Court Opinion

ID: 4329525
Source: CourtListenerOpinion
Date Created: 2018-11-09 16:09:10.870989+00
Date Added: 2024-06-11T10:05:58.876515
License: Public Domain

FILED
                                                                     Nov 09 2018, 8:35 am

                                                                         CLERK
                                                                     Indiana Supreme Court
                                                                        Court of Appeals
                                                                          and Tax Court

ATTORNEYS FOR APPELLANT                                   ATTORNEYS FOR APPELLEES
Eric S. Pavlack                                           Kimberly E. Howard
Colin E. Flora                                            Smith Fisher Maas Howard &
Pavlack Law, LLC                                          Lloyd, P.C.
Indianapolis, Indiana                                     Indianapolis, Indiana
                                                          Nathaniel Lampley, Jr.
                                                          Victor A. Walton, Jr.
                                                          Jacob D. Mahle
                                                          Jeffrey A. Miller
                                                          Vorys, Sater, Seymour
                                                          and Pease LLP
                                                          Cincinnati, Ohio

                                           IN THE
    COURT OF APPEALS OF INDIANA

The State of Indiana, ex rel.                             November 9, 2018
Harmeyer,                                                 Court of Appeals Case No.
Appellant-Plaintiff and Relator,                          18A-PL-806
                                                          Appeal from the Marion Superior
        v.                                                Court
                                                          The Honorable John M.T. Chavis,
The Kroger Co., Kroger Limited                            II, Judge
Partnership I, KRGP, Inc.,                                Trial Court Cause No.
Payless Super Markets, Inc., and                          49D05-1405-PL-16895
Ralphs Grocery Company,
Appellees-Defendants

Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018                           Page 1 of 14
      Baker, Judge.

[1]   Michael Harmeyer filed a complaint against several grocery stores that operate

      in Indiana—The Kroger Company; Kroger Limited Partnership I; KRGP, Inc.;

      Pay Less Super Markets, Inc.; and Ralphs Grocery Company (collectively, the

      Appellees)—alleging that they violated Indiana’s False Claims and

      Whistleblower Protection Act (the FCA).1 The Appellees moved to dismiss

      Harmeyer’s complaint, arguing that it did not meet the specificity requirements

      of Indiana Trial Rule 9(B), which governs fraud claims. The trial court granted

      the motion and dismissed the complaint. Harmeyer appeals, arguing that the

      trial court erred in its analysis of Rule 9(B). Finding no error, we affirm.

                                                     Facts
[2]   The FCA is an anti-fraud statute that permits citizens (called “relators”) to

      bring fraud claims on behalf of the State. The FCA rewards relators who come

      forward with information about fraud by giving them a percentage of the

      recovery. The statute allows for statutory penalties and treble damages,

      meaning that the relator’s recovery can be substantial. The FCA also allows the

      state attorney general and inspector general to intervene in a relator’s case; if

      they decide not to do so, the relator may pursue it on his own.

      1
          Ind. Code ch. 5-11-5.5.

      Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018         Page 2 of 14
[3]   In this case, Harmeyer (Relator) filed a complaint under the FCA against the

      Appellees. Because the Appellees conduct retail sales in Indiana, they are

      subject to statutory duties to collect Indiana’s seven percent sales tax on certain

      items.2 Items classified as “food and food ingredients for human consumption”

      are exempt from Indiana’s sales tax, while other items, including candy, soft

      drinks, prepared food, and dietary supplements are taxed at the seven percent

      rate.3 Generally, retail businesses like the Appellees are required to file monthly

      sales tax returns and remit the tax to the State no later than twenty days after

      the end of each month.4 These businesses submit an electronic form called an

      ST-103, which states their total sales, exempt sales, taxable sales, and total sales

      tax due.

