| State of N.Y. ex rel. Grupp v DHL Express (USA), Inc. |
| 2011 NY Slip Op 02590 [83 AD3d 1450] |
| April 1, 2011 |
| Appellate Division, Fourth Department |
| State of New York ex rel. Kevin Grupp et al.,Respondents, v DHL Express (USA), Inc., et al., Appellants. |
—[*1] Hodgson Russ LLP, Buffalo (John L. Sinatra, Jr., of counsel), forplaintiffs-respondents.
Appeal from an order of the Supreme Court, Erie County (John M. Curran, J.), entered May5, 2010. The order denied the motion of defendants to dismiss the amended complaint.
It is hereby ordered that the order so appealed from is unanimously reversed on the lawwithout costs, the motion is granted and the amended complaint is dismissed.
Memorandum: Plaintiffs commenced this qui tam action pursuant to the New York FalseClaims Act (FCA) (State Finance Law § 187 et seq.), seeking to recover, inter alia,treble damages for losses that the State of New York sustained with respect to a contract in whichdefendants agreed to provide air and ground shipping services to the State. Plaintiffs, two formerground shipping subcontractors of defendants, alleged that defendants overbilled the State forshipping by charging a jet fuel surcharge for shipments that were transported by truck, rather thanthe lower diesel fuel surcharge. After the Attorney General declined to intervene, plaintiffs choseto continue prosecuting the action. Defendants appeal from an order that, inter alia, denied theirpre-answer motion to dismiss the amended complaint. We agree with defendants that this actionis preempted by the Airline Deregulation Act of 1978(ADA) (49 USC § 41713 [b] [1]) andthe Federal Aviation Administration Authorization Act(FAAAA) (49 USC § 14501 [c][1]), and we therefore reverse.
The ADA provides that, with certain exceptions, "a State . . . may not enact orenforce a law . . . related to a price, route, or service of an air carrier that mayprovide air transportation under [the Economic Regulation] subpart" of title 49 of the UnitedStates Code (49 USC § 41713 [b] [1]). By nearly identical language, the FAAAA preemptsstate regulation of motor carriers of property (see 49 USC § 14501 [c] [1]).Although "we are guided by the 'starting presumption that Congress does not intend to supplantstate law' unless its intent to do so is 'clear and manifest' " (Matter of People v [*2]Applied Card Sys.,Inc., 11 NY3d 105, 113 [2008], cert denied sub nom. Cross-Country Bank, Inc. vNew York, 555 US —, 129 S Ct 999 [2009], quoting New York State Conferenceof Blue Cross & Blue Shield Plans v Travelers Ins. Co., 514 US 645, 654-655 [1995]), it iswell settled that a cause of action relates to rates, routes or services within the meaning of theADA and thus is preempted whenever the underlying state action can be classified as "having aconnection with or reference to airline 'rates, routes, or services' " (Morales v Trans WorldAirlines, Inc., 504 US 374, 384 [1992]). The same rule applies to motor shipping ratespursuant to the FAAAA. Inasmuch as the causes of action in the amended complaint seekdamages based upon defendants' allegedly improper use of certain shipping rates, theyunquestionably have a connection to airline and motor freight rates and therefore are preempted.
Contrary to the contention of plaintiffs, the so-called market participant exception to thepreemption doctrine does not apply herein. In what is known as the Boston Harbor case(Building & Constr. Trades Council v Associated Builders & Contractors of Mass./R.I.,Inc., 507 US 218, 226-229 [1993]), the United States Supreme Court concluded that thepreemption doctrine will not apply when a state obtains goods or services in a proprietarycapacity, acting in the same manner as a private entity seeking to obtain necessary goods andservices. "In distinguishing between proprietary action that is immune from preemption andimpermissible attempts to regulate through the spending power, the key under BostonHarbor is to focus on two questions. First, does the challenged action essentially reflect theentity's own interest in its efficient procurement of needed goods and services, as measured bycomparison with the typical behavior of private parties in similar circumstances? Second, doesthe narrow scope of the challenged action defeat an inference that its primary goal was toencourage a general policy rather than address a specific proprietary problem?" (CardinalTowing & Auto Repair, Inc. v City of Bedford, Tex., 180 F3d 686, 693 [1999]). Here, thebroad scope of the FCA demonstrates that its primary goal is to regulate the actions of those whoengage in business with the State, and thus the statute enforces a general policy.
Furthermore, although "the ADA permits state-law-based court adjudication of routinebreach[ ]of[ ]contract claims" (American Airlines, Inc. v Wolens, 513 US 219, 232[1995]), the preemption doctrine applies to "confine[ ] courts, in breach[ ]of[ ]contract actions, tothe parties' bargain, with no enlargement or enhancement based on state laws or policies externalto the agreement" (id. at 233). Here, plaintiffs seek treble damages for defendants' allegedfalse claims in setting airline and truck shipping rates and thus the action falls squarely within thepreemption doctrine. "Simply calling this a contract dispute does not gainsay that the dispute isover the rates charged by an air carrier during a specified time period" (Strategic Risk Mgt. vFederal Express Corp., 253 AD2d 167, 172 [1999], lv denied 94 NY2d 757 [1999]).
Defendants' remaining contentions are moot in light of our resolution of the preemptionissue. Present—Scudder, P.J., Smith, Peradotto, Lindley and Green, JJ.