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Donald E. Frechette
LOCKE LORD LLP
20 Church Street, 20th Floor
Hartford, CT 06107
(860) 525-5065
Counsel for IPT, LLC d/b/a
FM Facility Maintenance
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ONONDAGA
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OSI RESTAURANT PARTNERS, LLC, et al., :
:
Plaintiffs, : Index No.: 2016-EF-2494
:
-against- :
:
IPT, LLC d/b/a/ FACILITY MAINTENANCE, :
:
Defendant. :
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OPPOSITION TO PLAINTIFFS’ CROSS-MOTION
FOR PARTIAL SUMMARY JUDGMENT
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ................................................................................................... 1
STATEMENT OF FACTS ............................................................................................................ 2
LEGAL STANDARD .................................................................................................................... 4
LEGAL ARGUMENT ................................................................................................................... 4
I. The MTD Is Procedurally Improper ...................................................................... 4
A. There Is No Basis To Convert The MSJ Into An MTD............................. 4
II. To The Extent This Court Considers The MSJ, It Should Be Denied
Because, At A Minimum, There Are Numerous Genuine Disputed Issues
of Fact .................................................................................................................... 5
A. FM Did Not Warrant The Accuracy Of Its Sales Tax Assessments .......... 5
1. The Public Policies Associated With Sales Tax Collection
Counsel Against Implying A Contractual Duty To Warrant
The Correctness of Sales Tax Assessments ...................................... 6
2. The Language Of The Agreements Cannot Be Read To
Obligate FM To Warrant The Correctness Of Its Tax
Collections ........................................................................................ 9
a. Agreements I and II ............................................................... 9
b. Agreement III ...................................................................... 13
B. Plaintiffs’ “Evidence” Raises Far More Questions Than It Answers ...... 15
C. FM’s $186,136 “Total Savings” Calculation Was Proper And
Accurate ................................................................................................... 19
D. Legal And Fact Questions Exist With Respect to Plaintiffs’
Claimed Mitigation Expenses .................................................................. 21
E. Plaintiffs’ Request for Fees is Premature................................................. 23
CONCLUSION ............................................................................................................................ 25
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TABLE OF AUTHORITIES
Page(s)
Cases
In the Matter of Ace Provision & Luncheonette Supply, Inc.,
135 A.D.2d 1070 (N.Y. App. Div. 1987) ..................................................................................6
Ali v. Effron,
967 N.Y.S.2d 11 (N.Y. App. Div. 2013) ...................................................................................4
Bergmoser v. Smart Document Solutions, LLC,
2007 WL 634674 (N.D. Ohio Feb. 22, 2007) ............................................................................7
Blackshears II Aluminum, Inc. v. Dep’t of Rev.,
641 So.2d 928 (Fla. Dist. Ct. App. 1994) ......................................................................2, 10, 14
By Lo Oil Co. v. Dept. of Treasury,
703 N.W.2d 822 (Mich. Ct. App. 2005) ....................................................................................9
Carroll v. Lebouef, Lamb, Greene & Macrae, LLP,
614 F.Supp.2d 481 (S.D.N.Y. 2009)........................................................................................17
City of Gilroy v. State Bd. Of Equalization,
260 Cal.Rptr. 723 (Cal. App. 1989) ...........................................................................................6
Continental Surfaces, LLC v. Comptroller,
2016 WL 2587924 (Md. Ct. Spec. App. May 5, 2016) .............................................................6
Curns v. Wal-Mart Stores, Inc.,
439 Fed. Appx. 51 (2d Cir. 2011) ............................................................................................16
De Paris v. Women’s Nat. Republican Club, Inc.,
48 N.Y.S.3d 383 (N.Y. App. Div. 2017) ...................................................................................4
Deloitte & Touche USA LLP v. Lamela,
2005 WL 2810719 (Del. Ch. Oct. 21, 2005) .............................................................................8
Delorenzo v. Filipedes,
2003 WL 22757695 (N.Y. Sup. Ct. Nov. 10, 2003) ................................................................16
Erlichman v. Encompass Ins. Co.,
791 N.Y.S.2d 869 (N.Y. Sup. Ct. 2004) ..................................................................................15
Evans v. City of Johnstown,
410 N.Y.S.2d 199 (N.Y. Sup. Ct. 1978) ..................................................................................22
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Frank Greek and Son, Inc. v. Verizon New Jersey, Inc.,
2016 WL 4490597 (N.J. Super. Ct. App. Div. Apr. 26, 2016) ............................................7, 12
GTF Marketings, Inc. v. Colonial Alum. Sales, Inc.,
66 N.Y.2d 965 (N.Y. 1985) .....................................................................................................15
Harrison v. Formosa Plastics Corp.,
776 F.Supp.2d 433 (S.D. Tex. 2011) .......................................................................................16
Henderson v. City of New York,
178 A.D.2d 129 (N.Y. App. Div. 1991) ....................................................................................4
