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Oliveira v. New Prime, Inc.

United States Court of Appeals, First Circuit

May 12, 2017

DOMINIC OLIVEIRA, on his behalf and on behalf of all others similarly situated, Plaintiff, Appellee,
NEW PRIME, INC., Defendant, Appellee.


          Theodore J. Boutrous, Jr., with whom Joshua S. Lipshutz, Jason C. Schwartz, Thomas M. Johnson, Jr., Lindsay S. See, Gibson, Dunn & Crutcher LLP, William E. Quirk, James C. Sullivan, Robert J. Hingula, Polsinelli PC, Judith A. Leggett, and Leggett Law Firm, P.C. were on brief, for appellant.

          Jennifer D. Bennett, with whom Public Justice, P.C., Hillary Schwab, Fair Work, P.C., Andrew Schmidt, and Andrew Schmidt Law, PLLC were on brief, for appellee.

          Richard Frankel on brief for amicus curiae in support of appellee.

          Before Thompson and Kayatta, Circuit Judges, and Barbadoro, [*] District Judge.

          THOMPSON, Circuit Judge.

         This case raises two questions of first impression in this circuit. First, when a federal district court is confronted with a motion to compel arbitration under the Federal Arbitration Act (FAA or Act), 9 U.S.C. §§ 1-16, in a case where the parties have delegated questions of arbitrability to the arbitrator, must the court first determine whether the FAA applies or must it grant the motion and let the arbitrator determine the applicability of the Act? We hold that the applicability of the FAA is a threshold question for the court to determine before compelling arbitration under the Act. Second, we must decide whether a provision of the FAA that exempts contracts of employment of transportation workers from the Act's coverage, see id. § 1 (the § 1 exemption), applies to a transportation-worker agreement that establishes or purports to establish an independent-contractor relationship. We answer this question in the affirmative. Accordingly, we affirm the district court's order denying the motion to compel arbitration and dismiss this appeal for lack of appellate jurisdiction.


         The defendant, New Prime, Inc. (Prime), operates an interstate trucking company. Under its Student Truck Driver Program (apprenticeship program), Prime recruits and trains new drivers. Prime touts its program as offering "[p]aid [a]pprenticeship [Commercial Driver's License (CDL)] [t]raining." After attending a four-day orientation, student drivers hit the road with a Prime truck driver, who acts as an on-the-job instructor. In this phase of the apprenticeship program, student drivers must log 10, 000 miles as a driver or passenger, and, apart from an advance of $200 per week for food (which eventually must be repaid), the apprentices are not paid.[2] After completing the supervised-driving period, the student driver takes the examination for a CDL and then must drive 30, 000 more miles as a B2 company driver trainee (B2 trainee). Prime pays its B2 trainees fourteen cents per mile. At the conclusion of the B2 trainee portion of the apprenticeship program, the apprentices attend additional orientation classes for approximately one week. Apprentices are not paid for time spent in this orientation.

         The plaintiff, Dominic Oliveira, is an alum of Prime's apprenticeship program. He was not paid for the time he spent in orientation and was paid on a per-mile basis while driving as a B2 trainee, although Prime docked his pay during this period to recoup the $200 advances that it paid him during the supervised-driving period.

         Drivers are relieved of paying tuition for the apprenticeship program as long as they remain with Prime for one year as either company drivers or independent contractors. After completing the program, drivers choose between the two options, and Prime offers a $100 bonus to those who elect independent-contractor status. When Oliveira finished the apprenticeship program, Prime representatives informed him that he would make more money as an independent contractor than a company driver. Prime directed Oliveira to Abacus Accounting (Abacus) - a company with offices on the second floor of Prime's building - to assist him in forming a limited liability company (LLC). After Oliveira filled out a form provided by Abacus and listed his preferred LLC names, Abacus created Hallmark Trucking LLC (Hallmark) on Oliveira's behalf.

         Prime then directed Oliveira to the offices of Success Leasing (Success) - located on the first floor of the same building- for help in securing a truck. After selecting a truck, Oliveira was informed that his first load of freight was ready to be trucked for Prime, and he was instructed to sign the highlighted portions of several documents before hitting the road. He hastily did so, and Prime then steered him towards its company store, where he purchased - on credit - $5, 000 worth of truck equipment and fuel.

         Among the documents Oliveira signed was an Independent Contractor Operating Agreement (the contract) between Prime and Hallmark.[3] The contract specified that the relationship between the parties was that "of carrier and independent contractor and not an employer/employee relationship" and that "[Oliveira is] and shall be deemed for all purposes to be an independent contractor, not an employee of Prime."[4] Additionally, under the contract, Oliveira retained the rights to provide transportation services to companies besides Prime, [5] refuse to haul any load offered by Prime, and determine his own driving times and delivery routes. The contract also obligated Oliveira to pay all operating and maintenance expenses, including taxes, incurred in connection with his use of the truck leased from Success. Finally, the contract contained an arbitration clause under which the parties agreed to arbitrate "any disputes arising under, arising out of or relating to [the contract], . . . including the arbitrability of disputes between the parties."[6]

         Oliveira alleges that, during his Hallmark days, Prime exercised significant control over his work. According to Oliveira, Prime required him to transport Prime shipments, mandated that he complete Prime training courses and abide by its procedures, and controlled his schedule. Because of Prime's pervasive involvement in his trucking operation, Oliveira was unable to work for any other trucking or shipping companies.

         Prime consistently shortchanged Oliveira during his time as an independent contractor. Eventually, Oliveira - frustrated and, he alleges, unlawfully underpaid - stopped driving for Prime. It was a short-lived separation, however; Prime rehired Oliveira a month later, this time as a company driver. Oliveira alleges that his job responsibilities as a company driver were "substantially identical" to those he had as an independent contractor. Job responsibilities were not the only constant; Oliveira's pay as a company driver was as paltry as ever.

