Estler et al v. Dunkin Brands, Inc. et al

Filing 78

OPINION AND ORDER re: 72 MOTION to Dismiss Plaintiffs' First Amended Class Action Complaint, filed by Dunkin' Brands, Inc.; re: 74 LETTER MOTION for Oral Argument On Its Motion to Dismiss Plaintiffs' First Ame nded Class Action Complaint addressed to Judge Lorna G. Schofield from Eric L. Yaffe dated August 11, 2016, filed by Dunkin' Brands, Inc. For the foregoing reasons, Defendants' motions to dismiss are granted, and Plaintiffs' claims are dismissed in their entirety. The Clerk of Court is directed to close this case and Docket Numbers 72 and 74. (As further set forth in this Opinion) (Signed by Judge Lorna G. Schofield on 10/3/2016) (kl)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
THOMAS ESTLER, et al.,
:
Plaintiffs, :
:
-against:
:
DUNKIN’ BRANDS, INC., et al.,
:
Defendants. :
:
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10/3/2016

16 Civ. 932 (LGS)
OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:
Plaintiffs Thomas Estler, Blake Ruehrwein, and Steven Park, commenced this purported
class action lawsuit asserting claims arising from an alleged unlawful surcharge, disguised as a
“sales tax,” on prepackaged coffee at Dunkin’ Donuts stores in New York City. Plaintiffs assert
claims for breach of contract, unjust enrichment, negligence, fraud, and violations of New York
General Business Law § 349. Defendants are Dunkin’ Brands, Inc. (“DBI”), four named
Dunkin’ Donuts stores, and five hundred unnamed Dunkin’ Donuts stores in New York.
Defendants DBI and the named Dunkin’ Donuts stores move for dismissal of the First Amended
Complaint (the “Complaint”) pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).
For the following reasons, Defendants’ motions to dismiss are granted.
I.

BACKGROUND
Unless otherwise noted, the following factual allegations are taken from the Complaint

and accepted as true for purposes of this motion. See Littlejohn v. City of New York, 795 F.3d
297, 306 (2d Cir. 2015).
Defendants comprise one of the largest baked goods and coffee stores in the world.
Defendant DBI grants licenses to franchisees to operate Dunkin’ Donuts stores in New York.
DBI requires that its franchisees use particular cash registers that are compatible with its point-

of-sale software. DBI customizes its point-of-sale software to charge sales tax on certain items.
DBI’s Franchise Service Managers and Operation Managers physically visit franchise stores to
update point-of-sale software. Through these Managers, DBI instructs franchisees when to
charge and not to charge sales tax.
Plaintiffs allege that under New York law, prepackaged coffee should not be charged
sales tax. They allege that Defendants included a surcharge on prepackaged coffee under the
guise of a “sales tax.” On December 26 and 29, 2015, Plaintiff Estler purchased prepackaged
coffee from Dunkin’ Donuts stores #350125, #350126, #350127 and #345768, and was assessed
a surcharge of $0.89 on each purchase, which was listed as a charge for sales tax on his receipt.
On January 13, 2016, Plaintiff Ruehrwein purchased prepackaged coffee from Dunkin’ Donuts
stores #320125, #350126 and #350127, and was assessed a surcharge of $0.89 on each purchase,
which was listed as a charge for sales tax on his receipt. On January 14, 2016, Plaintiff Park
purchased prepackaged coffee from Dunkin Donuts stores #350125, #350126 and #350127, and
was assessed a surcharge of $0.89 on each purchase, which was listed as a charge for sales tax on
his receipt.
II.

LEGAL STANDARD
A. Subject Matter Jurisdiction
“A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1)

when the district court lacks the statutory or constitutional power to adjudicate it.” Makarova v.
United States, 201 F.3d 110, 113 (2d Cir. 2000). “In resolving a motion to dismiss under Rule
12(b)(1), the district court must take all uncontroverted facts in the complaint (or petition) as
true, and draw all reasonable inferences in favor of the party asserting jurisdiction.” Tandon v.

