United States Court of Appeals,

Sixth Circuit.

The MASON AND DIXON LINES INCORPORATED; Universal Am–Can Ltd.; Mason Dixon Intermodal Inc., Plaintiffs–Appellants (11–1183),

E.L. Hollingsworth & Co., d.b.a. Chieftan Contract Services; Churchill Transportation Inc.; Superior Global Inc., Intervenor–Plaintiffs–Appellants (11–1186),

v.

Kirk T. STEUDLE; Ted B. Wahby, Defendants–Appellees,

Detroit International Bridge Co., Defendant.

 

Nos. 11–1183, 11–1186.

Argued: Jan. 11, 2012.

Decided and Filed: June 26, 2012.

 

ARGUED:Daniel C. Sullivan, Sullivan, Hincks & Conway, Oak Brook, Illinois, Michael J. Leavitt, Sullivan & Leavitt, Northville, Michigan, for Appellants. LuAnn Cheyne Frost, Office of the Michigan Attorney General, Lansing, Michigan, for Appellees. ON BRIEF:Daniel C. Sullivan, John Conway, Sullivan, Hincks & Conway, Oak Brook, Illinois, John W. Bryant, Dean & Fulkerson, P.C., Troy, Michigan, Michael J. Leavitt, Martin J. Leavitt, Sullivan & Leavitt, Northville, Michigan, Kevin J. Plagens, Kopka Pinkus Dolin & Eads PLC, Farmington Hills, Michigan, Eric A. Parzianello, Beals Hubbard, PLC, Farmington Hills, Michigan, for Appellants. LuAnn Cheyne Frost, Michael J. Dittnber, Robert L. Mol, Office of the Michigan Attorney General, Lansing, Michigan, for Appellees.

 

 

Before: MERRITT and MOORE, Circuit Judges; and MAYS, District Judge. FN*

 

OPINION

MERRITT, Circuit Judge.

The basic question before us is whether the State of Michigan acts in a proprietary capacity as a “market participant” rather than as a government regulator when it contracts with a private bridge company to divide up the work of building new ramps and roads that will connect various interstates with the Ambassador Bridge. We hold that, for purposes of the Commerce Clause and the plaintiffs’ statutory claims, the State is acting in a proprietary capacity here and, like the private bridge company, takes the role of a market participant when it joins with the bridge company in constructing ramps up to the bridge.

 

I. Facts

The three plaintiffs and the three intervening plaintiffs (collectively “the plaintiffs”) are trucking companies that ship goods across the border between the United States and Canada. They travel across a bridge between the two countries—the Ambassador Bridge, privately owned by the Detroit International Bridge Company. The bridge crosses the Detroit River from Detroit, Michigan, to Windsor, Ontario, Canada. Historical means of access to the bridge were inefficient and necessitated traversing the Detroit city streets. The State, through its Department of Transportation, thus entered into a contract with the Bridge Company to construct new and improved approaches to the Bridge from interstate roads in Michigan. The work is called the “Gateway Project.” The contract specified that the State and the Bridge Company had separate construction jobs to perform, a fact that the district court discussed in its opinion and the parties do not dispute. See Mason & Dixon Lines, Inc., et al. v. Steudle, et al., 761 F.Supp.2d 611, 617–18 (E.D.Mich.2011). The State used State and federal highway funds to complete its share of the work, which included constructing several freeway ramps leading up to the Ambassador Bridge from the interstate roads.

 

In February 2010, the State obtained a judicial order from the Michigan Circuit Court in Wayne County, Michigan, finding the Bridge Company to be in breach of the construction contract. See Mich. Dep’t of Transp. v. Detroit Int’l Bridge Co., No. 09–015581–CK, Opinion and Order at 6 (Wayne Cnty.Cir.Ct. Feb. 1, 2010). The order mandated specific performance of the contract by the Bridge Company. See id. The Bridge Company thereafter filed a motion requesting that the state court order the State to open the freeway ramps. It asserted that this remedy was necessary in order for it to complete its part of the contract in compliance with the state court’s previous order of specific performance. In August 2011, the state court denied the Bridge Company’s request and instructed it to continue construction as previously ordered. See Mich. Dep’t of Transp. v. Detroit Int’l Bridge Co., No. 09–015581–CK, Opinion and Order at 6 (Wayne Cnty.Cir.Ct. Aug. 11, 2011). However, the state court subsequently found the Bridge Company to be in defiance of the construction order. It held two of the Bridge Company’s major officials in contempt and ordered them to be imprisoned until the Bridge Company complied with the prior court order. See Mich. Dep’t of Transp. v. Detroit Int’l Bridge Co., No. 09–015581–CK, Opinion and Order at 6 (Wayne Cnty.Cir.Ct. January 12, 2012). In March 2012, in settlement of the contempt citation, the state court ordered the Bridge Company to relinquish its construction responsibilities to the State and establish a $16 million special fund to ensure completion of the Bridge Company’s portion of the work. See Mich. Dep’t of Transp. v. Detroit Int’l Bridge Co., No. 09–015581–CK, Opinion and Order at 9 (Wayne Cnty.Cir.Ct. March 8, 2012).