Horton v. New York Life Ins. Co.,
71 N.Y.S.2d 883 (N.Y. Sup. Ct. 1947), aff’d, 76 N.Y.S.2d 837 (N.Y. App.
Div. 1948) ..................................................................................................................................2
Jeffers v. Stein,
18 N.Y.S.3d 579 (N.Y. Sup. Ct. 2015) ....................................................................................22
Kawa v. Wakefern Food Corp. Shoprite Supermarkets, Inc.,
24 N.J. Tax 39 (N.J. Tax Ct. 2008), aff’d, 24 N.J. Tax 444 (N.J. Super. Ct.
App. Div. 2009) .......................................................................................................................14
Kawa v. Wakefern Food Corp. Shoprite Supermarkets, Inc.,
24 N.J. Tax 444 (N.J. Super. Ct. App. Div. 2009) ...............................................................7, 15
L & L Oil Serv., Inc. v. Director, Div. of Tax.,
18 N.J.Tax 514 (N.J. Tax Ct. 2000) ...........................................................................................6
Laguesse v. Storytown U.S.A. Inc.,
296 A.D.2d 798 (N.Y. App. Div. 2002) ..................................................................................16
Larrieu v. Wal-Mart Stores, Inc.,
872 So.2d 1157 (La. Ct. App. 2004) ........................................................................................14
Loeffler v. Target Corp.,
324 P.3d 50 (Cal. 2014) .......................................................................................................8, 14
Long v. Dell, Inc.,
93 A.3d 988 (R.I. 2014) .......................................................................................................8, 12
Losana Corp. v. Porterfield,
236 N.E.2d 535 (Ohio 1968)......................................................................................................9
Marozan v. United States,
849 F.Supp 617 (N.D. Ind. 1994) ............................................................................................16
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Appeal of McKee,
861 P.2d 1386 (Kan. Ct. App. 1993) .........................................................................................6
MTX Comm. Corp. v. LDDS/WorldCom, Inc.,
2001 WL 674142 (S.D.N.Y. June 15, 2001) ...........................................................................24
Namer v. Am. Internet Servs., LLC,
2016 WL 828223 (E.D. La. Mar. 3, 2016) ..............................................................................16
P.S. Burnham, Inc. v. Wertheimer,
141 A.D.2d 431 (N.Y. App. Div. 1988) ....................................................................................9
Rent-a-Center East, Inc. v. Lincoln Parish Sales & Use Tax Comm’n,
60 So.3d 95 (La. Ct. App. 2011) ................................................................................................7
Schulman Family Enters. v. Schulman,
104 A.D. 3d 934 (N.Y. App. Div. 2013) ...................................................................................4
Scialdone v. Stepping Stones Assocs., L.P.,
2017 WL 986257 (N.Y. App. Div. Mar. 15, 2017) .................................................................22
Spagnola v. Chubb Corp.,
574 F.3d 64 (2d Cir. 2009).......................................................................................................22
Stanton Quilting Co. v. Tax Comm’n,
314 S.E.2d 844 (S.C. Ct. App. 1984).........................................................................................6
Stoloff v. Nieman Marcus Group, Inc.,
24 A.3d 366 (Pa. Super. Ct. 2011) ...........................................................................................14
Volbers-Klarich v. Middletown Mgmt., Inc.,
929 N.E.2d 434 (Ohio 2010)................................................................................................7, 14
White House Manor, Ltd. v. Benjamin,
11 N.Y.3d 393 (N.Y. 2008) .......................................................................................................5
Wilson v. Yemen Realty Corp.,
74 A.D.3d 544 (N.Y. App. Div. 2010) ......................................................................................4
Statutes
830 Code of Mass. Reg. § 64H.8.1 (4) (a) (1) ................................................................................14
Ala. Code, § 40-23-26 (d) ................................................................................................................7
Colo. Rev. Stat. § 39-26-703 ..........................................................................................................14
N.C. Gen. Stat. § 105-164.26 ...........................................................................................................6
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Other Authorities
85 C.J.S. Taxation, § 2194 (April 11, 2017 update) ........................................................................6
Colo. General Info. Letter,
2007 WL 7271617 (Colo. Dept. Rev. 1997) ..............................................................................6
CPLR
§ 3211 (c) ...................................................................................................................................5
§ 3211 (c) ...................................................................................................................................5
§ 4547.......................................................................................................................................17
Fed. R. Civ. P. 56 ...........................................................................................................................16
Ill. Dept. of Rev. Letter,
1997 WL 699922 (Ill. Dept. Rev. 1997) ....................................................................................6
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PRELIMINARY STATEMENT
Plaintiffs seek partial summary judgment on three issues. In particular, they claim that:
A. FM “withheld” $186,136 to improperly compensate itself for sales
tax “recoveries” (see Plaintiffs’ Memorandum of Law [Doc. No.
14] (“Opp. Memo.”), p. 29);
B. They are entitled to mitigation costs in connection with sales taxes
they have thus far recovered (id., p. 30); and
C. They should be awarded “prevailing party” attorneys’ fees (id., pp.
30-31).
