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State ex rel. Harmeyer v. Shaw's Supermarkets, Inc.

Superior Court of Rhode Island

May 1, 2017

STATE OF RHODE ISLAND ex rel. MICHAEL D. HARMEYER, Plaintiff,
v.
SHAW'S SUPERMARKETS, INC., Defendant. STATE OF RHODE ISLAND ex rel. MICHAEL D. HARMEYER, Plaintiff,
v.
DAVE'S FRUITLAND OF WARWICK, INC., et al., Defendants.

         Appeal from Superior Court Providence County

          For Plaintiffs: Louise A. Herman, Esq.; James B. Helmer, Jr., Esq.; Robert M. Rice, Esq.; James A. Tate, Esq.

          For Defendant: Jeffrey S. Brenner, Esq. (Shaw's Supermarkets, Inc.) Robert C. Corrente, Esq. (Dave's Fruitland of Warwick, Inc., et al.) Christopher N. Dawson, Esq. (Dave's Fruitland of Warwick, Inc., et al.)

          DECISION

          SILVERSTEIN, J.

         Before the Court for decision are two motions born of the same issue: whether Relator Michael D. Harmeyer (Harmeyer) has alleged with sufficient particularity that Defendant Shaw's Supermarkets, Inc. and Defendants Dave's Fruitland of Warwick, Inc., et al., [1]violated the State False Claims Act (the False Claims Act), G.L. 1956 § 9-1.1-1, et seq. More specifically, Defendant Shaw's Supermarkets, Inc., (the Shaw's Defendant) moves to dismiss Harmeyer's Amended qui tam Complaint pursuant to Super. R. Civ. P. 12(b)(6) and the Dave's Defendants move for judgment on the pleadings pursuant to Super. R. Civ. P. 12(c).

         Although the above-captioned cases have not been formally consolidated, in this Decision, the Court will address the Shaw's Defendant and the Dave's Defendants' (collectively, Defendants) motions together.[2] In his qui tam[3] Complaints, [4] Harmeyer sets forth nearly identical factual allegations in support of the same claim-that Defendants violated the False Claims Act. According to Harmeyer, Defendants knowingly misclassified certain grocery items, such as prepared food, resulting in their failure to collect sales taxes on those items, which, in turn, resulted in their failure to remit the statutorily-required sales taxes to the State of Rhode Island. In addition to denying Harmeyer's allegations, the Dave's Defendants move for judgment on the pleadings on the ground that Harmeyer has failed to state his claim with sufficient particularity as Super. R. Civ. P. 9(b) requires. The Shaw's Defendant argues the same; however, due to the procedural state of its case, the Shaw's Defendant moves to dismiss for failure to state a claim upon which relief can be granted. Harmeyer opposes both motions, arguing that his Complaints contain sufficient allegations of Defendants' False Claims Act violations. The Court exercises jurisdiction pursuant to G.L. 1956 § 8-2-14.

         I Facts and Travel

         The allegations in Harmeyer's Complaints are fairly straightforward. Commonly known as Dave's Marketplace and Shaw's Supermarket, Defendants are grocery stores located throughout the State of Rhode Island. As corporations engaged in retail sales in Rhode Island, Defendants have certain statutory duties to collect our State's seven percent sales tax on an array of items sold in their stores. Generally, items classified as "food and food ingredients" are exempted from Rhode Island's seven percent sales tax, see G.L. 1956 § 44-18-30(9), while other items, such as candy, soft drinks, dietary supplements, and prepared food are taxed at the seven percent rate. See § 44-18-7.1(1). At the end of each month, pursuant to our General Laws, retailers and grocery stores like Defendants are required to file a monthly tax form detailing the net sales tax due. See § 44-19-10(a). After submitting their reports, retailers such as Defendants are then required to remit the sales taxes that they owe to the State. Similarly, at the end of each year, retailers like Defendants must also send to the State of Rhode Island a form outlining, among other things, the amount of gross sales, the deductions taken for "food and food ingredients, " the amount of net taxable sales, and the amount of sales tax due. Dave's Compl. at ¶ 41; Shaw's Compl. at ¶ 61. Essentially, this process can be distilled down to collecting and remitting to the State of Rhode Island the sales taxes assessed on items not classified as "food and food ingredients."

