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Johnson v. Diakon Logistics

United States District Court, N.D. Illinois, Eastern Division

March 28, 2018

TIMOTHY JOHNSON and DARRYL MOORE, individually and on behalf of all others similarly situated, Plaintiffs,
DIAKON LOGISTICS, et al., Defendants.



         Plaintiffs Timothy Johnson and Darryl Moore worked as delivery drivers for Defendant Diakon Logistics (“Diakon”). While working for Diakon, Plaintiffs preformed deliveries exclusively for Defendants Innovel Solutions, Inc. (formerly known as Sears Logistics Services, Inc.) and Sears Roebuck and Co. (collectively, “Sears”). Plaintiffs have brought this action alleging that Diakon, Diakon's President and Chairman William Jarnagin, Jr., as well as Diakon's Vice President of Operations Todd Voda (collectively, “Individual Defendants”), and Sears violated the Illinois Wage Payment and Collection Act (“IWPCA”) by making unlawful deductions from Plaintiffs' wages. Plaintiffs also allege that Diakon and Individual Defendants were unjustly enriched. Now before this Court are Diakon's motion to dismiss (Dkt. No. 44), Sears's motion to dismiss (Dkt. No. 68), and Individual Defendants' motion to dismiss (Dkt. No. 73). Also before this Court are Diakon's motion to strike section III of Plaintiffs' sur-reply[1] or, in the alternative, for leave to file a response (Dkt. No. 81) and Plaintiffs' motion for leave to file a response instanter (Dkt. No. 87) to Diakon's motion to strike.


         The following facts alleged in Plaintiffs' Second Amended Complaint (“SAC”) are accepted as true for purposes of the instant motions.

         Diakon provides delivery services for companies such as Sears. (SAC ¶ 17, Dkt. No. 40.) Plaintiffs worked as delivery drivers for Diakon. (Id. ¶¶ 3, 4.) Diakon required its delivery drivers (including Plaintiffs) to sign an agreement[2] drafted by Diakon, which stated that drivers were independent contractors. (Id. ¶ 19.) Despite their characterization as contractors, Diakon required its drivers to report to its facilities in the morning for at least five days per week, to wear uniforms when making deliveries for Diakon, and to complete their delivery routes in a specific order and within specific time windows set by Diakon. (Id. ¶ 20.) If drivers failed to complete their deliveries in the order specified by Diakon, they would be subject to discipline. (Id.) Diakon also retained the right to terminate drivers for any reason. (Id.) Plaintiffs and other drivers depended on Diakon for their work; they did not perform delivery services for anyone else while working for Diakon, did not negotiate with Diakon's customers regarding the rates charged for their service, and did not contract with Diakon's customers independently. (Id. ¶ 23.)

         Diakon deducted certain expenses from Plaintiffs' wages, including deductions for insurance, any related insurance claims, truck rentals, and uniforms; Diakon also required Plaintiffs to provide safety deposits for their trucks (Id. ¶¶ 24, 25.) In addition, Diakon deducted the costs of any damaged goods or damage to the customer's property when it deemed that a delivery was performed in an unsatisfactory manner. (Id. ¶ 26.) These deductions varied from paycheck to paycheck, and Diakon did not obtain Plaintiffs' freely given express written consent for such deductions at the time the deductions were made. (Id. ¶ 28, 29.) Diakon also required Plaintiffs and other drivers to incur other expenses, such as motor vehicle authorization costs and vehicle maintenance costs. (Id. ¶ 30.)

         At the time of the events at issue in this case, Jarnagin was President and Chairman of Diakon and its highest-ranking executive. (Id. ¶¶ 6, 31.) He appeared as a signatory on a number of Diakon's contracts with clients, which governed the compensation received by Diakon for delivery services and, in turn, the compensation received by drivers for those services, and which often encompassed such items as deductions. Jarnagin was also in charge of financial matters at Diakon, including payroll. (Id. ¶ 31.) Voda was Diakon's Vice President of Operations and a member of Diakon's executive leadership team. (Id. ¶¶ 7, 32.) In his position as Vice President, as well as in his previous role at Diakon, Voda had first-hand involvement with various issues relating to Diakon's delivery drivers, including their compensation and various deductions from their pay. (Id. ¶ 32.)