Plaintiffs’ summary judgment motion (“MSJ”) should be denied. First, there is no basis
for converting defendant’s (“FM”) dismissal motion (“MTD”) into an MSJ. In the absence of
such conversion, the MSJ is premature because issue has not been joined. Second, the contracts
at issue don’t say what plaintiffs claim they do or, at a minimum, are ambiguous and present an
issue of fact. Third, Plaintiffs’ claim that FM wrongfully “kept” $186,136 as its share of
“recovered” monies is demonstrably wrong. Fourth, Plaintiffs’ request for mitigation costs is
necessarily premised on them first prevailing on the merits, yet it ignores FM’s various defenses
(which, in the absence of any discovery, have yet to be fully developed). Fifth, a fact question
exists as regards the reasonableness of such expenses that, again, requires discovery. Sixth,
Plaintiffs’ cannot prevail on their claim for attorneys’ fees since they are not yet a “prevailing
party” within the meaning of the various contracts and, at least with respect to claims arising
under Agreement III, such contract does not contain a fee-shifting provision.
The MSJ represents a procedurally and substantively improper attempt by Plaintiffs to
deny FM the opportunity to muster and present its defense. For the reasons more fully
explicated below, it should be denied.
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STATEMENT OF FACTS1
Plaintiffs OSI Restaurant Partners, LLC, Carrabba’s Italian Grill, LLC, Bonefish Grill
LLC, Bonefish Grill of Florida, LLC, Outback/Flemings’s, LLC, Roy’s /Outback Joint Venture,
and Outback Steakhouse of Florida, LLC (“Plaintiffs”) are FM’s former clients. Affidavit of
James Reavey (“Reavey Aff.”), ¶ 4. Their contractual relationship existed pursuant to three
separate agreements. Id.; Complaint [Doc. No. 1] ¶¶ 15-17. In particular:
A. FM and Carrabba’s Italian Grill, LLC, Bonefish Grill, LLC,
Bonefish Grill of Florida, LLC, Outback/Flemings’s, LLC,
Roy’s/Outback Joint Venture, and Outback Steakhouse of Florida,
LLC (collectively, “OSI Companies”) entered into an agreement
that was effective from March 30, 2009 through September 30,
2010 (“Agreement I”);
B. FM and the OSI Companies entered into a second agreement
covering the period from October 1, 2010 until December 31, 2013
(“Agreement II”); and
C. FM and plaintiff OSI Restaurant Partners, LLC (“OSI”) entered
into a third agreement that was in effect from January 1, 2014 until
July 27, 2015 (“Agreement III”).2
Pursuant to Agreements I and II, FM agreed, in connection with Covered Services (as
therein defined), to use its best commercial efforts to achieve certain cost savings for Plaintiffs as
compared to the amount spent by them during a defined prior timeframe (defined by Agreements
I and II as the “Spend Baseline”). Agreement I and II, ¶ 7 (a). FM sought reimbursement for its
work under Agreements I and II by way of weekly invoices. Id., ¶ 7 (b). Those invoices would
generally include, among other things, charges for the actual cost of work performed and, in
certain circumstances, sales taxes. Id., ¶ 7 (b).
1
Any facts set forth herein are conceded solely for purposes of this MSJ. See Horton v. New York Life Ins. Co., 71
N.Y.S.2d 883, 884 (N.Y. Sup. Ct. 1947), aff'd, 76 N.Y.S.2d 837 (N.Y. App. Div. 1948) (recognizing facts can be
conceded solely for purposes of pending summary judgment motion).
2
Id. Copies of Agreements I, II and III are appended to the Complaint as Exhibits A, B and C, and are herein
collectively referred to as the “Agreements.”
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FM was compensated by way of a “Shared Savings Calculation.” Agreement I, Exhibit
M; Agreement II, Exhibit G. Generally speaking, by comparing the Spend Baseline to the
amount that Plaintiffs actually spent on Covered Services, the parties were able to calculate the
amount that FM had saved Plaintiffs during the relevant timeframe (“Total Savings”).
Agreement I, Exhibit M; Agreement II, Exhibit G.3 Once the Total Savings amount was
determined, Agreements I and II further set forth the manner in which such savings would be
“split” between the parties. Agreement I, Exhibit M; Agreement II, Exhibit G.
Agreement III was fundamentally different from Agreements I and II. Pursuant to
Agreement III, FM was paid, as compensation, a “Service Fee of $355 per restaurant per month
plus the actual cost of reactive and scheduled maintenance services at such restaurants.”
Agreement III, Exhibit B, ¶ 1.
By their own admission, as early as 2009, Plaintiffs believed that FM was overcharging
them for sales taxes. Affidavit of Michael Barrett (“Barrett Aff.”), ¶¶ 11-12; see also Complaint,
¶ 20. Despite this knowledge, Plaintiffs continued to make payments on FM’s invoices for work
performed. Complaint, passim; Barrett Aff., ¶¶ 11-12.
