.R. § 376.12(j). Regardless whether charge-backs for insurance might be permitted, RWA must comply with the law in making any such charge-backs, such as complying with California Insurance Code § 381.”
Based on these findings, the court found that RWA violated the “unlawful” prong of section 17200, and it ordered restitution in the amount of “the difference for each class member between the premium for each such insurance and the amount of money deducted by RWA from each class member for such insurance, ” or $502, 636.32, plus prejudgment interest of $377, 490.33.
2. Second Cause of Action: Charging Plaintiffs for Workers’ Compensation Insurance
Prior to trial, the court granted plaintiffs’ motion for summary adjudication of the second cause of action. The court found that under Albillo, RWA was not permitted to require plaintiffs to reimburse it for the cost of workers’ compensation insurance. It explained: “The facts of this case are nearly identical to the facts in Albillo. Here, as in Albillo, the Workers’ Compensation Policy at issue protects Defendant from lawsuits made by Plaintiff, should Plaintiff suffer a work-related injury. Following Albillo, Plaintiff is treated as though he were an employee and Defendant is treated as if it were an employer under the § 4150 election; thus, it is unlawful for Defendant to receive from Plaintiff any portion of the cost of the Workers’ Compensation Insurance. Albillo, 114 Cal.App.4th at 198.
“The Albillo Court explained, ‘While it is correct that an election under Labor Code section 4150 does not make a person an employee for all purposes, it does expressly subject him or her to the compensation provisions of division 4 of the Act. Labor Code section 3751 is one of those provisions. [Citation.] Accordingly, we hold that by deducting amounts from appellants’ compensation to secure workers’ compensation coverage, respondents violated Labor Code section 3751.’ [Citation.]”
Following trial, the court applied its summary adjudication holding to the entire plaintiff class and ordered RWA to “restore to Plaintiff and the Class all funds RWA retained by means of the unfair and unlawful business acts and practices alleged herein.” It awarded the plaintiff class “the principal amount of $143, 377.20, and prejudgment interest through September 26, 2011 in the amount of $233, 360.”
3. Federal Preemption
In concluding that plaintiffs were entitled to compensation for RWA’s violations of California law, the court determined that these laws were not preempted by federal law, namely, the Federal Aviation Administration Authorization Act of 1994 (FAAAA), title 49 United States Code section 14501 et seq., or the Truth-in-Leasing Act. It explained: “There is no California case that says that the UCL is preempted in a FAAA[A] case. [¶]... [¶]... Equally important, the U.S. District Court for the Central District of California already rejected the precise preemption arguments raised by RWA; holding that Plaintiff’s claims here are not preempted by 49 U.S.C. § 14501(c). See Renteria v. K & R Transportation, Inc. (C.D.Cal. 1999) 1999 WL 33268638.... Furthermore, the McCarran-Ferguson Act, 15 U.S.C. § 1012, prevents the Court from interpreting 49 U.S.C. § 14501(c) so as to preempt Plaintiff’s claims that are based upon California insurance laws. Here, Congress expressly reiterated State authority to regulate insurance when enacting 49 U.S.C. § 14501(c)(2). Renteria, 1999 WL 33268638 at *2. The Renteria Court held that ‘[t]he aim of the regulation [49 C.F.R. § 376.12(j)(1)] is to compel disclosure of the contract terms between the owner-operators and the carriers, not to govern the terms for which the parties are permitted to bargain. Nothing in the federal regulations prevents a state from passing legislation that mandates a particular contract term with regard to the costs of insurance. Similarly, while separate licensing requirements in each state may impact carriers in some way, the brokering of insurance is not the focus of the federal law[, ]’ so 49 U.S.C. § 14501(c) does not preempt California’s worker’s compensation insurance or liability insurance laws. Renteria, 1999 WL 33268638 at *3 (emphasis added). Under 49 U.S.C. § 14501(c), ‘[t]he effects of the state insurance, wage, and workers’ compensation laws on defendants... [are] insufficient to “relate to” prices.... Additionally, insurance and wage requirements are areas generally reserved to the states. See [Californians for Safe and Competitive Dump Truck Transp. v.] Mendonca [(9th Cir. 1998) 152 F.3d 1184]; 49 U.S.C. § 14501(c)(2).’ Renteria, 1999 WL 33268638 at *4.” (Fns. & underling omitted.)
C. Judgment and Appeal
The court entered judgment on May 22, 2012. The judgment awarded plaintiffs “as and for restitution for the first cause of action the sum of $502, 636.32 principal, plus prejudgment interest through May 17, 2012 in the amount of $409, 716, 08 and for the second cause of action, $143, 377.20 principal plus prejudgment interest in the amount of $231, 845.50 through May 17, 2012 for a total of $1, 287, 575.10.”
Notice of entry of judgment was served on May 25, 2012. RWA timely appealed from the judgment, and plaintiffs timely cross-appealed.
RWA contends: (1) RWA did not engage in the sale of insurance under California law; if it did violate California insurance law, that law is preempted by federal law; (2) California law, which prohibits an employer from charging an independent contractor the costs of his or her workers’ compensation insurance, is preempted by the FAAAA; (3) the trial court erred in awarding plaintiffs prejudgment interest. Because RWA’s appeal presents solely issues of law on stipulated facts, our review is de novo. (Weingarten Realty Investors v. Chiang (2012) 212 Cal.App.4th 163, 167.)
I. FEDERAL LAW PREEMPTS PLAINTIFFS’ CLAIM FOR UNLAWFULLY TRANSACTING INSURANCE
During all the years relevant to this action, RWA required each of its drivers to maintain automobile liability insurance, physical damage insurance, and cargo insurance for his or her vehicle. RWA gave each driver the option of accepting coverage under RWA’s fleet policies; if the driver elected such coverage, RWA deducted the cost of the insurance from the driver’s earnings. During some years, RWA also deducted an additional administrative fee from the drivers’ earnings.
Plaintiffs allege that these deductions or “chargebacks” constitute the “transacting” of insurance without a license in violation of the Insurance Code. RWA disagrees, contending that the chargebacks at issue do not violate the California Insurance Code; in the alternative, RWA urges that if the chargebacks do violate California law, that law is preempted by federal law. We address these issues below and conclude that because the claim for unlawfully transacting insurance is preempted by federal law, the award of restitution and prejudgment interest as to the first cause of action must be reversed.
A. “Transacting” Insurance Under California Law
Insurance Code section 1631 provides that unless exempt by the provisions of this article, a person “shall not solicit, negotiate, or effect contracts of insurance, or act in any of the capacities defined in Article 1 (commencing with Section 1621)” unless the person holds a valid insurance license. The capacities defined in article 1 of the code include acting as an insurance broker—i.e., “for compensation and on behalf of another person, transact[ing] insurance... with, but not on behalf of, an admitted insurer.” (Ins. Code, § 1623, subd. (a), italics added.)
“Transacting insurance” under section 35 of the Insurance Code includes all of the following:
“(b) Negotiations preliminary ...