 

The present federal litigation arose when the plaintiffs, some of which may share common ownership with the Bridge Company, filed suit in federal district court seeking an injunction requiring the defendants, officials of the Michigan Department of Transportation, to immediately open the freeway ramps leading up to the bridge. They claim that the State’s refusal to open the newly-constructed-but-still-closed ramps represents an ongoing violation of federal statutory and constitutional law. The defendants responded by filing a motion to dismiss, asserting that the State would not open the freeway ramps because to do so prior to completing the Gateway Project construction would be unsafe, jeopardize federal funding, and interfere with the ongoing construction. On January 13, 2011, the district court granted the State’s motion to dismiss the claims of all plaintiffs. Mason & Dixon Lines, Inc., 761 F.Supp.2d at 629.

 

The plaintiffs appeal the district court’s order, raising federal statutory and constitutional claims as well as claims of procedural error. Our review of the lower court’s dismissal order is de novo. See Williams v. Curtin, 631 F.3d 380, 383 (6th Cir.2011); Babler v. Futhey, 618 F.3d 514, 519 (6th Cir.2010). However, the defendants point out that if this court were to reverse the decision of the district court and remand with instructions to grant the plaintiffs’ Motion for a Preliminary Injunction, our decision might conflict with the state court’s August 2011 ruling that nothing in the Gateway Project contract requires the State to open the ramps. Because we affirm the district court’s dismissal of the plaintiffs’ federal causes of action, we do not need to address the defendants’ arguments for federal abstention in this case. We attach an Appendix with a labeled photograph and some background information about the layout around the Ambassador Bridge on the Detroit side of the border. This background information is given so that the reader can visualize the area and is not a part of our decision on the issues presented.

 

II. Plaintiffs’ Dormant Commerce Clause Claim

Beginning in 1976, the Supreme Court held that the “market participation” doctrine, announced in Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 96 S.Ct. 2488, 49 L.Ed.2d 220 (1976), protects state and local laws from invalidity under the dormant Commerce Clause when the state or municipality is acting in a proprietary capacity as a participant in the private market. In Department of Revenue of Kentucky v. Davis, 553 U.S. 328, 339, 128 S.Ct. 1801, 170 L.Ed.2d 685 (2008), the Supreme Court recently reaffirmed the continuing validity of the market participation doctrine. It explained:

 

This “market participant” exception reflects a basic distinction … between States as market participants and States as market regulators,” Reeves v. Stake, 447 U.S. 429, 456 [436] [100 S.Ct. 2271, 65 L.Ed.2d 244] (1980), “[t]here [being] no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market,” id. at 437 [100 S.Ct. 2271]. See also White v. Massachusetts Council of Constr. Employees [Employers], Inc., 460 U.S. 204, 208 [103 S.Ct. 1042, 75 L.Ed.2d 1] (1983) ( “[W]hen a state or local government enters the market as a participant it is not subject to the restraints of the Commerce Clause”). Thus, in Alexandria Scrap, we found that a state law authorizing state payments to processors of automobile hulks validly burdened out-of-state processors with more onerous documentation requirements than their in-state counterparts. Likewise, Reeves accepted South Dakota’s policy of giving in-state customers first dibs on cement produced by a state-owned plant, and White held that a Boston executive order requiring half the workers on city-financed construction projects to be city residents passed muster.

 

See also Lawrence Tribe, AMERICAN CONSTITUTIONAL LAW 430–34 (2d ed. 1988).

 

Here, the State is participating in the road construction market in order to improve transportation across a privately owned river crossing. It is not protecting local commerce by discriminating against out-of-state or foreign commercial interests, which is the typical reason for striking down state regulation under the dormant Commerce Clause. See Davis, 553 U.S. at 337–38, 128 S.Ct. 1801, National Foreign Trade Council v. Natsios, 181 F.3d 38, 67–68 (1st Cir.1999). To the contrary, it is ensuring the completion of a contract, financed in part by State funds and federal funds that the State has the authority to administer, that will actually encourage the flow of commerce across state and international lines. As we discussed in the preceding section, the parties do not dispute that the State and the Bridge Company entered into a construction contract and each had separate work to perform. (See Letter Br. for Pls.–Appellants 14; Letter Br. for Intervenor Pls.–Appellants 18; Corrected Br. for Defs.–Appellees 6.) We therefore reject the plaintiffs’ argument that the State’s refusal to open the freeway ramps prior to the completion of the Gateway Project violates the dormant Commerce Clause.

 

III. Claims Under § 14501(c) of the Motor Carriers Statute

Another question raised by this appeal is whether a subsection of the federal motor carriers statute, 49 U.S.C. § 14501(c) (2006), prohibits the State from keeping the ramps closed. Section 14501(c) prevents a state from “enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier … with respect to the transportation of property.”  The district court held that the State’s refusal to open the ramps is not a state action within the meaning of this statutory provision. Mason & Dixon Lines, Inc., 761 F.Supp.2d at 620–21. We agree. As we said in our discussion of the dormant Commerce Clause, the State’s role in this case is not that of a regulator but of a market participant that has contracted with the Bridge Company to provide a more efficient road system at the river crossing.

