State ex rel. Grupp v. DHL Exp. (U.S.), Inc.

• Citation: 907 N.Y.S.2d 772,28 Misc.3d 973
• Parties: STATE of New York ex rel. Kevin GRUPP and Robert Moll, Plaintiff, v. DHL EXPRESS (USA), INC., DHL Worldwide Express, Inc., and DPWN Holdings (USA), Inc. f/k/a DHL Holdings (USA), Inc., Defendants.
• Decision Date: 26 April 2010
• Court: New York Supreme Court

907 N.Y.S.2d 772

28 Misc.3d 973

STATE of New York ex rel. Kevin GRUPP and Robert Moll, Plaintiff,

v.DHL EXPRESS (USA), INC., DHL Worldwide Express, Inc., and DPWN Holdings (USA), Inc. f/k/a DHL Holdings (USA), Inc., Defendants.

Supreme Court, Erie County, New York.

April 26, 2010.

Hodgson Russ LLP, Daniel C. Oliverio, Esq., of counsel, Joseph V. Sedita, Esq., of counsel, John L. Sinatra, Jr., Esq., of counsel, Attorneys for Relators Kevin Grupp and Robert Moll.

Orrick, Herrington & Sutcliffe, LLP, J. Peter Coll, Esq., of counsel, Elyse D. Echtman, Esq., of counsel, Rishona Fleishman, Esq., of counsel, Attorneys for Defendants.

JOHN M. CURRAN, J.

Plaintiff Relators Kevin Grupp and Robert Moll (Plaintiffs) sue under the New York State False Claims Act (SFCA), a statute enacted in 2007 and the subject of little case law to date (State Finance Law §§ 187 et seq.). Under that statute, a person who knowingly submits a false or fraudulent claim for payment to the state may be held liable for fines, treble damages, and attorneys' fees (State Finance Law § 189[1], [3] ). Actions may be brought by the State Attorney General or by "whistleblowers", such as plaintiffs. Plaintiffs allege that defendants DHL Express (USA), Inc., DHL Worldwide Express, Inc, and DPWN Holdings (USA), Inc. f/k/a DHL Holdings (USA), Inc. (hereinafter referred to as DHL) ¹ submitted false claims under a state contract by charging improper fuel surcharges for package delivery. In lieu of answering, DHL moved to dismiss the Amended Complaint pursuant to CPLR 3211(a)(1) and (7).

After the motion was argued, the Court requested further briefing on the following question:

(1)Whether the "market participant" or "market proprietor" exception to federal pre-emption should apply with respect to the effect of the Airline Deregulation Act (49 U.S.C. § 41713) and the Federal Aviation Administration Authorization Act (49 U.S.C. § 14501) on the New York State False Claims act claims in this matter? ( see e.g. Cardinal Towing & Auto Repair, Inc. v. City of Bedford, 180 F.3d 686, 694-697 [5th Cir.1999]; see also Healthcare Ass'n of New York State, Inc. v. Pataki, 471 F.3d 87, 108-109 [2nd Cir.2006] ).

(Letter to counsel October 13, 2009). Simultaneous submissions were received November 9, 2009, with replies received November 23, 2009, after which the motion was again taken under submission. Upon due consideration, the Court denies the motion in its entirety.

BACKGROUND

Plaintiffs are the owners of MVP Delivery and Logistics, Inc. (MVP), an independent trucking company. MVP contracted to provide package pick-up and delivery services for DHL in the Buffalo area (Coll. Affirm., Ex. 1 [Am. Complaint] ¶¶ 7, 20). With respect to certain package deliveries,the Amended Complaint asserts that DHL submitted false claims to the State, including the Department of Transportation, the Thruway Authority and various universities and hospitals as well as various local governments, for the purpose of obtaining payments in excess of those to which they were entitled (Am. Complaint ¶ 1).

In December 2001, DHL's predecessor-in-interest, Airborne Express, was awarded a contract through the State Office of General Services to provide courier serves (Am. Complaint ¶ 47 & Coll. Affirm., Ex. 3). The Contract was amended numerous times, and extended through 2008 (Am. Complaint ¶ 28 & Coll Affirm., Exs. 4, 5). Under that Contract, DHL offered several categories of shipping services. "Ground Delivery Service" offered delivery within the State within three (3) business days and within the contiguous United States within five (5) days (Coll. Affirm., Ex. 4 at 3, 17-19). "Overnight Air Express" offered delivery by noon (or 10:30 for an extra $.50) on the next business day to most points in the United States ( id. at 8-10). "Next Afternoon Service" offered delivery by 3:00 p.m. on the next business day to most points in the United States ( id. at 11-13). "Second Day Service" offered delivery by 5:00 p.m. on the second business day to most points in the United States ( id. at 14-16). Both "Next Afternoon Service" and "Second Day Service", were also known as "Air Express Services" (DHL's Memo of Law at 2, citing Coll. Affirm., Ex. 4 at 8-16).

