Kean v. Wal-Mart Stores, Inc.
| Decision Date | 21 November 2008 |
| Docket Number | No. 1-07-1341.,1-07-1341. |
| Citation | 899 N.E.2d 416 |
| Parties | Nancy KEAN, Individually and on Behalf of All Others Similarly Situated, Plaintiff-Appellant, v. WAL-MART STORES, INC., Wal-Mart. Com, U.S.A., LLC, and Wal-Mart Associates, Inc., Defendants-Appellees (Chip Russell, Individually and on Behalf of All Others Similarly Situated, Intervenor and Plaintiff-Appellant; The Department of Revenue and Alexi Giannoulias as Treasurer of the State of Illinois, Intervenors and Defendants-Appellees). |
| Court | United States Appellate Court of Illinois |
Aron D. Robinson, Law Office of Aron D. Robinson, Lance A. Raphael, The Consumer Advocacy Center, P.C., Chicago, IL, for Appellants.
Arthur M. Scheller, III, and Steven D. Hamilton, Drinker Biddle & Reath LLP, Chicago, IL, for Appellees.
Lisa Madigan, Michael A. Scodro, and Brett E. Legner, Chicago, IL, for Intervenors and Defendants-Appellees.
Plaintiff Nancy Kean and Plaintiff-Intervenor Chip Russell (collectively plaintiffs) filed complaints against Wal-Mart Stores, Inc., Wal-Mart.com, U.S.A., LLC, and Wal-Mart Associates, Inc. (collectively Wal-Mart), alleging that Wal-Mart violated Illinois law by charging an unauthorized sales tax upon shipping charges for goods purchased through its website. The trial court dismissed their complaints, finding that under the facts as alleged by plaintiffs, the shipping charges were subject to sales tax as a matter of law. For the reasons that follow, we affirm.
On October 12, 2006, Kean filed her class action complaint against Wal-Mart, in which she alleged the following: Through Wal-Mart's website, http://www. walmart.com, Kean purchased a mini-trampoline for personal use on September 9, 2006. The price of the trampoline was $23.33, the shipping charge was an additional $7.97, and the sales tax charge was $2.74, based upon the sum of the product price and the shipping charge. Kean stated that although she paid, she sent a letter to Wal-Mart on that same day protesting the imposition of sales tax on the cost of shipping, but Wal-Mart represented that the tax was proper and would not rescind the charge.
Kean then stated that such shipping charges are not properly subject to sales tax. She therefore sought relief in three counts. In Count I, she contended that by collecting an unauthorized tax on shipping, Wal-Mart violated the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2 et seq. (West 2006); accordingly, on behalf of herself and all other similarly situated consumers, she sought actual damages. In Count II, she contended that Wal-Mart was unjustly enriched to the extent that it did not deliver the taxes it collected to the state, and she sought disgorgement of any such wrongfully retained money. Finally, in Count III, she sought injunctive relief preventing Wal-Mart from collecting such taxes in the future.
Attached to the complaint as an exhibit is a printout of the alleged letter of protest that Kean sent to Wal-Mart's online Help Desk on September 9, 2006, which reads as follows:
Also attached is a response by a Wal-Mart customer service representative stating that Wal-Mart is required to collect sales tax on taxable items shipped to Illinois and that shipping and handling charges are subject to sales tax in applicable states.
On November 14, 2006, Kean filed a motion for a preliminary injunction requiring Wal-Mart to deposit all the sales tax on shipping services that it had collected into a protest fund (i.e., an interest-bearing fund set up by the court to hold disputed tax money until the rightful owner could be determined) instead of remitting the money to the state. In that motion, Kean averred that such relief was necessary because, if Wal-Mart were to remit the collected taxes to the state, Kean and the class members would no longer have standing to recover the taxes, pursuant to Adams v. Jewel Companies, Inc., 63 Ill.2d 336, 343, 348 N.E.2d 161, 165 (1976).