 

The Sixth Circuit has held that when a State simply participates in the free market it does not “regulate” and its actions “do not constitute regulation or have the force and effect of law” within the meaning of § 14501(c). Petrey v. City of Toledo, 246 F.3d 548, 558–59 (6th Cir.2001), abrogated on other grounds by City of Columbus v. Ours Garage and Wrecker Serv., Inc., 536 U.S. 424, 122 S.Ct. 2226, 153 L.Ed.2d 430 (2002). In Petrey, this court specifically held that the state or “municipal proprietor” exception expressly applies to § 14501(c)(1) in light of that provision’s language and the intent of Congress, by enacting it, “to deregulate the motor carrier industry and encourage market forces.” Petrey, 246 F.3d at 558 (internal quotation marks omitted). See also Cardinal Towing & Auto Repair, Inc. v. City of Bedford, Tex., 180 F.3d 686, 694–95 (5th Cir.1999).

 

In this case, it is uncontested that the Gateway Project is a construction contract between an arm of the State of Michigan and a private company. See Mason & Dixon Lines, Inc., 761 F.Supp.2d at 617–18. As parties to that contract, the State and the Bridge Company function much like independent contractors who agreed to complete different portions of a large and complex project. See id. But according to the factual findings of the state court, which the state court determined were not in dispute and which we judicially notice, the Bridge Company has been remiss in fulfilling its end of the bargain and many portions of the project for which it is responsible remain unfinished. The State’s refusal to open the ramps, therefore, is not the reflection of some law or regulatory impulse but of the State’s proprietary interest in ensuring the performance of a contract. In Reeves, the Supreme Court reasoned that a State “may fairly claim some measure of a sovereign interest in retaining freedom to decide how, with whom, and for whose benefit to deal.” 447 U.S. at 438 n. 10, 100 S.Ct. 2271. Petrey and Cardinal Towing follow this same line of reasoning and explicitly apply it to claims brought under § 14501(c). See Petrey, 246 F.3d at 558–59; Cardinal Towing, 180 F.3d at 694–96. The motor carriers statute does not prohibit the challenged state action in this case.

 

IV. Claims under 49 U.S.C. § 31114(a)(2)

The plaintiffs also argue that the State’s unwillingness to open the ramps is foreclosed by a provision of the Surface Transportation Assistance Act, 49 U.S.C. § 31114(a)(2), which states that, absent safety considerations, “[a] State may not enact or enforce a law denying to a commercial motor vehicle … reasonable access between” the interstate highway system and “terminals, facilities for food, fuel, repairs, and rest, and points of loading and unloading….” The district court disagreed and found that “[w]hether the [Ambassador] Bridge falls within the definition of a ‘terminal’ is debatable. However, even assuming that it does, [the prohibition described in § 31114(a)(2) ] explicitly applies only to ‘a law,’ … [and m]oreover, the plaintiffs have not alleged that they do not have reasonable access to the [b]ridge.” Mason & Dixon Lines, Inc., 761 F.Supp.2d at 625. The scope of § 31114(a)(2) is indeed narrower than that of § 14501(c)(1) because it only applies to actual laws and not also to “regulations and other provisions having the force and effect of law.” Yet again, the State’s conduct here is protected by the market participation doctrine that we have discussed at length in the preceding sections. Congress’s paramount objective in passing the Surface Transportation Assistance Act was to “create uniform standards for commercial motor vehicles utilizing the Interstate and other federal highways” by removing burdensome state regulation restricting access to and from the highway system. Aux Sable Liquid Prods. v. Murphy, 526 F.3d 1028, 1036 (7th Cir.2008). Much like the motor carriers statute, the market participant exception has proper application to § 31114(a)(2) because it is consistent with that provision’s deregulatory objective. Moreover, for the purposes of stating a claim under § 31114(a)(2), the plaintiffs in this case do not adequately explain why their current access to the bridge (via city streets) is unreasonable. As the district court reasoned, “the State does not violate the [Surface Transportation Assistance Act] if it provides an alternate route of access that is merely less preferable.” See Mason & Dixon Lines, Inc., 761 F.Supp.2d at 625 (citing Aux Sable Liquid Prods., 526 F.3d at 1036–37).

 

V. Conclusion

Based on the foregoing, we conclude that the district court properly granted the defendants’ Motion to Dismiss as to the plaintiffs’ federal statutory and constitutional claims. Because the underlying claims lack merit, we also affirm the district court’s decision to deny the plaintiffs’ Motion for Preliminary Injunction. See Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) (“A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits….”). The plaintiffs’ failure to survive the pleading stage also disposes of their remaining arguments on appeal. We affirm the dismissal of their § 14501(c)(1) claims and therefore need not address whether that provision is privately enforceable under 42 U.S.C. § 1983. The plaintiffs also assert that the district court improperly considered facts and evidence outside the pleadings and thereby converted the defendants’ Motion to Dismiss into a Motion for Summary Judgment. See Jones v. City of Cincinnati, 521 F.3d 555, 562 (6th Cir.2008). Even if this were true, discovery could not cure the legal deficiencies of the claims in this case, which still fail as a matter of law.

 

Accordingly, the judgment of the district court is affirmed.

 

APPENDIX

Map of the Gateway Project

Below is a map of the Gateway Project obtained from the State of Michigan’s official website. To enhance clarity, we have highlighted the New Michigan Freeway Ramps and added additional labels. See Tia Klein and Chris Youngs, Completion of Gateway Project: March 26, 2012 Pre–Bid Meeting, MICHIGAN.GOV (last visited June 6, 2012, 9:49 AM), http:// www.michigan.gov/documents/mdot/Presentation_shown_at_the_Pre-Bid_Meeting_ 380399_7.pdf.

