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 ...