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Captain’s Cove Marina of Bridgeport, Inc., 752 F.3d 239, 243 (2d Cir. 2014). However, “where
jurisdictional facts are placed in dispute, the court has the power and obligation to decide issues
of fact by reference to evidence outside the pleadings.” Id. “A plaintiff asserting subject matter
jurisdiction has the burden of proving by a preponderance of the evidence that it exists.”
Makarova, 201 F.3d at 113.
III.

DISCUSSION
The Complaint is dismissed because this Court lacks subject matter jurisdiction to hear

the claims asserted. At its heart, this case concerns a New York State sales tax that Plaintiffs
allege was improperly charged. New York Tax Law § 1139 dictates how a taxpayer may seek a
refund for a sales tax that the taxpayer believes was erroneously, illegally or unconstitutionally
collected:
(a) In the manner provided in this section the tax commission shall refund or
credit any tax, penalty or interest erroneously, illegally or unconstitutionally
collected . . . (i) in the case of tax paid by the applicant to a person required to
collect tax, within three years after the date when the tax was payable by such
person to the tax commission . . . .
(b) If an application for refund or credit filed with the commission of taxation and
finance as provided in subdivision (a) of this section, the commission of taxation and
finance shall grant or deny such application in whole or in part within six months of
receipt of the application in a form which is able to processed and shall notify such
applicant by mail accordingly. Such determination shall be final and irrevocable
unless such applicant shall, within ninety days after the mailing of notice of such
determination, petition the division of tax appeals for a hearing. After such hearing,
the division of tax appeals shall mail notice of the determination of the administrative
law judge to such applicant to the commissioner of taxation and finance. Such
determination may be reviewed by the tax appeals tribunal as provided in article forty
of this chapter. The decision of the tax appeals tribunal may be reviewed as provided
in section two thousand sixteen of this chapter.
N.Y. Tax Law § 1139.
New York Tax Law § 1140 establishes that the remedies delineated by § 1138 and § 1139

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are exclusive:
The remedies provided by sections eleven hundred thirty-eight and eleven
hundred thirty-nine shall be exclusive remedies available to any person for the
review of tax liability imposed by this article; and no determination or proposed
determination of tax or determination of any application for refund shall be
enjoined or reviewed by an action for declaratory judgment, an action for money
had and received, or by any action or proceeding other than a proceeding under
article seventy-eight of the civil practice law and rules.
N.Y. Tax Law § 1140.
Federal district courts in New York have found that the administrative remedy set forth in
§ 1139 is the exclusive remedy. See, e.g., Cohen v. Hertz Corp., No. 13 Civ. 1205, 2013 WL
9450421, at *3 (S.D.N.Y. Nov. 26, 2013) (“The administrative refund remedy provided by
section 1139 for sales tax overcharge claims is an exclusive one.”); Gilbert v. Home Depot, No.
13-cv-853S, 2014 WL 4923107, at *4 (W.D.N.Y. Sept. 30, 2014), appeal withdrawn (Nov. 10,
2014) (“[T]he Court finds that the question of whether a vendor is collecting and remitting sales
taxes in accordance with state law is a question that has been entrusted to the Department of
Taxation . . . Plaintiff cannot, as a matter of law, maintain this action alleging [the vendor]
improperly charged sales tax on a nontaxable item.”). A business’s “collection of sales tax
constitutes ‘merely a ministerial act,’” and since the business is “merely a tax collector and its
responsibility ends once it has collected the taxes, ‘[a] dissatisfied taxpayer’s recourse is then
against the taxing body.’” Cohen, 2013 WL 9450421, at *3 (quoting Davidson v. Rochester Tel.
Corp., 558 N.Y.S.2d 1009, 1011 (App. Div. 3d. Dep’t 1990)).
Plaintiffs’ claims for damages are premised on arguments that Defendants improperly
collected sales tax on prepackaged bags of coffee and fall within the exclusive remedy provided
by New York General Business Law §§ 1139 & 1140. Plaintiffs cannot change this basic