 

 

 

 

 

Gateway Project Construction Layout

The following description provides background information so that the reader can visualize the area around the bridge and the traffic flow.

 

The construction is located at the triangular convergence of I–75, Fort Street, and the Ambassador Bridge. At the center of the triangle is the U.S. Entry Plaza, which is accessible to drivers through a toll booth station. The Entry Plaza houses a service area that includes duty free shops and a fueling station, which are run by the Bridge Company. The Entry Plaza is also the means of access to S01, a ramp that carries trucks and cars from the left side of the Entry Plaza up onto the bridge. The problem with SO1 is the three piers below it, P11, P12, P13, which were improperly constructed by the Bridge Company. In the Gateway Project plans, the piers are meant to allow twin two-lane roads to pass under S01. The planned roads give drivers the option of bypassing the service area and proceeding directly from the toll booth station onto the Ambassador Bridge. However, the improperly constructed piers are hindering construction of these bypass roads, effectively forcing traffic into the service area. Their remediation was the responsibility of the Bridge Company but it has failed to complete the work. In February 2010, the Michigan Circuit Court in Wayne County, Michigan, issued an order mandating that the Bridge Company reconstruct the three piers. Because the Bridge Company has failed to comply with this specific performance order, the State will remediate the piers at the Bridge Company’s expense.

 

The New Michigan Freeway Ramps (S29, highlighted in black and yellow on the map) are at the center of the dispute in the present litigation because the Department refuses to open them. The ramps are intended to bring drivers directly from I–75 (and in the case of the southernmost ramp, from Fort Street and West Grand Boulevard, as well) through the toll booths and into the Entry Plaza. From there, drivers will be able to proceed onto SO1 and the Ambassador Bridge. Currently, drivers can only reach the Bridge from I–75 via an indirect route that entails getting off at a separate interstate exit and using the Detroit city streets to access a small service road that leads to the toll booths at the Entry Plaza.

 

Running almost parallel to S01 are S02 and S32, which are two portions of the same ramp that connect a trucking road from the Inbound Truck Inspection to I–75. This will give trucks and other motor carriers coming from Canada more efficient access to the interstate. At the time the parties to this litigation submitted their briefs, the State claimed that it was waiting to receive an easement from the Bridge Company to complete work on S32. However, on March 8, 2012, the state court issued an order requiring the Bridge Company to grant all easements necessary for the State to complete the Gateway Project itself. Apparently, the construction of both S02 and S32 is now complete.

 

FN* The Honorable Samuel H. Mays, Jr., United States District Judge for the Western District of Tennessee, sitting by designation.

 

Congress passed the legislation authorizing funds for the Gateway Project in 1998 and described the project as “improvements to access roads and construction of access roads, approaches, and related facilities (such as signs, lights, and signals) necessary to connect the Ambassador Bridge in Detroit, Michigan, to the Interstate [Highway] System.” Transportation Equity Act for the Twenty–First Century, Pub. L. No. 105–178, § 1217, 112 Stat. 107, 214 (1998).

 

49 U.S.C. § 14501(c)(1) and (2) read in their entirety as follows:

 

(c) Motor carriers of property—

 

(1) General rule.—Except as provided in paragraphs (2) and (3) 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 a 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.

 

(2) Matters not covered.—Paragraph (1)—

 

(A) shall not restrict the safety regulatory authority of a State with respect to motor vehicles, the authority of a State to impose highway route controls or limitations based on the size or weight of the motor vehicle or the hazardous nature of the cargo, or the authority of a State to regulate motor carriers with regard to minimum amounts of financial responsibility relating to insurance requirements and self-insurance authorizations.

 

(B) does not apply to the intrastate transportation of household goods; and

 

(C) does not apply to the authority of a State or a political subdivision of a State to enact or enforce a law, regulation, or other provision relating to the price of for-hire motor vehicle transportation by a tow truck, if such transportation is performed without the prior consent or authorization of the owner or operator of the motor vehicle.

 

The plaintiffs also bring a claim under another provision of the Interstate Commerce Commission Termination Act, 49 U.S.C. § 10501, which governs rail transportation. Specifically, it confers on the Surface Transportation Board exclusive federal jurisdiction over “transportation by rail carriers, and the remedies provided in this part with respect to rates, classifications, rules (including car service, interchange, and other operating rules), practices, routes, services, and facilities of such carriers….” § 10501(1). Overlooking the fact that this provision applies to rail transportation and the plaintiffs in this case are motor carriers, the State’s refusal to open the ramps is once again protected by the market participation doctrine. Much like § 14501(c), § 10501 is a deregulatory provision that is not implicated by the State’s refusal to open the ramps, which is part of a contract dispute with a private bridge company. See Elam v. Kansas City S. Ry. Co., 635 F.3d 796, 804 (5th Cir.2011).

United States District Court, W.D. Kentucky,

at Louisiville.

John COLEMAN, et al., Plaintiffs

v.

FEDEX GROUND PACKAGE SYSTEM, INC., Defendant.

 

Civil Action No. 3:05–CV–522–H.

June 25, 2012.

