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State ex rel. Harmeyer v. Kroger Co.

Court of Appeals of Indiana

November 9, 2018

The State of Indiana, ex rel. Harmeyer, Appellant-Plaintiff and Relator,
The Kroger Co., Kroger Limited Partnership I, KRGP, Inc., Payless Super Markets, Inc., and Ralphs Grocery Company, Appellees-Defendants

          Appeal from the Marion Superior Court The Honorable John M.T. Chavis, II, Judge Trial Court Cause No. 49D05-1405-PL-16895

          ATTORNEYS FOR APPELLANT Eric S. Pavlack Colin E. Flora Pavlack Law, LLC Indianapolis, Indiana

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

          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.


         [¶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.

         [¶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 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.

         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).

         [¶8] Indiana Code section 5-11-5.5-2 governs the type of fraudulent conduct that falls under the FCA. This ...

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