         Sears provided delivery services to its customers through an arrangement with Diakon. (Id. ¶ 33.) Sears had warehouses throughout Illinois, and Diakon maintained offices and supervisory personnel at the Sears warehouses in order to make home deliveries to Sears customers. (Id. ¶ 34.) A number of Diakon drivers, including Plaintiffs, made deliveries exclusively for Sears while working for Diakon. (Id. ¶ 35.) Sears required Plaintiffs and other drivers to report every morning to the Sears warehouse to pick up the products to be delivered that day and provided drivers with a daily manifest specifying what products needed to be delivered, where the products needed to be delivered, and the time frames within which such deliveries had to be performed. (Id. ¶ 36.) Sears also required Plaintiffs to maintain regular contact with its personnel throughout the day for additional delivery instructions and mandated certain deductions from Plaintiffs' paychecks for such things as insurance. (Id.) If a Sears customer had a complaint regarding a delivery or damage, only Sears was permitted to investigate the complaint; if it determined that delivery was unsatisfactory, Sears would require Diakon to make deductions from the driver's paycheck. (Id. ¶¶ 36, 41.) Sears also required delivery trucks to have the Sears logo on them; drivers making deliveries for Sears had to wear Sears uniforms and carry Sears business cards, and they were not allowed to have non-Sears merchandise on their trucks. (Id. ¶¶ 36, 38.)

         Plaintiffs have brought this action on behalf of themselves as well as a putative class of other similarly-situated drivers, alleging that Diakon and Individual Defendants violated the IWPCA (in particular, 820 ILCS 115/9) by making unlawful deductions from Plaintiffs' and the other class members' wages (Count I). (Id. ¶¶ 49-56.) Plaintiffs also allege that Diakon and Individual Defendants were unjustly enriched by misclassifying drivers as independent contractors and thereby evading employment-related obligations such as social security contributions, workers' compensation coverage, and state disability and unemployment compensation, and forcing drivers to pay work-related expenses, such as the costs of purchasing or leasing vehicles meeting Diakon's specifications and the costs of operating, insuring, and maintaining those vehicles (Count II). (Id. ¶¶ 57-60.) Finally, Plaintiffs claim that Sears violated the IWPCA (820 ILCS 115/9) by making unlawful deductions from drivers' wages (Count III). (Id. ¶¶ 61-66.)


         I. Diakon's Motion to Dismiss

         Diakon asks this Court to dismiss Plaintiffs' claims against it under the IWPCA and for unjust enrichment, pursuant to Federal Rule of Civil Procedure 12(b)(6). To survive a Rule 12(b)(6) motion, a complaint must “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Factual allegations that are merely consistent with a defendant's liability, conclusory statements, and formulaic recitations of the elements of a cause of action are, by themselves, insufficient. Iqbal, 556 U.S. at 678. In analyzing a Rule 12(b)(6) motion, the Court must construe the complaint in the light most favorable to the plaintiff, accept well-pleaded facts as true, and draw all inferences in favor of the plaintiff. See Carlson v. CSX Transp., Inc., 758 F.3d 819, 826 (7th Cir. 2014).

         A. FAAAA Preemption Issue

         Diakon argues that Plaintiffs' claims under the IWPCA and for unjust enrichment are preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”), in particular, 49 U.S.C. § 14501(c).

         Preemption is an affirmative defense. Bausch v. Stryker Corp., 630 F.3d 546, 561 (7th Cir. 2010). Thus, as the party raising it, Diakon bears the burden of proof. See Fifth Third Bank ex rel. Tr. Officer v. CSX Corp., 415 F.3d 741, 745 (7th Cir. 2005). Procedurally, the proper way for Defendants to proceed would be first to file an answer pleading preemption as an affirmative defense and then to move for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). Bausch, 630 F.3d at 561. However, this procedural error is “of no consequence” when the Court has in front of it all it needs to be able to rule on the defense. See Carr v. Tillery, 591 F.3d 909, 913 (7th Cir. 2010). And Rule 12(c) motions are reviewed under the same standard as motions to dismiss under Rule 12(b)(6). See Pisciotta v. Old Nat. Bancorp., 499 F.3d 629, 633 (7th Cir. 2007). Accordingly, the Court proceeds to decide the issue as presented in the current motion.

         The FAAAA was passed with the goal of deregulating the trucking industry. Costello v. BeavEx, Inc., 810 F.3d 1045, 1051 (7th Cir. 2016), cert. denied, 137 S.Ct. 2289 (2017). It provides that a state “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). There are two requirements for FAAAA preemption: (1) a state must have enacted or attempted to enforce a law, and (2) that law must relate to carrier rates, routes, or services by either expressly referring to or having a significant economic effect on them. See Nationwide Freight Sys., Inc. v. Illinois Commerce Comm'n, 784 F.3d 367, 373-74 (7th Cir. 2015). Thus, the FAAAA's preemptive scope is broad-it preempts a state law that “has a direct connection with or specifically references a carrier's prices, routes, or services, ” or has a “‘significant impact' related to Congress's deregulatory and pre-emption-related objective.” Costello, 810 F.3d at 1051. That said, the FAAAA's preemptive reach has its limits-laws with “tenuous, remote, or peripheral” relationship to carrier rates, routes, or services are not preempted. Nationwide Freight Sys., Inc., 784 F.3d at 373.