 

Mark B. Wallace, Walker, Vaughn & Wallace, PLLC, Louisville, KY, Anne T. Regan, J. Gordon Rudd, Patricia A. Bloodgood, Zimmerman Reed, PLLP, Julie A. Strother, Susan E. Ellingstad, Lockridge Grindal Nauen, PLLP, Minneapolis, MN, for Plaintiffs.

 

Clark C. Johnson, Whitney Frazier Watt, Stites & Harbison, PLLC, Gregory Haynes, Frank F. Chuppe, Lisa Catherine Dejaco, Wyatt, Tarrant & Combs LLP, Louisville, KY, Guy G. Brenner, Cooley LLP, Washington, DC, Joseph P. McHugh, Fedex Ground Package System, Inc., Moon Township, PA, for Defendant.

 

MEMORANDUM OPINION AND ORDER

JOHN G. HEYBURN II, District Judge.

After being centralized with dozens of related lawsuits in a Multi–District Litigation (“MDL”) proceeding, this case has returned to its original venue to resolve of its outstanding claims. Those claims are that Defendant, FedEx Ground Package System, Inc. (“FedEx Ground” or “FXG”), violated KRS 337.060 by making a variety of improper deductions from their wages. Plaintiffs represent themselves and a class of pick-up and delivery drivers who worked for FedEx Ground in Kentucky. Each party has now filed a motion for summary judgment. For the reasons that follow, the Court grants Defendant’s motion for summary judgment as to most of the claims against it. Correspondingly, Plaintiffs’ motion for summary judgment is denied in part and granted in part.

 

I.

FedEx Ground provides nationwide small package pick-up and delivery services. To facilitate this work, Defendant enters into an Operating Agreement (“OA”) with pick-up and delivery drivers. The OA governs the entire relationship between the two parties, and explicitly classifies the drivers as independent contractors. It allows the individual choices in specified provisions and enables the drivers to take advantage of entrepreneurial opportunities, such as holding propriety rights in their routes, hiring assistants or employees, and expanding their businesses to include multiple trucks and routes. The drivers bear many responsibilities under the agreement, including the maintenance of their own equipment, but they are afforded procedural protections should FedEx Ground choose to terminate the relationship.

 

The OA allows Defendant a significant amount of control over the drivers. The company places limits on the number of routes a driver may own at a given terminal and issues minimum standards for their assistants or employees. FedEx Ground controls assigned work, even regulating the flow of packages through individual trucks.

 

In 2005, Plaintiffs, four former Kentucky FedEx Ground drivers, filed this class action complaint alleging that Defendant committed fraud and unlawfully withheld wages. The Judicial Panel on Multi–District Litigation then centralized the case with a group of other similar lawsuits and transferred all of them to the U.S. District Court for the North District of Indiana for coordinated pretrial proceedings. There, Plaintiffs received certification for the following class:

 

Any person who: 1) entered or will enter into FXG Ground or FXG Home Delivery form Operating Agreement (now known as form OP–149 and form OP–149 RES); 2) drove or will drive a vehicle on a full-time basis (meaning exclusive of time off for commonly excused employment absences) since September 13, 2000, to provide package pick-up and delivery services pursuant to the Operating Agreement; and 3) were dispatched out of a terminal located in Kentucky or provide(d) pick-up and delivery services within Kentucky.

 

 

In re FedEx Ground Package Sys., Inc., Emp’t Practices Litig., 273 F.R.D. 424, 445, 448 (N.D.Ind.2008). Since the pertinent provisions of the OA are nearly identical across different driver divisions, this class definition encompasses both Home Delivery drivers and Ground Pick-up and Delivery (“Ground P & D”) drivers.

 

The MDL Court made a number of important rulings. It held that Plaintiffs were independent contractors as defined under Kentucky common law, but were employees as defined under the state’s Wages and Hours Act, KRS Chapter 337. In re FedEx Ground Package Sys., Inc., Emp’t Practices Litig., 758 F.Supp.2d 638, 684–85 (N.D.Ind .2010). As a consequence, Defendant received summary judgment to the extent that Plaintiffs’ claims depended on employee status under the Kentucky common law. Id. at 682–83. However, the Plaintiffs’ claims under KRS 337.060 and 337.070, the sections of the Wages and Hours Act dealing the propriety of wage deductions and their documentation, demanded further proceedings. Id. For this reason, the MDL Court remanded many of the cases to their original venues.

 

This Court must now determine whether Defendant’s wage deductions violated KRS 337.060. Plaintiffs moved for summary judgment concerning five deductions: (1) insurance premiums, (2) the Business Support Package, (3) the Service Guarantee Program, (4) the Performance Escrow Account, and (5) Cargo Claims. Defendant moved for partial summary judgment on the above-mentioned claims, excluding Cargo Claims, and also requested summary judgment on deductions for fuel card purchases, and licenses, taxes, and fees. Plaintiffs chose to voluntarily dismiss their KRS 337.070 claims for improper documentation of deductions.

 

II.

Summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine dispute as to a material fact exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When considering a motion for summary judgment, “the inferences to be drawn from the underlying facts … must be viewed in the light most favorable to the party opposing the motion.” United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). In cases where the material facts are undisputed, one of the parties is entitled to judge as a matter of law. Tanks v. Greater Cleveland Reg’l Transit Auth., 930 F.2d 475, 477 (6th Cir.1991).

