Fernando Ruiz v. Affinity Logistics Corporation

Filing

FILED OPINION (HARRY PREGERSON, RICHARD A. PAEZ and JAMES P. JONES) This panel retains jurisdiction over any future appeals. VACATED and REMANDED. Judge: HP Authoring, FILED AND ENTERED JUDGMENT. [8060881]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FERNANDO RUIZ, individually and
on behalf of all others similarly
situated,
Plaintiff-Appellant,
v.
AFFINITY LOGISTICS CORPORATION,
Defendant-Appellee.





No. 10-55581
D.C. No.
3:05-cv-02125JLS-CAB
OPINION

Appeal from the United States District Court
for the Southern District of California
Janis L. Sammartino, District Judge, Presiding
Argued and Submitted
December 8, 2011—Pasadena, California
Filed February 8, 2012
Before: Harry Pregerson and Richard A. Paez,
Circuit Judges, and James P. Jones, District Judge.*
Opinion by Judge Pregerson

*The Honorable James P. Jones, United States District Judge for the
Western District of Virginia, sitting by designation.

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COUNSEL
Daniel A. Osborn, Osborn Law, P.C., New York, New York,
for the plaintiffs-appellants.

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Elic Anbar, Law Offices of Elic Anbar, Phoenix, Arizona, for
the plaintiffs-appellants.
James H. Hanson, Scopelitis, Garvin, Light, Hanson & Feary,
P.C., Indianapolis, Indiana, for the defendant-appellee.
Catherine K. Ruckelshaus, National Employment Law Project, New York, New York, for the amicus.
Cynthia L. Rice, California Rural Legal Assistance Foundation, Sacramento, California, for the amicus.

OPINION
PREGERSON, Circuit Judge:
Fernando Ruiz (“Ruiz”) appeals the district court’s judgment, after a bench trial, in his action against Affinity Logistics Corporation (“Affinity”) for alleged violations of the Fair
Labor Standards Act (“FLSA”) and California laws. We have
jurisdiction pursuant to 28 U.S.C. § 1291. We vacate and
remand.
BACKGROUND
Affinity Logistics Corporation (“Affinity”)1 is a company
providing home delivery and transportation logistical support
services to various home furnishing retailers, including Sears.
To work as a driver for Affinity, individuals had to enter into
the Independent Truckman’s Agreement and Equipment
Lease Agreement (collectively the “Agreements”) with Affinity.
The Agreements included clauses stating that (1) the parties
1

In June 2007, Affinity was acquired by 3PD, Inc.

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were entering into an independent contractor relationship, and
(2) Georgia law applied to any disputes. Specifically, the
Agreements stated, among other things:
•

Control and Exclusive Use. . . . The parties
intend to create an independent contractor relationship and not an employer-employee relationship.

•

Independent Contractor (a) Contractor, in the
performance of this Agreement, will be acting in
his own separate capacity and not as an agent,
employee, partner, joint venture or associate of
Affinity. It is expressly understood and agreed
that Contractor is an independent contractor of
Affinity in all manners and respects and that
Contractor is not authorized to bind Affinity to
any liability or obligation or to represent that it
has any such authority.

•

Governing Law. This Agreement and any dispute
thereunder shall be governed by the laws of the
State of Georgia.

(emphasis in original). The Agreements also repeatedly
referred to the individual drivers as “contractors.” Affinity
hired Ruiz as a driver in 2003.
Ruiz and drivers similarly situated (collectively the “drivers”) filed a class action against Affinity alleging violations of
FLSA and California laws, including failure to pay overtime,
failure to pay wages (including payment for vacation, holidays, sick days, and severance), improper charges for workers’ compensation insurance, and the unfair business practice
of wrongfully classifying California drivers. The district court
initially granted partial summary judgment to Affinity on
Ruiz’s cause of action for violation of FLSA. Affinity then

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moved for summary judgment under Federal Rule of Civil
Procedure 56(c) on the remainder of Ruiz’s claims.
On June 5, 2008, the district court granted Affinity’s
motion for summary judgment on Ruiz’s second cause of
action for overtime pay under California law. The remainder
of Ruiz’s claims, however, turned on whether Ruiz should be
classified as an independent contractor or as an Affinity
employee.
Relying on the choice of law clause in the Agreements, the
district court held that Georgia law applies to determine
whether the drivers were employees of Affinity or independent contractors. The district court applied California’s choice
of law framework to reach this conclusion. Under California’s
choice of law framework, the district court noted that “California courts enforce choice-of-law clauses where . . . the chosen state ‘has a substantial relationship to the parties or the
transaction.’ ” quoting ABF Capital Corp. v. Osley, 414 F.3d
1061, 1065 (9th Cir. 2005). The district court then found that
“[a] substantial relationship exists where one of the parties is
domiciled or incorporated in the chosen state” and that Affinity is incorporated in Georgia and has its principal office in
Marietta, Georgia. ABF Capital Corp., 414 F.3d at 1065.
Thus, the district court enforced the parties’ choice of law
clause and applied Georgia law to resolve the employeeindependent contractor issue.
Applying Georgia law, the court concluded that there was
“sufficient evidence from which a reasonable jury could conclude that [Ruiz] has overcome the presumption of ‘independent contractor’ status and established that he was [Affinity’s]
employee.” Thus, the court denied Affinity’s motion for summary judgment on those claims that turn on whether Ruiz
should be classified as an independent contractor or as an
Affinity employee. The matter was set for a bench trial on the
remaining claims.