The parties eventually entered into discussions regarding Plaintiffs’ claims of alleged tax
overpayments. Affidavit of Thomas Greenebaum (“Greenebaum Aff.”), ¶ 8. In particular, in
June 2012, Plaintiffs claimed they were owed reimbursements for $548,438 in sales tax
overcharges during 2009 through May 2012. Id. As a result, FM elected, as a good faith
gesture, and despite the fact that it had not yet recovered any funds from state taxing authorities
3
The terminology used in Agreement I was slightly different than that used in Agreement II. Nevertheless, the
conceptual framework was essentially the same.
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in connection with the $548,438 Plaintiffs alleged to be due, to assume the correctness of
Plaintiffs’ claim and to credit their accounts accordingly. Id., ¶ 9.4
LEGAL STANDARD
To prevail on a motion for summary judgment, Plaintiffs must establish “prima facie
entitlement to judgment as a matter of law.” Schulman Family Enters. v. Schulman, 104 A.D. 3d
934, 935 (N.Y. App. Div. 2013). Courts have steadfastly adhered to the principle that summary
judgment is a “drastic remedy,” and that it should be granted only where no genuine triable issue
of fact exists. Henderson v. City of New York, 178 A.D.2d 129, 130 (N.Y. App. Div. 1991); see
also De Paris v. Women’s Nat. Republican Club, Inc., 48 N.Y.S.3d 383, 385 (N.Y. App. Div.
2017) (summary judgment “should not be granted where there is any doubt as to the existence of
triable issues or the issue is even arguable.”). Moreover, “a plaintiff’s cross-motion for partial
summary judgment [is] properly denied as premature” where there is an “incomplete state of
discovery, including the lack of any depositions.” Ali v. Effron, 967 N.Y.S.2d 11, 12 (N.Y. App.
Div. 2013); Wilson v. Yemen Realty Corp., 74 A.D.3d 544 (N.Y. App. Div. 2010).
LEGAL ARGUMENT
I. The MTD Is Procedurally Improper.
A. There Is No Basis To Convert The MSJ Into An MTD.
Plaintiffs’ argue that the MTD should be converted into an MSJ because FM “relie[d] on
information ‘from its own books and records, and from correspondence between the parties’” to
justify their summary judgment request. See Opp. Memo., p. 28, quoting Memorandum of Law
in Support of IPT, LLC’s Motion to Dismiss the Complaint [Dkt. No. 8], p. 5, fn. 8. But
Plaintiffs’ claimed justification for conversion attempts to expand the meaning of footnote 8 far
beyond its literal terms or context.
4
Additional facts (with supporting citations) will, as appropriate, be introduced below.
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As footnote 8 itself makes clear, it was nothing more than counsel’s explanation as to
why the laws of some states, but not others, were being discussed in the MTD. Footnote 8 could
be excised from the MTD entirely, and its absence would not change the MTD’s meaning one bit.
More importantly, other than the footnote’s passing reference to them, there were no “books,”
“records,” or “correspondence” enclosed with the MTD, nor did it discuss, cite, quote from or
rely upon any such materials in any way. Additionally, the MTD included no affidavit or other
form of authentication and, as such, there was no “evidence that could properly be considered on
a motion for summary judgment” as CPLR § 3211 (c) requires. (emphasis added.)
In addition, the MTD never touched on any of the issues that Plaintiffs now claim are ripe
for summary judgment. It is devoid, for example, of any mention of the $186,136 alleged tax
overpayment that FM purportedly “kept,” nor does it make any mention of mitigation costs or
counsel fees. Because FM did not assert or rely upon facts outside the pleadings, and because
the issues are subject to discovery (which has yet to commence), it would be improper to convert
the MTD (particularly when it really isn’t a “conversion” but, instead, a stand-alone summary
judgment motion). Plaintiffs’ quest for conversion under CPLR 3211 (c) should be seen for what
it is – an effort to file a preemptive MSJ before issue has been joined and discovery has taken
place. FM respectfully submits that this Court should not sanction that effort.5
II. To The Extent This Court Considers The MSJ, It Should Be Denied Because, At A
Minimum, There Are Numerous Genuine Disputed Issues of Fact.
A. FM Did Not Warrant The Accuracy Of Its Sales Tax Assessments.
Plaintiffs attempt to create the impression that FM was contractually obligated to
properly calculate and assess state sales taxes, and that its failure to do so constitutes a breach.
5
As a free-standing MSJ, Plaintiffs’ filing is untimely since issue has not been joined.White House Manor, Ltd. v.
Benjamin, 11 N.Y.3d 393, 400-01 (N.Y. 2008). Plaintiffs’pursuit of the MSJ without affording FM the
opportunity to fully investigate their claims is thus particularly troubling because Plaintiffs relied on that non-
joinder to decline to substantively respond to FM’s initialdiscovery requests. See Affirmation of Donald E.
Frechette, Esq., Exhibit A, attached hereto.
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Their assertion is at odds with the language of the Agreements, however, particularly when
viewed through the prism of the public policies undergirding sales tax collection. At a
minimum, significant questions of fact exist that preclude summary judgment.
