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Carter v. Paschall Truck Lines, Inc.

United States District Court, W.D. Kentucky, Paducah

June 19, 2018



          Thomas B. Russell, Senior Judge

         This matter is before the Court on Defendant Element Transportation, LLC's (“Element Transportation”) Motion to Dismiss, [R. 32], and Defendant Paschall Truck Lines, Inc.'s (“PTL”) Motion to Dismiss, [R. 55]. Plaintiffs Gale Carter and Forbes Hayes (hereinafter “Plaintiffs”) responded to both motions. [R. 59; R. 76.] Element Transportation and PTL both replied. [R. 70; R. 78.] Fully briefed, this matter is now ripe for adjudication. For the reasons stated herein, Element Transportation's Motion to Dismiss, [R. 32], is DENIED and PTL's Motion to Dismiss, [R. 55], is DENIED.


         The factual allegations as set out in the First Amended Complaint, [R. 19 (First Amended Complaint)], and taken as true are as follows. See Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). This case arises out of Gale Carter and Forbes Hayes's previous employment as truck drivers for PTL. [R. 19 at 12.] Plaintiffs allege that Carter worked for the defendants as a commercial truck driver from “in or around October of 2015 to in or around December of 2015, ” and Hayes worked for the defendants from “in or around March of 2016 to in or around June of 2016.” [Id.] Upon PTL hiring Carter and Hayes, they were required to attend an orientation, which lasted several days. [Id. at 14.] After completing orientation, Plaintiffs state that PTL required each of them to sign an Independent Contractor Service Agreement (“ICS Agreement”) with PTL and an Individual Program Lease Agreement, (“Lease Agreement”), with ECN.[1] [Id.] In or around September of 2016, Element Transportation purchased “certain leasehold assets” from ECN, including the leases of the Plaintiffs. [Id. at 6.] Plaintiffs contend this makes Element Transportation a successor in interest to ECN. [Id.]

         In short, ECN leased tractor trailers to Plaintiffs who then subleased the tractor trailers and their driving services to PTL. [Id. at 4.] Plaintiffs claim that this arrangement was represented to them as a “Lease-Purchase Program.” [Id. at 13.] Plaintiffs allege that the “extensive restrictions” placed on them through both agreements allowed ECN and PTL such control over Plaintiffs that ECN and PTL functioned as Plaintiffs' joint employers. [Id. at 6.] Specifically, Plaintiffs claim that as a condition of their employment for PTL, PTL required Plaintiffs to lease tractors from ECN, and, under the lease agreement with ECN, Plaintiffs could only drive for PTL. [Id. at 5.] If they did not drive for PTL, the Plaintiffs claim that they would default on their Lease Agreements, “subjecting Plaintiffs to an acceleration clause whereby Plaintiffs would be required to pay the entire balance of the lease immediately.” [Id.] The Lease Agreement states that “Lessee shall use the Vehicle(s) only for providing transportation services for the Carrier identified herein . . ..” [R. 32-2 at 3 (Lease Agreement).] On the page labeled “Schedule AB, ” PTL is documented as being the “Carrier.” [Id. at 13.] Furthermore, the Lease Agreement reads:

EVENTS OF DEFAULT. The occurrence of one or more of the following shall constitute an Event of Default: (a) Lessee shall cease using the Vehicle(s) for providing transportations services for the Carrier identified herein; (b) Lessee fails to pay when due any lease payments or any other payment under this Agreement; (c) Lessee fails to perform any other term or condition of this Agreement and such failure remains unremedied for more than ten (10) days after Lessor has requested Lessee to perform . . ..