 

III.

This case requires the Court to interpret portions KRS 337.060 that have received little or no previous judicial attention and apply that statute to each of the contested deductions. The first sentence of KRS 337.060(1) establishes the general rule that “[n]o employer shall withhold from any employee any part of the wage agreed upon.” The remainder of the subsection sets forth exceptions to that general rule, but the existence of a “wage agreed upon” is prerequisite to the application of the statute. Spears v. Amazon.Com.KYDC LLC, Civil No. 10–325–GFVT, 2011 WL 4499360, at(E.D.Ky. Sept. 26, 2011).

 

Wages are defined as “any compensation due to an employee by reason of his or her employment … and any other advantages agreed upon by the employer and the employee or provided to employees as an established policy.” KRS 337.010(1)(c). Here, the “wage” is established in OA § 4, which states that Plaintiffs will receive payment for their services through a weekly settlement payment. The exact amount of that payment is derived from a formula explained in OA Addendum 3. Even though the settlement payment may vary depending on the amount and type of work done, it is still a wage. It is undisputed that both parties agreed to this method of payment of “compensation due to an employee by reason of his or her employment.” See KRS 337.010(1)(c). In light of the sweeping definition of wages in KRS 337.010(1)(c), the Court concludes that the settlement does constitute the “wage agreed upon.”

 

Defendant does not dispute the fact that Plaintiffs provided the services necessary to receive pay under the settlement formula. See Kimmel v. Progress Paint Mfg. Co., No.2002–CA–000273–MR, 2003 WL 1226837, at(Ky.Ct.App. Jan. 10, 2003) (reasoning that if the services required under the wage agreement are in bona fide dispute, KRS 337.060 cannot be applied). It is also undisputed that Defendant removed the contested deductions from the weekly settlement payments. Having found a “wage agreed upon,” the initial protections of KRS 337.060 apply to any deductions from it. Next, the Court will examine those protections.

 

IV.

The Wages and Hours Act does “not make it unlawful for an employer to withhold or divert any portion of an employee’s wage … when a deduction is expressly authorized in writing by the employee to cover insurance premiums, hospital or medical dues, or other deductions not amounting to a rebate or deduction from the standard wage arrived at by collective bargaining or pursuant to wage agreement or statute….” KRS 337.606(1). Since an agreed upon wage existed and deductions to that wage occurred, the Court must now examine the exceptions to the general rule that no employer shall withhold any part of the agreed upon wage.

 

A.

As a preliminary matter the Court will address a few of Plaintiffs’ broadly applicable arguments. Plaintiffs argue that the drivers lacked capacity to authorize any wage deductions because they did not understand their rights under the Wages and Hours Act. This reasoning would have more relevance in the context of a fraud claim, but it has none here.

 

Plaintiffs put forward a fraud claim at the outset of this litigation, but the MDL Court dismissed the claim when it held the drivers to be independent contractors under Kentucky common law. The resurrection of that claim through this lack-of-capacity argument cannot stand. Even though, Plaintiffs were unaware of their rights under the Wages and Hours Act, this Court will now make certain that Defendant has complied with it.

 

To support their lack-of-capacity argument, Plaintiffs repeatedly direct the Court’s attention to the increased scrutiny required for an employee’s rejection of workers’ compensation rights. Karst Robbins Mach. Shop v. Caudill, 779 S.W.2d 207, 208–09 (Ky.1989). However, that standard relies on express language in KRS 342.395 and does not apply outside of the realm of workers’ compensation. Plaintiffs made no claims under Kentucky workers’ compensation law, and no court has held that the drivers are employees as defined under KRS Chapter 342. Therefore, the Court shall only review the contested deductions under the protections of the Wages and Hours Act.

 

The Court also disagrees with Plaintiffs analogies to 803 KAR 1:080, a regulation concerning the appropriate calculation of minimum wage and overtime pay. If applied under Plaintiffs’ interpretation, this regulation would prevent Defendant from making wage deductions for items that primarily benefitted FedEx Ground. However, this interpretation does not accurately characterize the purpose or applicability of the regulation. The purpose of 803 KAR 1:080 is to ensure that employees receive a minimum amount of compensation and overtime pay without being subjected to deductions that primarily serve the employer. Once that minimum amount is reached, this regulation no longer applies, and the allowable deductions can be of a broader character.

 

B.

Plaintiffs argue that FedEx Ground improperly deducted insurance premiums covering work accident insurance and non-trucking liability insurance for the drivers and their employees. However, KRS 337.060 permits wage deductions that are “expressly authorized in writing by the employee to cover insurance premiums.” OA §§ 3.1 and 3.6 notified the drivers that they were required to carry work accident and non-trucking liability insurance. Plaintiffs signed a Protective Insurance Enrollment Form which expressly authorized the deduction of the insurance costs. Both this form and the OA explicitly stated that if a driver takes advantage of the common provider through FedEx Ground the premiums will be deducted from the settlement.

 

Nevertheless, Plaintiffs contend that the authorization cannot be valid under KRS 464.060 because the explanatory language appeared after the signature on the reverse side of the form. The doctrine of incorporation by reference, however, does not require that all of the terms appear above the signature.   Childers & Venters, Inc. v. Sowards, 460 S.W.2d 343, 344 (Ky.1970). When a contractual signature is place after clear language that expresses the incorporation of other terms and conditions by reference, it is a logical inference that the signer intended to be bound by all of the incorporated terms. Bartelt Aviation v. Dry Lake Coal Co., Inc., 682 S.W.2d 796, 797 (Ky.Ct.App.1985).

