SUPREME COURT OF THE STATE OF NEW YORK

Appellate Division, Fourth Judicial Department

406 

CA 10-02068 

PRESENT: SCUDDER, P.J., SMITH, PERADOTTO, LINDLEY, AND GREEN, JJ. 

 

STATE OF NEW YORK EX REL. KEVIN GRUPP AND 

ROBERT MOLL, PLAINTIFFS-RESPONDENTS,

V MEMORANDUM AND ORDER

DHL EXPRESS (USA), INC., DHL WORLDWIDE 

EXPRESS, INC., AND DPWN HOLDINGS (USA), INC. 

(FORMERLY KNOWN AS DHL HOLDINGS (USA), INC.), 

DEFENDANTS-APPELLANTS. 

 

ORRICK, HERRINGTON & SUTCLIFFE LLP, NEW YORK CITY (J. PETER COLL, JR.,

OF COUNSEL), FOR DEFENDANTS-APPELLANTS. 

HODGSON RUSS LLP, BUFFALO (JOHN L. SINATRA, JR., OF COUNSEL), FOR

PLAINTIFFS-RESPONDENTS. 

 

Appeal from an order of the Supreme Court, Erie County (John M.

Curran, J.), entered May 5, 2010. The order denied the motion of

defendants to dismiss the amended complaint. 

It is hereby ORDERED that the order so appealed from is

unanimously reversed on the law without costs, the motion is granted

and the amended complaint is dismissed.

Memorandum: Plaintiffs commenced this qui tam action pursuant to

the New York False Claims Act ([FCA] State Finance Law §§ 187 et

seq.), seeking to recover, inter alia, treble damages for losses that

the State of New York sustained with respect to a contract in which

defendants agreed to provide air and ground shipping services to the

State. Plaintiffs, two former ground shipping subcontractors of

defendants, alleged that defendants overbilled the State for shipping

by charging a jet fuel surcharge for shipments that were transported

by truck, rather than the lower diesel fuel surcharge. After the

Attorney General declined to intervene, plaintiffs chose to continue

prosecuting the action. Defendants appeal from an order that, inter

alia, denied their pre-answer motion to dismiss the amended complaint. 

We agree with defendants that this action is preempted by the Airline

Deregulation Act of 1978 ([ADA] 49 USC § 41713 [b] [1]) and the

Federal Aviation Administration Authorization Act ([FAAAA] 49 USC §

14501 [c] [1]), and we therefore reverse.

The ADA provides that, with certain exceptions, “a State . . .

may not enact or enforce a law . . . related to a price, route, or

service of an air carrier that may provide air transportation under
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CA 10-02068 

[the Economic Regulation] subpart” of Title 49 of the United States

Code (49 USC § 41713 [b] [1]). By nearly identical language, the

FAAAA preempts state regulation of motor carriers of property (see 49

USC § 14501 [c] [1]). Although “we are guided by the ‘starting

presumption that Congress does not intend to supplant state law’

unless its intent to do so is ‘clear and manifest’ ” (Matter of People

v Applied Card Sys., Inc., 11 NY3d 105, 113, cert denied ___ US ___,

129 S Ct 999, quoting New York State Conference of Blue Cross & Blue

Shield Plans v Travelers Ins. Co., 514 US 645, 654-655), it is well

settled that a cause of action relates to rates, routes or services

within the meaning of the ADA and thus is preempted whenever the

underlying state action can be classified as “having a connection with

or reference to airline ‘rates, routes, or services’ ” (Morales v

Trans World Airlines, Inc., 504 US 374, 384). The same rule applies

to motor shipping rates pursuant to the FAAAA. 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.

Contrary to the contention of plaintiffs, the so-called market

participant exception to the preemption doctrine does not apply

herein. In what is known as the Boston Harbor case (Building &

Constr. Trades Council of the Metro. Dist. v Associated Bldrs. &

Contrs. of Mass./R.I., Inc., 507 US 218, 226-229), the United States

Supreme Court concluded that the preemption doctrine will not apply

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. “In distinguishing between proprietary

action that is immune from preemption and impermissible attempts to

regulate through the spending power, the key under Boston Harbor is to

focus on two questions. First, does the challenged action essentially

reflect the entity’s own interest in its efficient procurement of

needed goods and services, as measured by comparison with the typical

behavior of private parties in similar circumstances? Second, does

the narrow scope of the challenged action defeat an inference that its

primary goal was to encourage a general policy rather than address a

specific proprietary problem?” (Cardinal Towing & Auto Repair, Inc. v

City of Bedford, Tex., 180 F3d 686, 693). Here, the broad scope of

the FCA 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. 

Furthermore, although “the ADA permits state-law-based court

adjudication of routine breach[]of[]contract claims” (American

Airlines, Inc. v Wolens, 513 US 219, 232), 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” (id. at 233). 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” (Strategic
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CA 10-02068 

Risk Mgt. v Federal Express Corp., 253 AD2d 167, 172, lv denied 94

NY2d 757). 

Defendants’ remaining contentions are moot in light of our

resolution of the preemption issue.

Entered: April 1, 2011 Patricia L. Morgan

Clerk of the Court