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Chamber of Commerce of United States of America v. City of Seattle

United States Court of Appeals, Ninth Circuit

May 11, 2018

Chamber of Commerce of the United States of America; Rasier, LLC, Plaintiffs-Appellants,
v.
City of Seattle; Seattle Department of Finance and Administrative Services; Fred Podesta, in his official capacity as Director, Finance and Administrative Services, City of Seattle, Defendants-Appellees.

          Argued and Submitted February 5, 2018 Seattle, Washington

          Appeal from the United States District Court for the Western District of Washington Robert S. Lasnik, District Judge, Presiding D.C. No. 2:17-cv-00370-RSL

          Michael A. Carvin (argued), Jacqueline M. Holmes, Christian G. Vergonis, and Robert Stander, Jones Day, Washington, D.C.; Lily Fu Claffee, Steven P. Lehotsky, and Warren Postman, U.S. Chamber Litigation Center, Washington, D.C.; Douglas C. Ross and Robert J. Maguire, Davis Wright Tremaine LLP, Seattle, Washington; Timothy J. O'Connell, Stoel Rives LLP, Seattle, Washington; for Plaintiffs-Appellants.

          Stacey M. Leyton (argued), Stephen P. Berzon, and P. Casey Pitts, Altshuler Berzon LLP, San Francisco, California; Michael K. Ryan (argued), Sara O'Connor-Kriss, Josh Johnson, and Gregory C. Narver, Assistant City Attorneys; Peter S. Holmes, Seattle City Attorney; City Attorney's Office, Seattle, Washington; for Defendants-Appellees.

          Michele Arington (argued), Assistant Attorney General; Joel Marcus, Deputy General Counsel; David C. Shonka, Acting General Counsel; Federal Trade Commission, Washington, D.C.; Robert B. Nicholson and Steven J. Mintz, Attorneys; Andrew C. Finch, Principal Deputy Assistant Attorney General; Makan Delrahim, Assistant Attorney General; Antitrust Division, United States Department of Justice, Washington, D.C.; for Amici Curiae United States and Federal Trade Commission.

          William R. Peterson and Allyson N. Ho, Morgan Lewis & Bockius LLP, Houston, Texas; Harry I. Johnson III, Morgan Lewis & Bockius LLP, Los Angeles, California; Stacey Anne Mahoney, Morgan Lewis & Bockius LLP, New York, New York; for Amici Curiae Coalition for a Democratic Workplace, National Federation of Independent Business Small Business Legal Center, and Consumer Technology Association.

          Matthew J. Ginsburg and Harold Craig Becker, Washington, D.C., for Amici Curiae American Federation of Labor and Congress of Industrial Organizations.

          Jonathan F. Mitchell, Stanford, California; Thomas R. McCarthy, Consovoy McCarthy Park PLLC, Arlington, Virginia; for Amici Curiae Antitrust Law Professors.

          Alan D. Copsey, Deputy Solicitor General; Noah G. Purcell, Solicitor General; Robert W. Ferguson, Attorney General; Office of the Attorney General, Olympia, Washington; for Amicus Curiae State of Washington.

          Matthew J. Segal and Kymberly K. Evanson, Pacifica Law Group LLP, Seattle, Washington, for Amicus Curiae Professor Samuel Estreicher.

          Rebecca Smith and Ceilidh Gao, National Employment Law Project-WA, Seattle, Washington, for Amici Curiae Los Angeles Alliance for a New Economy, National Domestic Worker Alliance, National Employment Law Project, Partnership for Working Families, and Puget Sound Sage.

          Catherine L. Fisk, Berkeley, California; Charlotte Garden, Fred T. Korematsu Center for Law and Equality, Ronald A. Peterson Law Clinic, Seattle University School of Law, Seattle, Washington; for Amici Curiae Labor Law Professors.

          Sanjukta Paul, Detroit, Michigan, for Amici Curiae Law and Business Professors.

