Grupp v. DHL Express (Usa), Inc.

225 Cal.App.4th 510

KEVIN GRUPP et al., Plaintiffs and Appellants,

v.DHL EXPRESS (USA), INC., et al., Defendants and Respondents.

No. B245297.

Court of Appeals of California, Second District, Division Two.

April 11, 2014.

Baker & Hostetler, Ryan D. Fischbach ; Jerry R. Linscott ; Hodgson Russ and John L. Sinatra, Jr. , for Plaintiffs and Appellants.

Dechert, Edwin V. Woodsome, Jr. , Andrew S. Wong and James C. Wald for Defendants and Respondents.

OPINION

ASHMANN-GERST, Acting P. J. —

In this action filed by Kevin Grupp and Robert Moll (Relators) on behalf of the State of California (State) pursuant to California's False Claims Act (Gov. Code, § 12650 et seq.) (the State Act), the question presented is whether an action alleging DHL Express (USA), Inc., DHL Worldwide Express, Inc., and DPWN Holdings (USA), Inc. (collectively DHL), overcharged and fraudulently billed the State for delivery services is preempted by the Airline Deregulation Act of 1978 (49 U.S.C. § 41713(b)(1)) (Deregulation Act) and the Federal Aviation Administration Authorization Act of 1994 (49 U.S.C. § 14501(c)(1)) (Authorization Act). On appeal, the Relators contend that the trial court erred when it granted DHL's motion for judgment on the pleadings. Upon review, we find no error and affirm. We hold that the application of the State Act in this case would constitute an impermissible regulation of DHL's prices, routes and services in conflict with federal law.

FACTS

DHL is a shipping company that transports packages by ground and air for a fee. For the majority of ground transportation, DHL uses a network of independent contractors. The Relators are New York residents who own MVP Delivery and Logistics, Inc., a company that is part of the network.

The Relators sued DHL in New York, Florida and California under their respective false claims acts and alleged that DHL fraudulently billed those states for delivery services. The Attorney General for each of those states declined to intervene. (State ex rel. Grupp v. DHL Express (N.Y.App.Div. 2011) 922 N.Y.S.2d 888 [83 A.D.3d 1450] (Grupp I); DHL Express (U.S.A.), Inc. v. State ex rel. Grupp (Fla.Dist.Ct.App. 2011) 60 So.3d 426 (Grupp II).)

In the New York action, DHL appealed from the denial of a motion to dismiss. The intermediate appellate court in New York analyzed the claim that DHL "overbilled [New York] for shipping by charging a jet fuel surcharge for shipments that were transported by truck, rather than the lower diesel fuel surcharge." (Grupp I, supra, 83 A.D.3d at p. 1451.) The court explained that the Deregulation Act and the Authorization Act preempt state laws related to a price, route or service of an air or motor carrier, and stated: "Inasmuch as the causes of action in the amended complaint seek damages based upon defendants' allegedly improper use of certain shipping rates, they unquestionably have a connection to airline and motor freight rates and therefore are preempted." (83 A.D.3d at p. 1451.) With respect to the Relators' advocacy of the "market participant exception" to preemption, the court noted that the exception is triggered when a "state obtains goods or services in a proprietary capacity, acting in the same manner as a private entity seeking to obtain necessary goods and services." (Id. at p. 1452.) In contrast, the exception does not come into play when a state is trying to encourage a general policy through regulation. This led the court to state: "Here, the broad scope of the [fraudulent claims act] 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." (Ibid.) Finally, the court rejected the Relators' argument that their claim was tantamount to a breach of contract claim that eludes the bar of preemption. It explained that "the preemption doctrine applies to `confine[] courts, in breach[]of[]contract actions, to the parties' bargain, with no enlargement or enhancement based on state laws or policies external to the agreement' [citation]. Here, plaintiffs seek treble damages for defendants' alleged false claims in setting airline and truck shipping rates and thus the action falls squarely within the preemption doctrine. `Simply calling this a contract dispute does not gainsay that the dispute is over the rates charged by an air carrier during a specified time period' [citation]." (Ibid.) The court reversed the denial of DHL's motion and ordered the action dismissed. (Id. at p. 1450.)

New York's highest court affirmed the decision of the intermediate appellate court. In doing so, the New York Court of Appeals issued an opinion that analyzed and rejected the Relators' arguments anew. (State ex rel. Grupp v. DHL Express (USA), Inc. (2012) 19 N.Y.3d 278 [947 N.Y.S.2d 368, 970 N.E.2d 391].)