[4]   From approximately April 29, 2014, through approximately July 30, 2016,

      Relator went on a spending spree, purchasing items from the Appellees’

      Indiana stores and recording those that he claims should have been subject to

      sales tax but that were not taxed. He also documented items from these stores

      that were properly taxed or untaxed. During this same time period, Relator

      also shopped at competing stores, buying the same or similar items, and

      recording items considered to be properly taxed or properly untaxed. Relator’s

      list of what he considers improperly untaxed items includes approximately

      2
          Ind. Code § 6-2.5-2-2(a).
      3
          I.C. § 6-2.5-5-20.
      4
          I.C. § 6-2.5-6-1(a).

      Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018         Page 3 of 14
      1,400 purchases from various grocery stores; many of the items are variations of

      certain products. For example, 131 items on the list are nuts that Relator

      alleges should have been classified as candy and therefore taxed; in another

      example, 51 items on the list are kinds of popcorn that Relator alleges should

      have been classified as candy and therefore taxed.

[5]   On January 3, 2017, Relator filed his sixth amended complaint under the FCA,

      alleging that the Appellees failed to properly collect and remit sales tax to the

      State of Indiana on candy, soft drinks, prepared food, and dietary supplements.

      He attached to his complaint the fruits of his labor, which was a list of

      purchased items and copies of receipts and photographs of twenty-five of his

      purchases. As required by the FCA, Relator served the Indiana Attorney

      General and Inspector General with a copy of his complaint and a written

      disclosure describing the relevant material evidence he possessed; they declined

      to intervene in the action. On July 13, 2017, the Appellees filed a motion to

      dismiss Relator’s complaint, alleging that the complaint failed to plead fraud

      with the specificity required by Indiana Trial Rule 9(B) and that Relator had

      therefore failed to state a claim under Indiana Trial Rule 12(B)(6). On October

      19, 2017, a hearing took place, and on March 22, 2018, the trial court granted

      the Appellees’ motion, agreeing with both of their arguments and dismissing the

      complaint with prejudice. Relator now appeals.

      Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018          Page 4 of 14
                                    Discussion and Decision
[6]   Relator raises two arguments on appeal, which we consolidate and restate as

      whether the trial court erred by dismissing his complaint. A Trial Rule 12(B)(6)

      motion to dismiss for failure to state a claim upon which relief can be granted

      tests the legal sufficiency of a claim, not the facts supporting it. K.M.K. v. A.K.,

      908 N.E.2d 658, 662 (Ind. Ct. App. 2009). Therefore, we view the complaint in

      the light most favorable to the non-moving party, drawing every reasonable

      inference in favor of this party. Id. In reviewing a ruling on a motion to

      dismiss, we stand in the shoes of the trial court and must determine whether the

      trial court erred in its application of the law. Id. The trial court’s grant of the

      motion to dismiss is proper if it is apparent that the facts alleged in the

      complaint are incapable of supporting relief under any set of circumstances. Id.

      Further, in determining whether any facts will support the claim, we look only

      to the complaint and may not resort to any other evidence in the record. Id.

                                        I. False Claims Act
[7]   The FCA requires the relator to serve a copy of the complaint and a written

      disclosure that describes all relevant material evidence and information the

      relator possesses on Indiana’s attorney general and inspector general. I.C. § 5-

      11-5.5-4(c). The State has 120 days in which to decide whether it will intervene

      and proceed with the action. Id. If the State decides not to intervene, the

      relator may serve the complaint on the defendant. Id. at -(e)(2).

      Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018            Page 5 of 14
[8]   Indiana Code section 5-11-5.5-2 governs the type of fraudulent conduct that

      falls under the FCA. This section provides in relevant part that

                 (b) A person who knowingly or intentionally:

                                                            ***

                          (6) makes or uses a false record or statement to avoid an
                          obligation to pay or transmit property to the state;

                                                            ***

                 is, except as provided in subsection (c), liable to the state for a
                 civil penalty of at least five thousand dollars ($5,000) and for up
                 to three (3) times the amount of damages sustained by the state.
                 In addition, a person who violates this section is liable to the
                 state for the costs of a civil action brought to recover a penalty or
                 damages.

      I.C. § 5-11-5.5-2(b).

[9]   The substance of this section corresponds to the substance of its federal

      counterpart.5 Without any Indiana precedent addressing the FCA, we may

      look to the federal courts for guidance on interpreting the statute. See Ind. Civil

      Rights Comm’n v. Sutherland Lumber, 182 Ind. App. 133, 140, 394 N.E.2d 949,

      5
          31 U.S.C. § 3729(a)(1).

      Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018              Page 6 of 14
       954 (1979) (where federal and state statutory language is the same or similar,

       federal decisions may be persuasive authority that a court may consider).

                                          II. Trial Rule 9(B)
[10]   Here, Relator alleges that the Appellees made or used, or caused another person

       to make or use, false records or statements to avoid their obligation to pay or

       transmit sales tax on their taxable sales to Indiana. This allegation falls under

       the FCA. I.C. § 5-11-5.5-2(b)(6). The Southern District of Indiana has

       explained that claims under the federal FCA sound in fraud. U.S. ex rel.

       Kietzman v. Bethany Circle of King’s Daughters of Madison, Ind., Inc., 305 F. Supp.

       3d 964, 973 (S.D. Ind. 2018). Therefore, “the circumstances alleged to

       constitute the fraud must be pleaded with particularity.” Id.

[11]   While our rules of trial procedure generally require only notice pleading,

       Indiana Trial Rule 9(B) provides an exception for complaints alleging fraud.

       Dutton v. Int’l Harvester Co., 504 N.E.2d 313, 318 (Ind. Ct. App. 1987). Rule

       9(B) requires that in such pleadings, “the circumstances constituting the

       fraud . . . shall be specifically averred.” Our Supreme Court has explained that

       those circumstances “include the time, the place, the substance of the false

       representations, the facts misrepresented, and the identification of what was

       procured by fraud.” Cont’l Basketball Ass’n, Inc. v. Ellenstein Enterprises, Inc., 669

       N.E.2d 134, 138 (Ind. 1996). Failure to comply with Rule 9(B)’s specificity

       requirements constitutes a failure to state a claim upon which relief may be

       granted; thus, any pleading that fails to satisfy the requirements fails to raise an

       Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018            Page 7 of 14
       issue of material fact. Kapoor v. Dybwad, 49 N.E.3d 108, 132 (Ind. Ct. App.

       2015).

[12]   Like its federal counterpart, Rule 9(B) serves to deter groundless suits and

       provide defendants with sufficient information to enable them to prepare a

       defense. McKinney v. State, 693 N.E.2d 65, 72 (Ind. 1998); Vicom, Inc. v.

       Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994). Regarding Trial

       Rule 9(B), this Court noted the Seventh Circuit’s explanation that

                [w]e have read this rule to require describing the who, what,
                when, where, and how of the fraud. We have noted that the
                purpose of this particularity requirement is to discourage a “sue
                first, ask questions later” philosophy. Heightened pleading in the
                fraud context is required in part because of the potential stigmatic
                injury that comes with alleging fraud and the concomitant desire
                to ensure that such fraught allegations are not lightly leveled. We
                have also cautioned, however, that the exact level of particularity
                that is required will necessarily differ based on the facts of the
                case.

                . . . . [W]hile we require a plaintiff claiming fraud to fill in a fairly
                specific picture of the allegations in her complaint, we remain
                sensitive to information asymmetries that may prevent a plaintiff
                from offering more detail.

       Kapoor, 49 N.E.3d at 132 (quoting Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939,

       948 (7th Cir. 2013)) (some internal quotation marks and citations omitted).

[13]   The Seventh Circuit has also noted that “because courts and litigants often

       erroneously take an overly rigid view of the formulation, we have also observed

       that the requisite information—what gets included in that first paragraph—may
       Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018               Page 8 of 14
       vary on the facts of a given case.” Pirelli Armstrong Tire Corp. Retiree Med.

       Benefits Trust v. Walgreen Co., 631 F.3d 436, 442 (7th Cir. 2011). A plaintiff

       alleging fraud cannot rely solely on “information and belief” unless the facts

       constituting the fraud are not accessible to the plaintiff and the plaintiff provides

       the grounds for his suspicions. Id. at 443.

                                            III. Application
[14]   Relator’s appeal centers on his argument that the trial court erred by applying

       the federal, rather than the state, standard for Trial Rule 9(B) and that had the

       trial court applied the correct standard, his complaint would have passed

       muster.