1. The Public Policies Associated With Sales Tax Collection Counsel
Against Implying A Contractual Duty To Warrant The Ultimate
Correctness of Sales Tax Assessments.
Plaintiffs struggle to turn a sales tax over-collection case into one for implied breach of
contract. Their motivation is obvious. Because the statutory schemes governing sales tax
refunds greatly limit Plaintiffs’ avenues for recovery, they instead try to recast their refund
claims in order to effectuate a direct recovery against FM and, further, to benefit from the fee-
shifting provisions of Agreements I and II. Plaintiffs’ effort to morph their claims is, however,
anathema to public policies and judicial pronouncements regarding sales tax collection.6
To begin with, many states, including New York, have a statutory presumption of
taxability that applies, in certain contexts, to sales/use taxes. See In the Matter of Ace Provision
& Luncheonette Supply, Inc., 135 A.D.2d 1070, 1072 (N.Y. App. Div. 1987) (citing New York
Tax Law § 1132 (c)); see also N.C. Gen. Stat. § 105-164.26; L &L Oil Serv., Inc. v. Director,
Div. of Tax., 18 N.J.Tax 514, 528-29 (N.J. Tax Ct. 2000); Ill. Dept. of Rev. Letter, 1997 WL
699922 (Ill. Dept. Rev. 1997); Colo. General Info. Letter, 2007 WL 7271617 (Colo. Dept. Rev.
1997); City of Gilroy v. State Bd. Of Equalization, 260 Cal.Rptr. 723, 734 (Cal. App. 1989);
Continental Surfaces, LLC v. Comptroller, 2016 WL 2587924, at *2 (Md. Ct. Spec. App. May 5,
2016); 830 Code of Mass. Reg. 64H.8.1 (4) (a) (1); Appeal of McKee, 861 P.2d 1386, 1391 (Kan.
Ct. App. 1993); Stanton Quilting Co. v. Tax Comm’n, 314 S.E.2d 844, 846 (S.C. Ct. App. 1984).
The general goal of sales and use tax statutes is to establish a
complementary scheme whereby everything is presumed taxable.
A state sales tax is presumed to be owed on the sale of any tangible
6
Those public policies are perhaps best evidenced by the principles addressed, and cases cited, in the MTD.
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personal property within the state, and all gross receipts are
presumed to be subject to a sales tax. Accordingly, a taxpayer
protesting the imposition of a tax has the burden of proving that the
transaction in question is not taxable.
85 C.J.S. Taxation, § 2194 (April 11, 2017 update) (footnotes omitted; emphases added).
Other states similarly recognize that sales taxes, even those collected in error, must be
remitted to the taxing authority because the collecting agent holds them as the state’s trustee.
Bergmoser v. Smart Document Solutions, LLC, 2007 WL 634674, at *2 fn. 2 (N.D. Ohio Feb. 22,
2007); Kawa v. Wakefern Food Corp. Shoprite Supermarkets, Inc., 24 N.J. Tax 444, 450 (N.J.
Super. Ct. App. Div. 2009); see also Ala. Code, § 40-23-26 (d). And good faith errors as to the
taxability of a given transaction will not necessarily shield a vendor from liability, including
interest and penalties, should he fail to collect tax on an otherwise taxable transaction. Rent-a-
Center East, Inc. v. Lincoln Parish Sales & Use Tax Comm’n, 60 So.3d 95, 99 (La. Ct. App.
2011).
Plainly, particularly in the face of the economic challenges that many states currently
face, taxing authorities have a compelling interest in assuring that every penny of tax is
collected. As New Jersey’s tax court has recognized,
the design of the Sales and Use Tax Act is for vendors to collect
the tax even where there is some doubt as to taxability, and for
vendors, acting as trustees of the State, to remit all monies
collected under authority of the statute, whether correctly or
incorrectly, intentionally or negligently, to the State.
Frank Greek and Son, Inc. v. Verizon New Jersey, Inc., 2016 WL 4490597, at *4 (N.J. Super. Ct.
App. Div. Apr. 26, 2016) (emphases added), quoting Kawa v. Wakefern Food Corp. Shoprite
Supermarkets, Inc., 24 N.J. Tax 39, 53 (N.J. Tax Ct. 2008), aff’d, 24 N.J. Tax 444 (N.J. Super.
Ct. App. Div. 2009); see also Volbers-Klarich v. Middletown Mgmt., Inc., 929 N.E.2d 434, 439
(Ohio 2010) (recognizing that taxes that have been “wrongfully collected . . . belong to the
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state”). Put differently, doubts regarding the validity of a sales tax assessment will not excuse
timely collection and remittance of the tax. Cf. Application of Underpinning & Foundation Co.,
3 A.D.2d 415, 416 (N.Y. App. Div. 1957).
If this Court were to here recognize the existence of a contractual duty to accurately
assess sales taxes, especially one that has as its premise the notion that a collecting agent’s views
as to sales tax applicability must be correct 100% of the time, all of these public policies would
be undercut. Vendors like FM would be faced with the untenable prospect of serving two
competing masters – the vendees (who will sue the vendor if it overcollects) and the states’
taxing authorities (who will assess interest and penalties if the vendor undercollects). The
potentially negative effect on the public fisc is manifest.