[R. 32-2 at 6 (Lease Agreement).] Upon the event of default, ECN could

at its option and without demand or notice to Lessee, do any one or more of following: (a) pay all amounts required to be paid or perform or cause to be performed all obligations required to be performed by Lessee hereunder and charge Lessee as additional rent the amount paid or the reasonable value of all services performed therefore; (b) take immediate possession of the Vehicles in accordance with the provisions of Section 14; (c) declare the entire balance of lease payments for the remainder of the Lease Term and the End of Term value as set forth in Schedule AB immediately due and payable by acceleration and recover such amount as liquidated damages, the reasonableness of such damages being acknowledged by Lessee; or (d) terminate the Agreement and Lessee's rights hereunder and require Lessee at its sole cost to promptly return the Vehicle(s) to Lessor at such locations as Lessor may designate.

[Id.] Plaintiffs allege that this clause in the Lease Agreement subjected them to “more than $100, 000 in liability” if they defaulted on the Lease Agreement. [R. 19 at 13.]

         Under the ICS Agreement with PTL, Plaintiffs concede that they were purported to be independent contractors, but they make allegations that suggest otherwise. [Id. at 19.] Plaintiffs allege that the reality of their relationship with ICS contradicted several of the provisions of the ICS Agreement. [Id.] For instance, § 2.13 of the ICS Agreement states that Plaintiffs could have used the leased equipment for other purposes when not in service to PTL if, within twenty-four hours of that use, Plaintiffs notified PTL, cover any PTL logos, and confirm appropriate insurance coverage was in place. [R. 59-2 at 4, ¶ 2.13 (ICS Agreement).] However, Plaintiffs allege they were not permitted to “use the commercial vehicles leased to them for any carrier other than Defendant PTL” and “[d]uring orientation, Defendant PTL instructed Plaintiffs that their employment and lease agreements would be terminated if they accepted work from any carrier other than Defendant PTL.” [R. 19 at 14.] Furthermore, Plaintiffs allege that the defendants' “pay structure and wage deduction practices and policies regularly caused Named Plaintiffs' wages to drop below the federal minimum wage of $7.25 per hour for all hours worked during a workweek.” [R. 19 at 16.][2] Plaintiffs provide an example in which Hayes performed significant work during the week but was issued a pay stub on May 18, 2016 that provided no wages and lowered him further into debt due to the defendants' deductions for business expenses. [Id. at 16-17.] Also, the ICS Agreement allowed PTL to deduct an “early termination” fee of $5000.00 in liquidated damages if Plaintiffs ceased “providing services when required by PTL on a continuing basis within nine (9) months after the Effective date . . ..” [R. 59-2 at 8 (ICS Agreement).][3] Overall, Plaintiffs contend that the defendants designed a “scheme” involving both agreements in order to “force continued labor of Plaintiffs by using threats of serious financial harm through explicit threats to impose, enforce, and collect significant debts.” [Id.]

         On December 19, 2017, Gale Carter and Forbes Hayes, on behalf of themselves and those similarly situated, filed the First Amended Complaint against PTL, ECN (as successor to EFC), and Element Transportation, LLC (as successor to ECN). [R. 19.] On February 14, 2018, Element filed a Motion to Dismiss, [R. 32], and on April 3, 2018, PTL filed a Motion to Dismiss, [R. 55]. Both motions to dismiss are currently before the Court.


         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In order to survive a motion to dismiss under Rule 12(b)(6), a party must “plead enough ‘factual matter' to raise a ‘plausible' inference of wrongdoing.” 16630 Southfield Ltd. P'ship v. Flagstar Bank, F.S.B., 727 F.3d 502, 504 (6th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A claim becomes plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). When considering a Rule 12(b)(6) motion to dismiss, the court must presume all of the factual allegations in the complaint are true and draw all reasonable inferences in favor of the non-moving party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citing Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1105 (6th Cir. 1983)). “The court need not, however, accept unwarranted factual inferences.” Id. (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)). Should the well-pleaded facts support no “more than the mere possibility of misconduct, ” then dismissal is warranted. Iqbal, 556 U.S at 679. The Court may grant a motion to dismiss “only if, after drawing all reasonable inferences from the allegations in the complaint in favor of the plaintiff, the complaint still fails to allege a plausible theory of relief.” Garceau v. City of Flint, 572 F. App'x. 369, 371 (6th Cir. 2014) (citing Iqbal, 556 U.S. at 677-79).


