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Grupp v. DHL Express (USA), Inc.

California Court of Appeals, Second District, Second Division

April 11, 2014

KEVIN GRUPP et al., Plaintiffs and Appellants,
DHL EXPRESS (USA), INC., et al., Defendants and Respondents.


APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC406388 Joseph R. Kalin, Judge.

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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.



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.

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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.YApp.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.)

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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 ...

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