         Harmeyer, an Indiana-based attorney well versed in the tax laws of Rhode Island, alleges that Defendants have failed to collect and remit taxes under that statutory framework. According to Harmeyer, Defendants have improperly classified candy, soft drinks, dietary supplements, and prepared food as "food and food ingredients, " thereby exempting those items from the seven percent sales taxes and, in turn, depriving the State of money. Harmeyer bases his claim on three days of shopping at each of the nine Dave's Marketplaces included in this lawsuit and on two days of shopping at two of Shaw's Supermarkets' locations. To provide a flavor of Harmeyer's purchases from Dave's Marketplaces: on October 3, 2015, Harmeyer purchased SpongeBob SquarePants Fruit Flavored Snacks, Dave's BBQ Rack of Ribs Slow Roasted with Sweet Baby Ray's, Skinny Pop Naturally Sweet Popcorn, Emerald Raspberry Glazed Almonds, Traditional Medicinals Organic Throat Coat, Kellogg's Rice Krispies Treats, Ocean Spray Craisins Dried Cranberries coated in Greek Yogurt, Brookside Dark Chocolate Bars, a bottle of POM Antioxidant SuperTea Pomegranate Honey Green Tea, Rice Krispies Treats Blasted with M&M's Minis, Hershey's Special Dark Chocolate Chips, IGA Mini-marshmallows, and Scooby- Doo! Fruit Flavored Snacks at seven of the nine Dave's Marketplaces listed as Defendants in this lawsuit. Dave's Compl. at ¶¶ 50(a)-(d), (i)-(j), (m)-(t). Moreover, on October 4, 2015 and January 22, 2015, Harmeyer went to the remaining Dave's Marketplaces named above and made similar purchases of goods that he claims were supposed to be assessed a sales tax and be classified as candy, soft drinks, dietary supplements, and prepared food. Id. at ¶¶ 50(e)-(h), (k)-(1). On two of those days-January 22, 2015 and October 3, 2015-Harmeyer also purchased similar products at Shaw's Supermarkets. Shaw's Compl. at ¶¶ 78(a)-(ggg).

         After making those assorted purchases, Harmeyer inspected his sales receipts and learned that the items he bought had not been assessed the requisite seven percent sales tax. Based on the information he gleaned from those receipts, Harmeyer alleges that Defendants failed to properly collect and remit sales tax to the State of Rhode Island on candy, soft drinks, dietary supplements, and prepared food for a period of time extending back to 2009-conduct he claims amounts to a violation of the False Claims Act. In conformity with the procedures outlined in the False Claims Act, Harmeyer first submitted his qui tam Complaints in camera to the Rhode Island Attorney General. See §§ 9-1.1-4(b). After affording the Attorney General the statutorily required sixty days to review the Complaints-during which the Complaints remained under seal-the Attorney General declined to take over Harmeyer's actions, allowing Harmeyer to proceed on his own. See §§ 9-1.1-4(b)(2), -(b)(4)(ii). Consistent with that process, Harmeyer's Complaints were unsealed and filed in Superior Court in November of 2015.

         With respect to the case against the Dave's Defendants, after some procedural back and forth, in August of 2016, the Dave's Defendants answered Harmeyer's Complaint. In February of 2017, they moved for judgment on the pleadings pursuant to Super. R. Civ. P. 12(c). Both parties submitted memoranda in support of their respective positions: the Dave's Defendants in favor; Harmeyer opposed. On March 16, 2017, the Court heard argument on that matter, after which the Court accepted supplemental memoranda from the parties.