This issue was addressed in Long v. Dell, Inc., 93 A.3d 988 (R.I. 2014). There, a class of
plaintiffs sought a recovery from the defendant for its collection of sales taxes on non-taxable
transactions. The court declined to recognize the claim, noting that were it to do so, “the result
would be an opposing incentive to under-collect sales taxes when the tax law is unclear. This,
in turn, would lead to a decrease in the amount of taxes collected by the state, in contravention of
the state’s interest in receiving revenue.” Id. at 999 (emphasis added). Further commenting on
the “no-win” proposition facing the retailer, the court observed:
Finally, notions of fairness also favor our conclusion that a retailer
does not owe a duty to consumers to properly collect sales tax. As
discussed above, retailers already owe a duty to the state and are
subject to penalties for under-collection. It would be untenable to
make retailers subject to state penalties for under-collection and
civil suit for over-collection. Such a policy would force retailers
to be perfectly accurate in their tax calculations or face legal
action. Given the complexity of tax law, which is rife with
nuance and exceptions, it would be unfair to subject retailers to
this additional duty.
Id. (emphasis added); see also Loeffler v. Target Corp., 324 P.3d 50, 61 (Cal. 2014) (describing
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the “taxability question, whether a particular sale is subject to or is exempt from sales tax, [as]
exceedingly closely regulated, complex and highly technical”); Deloitte & Touche USA LLP v.
Lamela, 2005 WL 2810719, at *1 (Del. Ch. Oct. 21, 2005) (recognizing that states’ sales tax
statutes are, generally, “extremely complex”); By Lo Oil Co. v. Dept. of Treasury, 703 N.W.2d
822, 835 (Mich. Ct. App. 2005) (“sales taxation in general can be highly complex”); Losana
Corp. v. Porterfield, 236 N.E.2d 535, 537 (Ohio 1968) (“The sales tax is difficult to administer.
It is complex and intricate.”).
It is against this backdrop that the contracts at issue in this case must be considered.
2. The Language Of The Agreements Cannot Be Read To Obligate FM
To Warrant The Correctness Of Its Tax Collections.
Plaintiffs seek to recast their tax rebate case as one for breach of contract. Of course, and
as argued in the MTD, the exclusive remedies provided by the varying state taxing schemes
preclude any such effort. FM respectfully submits that such preclusion arises directly out of the
public policies described above and in the MTD. These same public policies make clear why the
language of the Agreements simply cannot be interpreted to create an unwavering duty for FM to
assure Plaintiffs, with 100% accuracy, that its sales tax assessments are error-free. At a
minimum, serious questions of fact exist regarding the parties’ intent in entering into the
Agreements. These questions, when coupled with the words of the Agreements themselves, lead
to the conclusion that such agreements are, at the very least, ambiguous, and that ambiguity
precludes summary judgment. P.S. Burnham, Inc. v. Wertheimer, 141 A.D.2d 431 (N.Y. App.
Div. 1988) (“ambiguity as to the contract's terms precludes . . . summary disposition”). Each of
the Agreements will be considered in turn.
a. Agreements I and II
Plaintiffs first focus on paragraph 7 (b) of Agreements I and II, which provides that
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FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 Donald E. Frechette LOCKE LORD LLP 20 Church Street, 20th Floor Hartford, CT 06107 (860) 525-5065 Counsel for IPT, LLC d/b/a FM Facility Maintenance SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ONONDAGA -------------------------------------------------------------X OSI RESTAURANT PARTNERS, LLC, et al., : : Plaintiffs, : Index No.: 2016-EF-2494 : -against- : : IPT, LLC d/b/a/ FACILITY MAINTENANCE, : : Defendant. : -------------------------------------------------------------X OPPOSITION TO PLAINTIFFS’ CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT 1 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 TABLE OF CONTENTS Page PRELIMINARY STATEMENT ................................................................................................... 1 STATEMENT OF FACTS ............................................................................................................ 2 LEGAL STANDARD .................................................................................................................... 4 LEGAL ARGUMENT ................................................................................................................... 4 I. The MTD Is Procedurally Improper ...................................................................... 4 A. There Is No Basis To Convert The MSJ Into An MTD............................. 4 II. To The Extent This Court Considers The MSJ, It Should Be Denied Because, At A Minimum, There Are Numerous Genuine Disputed Issues of Fact .................................................................................................................... 5 A. FM Did Not Warrant The Accuracy Of Its Sales Tax Assessments .......... 5 1. The Public Policies Associated With Sales Tax Collection Counsel Against Implying A Contractual Duty To Warrant The Correctness of Sales Tax Assessments ...................................... 6 2. The Language Of The Agreements Cannot Be Read To Obligate FM To Warrant The Correctness Of Its Tax Collections ........................................................................................ 9 a. Agreements I and II ............................................................... 9 b. Agreement III ...................................................................... 13 B. Plaintiffs’ “Evidence” Raises Far More Questions Than It Answers ...... 