          Barbara D. Underwood, Solicitor General; Anisha S. Dasgupta, Deputy Solicitor General; Seth M. Rokosky, Assistant Solicitor General of Counsel; Eric T. Schneiderman, Attorney General; Office of the Attorney General, New York, New York; Douglas S. Chin, Attorney General, Department of the Attorney General, Honolulu, Hawaii; Lisa Madigan, Attorney General, Office of the Attorney General, Chicago, Illinois; Thomas J. Miller, Attorney General, Office of the Attorney General, Des Moines, Iowa; Janet T. Mills, Attorney General, Office of the Attorney General, Augusta, Maine; Brian E. Frosh, Attorney General, Attorney General's Office, Baltimore, Maryland; Maura Healey, Attorney General, Attorney General's Office, Boston, Massachusetts; Lori Swanson, Attorney General, Office of the Attorney General, St. Paul, Minnesota; Ellen F. Rosenblum, Attorney General, Office of the Attorney General, Salem, Oregon; Josh Shapiro, Attorney General, Office of the Attorney General, Harrisburg, Pennsylvania; Peter F. Kilmartin, Attorney General, Office of the Attorney General, Providence, Rhode Island; Thomas J. Donovan, Jr., Attorney General, Office of the Attorney General, Montpelier, Vermont; Karl A. Racine, Attorney General, Office of the Attorney General, Washington, D.C.; for Amici Curiae the States of New York, Hawai'i, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Oregon, Pennsylvania, Rhode Island, and Vermont, and the District of Columbia.

          Before: MILAN D. SMITH, JR. and MARY H. MURGUIA, Circuit Judges, and EDUARDO C. ROBRENO, [*] District Judge.

         SUMMARY[**]

         Antitrust / Labor Law

         The panel affirmed in part and reversed in part the district court's dismissal of an action challenging, on federal antitrust and labor law grounds, a Seattle ordinance authorizing a collective-bargaining process between "driver coordinators"-like Uber Technologies; Lyft, Inc.; and Eastside for Hire, Inc. -and independent contractors who work as for-hire drivers.

         The ordinance permits independent-contractor drivers, represented by an entity denominated an "exclusive driver representative, " and driver coordinators to agree on the "nature and amount of payments to be made by, or withheld from, the driver coordinator to or by the drivers."

         The panel reversed the district court's dismissal of claims that the ordinance violates, and is preempted by, § 1 of the Sherman Antitrust Act because the ordinance sanctions price-fixing of ride-referral service fees by private cartels of independent-contractor drivers. The panel held that the state-action immunity doctrine did not exempt the ordinance from preemption by the Sherman Act because the State of Washington had not clearly articulated and affirmatively expressed a state policy authorizing private parties to price-fix the fees that for-hire drivers pay to companies like Uber or Lyft in exchange for ride-referral services. In addition, the active-supervision requirement for state-action immunity applied, and was not met.

         The panel affirmed the district court's dismissal of claims that the ordinance was preempted by the National Labor Relations Act under either Machinists or Garmon preemption.

         The panel remanded the case for further proceedings.

          OPINION

          M. SMITH, CIRCUIT JUDGE

         On December 14, 2015, the Seattle City Council enacted into law Ordinance 124968, an Ordinance Relating to Taxicab, Transportation Network Company, and For-Hire Vehicle Drivers (Ordinance).[1] The Ordinance was the first municipal ordinance of its kind in the United States, and authorizes a collective-bargaining process between "driver coordinators"-like Uber Technologies (Uber), Lyft, Inc. (Lyft), and Eastside for Hire, Inc. (Eastside)-and independent contractors who work as for-hire drivers. The Ordinance permits independent-contractor drivers, represented by an entity denominated an "exclusive driver representative, " and driver coordinators to agree on the "nature and amount of payments to be made by, or withheld from, the driver coordinator to or by the drivers." Seattle, Wash., Municipal Code § 6.310.735(H)(1). This provision of the Ordinance is the crux of this case.

         Acting on behalf of its members Uber, Lyft, and Eastside, Plaintiff-Appellant the Chamber of Commerce of the United States of America, together with Plaintiff-Appellant Rasier, LLC, a subsidiary of Uber (collectively, the Chamber), sued Defendants-Appellees the City of Seattle, the Seattle Department of Finance and Administrative Services (the Department), and the Department's Director, Fred Podesta (collectively, the City), challenging the Ordinance on federal antitrust and labor law grounds. First, the Chamber asserts that the Ordinance violates, and is preempted by, section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, because the Ordinance sanctions price-fixing of ride-referral service fees by private cartels of independent-contractor drivers. Second, the Chamber claims that the Ordinance is preempted by the National Labor Relations Act (NLRA), 29 U.S.C. §§ 151- 169, under Machinists and Garmon preemption.

         The district court dismissed the case, holding that the state-action immunity doctrine exempts the Ordinance from preemption by the Sherman Act, and that the NLRA does not preempt the Ordinance. The Chamber appealed both holdings.