         The case against the Shaw's Defendant has followed a different procedural route. Harmeyer's initial qui tam Complaint against Shaw's Supermarkets, Inc. was conditionally dismissed in November of 2016 for its failure to include sufficiently definitive allegations of fraud under Super. R. Civ. P. 9(b). The Court granted the Shaw's Defendant's first motion to dismiss with the caveat that Harmeyer had thirty days to amend his Complaint, which Harmeyer did in a timely fashion. Shortly thereafter, the Shaw's Defendant again moved to dismiss pursuant to Super. R. Civ. P. 12(b)(6), arguing that Harmeyer's Amended Complaint did not cure the initial deficiency regarding particularized allegations of fraud as required by Super. R. Civ. P. 9(b).[5] The Court heard argument on that matter on February 3, 2017. On March 23, 2017, shortly after the Court heard argument on the Dave's Defendants' motion for judgment on the pleadings, counsel for the Shaw's Defendant submitted a supplemental memorandum incorporating by reference the Dave's Defendants' arguments in their supplemental memorandum.

         As detailed below, Defendants argue that they are entitled to dismissal and judgment on the pleadings, respectively, because Harmeyer has failed to plead the alleged False Claims Act violations with sufficient particularity.

         II Standard of Review

         As our Supreme Court has explained-and of particular importance to the motions presently before the Court-"'[a] Rule 12(c) motion is tantamount to a Rule 12(b)(6) motion, and the same test is applicable to both . . . .'" Heritage Healthcare Servs., Inc. v. Beacon Mut. Ins. Co., 109 A.3d 373, 377 (R.I. 2015) (quoting Collins v. Fairways Condos. Assoc., 592 A.2d 147, 148 (R.I. 1991)). It is a familiar principle that, under Rhode Island law, "'the sole function of a motion to dismiss is to test the sufficiency of the complaint[.]'" Audette v. Poulin, 127 A.3d 908, 911 (R.I. 2015) (quoting Ho-Rath v. R.I. Hosp., 115 A.3d 938, 942 (R.I. 2015)). In testing the complaint's sufficiency, the Court's "review is confined to the four corners of that pleading, " id. (citation omitted), and the Court "'assumes the allegations contained in the complaint to be true and views the facts in the light most favorable to the plaintiff[].'" R.I. Emp't Sec. All., Local 401 v. State, Dep't of Emp't & Training, 788 A.2d 465, 467 (R.I. 2002) (hereinafter R.I. Emp't) (per curiam) (quoting St. James Condo. Ass'n v. Lokey, 676 A.2d 1343, 1346 (R.I. 1996)).

         The purpose of a Rule 12(c) motion for judgment on the pleadings is to provide the Court "'with the means of disposing of a case early in the litigation process when the material facts are not in dispute after the pleadings have been closed and only questions of law remain to be decided.'" Heritage Healthcare Servs., Inc., 109 A.3d at 377 (quoting Haley v. Town of Lincoln, 611 A.2d 845, 847 (R.I. 1992)). In accordance with this jurisdiction's liberal approach to pleading rules and our Supreme Court's instruction that "[t]he standard to be applied to a Rule 12(c) motion is 'restrictive, '" id. (quoting Haley, 611 A.2d at 847), when reviewing a Rule 12(c) motion, a court must "view the alleged facts presented in the pleadings in the manner most favorable to the nonmoving party" and draw all proper inferences in his favor. Haley, 611 A.2d at 847. Indeed, the Court approaches Rule 12(c) motions with some caution as "cases in our system are not to be disposed of summarily on arcane or technical grounds." Id. at 848. If a court grants a judgment on the pleadings, "it is because it is apparent beyond a reasonable doubt that a trial would be of no use in determining the merits of the plaintiff's claim for relief." Id. Likewise, a Rule 12(b)(6) motion to dismiss will not be granted "'unless it appears to a certainty that [the nonmoving party] will not be entitled to relief under any set of facts which might be proved in support of [his] claim.'" R.I. Emp't, 788 A.2d at 467 (internal alterations omitted) (quoting St. James Condo Ass'n, 676 A.2d at 1346). Therefore, the Court should only grant a Rule 12(c) motion for judgment on the pleadings-and, by extension, a Rule 12(b)(6) motion to dismiss-when the moving party has "'demonstrate[d] to a certainty that the [nonmoving party] will not be entitled to relief under any set of facts that might be proved at trial.'" Heritage Healthcare Servs., Inc., 109 A.3d at 377 (quoting Haley, 611 A.2d at 847).