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After a three-day bench trial, the district court concluded
that under Georgia law there is a presumption of independent
contractor status. Ruiz v. Affinity Logistics Corp., 697 F.
Supp. 2d 1199, 1204 (S.D. Cal. 2010). And to rebut this presumption Ruiz must establish that an employer-employee
relationship existed. Id. The district court found that Ruiz was
unable to establish an employer-employee relationship and
thus failed to rebut Georgia’s presumption of independent
contractor status. Id. at 1220-21.
DISCUSSION
A.

Waiver

On appeal, Affinity claims that “Ruiz waived any objection
to the choice of law for purposes of appeal [because] he failed
to raise this issue in the District Court.” “Although no bright
line rule exists to determine whether a matter [h]as been properly raised below, an issue will generally be deemed waived
on appeal if the argument was not raised sufficiently for the
trial court to rule on it.” In re Mercury Interactive Corp. Sec.
Litig., 618 F.3d 988, 992 (9th Cir. 2010) (internal quotation
marks and citations omitted). In this case, Ruiz’s argument
that California law, rather than Georgia law, applies was
“raised sufficiently for the trial court to rule on it.” Id.
Accordingly, we will entertain Ruiz’s argument that the district court erroneously applied Georgia law.
Moreover, “the rule of waiver is a discretionary one.” Ackerman v. Western Elec. Co., 860 F.2d 1514, 1517 (9th Cir.
1988) (citing Singleton v. Wulff, 428 U.S. 106, 121 (1976)).
“We may consider issues not presented to the district court,
although we are not required to do so.” In re Mercury Interactive Corp. Sec. Litig., 618 F.3d at 992 (citation omitted). This
court has stated that it has discretion to make an exception to
waiver under three circumstances: (1) “in the ‘exceptional’
case in which review is necessary to prevent a miscarriage of
justice or to preserve the integrity of the judicial process,” (2)

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“when a new issue arises while appeal is pending because of
a change in the law,” and, (3) “when the issue presented is
purely one of law and either does not depend on the factual
record developed below, or the pertinent record has been fully
developed.” Bolker v. C.I.R., 760 F.2d 1039, 1042 (9th Cir.
1985). In this case, because the issue of whether the district
court properly applied California’s choice of law framework
is one of law and there is no deficiency in the record relating
to it, we exercise our discretion to consider that issue. Ackerman, 860 F.2d at 1517 (citing In re Howell, 731 F.2d 624, 627
(9th Cir. 1984), cert. denied, 469 U.S. 933 (1984)).
B.

Choice of Law

Ruiz contends that the district court after applying California’s choice of law framework erred when it concluded that
Georgia law applies. We agree. Whether the district court
erred when it concluded that Georgia law, not California law,
applies is a question of law subject to de novo review.
Schoenberg v. Esportadora de Sal, S.A. de C.V., 930 F.2d
777, 782 (9th Cir. 1991) (citation omitted).
[1] California’s choice of law framework is set forth in
Restatement § 187(2) and in Nedlloyd Lines B.V. v. Superior
Court, 834 P.2d 1148, 1152 (Cal. 1992). “California courts
apply the parties’ choice of law unless the analytical approach
articulated in § 187(2) of the Restatement (Second) of Conflict of Laws (“187(2)”) dictates a different result.” Hoffman
v. Citibank (S.D.), N.A., 546 F.3d 1078, 1082 (9th Cir. 2008)
(citation omitted). As a threshold matter, a court must determine “whether the chosen state has a substantial relationship
to the parties or their transaction, or . . . whether there is any
other reasonable basis for the parties’ choice of law.” Nedlloyd, 834 P.2d at 1152 (citing Rest., § 187(2)). The district
court properly found that because Affinity is incorporated in
Georgia and has its principal office in Georgia, the chosen
state (Georgia) has a substantial relationship to the parties.
See ABF Capital Corp., 414 F.3d at 1065 (“A substantial rela-

