Estler v. Dunkin' Brands, Inc.
691 F. App'x 3
| 2d Cir. | 2017Background
- Plaintiffs (Estler, Ruehrwein, Park) brought a putative class action against Dunkin’ Brands and several franchisees alleging they were charged unlawful sales tax on pre-packaged coffee in NYC.
- Complaint alleged the charged fee was a mischaracterized "surcharge" or unlawful tax on an exempt food product.
- Plaintiffs sought refunds/damages under state common law and N.Y. Gen. Bus. Law § 349.
- Defendants moved to dismiss for failure to exhaust New York Tax Law administrative remedies (N.Y. Tax Law §§ 1139, 1140).
- District court dismissed for failure to comply with the exclusive administrative refund procedure; plaintiffs appealed.
- Second Circuit affirmed dismissal, holding plaintiffs must use the statutory administrative refund process and cannot pursue an independent § 349 claim based solely on the taxed charges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs must exhaust the NY Tax Law administrative refund procedure before suing merchants for allegedly wrongful sales tax charges | Estler: charges were "surcharges," not sales tax, or taxes were unlawfully imposed on exempt goods, so statute's administrative remedy doesn't apply | Defendants: charges were labeled and calculated as sales tax; N.Y. Tax Law § 1140 makes the administrative refund process exclusive | Held: Plaintiffs must use the administrative refund procedure; dismissal affirmed |
| Whether alleged taxation of exempt products falls outside § 1140's exclusive remedy | Estler: errors as to exemptions are not covered; merchant acting beyond ministerial role | Defendants: § 1139–1140 explicitly covers taxes "erroneously, illegally or unconstitutionally collected," including exempt-product disputes | Held: § 1140 applies to alleged erroneous taxation of exempt products; administrative remedy required |
| Whether plaintiffs can bring federal or constitutional claims to avoid state administrative exhaustion | Estler: administrative process would violate constitutional rights (raised on appeal) | Defendants: plaintiffs forfeited constitutional argument and have adequate state remedies; comity bars federal damages where state remedies are available | Held: constitutional claims forfeited on appeal; even on merits comity/adequacy doctrine would bar relief absent showing state remedies inadequate |
| Whether plaintiffs can maintain a N.Y. Gen. Bus. Law § 349 claim independently of tax refund scheme | Estler: § 349(g) allows suits for deceptive acts even if other laws apply | Defendants: § 349 does not override Tax Law's explicit exclusive remedy for tax refunds; complaint alleges only the tax charge itself | Held: § 349 claim fails because plaintiffs alleged no conduct beyond charging (and remitting) sales tax; Tax Law exclusivity controls |
Key Cases Cited
- Absolute Activist Master Fund Ltd. v. Ficeto, 677 F.3d 60 (standard of de novo review of legal dismissal)
- Bigio v. Coca-Cola Co., 675 F.3d 163 (conclusory allegations are not entitled to assumed truth)
- Holt v. Town of Stonington, 765 F.3d 127 (failure to comply with mandatory state administrative remedy requires dismissal)
- Davidson v. Rochester Tel. Corp., 163 A.D.2d 800 (merchant that merely collects tax is not proper defendant; taxpayer must seek relief from taxing body)
- Abuzaid v. Mattox, 726 F.3d 311 (comity doctrine limits federal damages suits contesting state taxes when adequate state remedies exist)