15 C. FM’s $186,136 “Total Savings” Calculation Was Proper And Accurate ................................................................................................... 19 D. Legal And Fact Questions Exist With Respect to Plaintiffs’ Claimed Mitigation Expenses .................................................................. 21 E. Plaintiffs’ Request for Fees is Premature................................................. 23 CONCLUSION ............................................................................................................................ 25 -i- 2 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 TABLE OF AUTHORITIES Page(s) Cases In the Matter of Ace Provision & Luncheonette Supply, Inc., 135 A.D.2d 1070 (N.Y. App. Div. 1987) ..................................................................................6 Ali v. Effron, 967 N.Y.S.2d 11 (N.Y. App. Div. 2013) ...................................................................................4 Bergmoser v. Smart Document Solutions, LLC, 2007 WL 634674 (N.D. Ohio Feb. 22, 2007) ............................................................................7 Blackshears II Aluminum, Inc. v. Dep’t of Rev., 641 So.2d 928 (Fla. Dist. Ct. App. 1994) ......................................................................2, 10, 14 By Lo Oil Co. v. Dept. of Treasury, 703 N.W.2d 822 (Mich. Ct. App. 2005) ....................................................................................9 Carroll v. Lebouef, Lamb, Greene & Macrae, LLP, 614 F.Supp.2d 481 (S.D.N.Y. 2009)........................................................................................17 City of Gilroy v. State Bd. Of Equalization, 260 Cal.Rptr. 723 (Cal. App. 1989) ...........................................................................................6 Continental Surfaces, LLC v. Comptroller, 2016 WL 2587924 (Md. Ct. Spec. App. May 5, 2016) .............................................................6 Curns v. Wal-Mart Stores, Inc., 439 Fed. Appx. 51 (2d Cir. 2011) ............................................................................................16 De Paris v. Women’s Nat. Republican Club, Inc., 48 N.Y.S.3d 383 (N.Y. App. Div. 2017) ...................................................................................4 Deloitte & Touche USA LLP v. Lamela, 2005 WL 2810719 (Del. Ch. Oct. 21, 2005) .............................................................................8 Delorenzo v. Filipedes, 2003 WL 22757695 (N.Y. Sup. Ct. Nov. 10, 2003) ................................................................16 Erlichman v. Encompass Ins. Co., 791 N.Y.S.2d 869 (N.Y. Sup. Ct. 2004) ..................................................................................15 Evans v. City of Johnstown, 410 N.Y.S.2d 199 (N.Y. Sup. Ct. 1978) ..................................................................................22 -ii- 3 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 Frank Greek and Son, Inc. v. Verizon New Jersey, Inc., 2016 WL 4490597 (N.J. Super. Ct. App. Div. Apr. 26, 2016) ............................................7, 12 GTF Marketings, Inc. v. Colonial Alum. Sales, Inc., 66 N.Y.2d 965 (N.Y. 1985) .....................................................................................................15 Harrison v. Formosa Plastics Corp., 776 F.Supp.2d 433 (S.D. Tex. 2011) .......................................................................................16 Henderson v. City of New York, 178 A.D.2d 129 (N.Y. App. Div. 1991) ....................................................................................4 Horton v. New York Life Ins. Co., 71 N.Y.S.2d 883 (N.Y. Sup. Ct. 1947), aff’d, 76 N.Y.S.2d 837 (N.Y. App. Div. 1948) ..................................................................................................................................2 Jeffers v. Stein, 18 N.Y.S.3d 579 (N.Y. Sup. Ct. 2015) ....................................................................................22 Kawa v. Wakefern Food Corp. Shoprite Supermarkets, Inc., 24 N.J. Tax 39 (N.J. Tax Ct. 2008), aff’d, 24 N.J. Tax 444 (N.J. Super. Ct. App. Div. 2009) .......................................................................................................................14 Kawa v. Wakefern Food Corp. Shoprite Supermarkets, Inc., 24 N.J. Tax 444 (N.J. Super. Ct. App. Div. 2009) ...............................................................7, 15 L & L Oil Serv., Inc. v. Director, Div. of Tax., 18 N.J.Tax 514 (N.J. Tax Ct. 2000) ...........................................................................................6 Laguesse v. Storytown U.S.A. Inc., 296 A.D.2d 798 (N.Y. App. Div. 2002) ..................................................................................16 Larrieu v. Wal-Mart Stores, Inc., 872 So.2d 1157 (La. Ct. App. 2004) ........................................................................................14 Loeffler v. Target Corp., 324 P.3d 50 (Cal. 2014) .......................................................................................................8, 14 Long v. Dell, Inc., 93 A.3d 988 (R.I. 2014) .......................................................................................................8, 12 Losana Corp. v. Porterfield, 236 N.E.2d 535 (Ohio 1968)......................................................................................................9 Marozan v. United States, 849 F.Supp 617 (N.D. Ind. 1994) ............................................................................................16 -iii- 4 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 Appeal of McKee, 861 P.2d 1386 (Kan. Ct. App. 1993) .........................................................................................6 MTX