In its response to Kean's motion, Wal-Mart stated that it had already remitted all September 2006 taxes, including any tax paid by Kean, to the state on October 20, 2006. It averred that it always remits taxes to the state on the 20th day of the month following the month that the tax is charged. In support of this averment, it attached the affidavit of Michael Estes, the Senior Tax Manager of Sales & Use Tax Systems for Wal-Mart. Based upon these allegations, the court denied Kean's motion.
On November 29, 2006, the Illinois Department of Revenue and the State Treasurer1 (the state defendants) sought to intervene in the action as additional defendants; their motion was granted.
On December 20, 2006, Chip Russell sought to intervene in the action and file his own complaint against Wal-Mart and the state defendants; his motion was granted. The following day, Russell filed his complaint, in which, like Kean, he contended that Wal-Mart had committed consumer fraud by collecting an unlawful tax on shipping charges for online sales. He alleged that on December 5, 2006, he purchased a Leapfrog Leapster Learning System through Wal-Mart's website. The cost of the item was $59.84. To purchase the item, Russell allegedly clicked a button to add the item to his "electronic shopping cart." He then proceeded to the "checkout" page, where he was presented with three different options for shipping; he chose the option of having the item shipped in 2-3 days, at a stated cost of $11.97. Russell then alleged that Wal-Mart imposed sales tax on the cost of the item as well as the shipping of that item, bringing the total to $78.27, which he paid. He stated that it is Wal-Mart's general practice to charge sales tax on all shipping charges of this nature.
Russell averred that Wal-Mart contracts with a third-party shipper, such as UPS or FedEx, to deliver purchases made at its online store, and the shipping charges it imposes are entirely or almost entirely reflective of the actual cost paid to the third party. He also stated that when a customer returns a product purchased online, the customer receives no refund of the shipping charges unless the product was damaged.
Like Kean, Russell contended that the cost of shipping such items is not taxable under Illinois law. Therefore, on behalf of himself and the class of similarly situated consumers, Russell sought actual damages, an injunction requiring Wal-Mart to place all such collected taxes in a protest fund rather than sending them to the State, and a permanent injunction barring Wal-Mart from collecting such taxes in the future.
On the same day that he filed his complaint, Russell also moved for a preliminary injunction requiring Wal-Mart to place the disputed tax money in a protest fund rather than voluntarily remitting it to the state. The court held a hearing on that motion on January 17, 2007. During this hearing, the court discussed with plaintiffs' counsel whether it was possible to make online purchases without concurrently purchasing shipping services:
Later that day, the court denied Russell's motion for a preliminary injunction, determining that Russell had not shown that he was likely to succeed on the merits of his claim as required for the issuance of a temporary restraining order. The court began by stating that, if Wal-Mart were properly taxing the shipping charges at issue, then plaintiffs would clearly not be entitled to the injunctive relief they requested. The court found that the shipping charges paid by Russell were part of the total selling price of the item purchased and concluded that "it is clear to the court from the language of the relevant statute [Retailers' Occupation Tax Act, 35 ILCS 120/1 et seq. (West 2006) (ROTA); Use Tax Act, 35 ILCS 105/1 et seq. (West 2006)] that the tax here is proper."
Meanwhile, both Wal-Mart and the state defendants filed motions to dismiss plaintiffs' complaints for failure to state a claim. The court held a hearing on those motions on April 20, 2007, at which it decided to grant these motions because it stated that the tax at issue was proper. The court issued an order that same day stating that the complaints would be dismissed "for the reasons set forth in the Court's January 17, 2007, Order Denying Russell's temporary restraining order." Plaintiffs timely filed the instant appeal.
On appeal, plaintiffs argue that, under the facts as alleged in their complaints, the shipping charges at issue were not subject to sales tax as a matter of law; thus, they contend that the trial court erred in dismissing their complaints. Defendants naturally dispute this. They also contend that, in any event, plaintiffs lack standing to pursue their claims under the voluntary payment doctrine, so dismissal was proper.2
The dismissal of an action for failure to state a claim is subject to de novo review. Hadley v. Illinois Dept. of Corrections, 224 Ill.2d 365, 370, 309 Ill. Dec. 296, 864 N.E.2d 162, 165 (2007). Dismissal is appropriate where no set of...
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