Long v. Dell Computer Corp.
| Decision Date | 02 April 2012 |
| Docket Number | C.A. PB 03-2636 |
| Parties | NICHOLAS T. LONG and JULIANNE RICCI, Individually and on Behalf of a Class of Persons Similarly Situated v. DELL COMPUTER CORPORATION; DELL CATALOG SALES LIMITED PARTNERSHIP; DELL MARKETING LIMITED PARTNERSHIP; QUALXSERVE, LLC; and BANCTEC, INC. |
| Court | Rhode Island Superior Court |
DECISION
Before the Court is Defendants Dell Computer Corporation (Dell Corp.), Dell Catalog Sales, L.P. (Dell Catalog), Dell Marketing, L.P. (Dell Marketing), QualxServe, LLC, and Banctec, Inc.' s (collectively, Dell or Defendants) Motion for Summary Judgment on all claims of Plaintiffs Nicholas T. Long and Julianne Ricci's (collectively Plaintiffs) Substituted First Amended Class Action Complaint (Complaint). Plaintiffs' Complaint sets forth claims for violation of the Rhode Island Deceptive Trade Practices Act (DTPA) and negligence related to allegedly improper collection of state sales tax. Defendants move this Court to grant summary judgment in their favor for a number of reasons, as discussed herein.
Separately before the Court is Plaintiffs' Motion to Strike Tax Administrator's Affirmative Defenses. Plaintiffs argue that the affirmative defenses asserted by the Intervenor Tax Administrator in its Answer are immaterial, impertinent, and exceed the scope of intervention permitted by the Court.
The basic facts of this matter have been presented by this Court and the Rhode Island Supreme Court in the past.[1] Nevertheless, the pertinent facts established by the record on this Motion for Summary Judgment are presented below.
In their Complaint, Long and Ricci allege that Dell collected sales tax on optional service contracts (akin to extended warranties) and shipping and handling fees, when those service contracts and transportation fees were not taxable under Rhode Island law.[2] Although brought as a class action complaint, the class has not yet been certified.[3] This "long-frustrated putative class-action suit" is now before the Court on a Motion for Summary Judgment having survived a motion to compel arbitration and a motion to dismiss for lack of subject matter jurisdiction. See DeFontes v. Dell, Inc., 984 A.2d 1061, 1062 (R.I. 2009) (); see generally Long v. Dell, Inc., 984 A.2d 1074 (R.I. 2009) ().
Defendant Dell Corp. is a national computer hardware and software corporation based in Texas. It operates through a "direct business model, " by which consumers or businesses purchase Dell products directly from Dell Corp. or one of its subsidiaries. The two subsidiaries named in the case at bar, Dell Catalog and Dell Marketing, sold computers on the internet, through mail-order catalogs, and over the telephone. Generally, Dell Catalog sold to individual consumers for personal use, and Dell Marketing sold to businesses.[4]
The Dell business model allowed customers to custom-tailor their purchases based on a basic computer configuration; i.e purchasers could elect to upgrade or downgrade the hard drive or other components, and that change would be reflected in the total purchase price of the computer. Dell also offered its customers the option to select service contracts that provided repair or replacement of defective products over a set period of time. All Dell products came with some type of included warranty, but the optional service contracts allowed consumers to extend coverage for a longer period of time by paying a higher overall price for the computer. The optional service contracts were often, but not always, performed by third-party servicers, such as Defendants Qualxserv, LLC and Banctec, Inc.
At the time of purchase, Dell issued to its customers an invoice or acknowledgment identifying many of the individual computer components but stating only a total sales price, including the price of any optional service contract.[5] It is clear that internally, for accounting and business purposes, Dell allocated a certain value to the optional service contracts. Dell charged sales tax on the optional service contracts, and the collected tax was paid either directly to the State of Rhode Island or directly to the third party servicer and then remitted to the State. There is no indication Dell improperly retained for itself any of the taxes it charged.
