Mejia v. RXO Last Mile, Inc.

Background

Maynor Mejia brought a proposed class action alleging that RXO Last Mile, Inc. denied him and other delivery drivers benefits and protections required by the California Labor Code and other state laws. The case was filed in California state court and later removed to federal court.

Mejia owned ABC Logistics LLC and signed a Delivery Service Agreement on behalf of that company. The agreement contained an arbitration provision covering claims related to the agreement, including misclassification and wage-and-hour claims. It also contained a class-action waiver and allowed the contract carrier to opt out of arbitration within 30 days. Either party could terminate the agreement on 15 days’ notice.

RXO moved to compel arbitration under the Federal Arbitration Act (FAA). In the alternative, RXO asked the court to stay the case while awaiting a decision in another FAA case. Mejia argued that he was excluded from the FAA under its transportation-worker exemption and that the arbitration agreement was procedurally and substantively unconscionable. After oral argument, the court also asked the parties to brief whether arbitration could be required under the California Arbitration Act (CAA) if the FAA did not apply.

Federal Arbitration Act

The court held that the FAA did not apply. Section 1 of the FAA excludes contracts involving “any other class of workers engaged in foreign or interstate commerce.” The court evaluated Mejia based on the work he performed, rather than RXO’s business generally.

Mejia made last-mile deliveries from warehouses to customers’ addresses. Although he drove mostly within California, one delivery took him to Nevada. Relying on controlling Ninth Circuit precedent involving last-mile delivery workers and Supreme Court precedent concerning transportation workers, the court concluded that last-mile drivers deliver goods still moving through interstate commerce. The goods had not come to rest at the warehouses before the drivers completed the deliveries. The court therefore found that the agreement was excluded from the FAA and declined to stay the case pending the other proceeding because the Ninth Circuit precedent remained controlling.

California Arbitration Act

The court then considered whether the CAA required arbitration. The agreement delegated most questions about its formation, enforceability, applicability, and interpretation to an arbitrator. But it specifically assigned questions about the class-action waiver’s validity and scope to a court. The agreement also provided that if the class-action waiver were invalid, the parties waived arbitration and would proceed before a judge on class or collective claims.

The court applied the California rule from Gentry v. Superior Court, under which a class-action waiver may be invalid when it would undermine enforcement of overtime laws. The court considered four factors:

1. Modest individual recovery. The court found this factor satisfied. It considered the average potential recovery for class members rather than the larger potential recovery of an individual outlier. Based on the damages calculation and the alleged size of the class, the court concluded that the average recovery would be no more than $22,331.53.

2. Potential retaliation. The court found a high potential for retaliation. It relied on the alleged control RXO exercised over the workers, the 15-day termination provision, and the workers’ status as low-wage delivery workers. The court explained that the test concerned potential retaliation, not proof that actual retaliation had occurred.

3. Members being uninformed about their rights. The court found this factor satisfied. Mejia stated that RXO required him to sign paperwork he understood to be mandatory, that Spanish was his preferred language, and that he did not know what an arbitration agreement was until his lawyer explained it. The court concluded that it could reasonably presume other class members were similarly uninformed.

4. Other real-world obstacles. The court found that Mejia had not made a particularized showing of additional obstacles. This factor therefore favored RXO.

The court concluded that Mejia had made a strong showing on three of the four factors and held that the class-action waiver was invalid under the Gentry test. Under the agreement’s own terms, invalidating the waiver also waived the parties’ right to arbitration. The court did not reach the parties’ remaining arguments, including the other challenges to the agreement’s enforceability.

Disposition

Judge Susan Illston denied RXO Last Mile, Inc.’s motion to compel arbitration. The order did not state that the motion was denied with or without prejudice. The case was to proceed in court.