         Oliveira filed this class action against Prime, alleging that Prime violated the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-219, as well as the Missouri minimum-wage statute, by failing to pay its truck drivers minimum wage. Oliveira also asserted a class claim for breach of contract or unjust enrichment and an individual claim for violation of Maine labor statutes. Prime moved to compel arbitration under the FAA and stay the proceedings or, alternatively, to dismiss the complaint for improper venue and the breach of contract/unjust enrichment count for failure to state a claim upon which relief may be granted.[7]In its motion, Prime asserted that "Oliveira . . . entered into an Independent Contractor Operating Agreement with . . . Prime . . . to work as an owner-operator truck driver." (Emphasis added.)

         In response, Oliveira argued that, because he was not a party to the contract between Prime and Hallmark, he could not be personally bound by any of its provisions, including the arbitration clause. He further contended that the motion to compel arbitration should be denied because, among other reasons, the contract is exempted from the FAA under § 1. He also argued that the question of the applicability of the § 1 exemption was one for the court, and not an arbitrator, to decide.

         Prime disputed Oliveira's argument that he could not be personally bound by the contract between Prime and Hallmark, stating that "Oliveira and Hallmark Trucking are factually one and the same." Prime also took issue with both of Oliveira's other arguments, contending that the § 1 exemption does not include independent-contractor agreements and, in any event, the question of whether the § 1 exemption applies is a question of arbitrability that the parties had delegated to the arbitrator.[8]

         The district court proceeded straight to the FAA issues and concluded that the question of the applicability of the § 1 exemption was for the court, and not an arbitrator, to decide. And it determined that it could not yet answer that question because (1) the "contracts of employment" language of the § 1 exemption does not extend to independent contractors; and (2) discovery was needed on the issue of whether Oliveira was a Prime employee or an independent contractor before the court could decide whether the contract was a contract of employment under the § 1 exemption.[9] The district court therefore denied Prime's motion to compel arbitration without prejudice and permitted the parties to conduct discovery on Oliveira's employment status. Prime timely appealed.[10]


         The FAA lies at the center of the two questions raised by this appeal. Thus, before tackling those questions, we first briefly outline the statutory framework.

         To combat deep-rooted judicial hostility towards arbitration agreements, Congress enacted the FAA in 1925. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001). Section 2 of the FAA enshrines the "liberal federal policy favoring arbitration agreements, " Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), by declaring that an arbitration agreement in "a contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract, " 9 U.S.C. § 2.

         And the FAA does not simply talk the talk. Instead, two separate provisions provide the bite to back up § 2's bark. See Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 70 (2010). First, under § 3, a party may obtain a stay of federal-court litigation pending arbitration. See 9 U.S.C. § 3. Second, § 4 authorizes district courts to grant motions to compel arbitration. See id. § 4.

         The scope of the FAA, however, is not unbounded. Section 1 of the FAA provides that the Act shall not apply "to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Id. § 1. The Supreme Court has interpreted this section to "exempt[] from the FAA . . . contracts of employment of transportation workers." Circuit City, 532 U.S. at 119.

         This case presents us with two questions pertaining to the § 1 exemption. We address each question in turn.

         A. Who Decides Whether the § 1 Exemption Applies?

         The question of whether the district court or the arbitrator decides the applicability of the § 1 exemption is one of first impression in this circuit. The parties champion dueling out-of-circuit precedent in support of their respective positions on this issue. Relying on the Eighth Circuit's decision in Green v. SuperShuttle International, Inc., 653 F.3d 766 (8th Cir. 2011), Prime argues that the question of whether the § 1 exemption applies is a question of arbitrability that must be decided by the arbitrator where, as here, the parties have delegated such questions to the arbitrator.

         In Green, the plaintiffs, a class of shuttle-bus drivers, alleged that the defendant, a shuttle-bus company, misclassified the drivers as franchisees instead of classifying them as employees. 653 F.3d at 767-68. When the defendant moved under the FAA to compel arbitration pursuant to the arbitration clause contained in the parties' contracts, the plaintiffs countered that their contract was outside the scope of the FAA by virtue of the § 1 exemption. Id. at 768. The Eighth Circuit upheld the district court's grant of the defendant's motion, concluding that "[a]pplication of the FAA's transportation worker exemption is a threshold question of arbitrability" in the parties' dispute. Id. at 769. Because the parties' agreements incorporated the AAA rules, which provide that the arbitrator has the power to determine his or her own jurisdiction, the court concluded that the parties agreed to allow the arbitrator to determine threshold questions of arbitrability, including the applicability of the § 1 exemption. Id.

         With Green as its guide, Prime offers several reasons why the question of § 1's applicability is one for the arbitrator to determine, but each of these arguments flows from the Green court's characterization of this issue as a question of arbitrability. The case on which Oliveira relies - the Ninth Circuit's decision in In re Van Dusen, 654 F.3d 838 (9th Cir. 2011) - considered this characterization to be a flawed starting premise.

         Van Dusen arose on facts strikingly similar to those in this case; the plaintiffs, interstate truck drivers, alleged that one of the defendants, a trucking company, misclassified its truck drivers as independent contractors to circumvent the requirements of the FLSA and parallel state laws. See id. at 840; see also Van Dusenv.Swift Transp. Co., 830 F.3d 893, 895 (9th Cir. 2016) (later appeal in same case). The defendant moved to compel arbitration under the FAA, and the plaintiffs opposed that motion, asserting that the § 1 exemption applied to their contracts. Van Dusen, 654 F.3d at 840. The district court ordered arbitration, concluding that the question of whether the ยง 1 exemption applied was one for the arbitrator to decide in the first ...

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