         In the First Amended Complaint, Plaintiffs bring claims against the defendants on four different counts: violations of the Fair Labor Standards Act, (“FLSA”), 29 U.S.C. § 216b, [R. 19 at 24], the Truth in Leasing Act, (“TILA”), 49 U.S.C. § 14704, [Id. at 25], the Trafficking Victims Protection Reauthorization Act (“TVPRA”), 18 U.S.C. § 1589, [Id. at 25-26], and common law unjust enrichment, [Id. at 26]. Element Transportation moves to dismiss all counts of the First Amended Complaint, [R. 32-1 at 2 (Element Transportation Motion to Dismiss)], and PTL moves to dismiss counts II-IV, [R. 55-1 at 5 (PTL Motion to Dismiss)]. As Element Transportation's Motion to Dismiss and PTL's Motion to Dismiss involve the same subject matter, the Court will consider the two motions together.

         I. Element Transportation Motion to Dismiss

         Element Transportation moves the Court to dismiss all of the claims contained in Plaintiffs' First Amended Complaint on three grounds: First, it argues that the First Amended Complaint fails to “plausibly establish that Element Transportation is liable as a successor to ECN for any of Plaintiffs' claims.” [R. 32-1 at 2.] Second, it asserts that Plaintiffs' allegations are “insufficient to plausibly establish that ECN is liable as a successor to EFC.” [Id.] Last, it contends that any claim Plaintiffs may attempt to state against EFC would fail. [Id.] As the first two arguments operate as a threshold to the last argument, the Court will address each issue in turn.

         A. Element Transportation as a Successor to ECN

          Element Transportation argues that Plaintiffs' have not plausibly alleged that Element Transportation is liable as a successor to ECN. [Id. at 4.] Plaintiffs respond that a successorship liability analysis is inappropriate at this time, before the commencement of discovery. [R. 59 at 9-13.] Furthermore, Plaintiffs quote public filings in which Element Transportation and ECN referred to themselves as successors in interest to Element Financial Corp.. [Id. at 13-16.]

          In regards to Plaintiffs' first argument, the Court does not agree that “discovery is required” in order to properly determine whether a party is a successor in interest. [Id. at 12 (emphasis added).] Although Plaintiffs cite to plentiful case law in which a successorship liability analysis was performed at the summary judgment stage of litigation, [Id. at 12], this does not confirm that the analysis cannot be performed at the motion to dismiss stage. In fact, as Element Transportation acknowledges in its Reply, [R. 70 at 2 (Element Transportation Reply)], several courts within the Sixth Circuit have done just that. See, e.g., Comer v. Directv, LLC, No. 2:14-CV-1986, 2016 WL 853027, at *3-6 (S.D. Ohio Mar. 4, 2016) (finding that the doctrine of successor liability applied and the plaintiff adequately pleaded a case of successor liability at the motion to dismiss stage); Dowd v. Directv, LLC, No. 14-CV-14018, 2016 WL 28866, at *9 (E.D. Mich. Jan. 4, 2016) (denying defendants' motion to dismiss after finding successor liability was appropriate); Shaw v. Total Image Specialists, Inc., No. 2:07-CV-717, 2010 WL 1390470, at *4 (S.D. Ohio Apr. 1, 2010) (granting defendants' motion to dismiss on an FMLA claim after analyzing whether the defendant was a successor in interest). Granted, discovery proves to be rather helpful in performing this analysis. For instance, in Clark v. Shop24Global, LLC, 77 F.Supp.3d 660, 693-94 (S.D. Ohio 2015), the Southern District of Ohio was able to refer to a deposition and the asset transfer agreement between the parties in making its decision. Still, the Court will perform the successorship liability analysis with the information before it.[4]