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tionship exists where one of the parties is domiciled or incorporated in the chosen state.”). The district court then
concluded that Georgia law applied.
[2] But the district court’s inquiry should not have ended
there. Two additional steps remained in California’s choice of
law framework. The district court should have then considered (1) whether applying Georgia’s law “is contrary to a fundamental policy of California,” and then (2) “whether
California has a materially greater interest than [Georgia] in
resolution of the issue.” Id. at 1066 (quoting Nedlloyd, 834
P.2d at 1152) (emphasis in original). Here, the district court
in deciding to apply Georgia law, overlooked these additional
two steps of California’s choice of law framework. Accordingly, we proceed to consider the two additional steps of the
inquiry.
[3] Properly applying California’s choice of law framework requires us to conclude that California law applies in
determining whether the drivers are employees or independent contractors. First, Georgia law “is contrary to a fundamental policy of California.” Nedlloyd, 834 P.2d at 1152
(emphasis in original). Under Georgia law, if a contract designates the relationship between the parties to be one of principal and independent contractor, this designation is presumed
to be true “unless other evidence is introduced to show that
the employer exercised control as to the time, manner and
method of performing the work sufficient to establish an
employer-employee relationship.” Fortune v. Principal Fin.
Grp., Inc., 465 S.E.2d 698, 700 (Ga. Ct. App. 1995). On the
other hand, “under California law, once a plaintiff comes forward with evidence that he provided services for an employer,
the employee has established a prima facie case that the relationship was one of employer/employee.” Narayan v. EGL,
Inc., 616 F.3d 895, 900 (9th Cir. 2010) (citing Robinson v.
George, 16 Cal.2d 238, 243-44 (1940)). “Once the employee
establishes a prima facie case, the burden shifts to the
employer, which may prove, if it can, that the presumed

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employee was an independent contractor.” Id. (citation omitted). Thus, the starting point from which the drivers begin
their lawsuit is vastly different depending on whether California or Geogia law applies. In essence, the drivers are at a disadvantage under Georgia law because they must overcome the
presumption that they are independent contractors. By contrast, under California law, the presumption is that the drivers
are employees and the burden is upon Affinity to demonstrate
that the drivers are independent contractors. As such, Georgia
law directly conflicts with California law.2
[4] Additionally, Georgia law directly conflicts with a fundamental California policy that seeks to protect its workers.
The California Supreme Court has developed a multi-factor
test for determining employment status. S.G. Borello & Sons,
Inc. v. Dep’t of Indus. Rel., 769 P.2d 399, 404-07 (Cal. 1989).
The California Supreme Court recognized that this test “must
be applied with deference to the purposes of the protective
legislation” that the worker seeks to enforce. Id. at 406
(emphasis added). “[T]he employee-independent contractor
issue cannot be decided absent consideration of the remedial
statutory purpose” behind the statute the worker seeks to
2

Affinity asserts that any error in applying Georgia law was harmless
because the district court applied the common law factors that California
considers and concluded that Ruiz was an independent contractor. Such an
assertion, however, disregards the district court’s repeated references to
the Georgia presumption of independent contractor status and its general
reliance on Georgia law to resolve the employee-independent contractor
issue. See Ruiz, 697 F. Supp. 2d at 1204 (“Under Georgia law, if the contract designates the relationship between the parties to be one of principal
and independent contractor, this designation is presumed to be true. . . .);
Id. at 1217 (“The court finds that the Georgia test regarding [Affinity’s]
control over the [drivers’] time, manner, and method of work indicates an
independent contractor relationship, especially in light of the presumption
arising from the language in the [Independent Truckman’s Agreement]”)
(emphasis added); Id. at 1220 (“Under Georgia law and the language of
the [Agreements], a presumption of independent contractor arises).
Accordingly, applying Georgia, rather than California law, is not harmless
error.

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enforce. Id. at 405. Thus, under Georgia law, while the drivers
are presumptively independent contractors, under California
law, the court must consider protective legislation designed to
aid employees to determine the employee-independent contractor issue. Therefore, application of Georgia law in this
case would contravene the fundamental California public policy in favor of ensuring worker protections.
[5] Second, California also has a materially greater interest
than Georgia in the outcome of this case. To determine
whether California has a materially greater interest than Georgia, we must analyze the following factors: (1) the place of
contracting; (2) the place of negotiation of the contract; (3)
the place of performance; (4) the location of the subject matter of the contract; and, (5) the domicile, residence, nationality, place of incorporation, and place of business of the
parties. 1-800-Got Junk? LLC v. Superior Court, 116 Cal.
Rptr. 3d 923, 932 n.10 (Cal. Ct. App. 2010) (citing Rest.,
§ 188). Here, the drivers entered into the contract with Affinity in California. The drivers completed the work for Affinity
in California. The subject matter of the contract deals with
completing deliveries in California. Finally, the domicile of
the drivers is California. The only connection with Georgia is
that Georgia is where Affinity is incorporated. Accordingly,
California has a materially greater interest than Georgia in
determining whether the drivers are independent contractors
or employees of Affinity.
[6] Moreover, Affinity has not produced any evidence to
suggest that Georgia has a material interest in the resolution
of this case. In determining which state has a materially
greater interest, California courts “consider which state, in the
circumstances presented, will suffer greater impairment of its
policies if the other state’s law is applied.” Brack v. Omni
Loan Co., Ltd., 80 Cal. Rptr. 3d 275, 287 (Cal. Ct. App. 2008)
(citation omitted). Affinity has not explained how Georgia
will suffer if California law is used to determine whether the
drivers are employees or independent contractors. See Bridge

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Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d
996, 1004 (9th Cir. 2010).
[7] For these reasons, we hold that the parties’ choice of
Georgia law is unenforceable in California. We also hold that
under California’s choice of law framework, the law of California applies. Accordingly, on remand the district court shall
apply California law to determine whether the drivers are
employees or independent contractors.
This panel retains jurisdiction over any future appeals.
VACATED and REMANDED.