In re Air Transp. Excise Tax Litigation, 3-96 Civ. 453.

• Decision Date: 22 February 1999
• Docket Number: No. 3-96 Civ. 453.,3-96 Civ. 453.
• Citation: 37 F.Supp.2d 1133
• Parties: In re AIR TRANSPORTATION EXCISE TAX LITIGATION.
• Court: U.S. District Court — District of Minnesota

37 F.Supp.2d 1133

In re AIR TRANSPORTATION EXCISE TAX LITIGATION.

No. 3-96 Civ. 453.

United States District Court, D. Minnesota.

February 22, 1999.

Chestnut & Brooks, P.A. by Karl L. Cambronne, and Plunkett, Schwartz, Peterson, P.A. by Hugh V. Plunkett III & Robert K. Shelquist, Minneapolis, MN, for plaintiffs.

Faegre & Benson LLP by John D. French, Minneapolis, MN, and Morgenstein & Jubelirer, LLP by Eliot S. Jubelirer, San Francisco, CA, for defendant.

ORDER

ALSOP, Senior District Judge.

This matter comes before the Court on the motion of Defendant Federal Express Corporation ("FedEx") for a judgment on the pleadings, FED.R.Civ.P. 12(c), or, alternatively, for summary judgment, FED. R.CIV.P. 56. For the reasons stated below, the Court will treat the motion as one for summary judgment and grant the motion. Also before the Court is Plaintiffs' motion to strike, as premature, the affidavits of two experts offered by FedEx in support of its motion. Since the Court need not consider these affidavits to resolve the dispositive motion before it, the Court will grant Plaintiffs' motion to strike.

BACKGROUND

In these consolidated cases,¹ Plaintiffs purport to represent a class of FedEx customers who shipped packages via FedEx during the periods from January 1, 1996 through August 26, 1996, and from January 1, 1997 through February 28, 1997.² During those periods, the 6.25 percent federal excise tax on the transportation of property by air was not in effect. See 26 U.S.C. § 4271. The gravamen of Plaintiffs' claims is that FedEx, having represented in its contract documents that its rates included the excise tax, wrongfully enjoyed a windfall by continuing to collect from Plaintiffs an amount equal to the expired tax. Plaintiffs assert four separate claims regarding this allegedly wrongful conduct.

Plaintiffs' primary count is for breach of contract. Plaintiffs' theory is that, since FedEx did not reduce its rates to reflect the expired tax obligation, FedEx effectively raised its rates by an amount equal to the expired tax. This effective rate increase, Plaintiffs contend, constituted a breach of FedEx's stated obligation to notify its customers in writing of any rate increases.

Plaintiffs also bring claims for unjust enrichment, money had and received, and conversion. Under their unjust enrichment theory, Plaintiffs contend that FedEx's collection of an amount equal to the tax was "unwarranted and unjustified" to the detriment of Plaintiffs. For their money had and received claim, Plaintiffs charge that FedEx's collection of an amount equal to the tax resulted in a deprivation of Plaintiffs' use of money which otherwise rightfully belonged to them. Finally, for their conversion claim, Plaintiffs contend that FedEx's collection of an amount equal to the tax deprived Plaintiffs of their rightful property interest in the monies collected.

In response, FedEx argues first that Plaintiffs are really seeking a tax refund, and therefore all their claims are barred by the Internal Revenue Code (the "Code"). 26 U.S.C. § 7422. Code section 7422 provides that a taxpayer may not bring a tax refund suit until she first makes a claim with the Internal Revenue Service ("IRS"), and further that if the taxpayer loses before the IRS she may only bring her tax refund suit against the United States. Since Plaintiffs have not filed a refund claim with the IRS, and further since FedEx is not a proper defendant to a tax refund suit in any case, FedEx argues that the action should be dismissed.

FedEx also argues that Plaintiffs' claims are preempted by the Airline Deregulation Act of 1978 ("ADA"), which prohibits a state from enacting or enforcing any law "related to a price, route, or service of an air carrier." 49 U.S.C. § 41713(b)(1). FedEx argues that allowing Plaintiffs' state law claims to proceed would constitute the "enforcement of state laws" — namely Minnesota's governing law of contracts, unjust enrichment, money had and received, and conversion — "relating to" FedEx's rates, and therefore is prohibited by the ADA.

Finally, if Plaintiffs' claims are not prohibited by either the Code or the ADA, FedEx argues that Plaintiffs' claims fail as a matter of Minnesota state law.