[15]   It is true that the trial court analyzed Relator’s complaint using the language of

       the federal standard, considering the “who, what, when, where, and how” of

       the alleged fraud. Although Relator contends that this standard differs from the

       standard defined in Continental Basketball, we find any difference between the

       two merely a matter of semantics. Indeed, not only has this Court referenced

       the federal language, see Kapoor, 49 N.E.3d at 132, but our Supreme Court has

       applied a framework nearly identical to it on at least one occasion. When

       analyzing a pleading under Indiana’s Deceptive Consumer Sales Act, our

       Supreme Court found that the complaint and attached affidavits did “not state

       with specificity what the representations were, who made them, or when or

       where they were made. Most importantly, in most cases they do not plead

       what the statements were that were false, and in what respect they were false.”

       Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018         Page 9 of 14
       McKinney, 693 N.E.2d at 73. In other words, our Supreme Court considered

       whether the pleading specifically alleged the who, what, when, where, and how

       of the alleged fraud. Accordingly, here, we find no error with the trial court’s

       use of the “who, what, when, where, and how” framework.

[16]   Moreover, Indiana’s Rule 9(B) is nearly identical to and serves the same

       objectives as its federal counterpart; Indiana’s FCA is likewise substantially

       similar to its federal counterpart. Where a state trial rule is patterned after a

       federal rule, we will often look to the authorities on the federal rule for aid in

       construing the state rule. Cleveland Range, LLC v. Lincoln Fort Wayne Assocs.,

       LLC, 43 N.E.3d 622, 624 n.1 (Ind. Ct. App. 2015). And where federal and state

       statutory language is the same or similar, as it is here, federal decisions may be

       persuasive authority and a court may give careful consideration to such

       decisions even though they are not binding. Sutherland Lumber, 182 Ind. App.

       at 140, 394 N.E.2d at 954. Accordingly, we find no error with the trial court’s

       reliance on the “who, what, where, when, and how” framework or on federal

       caselaw in general.

[17]   We agree with the trial court that Relator’s complaint did not meet the

       specificity requirement of Rule 9(B). Regarding the time of the fraud, for

       example, the trial court found that

               . . . Relator argues that Indiana’s sales tax statute requires that
               sales tax returns be “no later than 20 days after the end of the
               month.” It is not enough to suggest intervals at which false
               statements may have been made; Relator was required to plead
               actual dates with false statements were made.

       Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018            Page 10 of 14
       Appealed Order p. 6 (footnote and citation omitted). Relator attached dated

       receipts to his complaint to show that the Appellees did not tax items that

       should have been taxed. Relator contends that, to determine the time of the

       fraud, under Indiana Code section 6-2.5-6-1, we simply need to add twenty

       days to the last day of the month in which the untaxed transactions occurred.

       Rather than allege when the Appellees submitted fraudulent information to the

       State, Relator’s complaint invites the Appellees to determine on their own

       exactly when they may have submitted such forms to the State. Trial Rule 9(B)

       requires a party to plead the time of the fraud. Suggesting a method of

       calculating the date of the fraud is simply not the same, or sufficient, for Rule

       9(B), nor does it provide defendants with sufficient information to enable them

       to prepare a defense.

[18]   Relator insists that averring the time of the fraud is a low hurdle. We disagree

       for two reasons. First, Trial Rule 9(F) provides that

               [f]or the purpose of testing the sufficiency of a pleading,
               averments of time and place are material and shall be considered
               like all other averments of material matter. However, time and
               place need be stated only with such specificity as will enable the
               opposing party to prepare his defense.

       Thus, averring the time of the fraud is not a low hurdle, but rather requires the

       same level of specificity as any other element required for a fraud allegation.

       Second, Relator relies on Ohio Farmers Ins. Co. v. Indiana Drywall & Acoustics,

       Inc., to support his assertion, but we find that case distinguishable. 970 N.E.2d

       674 (Ind. Ct. App.), trans. granted, opinion vacated, 976 N.E.2d 1234 (Ind. 2012),

       Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018       Page 11 of 14
       vacated, 981 N.E.2d 548 (Ind. 2013), and opinion reinstated, 981 N.E.2d 548 (Ind.

