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State of New York Ex Rel. Kevin Grupp and Robert Moll v. Dhl Express (Usa)

April 26, 2012


The opinion of the court was delivered by: Jones, J.:

This opinion is uncorrected and subject to revision before publication in the New York Reports.

In this qui tam action, this Court is asked to consider whether plaintiffs' claims on behalf of the State of New York, pursuant to the New York False Claims Act (FCA [State Finance Law §§ 187 et seq.]), are federally preempted by the AirlineDeregulation Act of 1978 ([ADA] 49 USC § 41713 [b][1]) and the Federal Aviation Administration Authorization Act ([FAAAA] 49 USC § 14501 [c][1]). We hold they are and that the market participant doctrine is inapplicable.

Pursuant to a contract with the State of New York*fn1 ,

defendant DHL Express (USA), Inc. (DHL) agreed to provide various courier services via air and ground transportation, including "Overnight Air Express," "Next Afternoon Service," "Second Day Service," and "Ground Delivery Service." Plaintiffs Kevin Grupp and Robert Moll own a trucking company and served as an independent contractor to DHL, providing ground shipping services to defendant within the state.

Plaintiffs, as relators, commenced an action on behalf of the State pursuant to the FCA, alleging violations of State Finance Law §§ 189 (1)(a), (1)(b) and (1)(c)*fn2 and seeking treble damages, penalties and costs.*fn3 They assert that from 2003 through 2008, DHL engaged in a persistent practice of misrepresentation, claiming that packages were delivered by air, when in fact, they were shipped via ground transportation. By doing so, the complaint alleges, DHL would impose a jet fuel surcharge even though "[a] substantial percentage of DHL Next Day and 2nd Day deliveries paid for by the State did not travel by air at all."*fn4 It is further alleged that DHL billed the State a diesel fuel surcharge even when independent contractors, such as plaintiffs, "incurred the majority of fuel costs associated with DHL's ground transportation service."

DHL moved to dismiss the complaint, arguing, in relevant part, that plaintiffs' action was preempted by the ADA and FAAAA. Supreme Court denied the motion, concluding that the market participant exception to federal preemption applied. Relying primarily on Cardinal Towing & Auto Repair, Inc. v City of Bedford, Tex. (180 F3d 686 [5th Cir 1999]), the court reasoned that the instant action pertained to the State's proprietary, and not regulatory, capacity. It remarked that:

"The overcharging of the State for goods and services provided by private companies is the prime ill that the [FCA] seeks to address --which is, for the State, a specific proprietary problem. But because the State is such a major consumer of goods and services, the [FCA] permits relators such as plaintiffs to bring to its attention and, taking the risk of non-recovery, prosecute the State's claims against providers of false statements" (28 Misc3d 973, 984 [Sup Ct, Erie County 2010]).

The Appellate Division unanimously reversed, granting the motion and dismissing the complaint (83 AD3d 1450 [4th Dept 2011]). The court rejected the market participant doctrine, concluding that "the broad scope of the FCA demonstrates that its primary goal is to regulate the actions of those who engage in business with the State, and thus the statute enforces a general policy" (id. at 891).

This Court granted plaintiffs leave to appeal (17 NY3d 705 [2011]), and we now affirm.

Plaintiffs contend that the United States Congress, by encouraging states to pass fraudulent claim statutes such as the New York State Finance Law, could not have intended for those statutes to be preempted. Further, that the FCA is neither regulatory in nature nor related to the "price[s], route[s], or service[s]" of DHL. In the alternative, they argue that if preemption is found, then the market participant exception applies because the instant claims pertain to the State's proprietary capacity, as a private actor, in procuring courier services from DHL. We find these arguments unavailing.

Under the Supremacy Clause of the United States Constitution, federal laws "shall be the supreme Law of the Land" (US Const, art VI, cl [2]) and Congress is vested with the authority to supersede State statutory or regulatory law (see People ex rel. Cuomo v First American Corp., 18 NY3d 173, 179 [2011]). Thus, the primary concern of courts engaged in preemption analysis is "ascertain[ing] the intent of Congress" (Matter of People v Applied Card Sys., Inc., 11 NY3d 105, 113 [2008] quoting California Fed. Sav. & Loan Assn. v Guerra, 479 US 272, 280 [1987]). There is no plainer indication of preemptive intent than the express language of a statutory provision (see Doomes v Best Transit Corp., 17 NY3d 594, 601 [2011]; Balbuena v IDR Realty LLC, 6 NY3d 338, 356 [2006]).

The ADA provides, in relevant part: "Except as provided in this subsection, a State, political subdivision of a State, or political authority of at least 2 States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service, of an air carrier that may provide air transportation under this subpart"

(49 USC ยง 41713 [b][1]). The FAAAA has a nearly identical provision that preempts the enforcement of state laws that relate to "any motor private carrier, broker, or freight forwarder with respect to ...

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