 

The Protective Insurance Enrollment Form easily meets these requirements. It contained the following text and formatting directly above the signature line:

 

IMPORTANT! READ BOTH SIDES OF THIS FORM BEFORE SIGNING BELOW.

I have carefully read the material on both sides of this form and have had a reasonable opportunity to inquire as to the meaning and intent of all parts. I hereby certify that I understand its content and completed all sections truthfully. I agree that any failure on my part to do so may constitute fraud, under which all coverages and insurance, as to me personally, may become void. I reserve the right to rescind any authorizations granted upon written notice to the Group Sponsor and/or Names Insured.

This presentation surpasses this standard by its use of conspicuous, bold type to alert the driver to the terms on the reverse of the page. OA Addendum 2 § 3.8 also explains that if a driver chooses to have FedEx Ground facilitate his insurance coverage, “Contractor authorizes FedEx Ground to deduct, from Contractor’s settlement, amounts reflecting all of FedEx Ground’s expenses and cost in obtaining and administering such coverage.”

 

Plaintiffs argued that the authorization is improper because FedEx Ground failed to include the second page of the Protective Insurance Enrollment Form at the time the forms were executed. It is true that the Forms submitted in discovery did not show the reverse side of the document. However, Plaintiff has not supported their argument by affidavits or other evidence. To the contrary, Defendant provided a complete copy of the two-sided form and a declaration that the two-sided form was in standard use. Thus, Plaintiffs have failed to demonstrate a disputed contention. By these authorization procedures before subtracting the premiums from Plaintiffs’ settlements, Defendant’s deductions of work accident and non-trucking liability insurance premiums did not violate KRS 337.060.

 

C.

The parties’ requests for summary judgment as to deductions made on account of the Business Support Package, fuel card purchases, licenses, taxes, and fees, the Service Guarantee Program, and the Performance Escrow Accounts must be analyzed within the catchall exception of KRS 337.060(1). The catchall exception provides that it shall not be unlawful for an employer to make “other deductions not amounting to a rebate or deduction from the standard wage arrived at by collective bargaining or pursuant to wage agreement or statute.” KRS 337.060(1).

 

Defendant asserts that since the now-repealed 803 KAR 1:088 separated this section into its own category, rather than including it with “insurance premiums” and “hospital and medical dues” in a continuous list of deductions requiring written authorization, the Court must hold that no authorization of any kind is necessary for “other deductions.” The Court respectfully disagrees. Kentucky courts have reached the sensible conclusion that the phrase “arrived at by collective bargaining or pursuant to wage agreement or statute” modifies the term “other deductions” and not the term “the standard wage.” See Poynter v. Louisville Ry. Co., 218 S.W.2d 658, 659 (Ky.1949) (interpreting an earlier version of KRS 337.060 to “ha[ve] no application to deductions arrived at by collective bargaining or pursuant to wage agreements”). While the catchall exception is a separate category within KRS 337.060(1), deductions under this exception still must be authorized by collective bargaining, wage agreement, or statute. The other logical interpretation, reading the exceptions as a continuous list, would still demand that Defendant obtain written authorization for the contested deductions.

 

In addition, “[o]ther deductions” under the catchall exception must also not constitute a “rebate or deduction from the standard wage….” KRS 337.060(1). No judicial interpretation or regulation has defined wage rebates under this statute. A rebate is often considered the partial return of any payment, serving as a discount or reduction in the total amount due. The Court would consider any deduction to be a rebate if the employer provided no or unreasonably low value to the employee in exchange for the deduction. The Court will consider each deduction in the following subparagraphs.

 

1.

First, Defendant offered the drivers the opportunity to purchase a Business Support Package, which included FedEx Ground uniforms, vehicle logos, package scanners, propriety scanner software, vehicle inspections, drug tests, and access to associated vendors. OA § 7 explained that should the Plaintiffs choose to purchase the Business Support Package from FedEx Ground, the cost would be deducted from the weekly settlement. To indicate their desire to receive this package, Plaintiffs initialed the corresponding field in OA Addendum 7. By initialing Addendum 7, the drivers issued a written authorization to deduct for the cost of the Business Support Package from their wages. Because materials and services supplied by FedEx Ground allowed Plaintiffs to build a more competitive business and coordinate more effectively with the larger company, the Court would not consider the package to constitute a wage rebate.

 

2.

OA Addendum 9 informed Plaintiffs that they could elect to have FedEx Ground report and pay their fuel tax liability. Deductions for fuel card purchases furnished value by centralizing the record-keeping process for a tax liability Plaintiffs accepted in OA § 1.3. If the Plaintiffs elected this option, they would need to file mileage and fuel purchase data with Defendant. To ease any difficulty this reporting duty might cause, Defendant issued a fuel card upon request that allowed a driver to purchase fuel and report usage at FedEx Ground’s fueling facilities. Drivers used this system of fuel tax reporting by initialing the appropriate box at the end of Addendum 9. This constitutes a valid written authorization for the subsequent wage deductions and does not impose a wage rebate.