       2013). In that case, this Court found that the plaintiff specifically pleaded the

       time and place of the fraud in an exhibit that was attached to the complaint,

       while the remaining requirements of Rule 9(B) were specifically alleged within

       the complaint itself. Id. at 684. The attached exhibit was a dated contract that

       contained the statement that was alleged to be fraudulent. In other words, the

       attached exhibit clearly documented the date on which the alleged fraudulent

       statement occurred. Here, however, Relator’s Exhibit A provides only the dates

       on which Relator purchased certain items from the Appellees; unlike in Indiana

       Drywall, he includes no documentation of the Appellees’ alleged fraudulent

       statements. Relator’s complaint, therefore, did not meet the first requirement

       that our Supreme Court outlined for Rule 9(B).6

[19]   Because we find that Relator did not particularly plead the time of the alleged

       fraud as required by Trial Rule 9(B), we need not address the other elements

       required for a pleading of fraud. But we will still briefly address another of

       Relator’s points: that the trial court applied a pleading standard to his

       complaint that “effectively guarantee[d] dismissal of meritorious claims before

       the case’s merits [could] be addressed.” Appellant’s Br. p. 8. According to

       Relator, the trial court required him to plead information that is solely within

       6
         In addition, Relator alleges that “[u]pon information and belief, Kroger’s fraudulent conduct began in May
       2008 or earlier, is ongoing as of the date this Sixth Amended Complaint was filed, and unless remedied,
       continues to the date of trial.” Appellant’s App. Vol. II p. 51. This inexplicably expanded time frame is far
       too vague and unsupported to meet Rule 9(B)’s specificity requirement.

       Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018                              Page 12 of 14
       the Appellees’ knowledge, and that in such circumstances, the Seventh Circuit

       provides that the pleading standards should be relaxed. It is true that a court

       may consider “‘information asymmetries that may prevent a plaintiff from

       offering more detail.’” Kapoor, 49 N.E.3d at 132 (quoting Beyrer, 722 F.3d at

       948). But at the same time, a plaintiff claiming fraud must “‘fill in a fairly

       specific picture of the allegations’” in the complaint, id., because Rule 9(B)

       requires “some . . . means of injecting precision and some measure of

       substantiation,” Kietzman, 305 F. Supp. 3d at 974 (quotation marks and citation

       omitted).

[20]   Here, Relator only offers select receipts of items he purchased and a list of other

       items that he purchased—which identifies the name of the stores where he

       made the purchase but not the stores’ locations—to substantiate his claim that

       the Appellees made or used false records or statements to avoid their obligation

       to pay or transmit sales tax on taxable sales to Indiana. He alleges that the

       Appellees’ fraudulent statements were contained in forms that they submitted to

       the State, but Relator cannot say when those forms were submitted or what

       information they contain. He can only speculate. Relator further alleges on

       information and belief that the Appellees’ alleged fraud began six years before

       he began his investigation and continues indefinitely into the future and took

       place at all of the Appellees’s stores. In other words, Relator’s complaint

       simply infers from his purchases that the Appellees have engaged in widespread

       fraudulent conduct and will continue to do so at the expense of the State of

       Indiana. Even if we were to relax the Rule 9(B) pleading standards, Relator’s

       Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018        Page 13 of 14
       complaint simply does not provide a sufficiently specific picture of the

       allegations, nor does it substantiate his inference that the Appellees violated the

       FCA.

[21]   In sum, we find that the trial court did not err by finding that Relator’s

       complaint did not meet the requirements of Trial Rule 9(B) and by granting the

       Appellees’ motion to dismiss.7

[22]   The judgment of the trial court is affirmed.

       Robb, J., and Pyle, J., concur.

       7
         Relator also argued that the trial court erred by concluding that no factual basis existed regarding whether
       the Appellees acted knowingly when they did not collect sales tax for certain items. Because we find that
       Relator did not meet the requirements of Rule 9(B), we need not address this second issue.

       Court of Appeals of Indiana |Opinion 18A-PL-806 | November 9, 2018                                Page 14 of 14