         We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. We reverse the district court's dismissal of the Chamber's federal antitrust claims, and remand the federal antitrust claims to the district court for further proceedings. We also affirm the district court's dismissal of the Chamber's NLRA preemption claims.

         FACTUAL AND PROCEDURAL BACKGROUND

         A. Ride-Referral Companies

         Eastside is the largest dispatcher of taxicab and for-hire vehicles in the Pacific Northwest. Eastside provides licensed taxicab and for-hire vehicle drivers with dispatch, advertising, payment processing, and other administrative services, in exchange for a weekly fee, payable by drivers to Eastside. Relying on advertising and a preexisting client base, Eastside generates transportation requests from passengers, who call, text-message, or email Eastside to request a ride. Eastside then refers ride requests to drivers through a mobile data terminal. If a passenger uses a credit card to pay a driver, Eastside processes the transaction and remits the payment to the driver. The drivers who pay for Eastside's services are independent contractors-Eastside does not dictate how the drivers operate their transportation businesses. For example, some drivers own licensed vehicles, whereas others lease them.

         Uber and Lyft, founded in 2009 and 2012, respectively, have ushered ride-referral services into the digital age. Uber and Lyft have developed proprietary smartphone applications (apps) that enable an online platform, or digital marketplace, for ride-referral services, often referred to as "ridesharing" services. After downloading the Uber or Lyft app onto their smartphones, riders request rides through the app, which transmits ride requests to available drivers nearby. Drivers are free to accept or ignore a ride request. If a driver accepts a ride request, he or she is matched electronically with the rider, and then proceeds to the rider's location and fulfills the ride request. If a driver ignores a ride request, the digital platform transmits the request to another nearby driver. Drivers may cancel a ride request, even after initially accepting it, at any point prior to the commencement of the ride. Riders, too, may decide whether or not to accept a ride from any of the drivers contacted through the app. After a ride is completed, riders pay drivers via the Uber or Lyft app, using a payment method, such as a credit card, placed on file with Uber or Lyft.

         Uber and Lyft's business models have facilitated the rise of the so-called "gig economy." In order to receive ride requests through the apps, drivers contract with, and pay a technology licensing fee to, Uber or Lyft. These licensing fees are a percentage of riders' paid fares: Uber and Lyft subtract their technology licensing fees from riders' payments, and remit the remainder to drivers. Drivers' contractual agreements with either Uber or Lyft are not exclusive-in fact, many drivers use several ridesharing apps and even operate multiple apps simultaneously. Drivers may use the Uber and Lyft apps for however long and whenever they wish, if they wish to use them at all.

         B. The Ordinance

         On December 14, 2015, the Seattle City Council adopted Ordinance 124968. The stated purpose of the Ordinance is to "allow[] taxicab, transportation network company, and for-hire vehicle drivers ('for-hire drivers') to modify specific agreements collectively with the entities that hire, direct, arrange, or manage their work, " in order to "better ensure that [for-hire drivers] can perform their services in a safe, reliable, stable, cost-effective, and economically viable manner." Seattle, Wash., Ordinance 124968, pmbl.

         The Ordinance requires "driver coordinators" to bargain collectively with for-hire drivers. Id. § 1(I). A "driver coordinator" is defined as "an entity that hires, contracts with, or partners with for-hire drivers for the purpose of assisting them with, or facilitating them in, providing for- hire services to the public." Seattle, Wash., Municipal Code § 6.310.110. The Ordinance applies only to drivers who contract with a driver coordinator "other than in the context of an employer-employee relationship"-in other words, the Ordinance applies only to independent contractors. Id. § 6.310.735(D).

         The collective-bargaining process begins with the election of a "qualified driver representative, " or QDR. Id. §§ 6.310.110, 6.310.735(C). An entity seeking to represent for-hire drivers operating within Seattle first submits a request to the Director of Finance and Administrative Services (the Director) for approval to be a QDR. Id. § 6.310.735(C). Once approved by the City, the QDR must notify the driver coordinator of its intent to represent the driver coordinator's for-hire drivers. Id. § 6.310.735(C)(2).

         Upon receiving proper notice from the QDR, the driver coordinator must provide the QDR with the names, addresses, email addresses, and phone numbers of all "qualifying drivers."[2] Id. § 6.310.735(D). This disclosure requirement applies only to driver coordinators that have "hired, contracted with, partnered with, or maintained a contractual relationship or partnership with, 50 or more for-hire drivers in the 30 days prior to the commencement date" set by the Director. Id.