         III Applicable Law

         Defendants respectively move to dismiss and for judgment on the pleadings on the basis that Harmeyer has failed to plead his False Claims Act claim with sufficient particularity. In support of that contention, Defendants rely on the heightened pleading standard required for allegations of fraud, as illustrated by Rule 9(b) of our Rules of Civil Procedure. Conversely, Harmeyer maintains that his qui tam Complaints satisfy Rule 9(b)'s pleading standard because they contain allegations that provide Defendants with fair and adequate notice of the False Claims Act claim asserted against them. The Court will delve-in much greater detail-into the parties' contentions with respect to the issue of whether Harmeyer's Complaints satisfy Rule 9(b)'s heightened pleading requirement for purposes of the Shaw's Defendant's Rule 12(b)(6) motion to dismiss and the Dave's Defendants' Rule 12(c) motion for judgment on the pleadings. However, resolution of the motions before the Court first requires a brief discussion of the False Claims Act itself followed by an analysis of the interplay between Rule 9(b) and the False Claims Act. To date, the Court is unaware of any Rhode Island court-neither Supreme nor Superior-that has addressed the State False Claims Act.

         A The False Claims Act

         As briefly outlined above, the False Claims Act allows a private person to enforce its terms on behalf of the State of Rhode Island. Sec. 9-1.1-4(b)(1). That private person, referred to as the relator, files his or her complaint under seal with the Rhode Island Attorney General, giving the State sixty days to decide whether to intervene. Sec. 9-1.1-4(b)(2). If, after those sixty days, the Attorney General opts not to proceed with the relator's complaint, the seal is lifted and the relator may serve the complaint on the defendants. Sec. 9-1.1-4(c)(3). Enacted in 2007, Rhode Island's version of the False Claims Act largely mirrors its federal counterpart, though the federal False Claims Act's roots date back to 1863. See Universal Health Servs., Inc. v. U.S., 136 S.Ct. 1989, 1996 (2016). The federal False Claims Act "'was originally aimed principally at stopping the massive frauds perpetrated by large contractors during the Civil War.'" Id. (quoting U.S. v. Bornstein, 423 U.S. 303, 309 (1976)); see also U.S. ex rel. Totten v. Bombardier Corp., 380 F.3d 488, 502 (D.C. Cir. 2004) (Garland, J., dissenting) ("The False Claims Act, 'adopted in 1863 and signed into law by President Abraham Lincoln in order to combat rampant fraud in Civil War defense contracts, ' . . . is the 'Government's primary litigative tool for combating fraud[.]'") (quoting S. Rep. No. 99-345, at 8 (1986)). Presumably, our General Assembly enacted Rhode Island's False Claims Act with the same principal purpose in mind: combatting fraud against the State.

         Section 9-1.1-3(a)-the section of Rhode Island's False Claims Act which spells out precisely the type of fraudulent conduct that falls within its ambit-is nearly identical to its federal equivalent, 31 U.S.C. § 3729(a)(1), save for some slight deviations in formatting and monetary limitations. Rhode Island's False Claims Act imposes liability on "[a]ny person who:

"(1) Knowingly presents, or causes to be presented a false or fraudulent claim for payment or approval;
"(2) Knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; "(3) Conspires to commit a violation of subdivisions ...

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