         “Successor liability is appropriate in the employment-law context if ‘the imposition of such liability would be equitable.'” Comer, No. 2:14-CV-1986, 2016 WL 853027, at *5 (quoting Cobb v. Contract Transp., Inc., 452 F.3d 543, 554 (6th Cir. 2006)). In order to determine whether successor liability is equitable in a particular case, the Court must balance “1) the interests of the defendant-employer, 2) the interests of the plaintiff-employee, and 3) the goals of federal policy, in light of the particular facts of a case and the particular legal obligation at issue.” Cobb, 452 F.3d at 554 (citing EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1091 (6th Cir. 1974)). “There is, and can be, no single definition of ‘successor' which is applicable in every legal context.” MacMillan, 503 F.2d at 1091. Furthermore, “[s]uccessor liability questions must be answered on a case by case basis, and ‘a new employer . . . may be a successor for some purposes and not for others.'” Cobb, 452 F.3d at 554 (quoting MacMillan, 503 F.2d at 1091). The Sixth Circuit also held that the following nine factors are relevant when considering successorship liability:

(1) whether the successor company has notice of the charge; (2) the ability of the predecessor to provide relief; (3) whether the new employer uses the same plant; (4) whether there has been substantial continuity of business operations; (5) whether the new employer uses the same or substantially same workforce; (6) whether the new employer uses the same or substantially same supervisory personnel; (7) whether the same jobs exist under substantially the same working conditions; (8) whether [the defendant] uses the same machinery, equipment and methods of production; and (9) whether [the defendant] produces the same product.

Cobb, 452 F.3d at 554. The Sixth Circuit further explained that these factors are “not in themselves the test for successor liability” but “simply factors courts have considered when applying the three prong balancing approach, considering the defendant's interests, the plaintiff's interests, and federal policy.” Id. “The ultimate inquiry always remains whether the imposition of the particular legal obligation at issue would be equitable and in keeping with federal policy.” Id.

         As an initial matter, the Court emphasizes that the nine Macmillan factors are simply factors for the Court to consider in determining whether successor liability is equitable in the case at hand. In contrast, Element Transportation argues under each of the nine Macmillan factors in a fashion that implies that they are the lone requirement for considering successor liability. [R. 32-1 at 5-8.] For instance, Element Transportation never mentions the fact that these factors are merely for the Court's consideration, “not in themselves the test for successor liability.” Cobb, 452 F.3d at 554. Here, Plaintiffs allege that Element Transportation currently provides equipment financing to PTL, including vehicle fleet leasing, and that Element Transportation benefits from past illegal agreements between ECN and the Plaintiffs. [R. 19 at 4, ¶ 16; 13, ¶ 58.] Furthermore, Plaintiffs allege that Element Transportation purchased “certain leasehold assets, ” including the Plaintiffs' leases, from ECN in or around September of 2016. [Id. at 6, ¶ 25.] These factual allegations suggest that there has been a “substantial continuity of business operations” through Element Transportation's purchase of assets and continuation of equipment financing to PTL. See Cobb, 452 F.3d at 554. Moreover, these allegations also raise the plausible inference that Element Transportation could be receiving a continuing benefit from the unfair labor practices of its predecessors if Plaintiffs still owe a balance. See Id. at 555 (citing Golden State Bottling Company, Inc., v. NLRB, 414 U.S. 168, 184-85) (“[W]hen imposing liability for a predecessor's illegal conduct, courts look to the transfer of assets and substantial continuity of the business enterprise. This is because the value of the assets, and of the business generally, is presumed to have increased from the illegal conduct, thus benefitting any successor.”). Thus, it would be equitable to disgorge Element Transportation of any such allegedly illegal benefit. Id. at 553 (“The Court reasoned that the purchaser-company receives a continuing benefit from its predecessor's illegal actions, and thus it is appropriate for the company to disgorge the illegal benefit.”).