As alleged in the Florida action, "... DHL improperly billed a fuel surcharge for aviation fuel when packages did not travel by air. Further, according to the complaint, DHL charged a diesel fuel surcharge for ground deliveries despite the fact that DHL's independent contractors incurred the increased cost of such fuel." (Grupp II, supra, 60 So.3d at pp. 427-428.) The Florida Court of Appeal granted a writ of prohibition sought by DHL and ordered the circuit court to dismiss the action. In doing so, the Grupp II court determined that the Relators' action was preempted, and that the market participant exception did not apply. (Id. at p. 429.)

In the present case (Grupp III), the Relators alleged that DHL imposed a jet fuel surcharge for deliveries made by ground transportation, imposed a diesel fuel surcharge for ground transportation even though DHL's independent contractors incurred the increased cost of the fuel, and fraudulently represented routes and expenses. The Relators sought general damages suffered by California and treble damages under Government Code section 12651, subdivision (a)(1) through (3) in addition to penalties, costs, interest and attorney fees.

Based on preemption, the trial court granted judgment on the pleadings in Grupp III and dismissed the action.

This timely appeal followed.

DISCUSSION

(1) The Deregulation Act and the Authorization Act preempt any state law having the effect of a law related to a price, route, or service of an air or motor carrier. (49 U.S.C. §§ 41713(b)(1), 14501(c)(1).) According to the Relators, their claims do not relate to DHL's prices, routes or services; the State's entry into a contract for delivery services with DHL triggers the market participant exception; federal preemption does not apply to DHL's self-imposed undertakings; and under the police powers exception, the Relators' claims under the State Act may proceed. Our review of the trial court's dismissal of the Relators' action is de novo. (Kapsimallis v. Allstate Ins. Co. (2002) 104 Cal.App.4th 667, 672 [128 Cal.Rptr.2d 358] [a de novo standard of review applies when an appellate court reviews a judgment on the pleadings].)

We examine the issues below.

I. The Scope of Preemption.

(2) When used in title 49 United States Code sections 41713(b)(1) and 14501(c)(1), the ordinary meaning of the phrase "related to a price, route, or service" of a carrier "is a broad one — `to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with,' [citation] — and the words thus express a broad pre-emptive purpose." (Morales v. Trans World Airlines, Inc. (1992) 504 U.S. 374, 383 [119 L.Ed.2d 157, 112 S.Ct. 2031] (Morales) [interpreting a former version of the Deregulation Act]; Rowe v. New Hampshire Motor Transp. Assn. (2008) 552 U.S. 364, 370 [169 L.Ed.2d 933, 128 S.Ct. 989] (Rowe) [interpreting the preemption provision in the Authorization Act consistent with the preemption provision in the Deregulation Act].) As a result, any state enforcement actions "having a connection with, or reference to, [carrier] `rates, routes, or services' are pre-empted." (Morales, supra, 504 U.S. at p. 384; see Rowe, supra, 552 U.S. at pp. 370-371; American Airlines, Inc. v. Wolens (1995) 513 U.S. 219, 232 [130 L.Ed.2d 715, 115 S.Ct. 817] (Wolens) [the Deregulation Act prevents states "from imposing their own substantive standards" on rates, routes and services].) Preemption can apply to laws of general applicability, even if the impact of the law is only indirect. (Morales, supra, 504 U.S. at p. 386.) Based on all these considerations, preemption has been found in multiple cases in a variety of contexts. (Morales, supra, 504 U.S. at p. 378 [the Deregulation Act preempts states from prohibiting "allegedly deceptive airline fare advertisements through enforcement of their general consumer protection statutes"]; Rowe, supra, 552 U.S. at p. 367 [the Authorization Act preempted a Me. law requiring transporters of tobacco to provide a specialized recipient-verification service, and prohibiting any person from knowingly transporting a tobacco product to a person in Me. unless either the sender or receiver had a Me. license]; Wolens, supra, 513 U.S. 219 [due to preemption, the Ill. consumer fraud act could not be used to sue an airline company over retroactive changes to its frequent flyer program].)

After examining precedent, we note that the laws which were determined to be preempted in Morales and Wolens did not directly regulate prices, nor did they have a direct effect on prices. Morales involved the application of general consumer protection statutes to prohibit airlines from using deceptive fare advertisements. The court found preemption even though the petitioner argued that "only state laws specifically addressed to the airline industry are pre-empted, whereas the [Deregulation Act] imposes no constraints on laws of general applicability." (Morales, supra, 504 U.S. at p. 386.) To deal with that argument, the court stated: "Besides creating an utterly irrational loophole (there is little reason why state impairment of the federal scheme...