The Contract permitted the assessment of a fuel surcharge, and at least in the version in the record, with an eight (8) percent cap (Coll. Affirm. Ex. 4 at 20). The version of the Contract appearing in the record states:

Domestic Air Express shipments are assessed a fuel surcharge with an 8% cap. Ground shipments are assessed a variable fuel surcharge not to exceed the 8% cap. Ground Shipments are assessed a fuel surcharge which is indexed to the U.S. Dept. of Energy's on-highway diesel fuel index. Contract users can find updated fuel charge information onhttp:// www. dhl- usa. com/ home/ home. asp ...

(Coll. Affirm. Ex. 4 at 20).

Plaintiffs assert that DHL misrepresented that Next Day and Second Day packages would travel by air, when, in fact, they were delivered solely through ground transportation. Plaintiffs also allege that DHL represented to state and local governments that it needed to impose, and began imposing, jet fuel surcharges for packages for Next Day and Second Day deliveries, regardless of whether the items were transported by air during any portion of the delivery. In addition, plaintiffs allege that DHL imposed diesel fuel surcharges on ground delivery shipments, while passing along only a small portion of those surcharges to the independent contract truckers who bought the fuel (Am. Complaint ¶¶ 24-38).

DHL asserts that the fuel surcharge rates applied without regard to the manner in which the packages traveled, because "[t]he terms of DHL Express's Air Express Ground Delivery Service waybills reserve to DHL Express the option to transport a package by any means DHL chooses, including air, road or any other carrier' " (DHL's Memo. of Law at 4, quoting Coll. Affirm., Exs. 10, 11 [emphasis in original] ).

PROCEDURAL HISTORY

Pursuant to statute and regulations, Plaintiffs filed their qui tam action and served it upon the state Attorney General (State Finance Law § 190[2][a], [b]; 13 NYCRR 400.4). After the Attorney General declined to intervene (Coll. Affirm.Ex. 12), Plaintiffs determined to continue the action ( id. Ex. 13). The Amended Complaint was served upon DHL in or about March 2009. Count I alleges violations of State Finance Law § 189(1)(a) and (b), providing that any person who knowingly presents or causes to be presented a false or fraudulent claim for payment ( [1][a] ), and anyone who knowingly makes, uses or causes to be made or used a false record or statement to get a false or fraudulent claim paid or approved ( [1][b] ) by the state or local government, may be liable for a civil penalty of between $6,000 and $12,000 for each such claim,² plus three times the amount of damages sustained ( see State Finance Law § 189[1][a], [b], [g] ). Count II alleges that DHL and its employees knowingly conspired among themselves and with others, including their agents, to submit false and fraudulent claims to the state( State Finance Law § 189[1][c] ). Plaintiffs allege that they are the "original source" of the allegations against DHL, within the meaning of State Finance Law § 188(5) (Am. Complaint ¶ 9).³

MOTION TO DISMISS

"Under modern pleading theory, a complaint should not be dismissed on a pleading motion so long as, when the Plaintiff is given the benefit of every possible favorable inference, a cause of action exists...." Modern pleading rules are designed to focus attention on whether the pleader has a cause of action rather than on whether he has properly stated one ( Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 634, 636, 389 N.Y.S.2d 314, 357 N.E.2d 970 [1976] [internal citation omitted] ). "On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction.... We accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" ( Leon v. Martinez, 84 N.Y.2d 83, 87-88, 614 N.Y.S.2d 972, 638 N.E.2d 511 [1994] [citation omitted] ).

DISCUSSION

DHL's primary argument is that the Airline Deregulation Act (49 U.S.C. § 41713) (ADA), and the Federal Aviation Administration Authorization Act (49 U.S.C. § 14501) (FAAAA), pre-empt this suit. The ADA was enacted in 1978 after Congress "determin[ed] that maximum reliance on competitive market forces' would best further efficiency, innovation, and low prices' as well as variety [and] quality ... of air transportation services" ( Morales v. Trans World Airlines, Inc., 504 U.S. 374, 378, 112 S.Ct. 2031, 119 L.Ed.2d 157 [1992] ). The ADA includes a pre-emption provision that provides in pertinent part:

(b) Preemption.-(1) Except as provided in thissubsection, a State ... may not enact or enforce a law ... related to a price, route, or service of an air carrier that may provide air transportation under this subpart.

....

(3) This subsection does not limit a State, political subdivision of a State, ... that owns or operates an airport served by an air carrier holding a certificateissued by the Secretary of Transportation from carrying out its proprietary powers and rights

(49 U.S.C. § 41713[b][1], [3] [emphasis supplied]; see id. 41713[b] [4] ).⁴

The FAAAA provides, in section 14501 entitled "Federal authority over intrastate transportation":

(c) Motor carriers of property.-

(1) General rule.-Except as provided in paragraphs (2) and (3), a State ... may not enact or enforce a law ... related to a price, route, or service of any motor carrier (other than a carrier affiliated with a direct air carrier covered by section 41713(b)(4)) or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.

(49 U.S.C. § 14501[c][1] ). These provisions of the ADA and FAAAA are "intended to function in the...