STANDARD OF REVIEW

A court will grant a motion for judgment on the pleadings if, viewing the allegations in a light most favorable to the non-movants, it appears beyond doubt that the non-movants can prove no set of facts entitling them to relief. Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir.1990). If matters outside the pleadings are presented to and not excluded by the court, the Rule 12(c) motion is treated as a summary judgment motion under Rule 56. Inland Container Corp. v. Continental Ins. Co., 726 F.2d 400, 401 (8th Cir.1984). Summary judgment is proper if the pleadings and additional materials properly before the court show that there is no genuine issue of material fact, such that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The parties have submitted volumes of additional materials in support of their positions. The bulk of these materials address who "bore the burden" of the tax. As will become apparent, the Court finds it unnecessary to refer to these materials to reach its conclusion that FedEx is entitled to prevail, because the Court finds that whoever "bore the burden" of the tax is legally irrelevant to the resolution of these claims. But since the Court does consider certain other matters contained in the submissions, the Court will treat the motion as one for summary judgment nonetheless.

DISCUSSION

I. Tax Code Preemption

The relevant parts of Code section 7422 provide as follows:

(a) No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, ... or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary [of the Treasury]....

(f)(1) A suit or proceeding referred to in subsection (a) may be maintained only against the United States and not against any officer or employee of the United States....

26 U.S.C. § 7422(a).

FedEx argues that this action is really a tax refund lawsuit against the wrong party, because section 7422 only allows tax refund suits to be brought against the United States, and then only following an unsuccessful claim filed with the IRS. In support of its argument, FedEx cites a number of cases in which travelers sued passenger airlines to recover a lapsed 10-percent ticket tax. Brennan v. Southwest Airlines Co., No 96 Civ. 1841 (N.D.Cal. Sept 6, 1996), aff'd, 134 F.3d 1405 (9th Cir.1998), amended without substantive change, 140 F.3d 849 (9th Cir.1998); Sigmon v. Southwest Airlines Co., No. 3-96 Civ. 393 (N.D.Tex. May 23, 1996), aff'd, 110 F.3d 1200 (5th Cir.), cert. denied, ___ U.S. ___, 118 S.Ct. 370, 139 L.Ed.2d 268 (1997); Kaucky v. Southwest Airlines Co., 1996 WL 267875 (N.D.Ill. May 17, 1996), aff'd, 109 F.3d 349 (7th Cir.), cert. denied, ___ U.S. ___, 118 S.Ct. 368, 139 L.Ed.2d 286 (1997) (collectively, the "passenger airline" cases). In each passenger airline case, the defendant airline collected a 10-percent excise tax from passengers who bought tickets while the tax was still in effect, but for travel after the tax expired. The passengers sued the airline to recover the tax. In each case, the district court dismissed, and the reviewing court affirmed, because the passengers' claims were preempted by section 7422.

Those cases are distinguishable in two important ways. First, the passenger airline courts all relied on the fact that the airlines had turned over the erroneously collected funds to the IRS. Brennan, 134 F.3d at 1408 (noting that defendants "apparently did not pocket any of the money for their own benefit"); Sigmon, 110 F.3d at 1204 (noting that the airline did not "pocket the money for itself"); Kaucky, 109 F.3d at 350-51 (assuming that the airline "remitted the money it collected" to the IRS). Here, FedEx admits that it never paid anything to the IRS when the tax expired.

Second, the refund amount at issue in the passenger airline cases was readily ascertainable, because each ticket receipt showed the 10-percent tax as a separate line item. Here, Plaintiffs have no way of knowing how much of their shipping charges constituted an amount equal to the expired tax: all that Plaintiffs know is that FedEx represented to them that the rates Plaintiffs were paying "include[d] the excise tax required by the federal government on the transportation of property by air."³

For these reasons, it would be futile for Plaintiffs here to seek a refund from the IRS, because the IRS never received any money from FedEx that it could refund to them, and further because neither the Plaintiffs nor the IRS have any idea what the amount of refund should be (if any). The Court finds the reasoning of the passenger airline cases — that the plaintiffs there had a simple and workable prescribed remedy before the IRS — inapplicable to the undisputed facts shown here.

The Court concludes that section 7422 is limited in its application to instances in which a taxpayer — one subject to an internal revenue tax — seeks to recover a purported and paid "tax" that was actually "assessed" or "collected" on behalf of the government and that was actually paid to the government. The use of the term "recover" in the statute carries the implicit assumption that the funds are, in fact, "recoverable" — that is, that the funds are either already in government coffers or, at least, are within the government's easy reach. The statute does not preclude actions where, as here, a person who was not subject to an internal revenue tax seeks to recover an amount alleged to have been collected by someone else, in breach...