         The first requirement of FAAAA preemption is clearly satisfied here for the claims under the IWPCA and for the unjust enrichment claims. The IWPCA was enacted to provide employees with a cause of action for the timely and complete payment of earned wages or final compensation, without employers retaliating against them. Byung Moo Soh v. Target Mktg. Sys., Inc., 817 N.E.2d 1105, 1107 (Ill.App.Ct. 2004). The particular provision at issue here, 820 ILCS 115/9, prohibits employers from taking deductions from employees' wages unless the deductions are: “(1) required by law; (2) to the benefit of the employee; (3) in response to a valid wage assignment or wage deduction order; [or] (4) made with the express written consent of the employee, given freely at the time the deduction is made.” 820 ILCS 115/9.[3] State common law (such as Illinois law of unjust enrichment) also may satisfy the first prong of the preemption test. See United Airlines, Inc. v. Mesa Airlines, Inc., 219 F.3d 605, 607 (7th Cir. 2000) (holding that state common law satisfies the first preemptive requirement in the Airline Deregulation Act cases); see also Georgia Nut Co. v. C.H. Robinson Co., No. 17 C 3018, 2017 WL 4864857, at *3 (N.D. Ill. Oct. 26, 2017) (state common-law negligence claims satisfy the first element of FAAAA preemption).

         Regarding the second element of preemption, the Seventh Circuit considered a scenario very similar to the one here in Costello v. BeavEx, Inc. In Costello, the defendant, a same-day delivery service, enlisted a number of couriers to carry out customer orders throughout Illinois. 810 F.3d at 1048. The defendant classified the couriers as independent contractors instead of employees. Id. But the couriers alleged that they were actually employees for purposes of the IWPCA and thus deductions taken from their wages by the defendant were illegal. Id. At issue in Costello was FAAAA preemption of the second prong of the IWPCA test for what constitutes an “employee”-namely, that to treat an individual as an independent contractor, the individual must “perform[ ] work which is . . . outside the usual course of business . . . of the employer.” Id. at 1050. Because the IWPCA is not specifically directed to motor carriers, the Costello court had to determine whether the IWPCA had “a significant impact on the prices, routes, and services that [defendant] offers to its customers.” Id. at 1055. The court concluded it did not-in other words, the court held that the IWPCA was not “related to a price, route, or service of any motor carrier.” Id. at 1057. In reaching its decision, the court noted the limited nature of the IWPCA's scope and that the plaintiffs only sought to enforce the provision prohibiting wage deductions. Id. at 1055. The court reasoned that the impact of the IWPCA was too “tenuous, remote, or peripheral” to warrant FAAAA preemption and that the IWPCA was the type of background labor law that only indirectly affected prices by raising costs-the law regulated a labor input and operated “one or more steps away from the moment at which the firm offers its customers a service for a particular price.” Id.

         Realizing that the natural extension of Costello would defeat its position here, Diakon attempts to distinguish that case. In particular, Diakon focuses on language in Costello rejecting a categorical rule exempting from preemption all generally applicable state labor laws, but still concluding that “the IWPCA's effect on the cost of labor is too tenuous, remote, or peripheral to have a significant impact on [defendant's] setting of prices for its consumers.” Id. Diakon claims that its preemption argument is different from that in Costello because it does not contend that Plaintiffs' claims will increase its costs. Rather, Diakon argues that Plaintiffs' claims are preempted because they are attempting to use the IWPCA and common-law unjust enrichment to recover deductions that Plaintiffs' authorized in the contracts with Diakon and that such attempts are fundamentally at odds with the FAAAA's deregulatory goals of enforcing freely made agreements and would prevent competitive market forces from operating.