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premise semantically by referring to the collection of tax as a “surcharge.”
Plaintiffs’ arguments to the contrary fail. Relying on Childers v. New York and
Presbyterian Hosp., 36 F. Supp. 3d 292, 303 (S.D.N.Y. 2014), Plaintiffs argue that, by failing to
file claims on behalf of Plaintiffs or inform them that they should file refunds, Defendants are
liable for “omissions” that occurred after the collection of the sales tax. Plaintiffs misread this
Court’s prior decision in Childers. Childers involved an employer’s confidential settlement with
the Internal Revenue Service in which the employer agreed to give up its right to seek tax
refunds for both the employer and employee portions of FICA taxes, which the employer was
contesting at the time. Id. at 300. Prior to the settlement, the employer had filed protective
FICA refund claims on behalf of itself and its employees. Id. When the employer signed a
settlement agreement, agreeing to forego its right to seek refunds on behalf of either itself or its
employees, the employer did not obtain consent from its employees or even notify them of the
agreement and the need for them to proceed on their own against the IRS. Id. Consequently, the
Court held that the action was not preempted by the Internal Revenue Code, which required
filing for a claim for refund before commencing suit, because the claims rose from the
employer’s conduct related to the confidential settlement rather from the collection of taxes. Id.
at 303-04.
Here, in an attempt to argue that they fall within Childers, Plaintiffs attempt to frame
their claims as arising from Defendants’ “omissions” after the collection of the tax by arguing
that the law imposes a duty on Defendants to file refund claims on behalf of Plaintiffs, or inform
Plaintiffs that they should file refunds for sales tax charged on prepackaged coffee. This
argument is unpersuasive because Defendants’ challenged conduct here, unlike in Childers, is

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the improper collection of taxes, and New York law is clear that § 1139 provides the exclusive
remedy for the refund of any tax “erroneously, illegally or unconstitutionally collected.” N.Y.
Tax Law § 1139(a).
Similarly, Plaintiffs’ arguments that Defendants may make a refund request on behalf of
their customers and that customers should not be required to submit refund requests because they
do not know to do so are irrelevant and do not affect the mandatory nature of § 1139. Finally,
Plaintiffs’ reliance on New York General Business Law § 349, which prohibits deceptive
business practices, is misplaced. Section 349 is a consumer protection statute, and “as a
threshold matter, plaintiffs claiming the benefit of section 349 . . . must charge conduct of the
defendant that is consumer-oriented.” Oswego Laborers’ Local 214 Pension Fund v. Marine
Midland Bank, N.A., 647 N.E.2d 741, 744 (N.Y. 1995). Collection of a sales tax constitutes
“merely a ministerial act,” and thus is not consumer-oriented. Cohen, 2013 WL 9450421, at *3
(quoting Davidson, 558 N.Y.S.2d at 1011); see also Kinkopf v. Triborough Bridge & Tunnel
Auth., 792 N.Y.S.2d 291, 292 (App. Term 2004) (“Inasmuch as the tolls are in essence a use tax,
the collection of the same is not a consumer oriented transaction and therefore not subject to
section 349 of the General Business Law.”) (internal citation omitted).
Plaintiffs’ attempt to make an end run around the requirements of New York Tax Law
fails. Plaintiffs’ claims of breach of contract, unjust enrichment, negligence, fraud, and
violations under § 359, N.Y. Gen. Bus. L., are dismissed because the Court lacks jurisdiction to
hear the claims. As the court lacks jurisdiction, Defendants’ motions to dismiss, in the
alternative, pursuant to Rule 12(b)(6), Fed. R. Civ. P., are not considered.

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IV.

CONCLUSION
For the foregoing reasons, Defendants’ motions to dismiss are granted, and Plaintiffs’

claims are dismissed in their entirety.
The Clerk of Court is directed to close this case and Docket Numbers 72 and 74.
SO ORDERED.
Dated: October 3, 2016
New York, New York

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