         The QDR then contacts the qualifying drivers to solicit their interest in being represented by the QDR. Id. § 6.310.735(E). Within 120 days of receiving the qualifying drivers' contact information, the QDR submits to the Director statements of interest from qualifying drivers indicating that they wish to be represented by the QDR in collective-bargaining negotiations with the driver coordinator. Id. § 6.310.735(F)(1). If a majority of qualifying drivers consent to representation by the QDR, the Director certifies the QDR as the "exclusive driver representative" (EDR) for all for-hire drivers for that particular driver coordinator.[3] Id. § 6.310.735(F)(2).

         Once the Director certifies the EDR,

the driver coordinator and the EDR shall meet and negotiate in good faith certain subjects to be specified in rules or regulations promulgated by the Director including, but not limited to, best practices regarding vehicle equipment standards; safe driving practices; the manner in which the driver coordinator will conduct criminal background checks of all prospective drivers; the nature and amount of payments to be made by, or withheld from, the driver coordinator to or by the drivers; minimum hours of work, conditions of work, and applicable rules.

Id. § 6.310.735(H)(1) (emphasis added).

         If an agreement is reached, the driver coordinator and the EDR submit the written agreement to the Director. Id. § 6.310.735(H)(2). The Director reviews the agreement for compliance with the Ordinance and Chapter 6.310 of the Seattle Municipal Code, which governs taxicabs and for-hire vehicles. Id. In conducting this review, the Director is to "ensure that the substance of the agreement promotes the provision of safe, reliable, and economical for-hire transportation services and otherwise advance[s] the public policy goals set forth in Chapter 6.310 and in the [Ordinance]." Id.

         The Director's review is not limited to the parties' submissions or the terms of the proposed agreement. Id. Rather, the Director may gather and consider additional evidence, conduct public hearings, and request information from the EDR and the driver coordinator. Id.

         The agreement becomes final and binding on all parties if the Director finds the agreement compliant. Id. § 6.310.735(H)(2)(a). The agreement does not take effect until the Director makes such an affirmative determination. Id. § 6.310.735(H)(2)(c). If the Director finds the agreement noncompliant, the Director remands it to the parties with a written explanation of the agreement's failures, and may offer recommendations for remedying the agreement's inadequacies. Id. § 6.310.735(H)(2)(b).

         If the driver coordinator and the EDR do not reach an agreement, "either party must submit to interest arbitration upon the request of the other, " in accordance with the procedures and criteria specified in the Ordinance. Id. § 6.310.735(I). The interest arbitrator must propose an agreement compliant with Chapter 6.310 and in line with the City's public policy goals. Id. § 6.310.735(I)(2). The term of an agreement proposed by the interest arbitrator may not exceed two years. Id.

         The interest arbitrator submits the proposed agreement to the Director, who reviews the agreement for compliance with the Ordinance and Chapter 6.310, in the same manner the Director reviews an agreement proposed by the parties. Id. § 6.310.735(I)(3).

         The parties may discuss additional terms and propose amendments to an approved agreement. Id. § 6.310.735(J). The parties must submit any proposed amendments to the Director for approval. Id. The Director has the authority to withdraw approval of an agreement during its term, if the Director finds that the agreement no longer complies with the Ordinance or furthers the City's public policy goals. Id. § 6.310.735(J)(1).

         C. Procedural History

         The Ordinance took effect on January 22, 2016.

         The Chamber first filed suit challenging the Ordinance as preempted by the Sherman Act and the NLRA on March 3, 2016, but its suit was dismissed as unripe, because no entity had yet applied for QDR certification. See Chamber of Commerce of the U.S. v. City of Seattle, No. C16-0322RSL, 2016 WL 4595981, at *2, *4 (W.D. Wash. Aug. 9, 2016).

         Subsequently, the Director designated Teamsters Local 117 (Local 117) as a QDR on March 3, 2017. On March 7, 2017, Local 117 notified Uber, Lyft, Eastside, and nine other driver coordinators of its intent to serve as the EDR of all qualifying drivers who contract with those companies, and requested the qualifying drivers' contact information.

         On March 9, 2017, the Chamber filed suit again, seeking a declaration that the Ordinance is unenforceable and a preliminary injunction enjoining the City from enforcing the Ordinance.[4] Relevant to the present appeal, [5] the Chamber asserted two federal antitrust claims-a violation claim and a preemption claim. Specifically, the Chamber claimed that the City violated section 1 of the Sherman Act by enacting and enforcing the Ordinance, and that the Ordinance conflicts with, and is preempted by, the Sherman Act. The ...


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