         That argument overlooks several important points, however. First, where, as here, Congress has superseded state legislation by statute, this Court's task is to identify the domain expressly pre-empted. Dan's City Used Cars, Inc. v. Pelkey, 569 U.S. 251, 260 (2013). To do so, this Court must focus first on the statutory language as the best evidence of Congress's preemptive intent. Id. The FAAAA specifies that only state laws that are “related to a price, route, or service” are preempted. 49 U.S.C. § 14501(c)(1). Thus, to be preempted, the state law or claim must “relate to” these specified categories. See id.; see also Costello, 810 F.3d at 1051. Costello is controlling precedent on the issue of whether the IWPCA “relates to a price.”[4] And Diakon advances no argument as to why the IWPCA would “relate to a . . . route or service.” Second, Costello provides general guidance on the issue of FAAAA preemption by emphasizing the distinction between generally applicable state laws that affect the carrier's relationship with its customers and those state laws that affect the carrier's relationship with its workforce. See Costello, 810 F.3d at 1054. “Laws that affect the way a carrier interacts with its customers fall squarely within the scope of FAAAA preemption.” Id. While laws “that merely govern a carrier's relationship with its workforce . . . are often too tenuously connected to the carrier's relationship with its consumers to warrant preemption.” Id. The IWPCA falls into the second category as it affects Diakon's relationship with its workforce, not its customers. Cf. Georgia Nut Co. v. C.H. Robinson Co., No. 17 C 3018, 2017 WL 4864857, *3-4 (N.D. Ill. Oct. 26, 2017) (holding that the FAAAA preempted a customer's negligent supervision and negligent hiring claim against a hired freight broker because allowing such a claim to proceed “would go beyond enforcing the parties' bargain” and “[t]he FAAAA does not allow courts to impute state-law derived rights into transportation agreements, which would expand the bargained-for rights of the agreement”). Therefore, Diakon's argument fails.[5]

         B. Truth-in-Leasing Regulations Preemption Issue

         Diakon next argues that Plaintiffs' claims are preempted by the Truth-in-Leasing Regulations (“Regulations”), 49 C.F.R. § 376.1 et seq. The Court's preemption analysis “begins with a presumption against preemption and focuses first on the text of the statute.” Planned Parenthood of Indiana, Inc. v. Comm'r of Indiana State Dep't of Health, 699 F.3d 962, 984 (7th Cir. 2012) (emphasis in original). Unless Congress has indicated its intent to preempt through the express language of the statute or through the statute's structure and purpose, the state law is presumed to be valid. Id. When the federal statute contains no express preemption language, an implied preemption may be at issue. Id. Implied preemption encompasses “field preemption, which arises when the federal regulatory scheme is so pervasive or the federal interest so dominant that it may be inferred that Congress intended to occupy the entire legislative field, ” as well as “conflict preemption, which arises when state law conflicts with federal law to the extent that ‘compliance with both federal and state regulations is a physical impossibility, ' or the state law ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'” Id.

         Here, Diakon argues that the Regulations preempt Plaintiffs' claims because the Regulations allow for certain types of deductions that Plaintiffs contend are unlawful.[6] Pursuant to 49 U.S.C. § 14102(a), the Secretary of Transportation is authorized to issue regulations that govern owner-operator leases of equipment to authorized carriers. The Regulations promulgated pursuant to this section are found in 49 C.F.R. § 376.1 et seq. The Regulations clarify the responsibilities of authorized carriers and drivers, and thereby prevent carriers from using informal leases with owner-operators to circumvent safety regulations and responsibility for injuries to third-parties. Shimko v. Jeff Wagner Trucking, LLC, No. 11-CV-831-WMC, 2013 WL 10075919, at *2 (W.D. Wis. June 28, 2013) (listing cases that discuss the goals of the Regulations). The Regulations also protect owner-operators by requiring carriers to enter into written leases with certain mandatory terms. Id. In particular, the Regulations require “a written lease granting the use of the equipment” for “the authorized carrier [to] perform authorized transportation in equipment it does not own.” 49 C.F.R. § 376.11. The Regulations define a lease as “[a] contract or arrangement in which the owner grants the use of equipment, with or without driver, for a specified period to an authorized carrier for use in the regulated transportation of property, in exchange for compensation.” 49 C.F.R. § 376.2(e). And § 376.12 specifies what this written lease has to contain:

(c) Exclusive possession and responsibilities.
(1) The lease shall provide that the authorized carrier lessee shall have exclusive possession, control, and use of the equipment for the duration of the lease. The lease shall further provide that the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease. . . .
(d) Compensation to be specified. The amount to be paid by the authorized carrier for equipment and driver's services shall be clearly stated on the face of the lease or in an addendum which is attached to the lease. . . . The compensation stated on the lease or in the attached addendum may apply to equipment and driver's services either separately or as a combined amount.
(e) Items specified in lease. . . . The lease shall clearly specify the responsibility of each party with respect to the cost of fuel, fuel taxes, empty mileage, permits of all types, tolls, ferries, detention and accessorial services, base plates and licenses, and any unused portions of such items. . . .
(j) Insurance.
(1) The lease shall clearly specify the legal obligation of the authorized carrier to maintain insurance coverage . . . . If the authorized carrier will make a charge back to the lessor for any of this insurance, the lease shall specify ...

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