         Element Transportation retorts that Element Transportation did not profit from the Plaintiffs' lease agreements because there were no liens, encumbrances, or other liabilities associated with the vehicles and the Plaintiffs ceased working for PTL prior to Element Transportation purchasing the leasehold assets.[5] At this stage in the proceedings, the Plaintiffs are not required to prove that Element Transportation profited from the Plaintiffs' leasehold assets. See Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). The Plaintiffs' are only required to “plead enough ‘factual matter' to raise a ‘plausible' inference of wrongdoing.” 16630 Southfield Ltd. P'ship, 727 F.3d at 504 (quoting Iqbal, 556 U.S. at 678). Presuming all of the factual allegations in the complaint are true and drawing all reasonable inferences in favor of the non-moving party, the Court finds that the Plaintiffs sufficiently plead that Element Transportation is a successor to ECN.

         B. ECN as a Successor to ECF

         Element Transportation also argues that Plaintiffs have not plausibly alleged that ECN is liable as a successor to EFC. [32-1 at 4.] In other words: even if Element Transportation is a successor to ECN, if ECN is not a successor to EFC, Element Transportation should shoulder no successor liability. Overall, Element Transportation contends that Plaintiffs do not allege any facts concerning the relationship between ECN and EFC. However, logically, there is a plausible connection between the two companies as Element Transportation allegedly purchased leasehold assets owned by ECN, which included the lease agreements between the Plaintiffs and EFC. [R. 19 at 6, ¶ 25.] This implies that ECN possibly obtained the assets from EFC. Furthermore, the Plaintiffs quote a statement of Element Transportation from a previous public filing that contradicts Element Transportation's current stance:

The Complaint clearly alleges that Plaintiff ECN Financial, LLC is the successor to Element Financial Corp. (see Exhibit A, paragraph 1), and the Court is bound to accept the truth of the allegation when considering the Defendant's 12(b)(6) motion. Moreover, the legal conversion of Element Financial Corp. to ECN Financial, LLC is a matter of public record which the Court is independently entitled to review.

[R. 59 at 15.] At this point in litigation, prior to discovery, the Court finds Plaintiffs pleaded enough factual matter to raise a plausible inference that ECN is a successor to ECF. However, the Court recognizes the importance of the threshold issue of whether Element Transportation, by way of ECN, is a successor to EFC. Thus, in an effort to preserve judicial economy, the Court will order a period of discovery specifically on the issue of whether Element Transportation is a successor to ECN and whether ECN is a successor to EFC before the Court analyzes the substance of the claims against EFC.

         C. Element Transportation as a Successor Under Pennsylvania Law

         After arguing the issue of successor liability under federal common law, Element Transportation contends that Element Transportation is not liable as a successor to ECN, or ECN to EFC, under Pennsylvania law, and, therefore, Plaintiffs' claim of unjust enrichment should be dismissed. [R. 32-1 at 8.] Element Transportation makes this argument without any explanation or case law to support the notion that the issue of successor liability, in regards to the claim of unjust enrichment, must be decided under Pennsylvania law due to the fact that unjust enrichment is a state law claim and the Lease Agreement contained a Pennsylvania choice of law provision.

         Under Pennsylvania law, “it is well-established that ‘when one company sells or transfers all of its assets to another company, the purchasing or receiving company is not responsible for the debts and liabilities of the selling company simply because it acquired the seller's property.'” Cont'l Ins. Co. v. Schneider, Inc.,582 Pa. 591, 599 (2005) (quoting Hill v. Trailmobile,603 A.2d 602, 605 (1992)). However, this rule is overcome if it is established that “(1) the purchaser expressly or implicitly agreed to assume liability, (2) the transaction amounted to a consolidation or merger, (3) the purchasing corporation was merely a continuation of the selling corporation, (4) the transaction was ...

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