 

3.

Defendant established a procedure for deducting the charges for licenses, taxes, and fees required to operate Plaintiffs’ businesses. This procedure provided a convenient process by which Plaintiffs could make their businesses more efficient and competitive while build in a stronger relationship with FedEx Ground, similar to the benefits of the Business Support Package and the fuel card purchases. Prior to making any wage deductions in relation to these expenses, FedEx Ground sought out and received the drivers’ written authorization. OA § 1.3 made clear that the Plaintiffs held final responsibility for all of these charges and proclaimed that acceptance of the agreement would allow such expenses paid by Defendant “to be charged back against and deducted from any compensation owed Contractor by FedEx Ground.” The Court concludes that these deductions did not constitute a rebate.

 

4.

The Service Guarantee Program and the Performance Escrow Accounts are not true wage deductions, and thus analysis under KRS 337.060 is unwarranted. The Service Guarantee Program is an interest-bearing account created to accumulate funds from which unexpected maintenance expenses could be paid. Through OA Addendum 3 and an account enrollment form, Plaintiffs authorized contributions to individual accounts at their sole discretion. Plaintiffs retained the right to withdraw funds “at any time and for any purpose” under Home Delivery OA § 5 and Ground P & D OA § 8. Since the driver held unlimited access to these wages, no deduction occurred, and KRS 337.060 is not applicable.

 

The Performance Escrow Account is also not a true deduction, instead it is a mechanism through which FedEx Ground may collect on other accepted liabilities. In OA § 1.9, Plaintiffs agreed to deposit, “at such time and in such manner as FedEx Ground may specify,” a sum of either $500 for Home Delivery drivers or $1000 for Ground P & D drivers in an interest-bearing escrow account. At the termination of the OA, the balance of the account would be applied to any debt Plaintiffs owned Defendant. If Plaintiffs incurred no debt, all of the funds would be remitted. The Performance Escrow Account is only a mechanism for collecting underlying debts, not a deduction in itself. Therefore, analysis under KRS 337.060 is improper.

 

D.

The final contested deduction, Cargo Claims, must be analyzed under both the catchall exception of KRS 337.060(1) and KRS 337.060(2)(e), which deals with deductions for losses and damage suffered by the employer. Once finding written authorization and determining whether the deduction constituted a rebate, the Court must ensure that the employer did not deduct “[l]osses due to defective or faulty workmanship, lost or stolen property, damage to property, default of customer credit, or nonpayment for goods or services received by the customer” from the wages of an employee “if such losses are not attributable to [the] employee’s willful or intentional disregard of [the] employer’s interest.” KRS 337.060(2)(e).

 

Plaintiffs received notification in OA § 3.5(c) that they would be liable for the first $500 for Home Delivery drivers or the first $1000 for Ground P & D drivers of each claim for lost or damaged packages in their possession or the possession of their agents. However, Defendant did not collect written authorization from Plaintiffs to subtract these Cargo Claims from their weekly settlement payments. To the extent that Defendant deducted Cargo Claims directly from Plaintiffs’ settlements, those deductions violated KRS 337.060(1).

 

Defendant also deducted Cargo Claims from the wages deposited in the Plaintiffs’ Performance Escrow Accounts, but these deductions were made pursuant to a valid written authorization. By assenting to the OA, Plaintiffs agreed to participate in the Performance Escrow Accounts and also recognized Cargo Claims as a liability that could be deducted from the account in accordance with the procedures in OA § 1.9. Since these deductions paid down an accepted liability, the finding of a rebate would be without merit.

 

Although some Cargo Claim deductions undoubtedly satisfied KRS 337.060(1), genuine disputes of fact exist as to whether Defendant attributed those deductions for lost or damaged cargo to Plaintiffs’ “willful or intentional disregard” of FedEx Ground’s interests. Defendant claims that such attribution occurred through the Driver Release Program, standards outlining the acceptable procedures for leaving a package at its final destination. However, it is not clear that the Driver Release Program applied to all drivers and all deliveries. Also, the standards guiding Defendant’s decisions to deduct Cargo Claims may not attribute the high level of fault required by the statute. In some cases the proper level of attribution was likely met, but in others the Defendant likely failed to attribute “willful or intentional disregard.” The Cargo Claims deducted from the Performance Escrow Accounts are individual and fact-specific. Therefore, class-wide summary adjudication is impermissible. However, any Cargo Claims removed directly from the weekly settlements violated KRS 337.060(1) requirement of written authorization.

 

For the reasons stated in its Memorandum Opinion and being otherwise sufficiently advised,

 

IT IS HEREBY ORDERED that DEFENDANT’S partial motion for summary judgment is SUSTAINED as to the deductions for work accident and non-trucking liability insurance premiums, the Business Support Package, fuel card purchases, and licenses, taxes, and fees. PLAINTIFFS’ claims as to the aforementioned deductions, the Service Guarantee Program, and the Performance Escrow Accounts are DISMISSED WITH PREJUDICE.

 

IT IS FURTHER ORDERED that PLAINTIFFS’ motion for summary judgment is SUSTAINED to the extent that Cargo Claims were deducted from the weekly settlement or deducted without attribution of fault pursuant to KRS 337.060(2)(e).

 

The Court will set a conference to set a schedule for future discovery and motions.