Dell Catalog itself did not charge sales tax on purchases from it by residents of Rhode Island because Dell Catalog did not have nexus with Rhode Island for tax purposes.[6] However, Dell did charge tax on the optional service contracts on behalf of the third party servicers, who had a Rhode Island nexus. (Emily Parrino Aff. ¶ 26, Mar. 12, 2007.) Dell was operating in this manner based on its interpretation of a 1991 response to its inquiry from the Rhode Island Division of Taxation citing a regulation that stated "[t]he charge for optional service, maintenance or extended warranty contract is not subject to tax when such charge is separately stated by the retailer to the purchaser." (Parrino Aff. Exs. G, H.) Further, the response from the Division of Taxation indicated that combined shipping and handling charges were taxable, but separately stated shipping charges may be exempt from taxation. (Parrino Aff. Ex. G.)
In December 2000, Ricci purchased a Dell computer with an optional service contract for her own personal or household use. Ricci paid a total of $1722.26, including $16.31 designated as tax on a taxable amount of $233.00. Ricci's order acknowledgment provided:
" ER0001.[7]
On the acknowledgment, however, the listed line-item price for the optional service contract was $0.00. Id.
In October 2000, Long purchased a Dell computer and an optional service contract for business use. Long paid a total of $3037.73, including $198.73 designated as tax on the full amount of the purchase, including the computer, the service contract, and shipping and handling. According to Dell based on its internal records, $34.97 of the tax Long paid was charged on the service contract, and $2.45 of the tax was charged on the shipping and handling fee. (Parrino Aff ¶ 21.)
In total, Ricci and Long were charged less than fifty dollars ($50) in sales tax that they contend Dell improperly collected. The Plaintiffs assert claims for negligence in collecting the tax and for violation of the DTPA in their Complaint. The Plaintiffs seek statutory damages of two hundred dollars ($200) per person under the DTPA. Specifically, they claim that neither the optional service contracts nor the shipping and handling charges were subject to any tax imposed by the State of Rhode Island. Dell counters that the taxes were properly collected because the price of the service contracts were not separately stated and because shipping charges when combined with handling are taxable.
In 2005 and 2006, Dell sought and obtained letter rulings from the Division of Taxation on the issues involved in this case. As previously set forth by this Court, the Tax Administrator found that transactions such as Ricci's purchase should not have included tax on the service contract because, as interpreted by the Division of Taxation, the invoice did separately state the service contract price. See Long, 2007 WL 2463742, slip op. at 3. However, sales tax on transactions such as Long's purchase were deemed proper because neither a transportation charge nor a service contract price were separately stated. See id. Therefore, according to the letter rulings, the tax was properly collected on the entire amount of Long's purchase and on the shipping/handling charge to Ricci. The Plaintiffs dispute the correctness of the letter rulings and the regulations on which they rely.
Dell has filed "protective" refund claims with the Division of Taxation in the event that a court finds it improperly collected and remitted taxes to the State. The Division of Taxation has not acted on the refund claims.
In March 2007, Dell moved for summary judgment on all of Plaintiffs' claims. The Court reserved ruling on that Motion while it considered the Tax Administrator's motion to intervene, filed in June 2007. The Court granted the motion to intervene by Order dated August 7, 2007. Intervention was granted "for the purpose of appearing and being heard on the issues of subject matter jurisdiction, the proper interpretation and construction of tax regulations and statutes, and the application and constitutional validity of tax statutes." (Order, Aug. 7, 2007.) No claims have been asserted by either party against the Intervenor Tax Administrator.
The Intervenor's motion to dismiss was denied by this Court and the denial was affirmed by the Supreme Court. Long's claims for negligence and violation of the DTPA, however, were dismissed. As detailed in this Court's August 22, 2007 Decision, there is not subject matter jurisdiction in this Court over Long's DTPA claim or negligence claim because the computer was purchased for business purposes. See Long, 2007 WL 2463742, slip op. At 7-8. Accordingly, only Long's claims for equitable and declaratory relief-to the extent there are any-remain. See id. at 8; see also Long, 984 A.2d at 1078 n.8. On January 8, 2010, the Intervenor filed an Answer. Plaintiffs have filed a Motion to Strike the Tax Administrator's Affirmative Defenses as set forth in that Answer. The Tax Administrator has also submitted papers in connection with this Motion for Summary Judgment, arguing in support of the positions set forth in its prior...
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