Comm. Corp. v. LDDS/WorldCom, Inc., 2001 WL 674142 (S.D.N.Y. June 15, 2001) ...........................................................................24 Namer v. Am. Internet Servs., LLC, 2016 WL 828223 (E.D. La. Mar. 3, 2016) ..............................................................................16 P.S. Burnham, Inc. v. Wertheimer, 141 A.D.2d 431 (N.Y. App. Div. 1988) ....................................................................................9 Rent-a-Center East, Inc. v. Lincoln Parish Sales & Use Tax Comm’n, 60 So.3d 95 (La. Ct. App. 2011) ................................................................................................7 Schulman Family Enters. v. Schulman, 104 A.D. 3d 934 (N.Y. App. Div. 2013) ...................................................................................4 Scialdone v. Stepping Stones Assocs., L.P., 2017 WL 986257 (N.Y. App. Div. Mar. 15, 2017) .................................................................22 Spagnola v. Chubb Corp., 574 F.3d 64 (2d Cir. 2009).......................................................................................................22 Stanton Quilting Co. v. Tax Comm’n, 314 S.E.2d 844 (S.C. Ct. App. 1984).........................................................................................6 Stoloff v. Nieman Marcus Group, Inc., 24 A.3d 366 (Pa. Super. Ct. 2011) ...........................................................................................14 Volbers-Klarich v. Middletown Mgmt., Inc., 929 N.E.2d 434 (Ohio 2010)................................................................................................7, 14 White House Manor, Ltd. v. Benjamin, 11 N.Y.3d 393 (N.Y. 2008) .......................................................................................................5 Wilson v. Yemen Realty Corp., 74 A.D.3d 544 (N.Y. App. Div. 2010) ......................................................................................4 Statutes 830 Code of Mass. Reg. § 64H.8.1 (4) (a) (1) ................................................................................14 Ala. Code, § 40-23-26 (d) ................................................................................................................7 Colo. Rev. Stat. § 39-26-703 ..........................................................................................................14 N.C. Gen. Stat. § 105-164.26 ...........................................................................................................6 -iv- 5 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 Other Authorities 85 C.J.S. Taxation, § 2194 (April 11, 2017 update) ........................................................................6 Colo. General Info. Letter, 2007 WL 7271617 (Colo. Dept. Rev. 1997) ..............................................................................6 CPLR § 3211 (c) ...................................................................................................................................5 § 3211 (c) ...................................................................................................................................5 § 4547.......................................................................................................................................17 Fed. R. Civ. P. 56 ...........................................................................................................................16 Ill. Dept. of Rev. Letter, 1997 WL 699922 (Ill. Dept. Rev. 1997) ....................................................................................6 -v- 6 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 PRELIMINARY STATEMENT Plaintiffs seek partial summary judgment on three issues. In particular, they claim that: A. FM “withheld” $186,136 to improperly compensate itself for sales tax “recoveries” (see Plaintiffs’ Memorandum of Law [Doc. No. 14] (“Opp. Memo.”), p. 29); B. They are entitled to mitigation costs in connection with sales taxes they have thus far recovered (id., p. 30); and C. They should be awarded “prevailing party” attorneys’ fees (id., pp. 30-31). Plaintiffs’ summary judgment motion (“MSJ”) should be denied. First, there is no basis for converting defendant’s (“FM”) dismissal motion (“MTD”) into an MSJ. In the absence of such conversion, the MSJ is premature because issue has not been joined. Second, the contracts at issue don’t say what plaintiffs claim they do or, at a minimum, are ambiguous and present an issue of fact. Third, Plaintiffs’ claim that FM wrongfully “kept” $186,136 as its share of “recovered” monies is demonstrably wrong. Fourth, Plaintiffs’ request for mitigation costs is necessarily premised on them first prevailing on the merits, yet it ignores FM’s various defenses (which, in the absence of any discovery, have yet to be fully developed). Fifth, a fact question exists as regards the reasonableness of such expenses that, again, requires discovery. Sixth, Plaintiffs’ cannot prevail on their claim for attorneys’ fees since they are not yet a “prevailing party” within the meaning of the various contracts and, at least with respect to claims arising under Agreement III, such contract does not contain a fee-shifting provision. The MSJ represents a procedurally and substantively improper attempt by Plaintiffs to deny FM the opportunity to muster and present its defense. For the reasons more fully explicated below, it should be denied. -1- 7 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 STATEMENT OF FACTS1 Plaintiffs OSI Restaurant Partners, LLC, Carrabba’s Italian Grill, LLC, Bonefish Grill LLC, Bonefish Grill of Florida, LLC, Outback/Flemings’s, LLC, Roy’s /Outback Joint Venture, and Outback Steakhouse of Florida, LLC (“Plaintiffs”) are FM’s former clients. Affidavit of James Reavey (“Reavey Aff.”), ¶ 4. Their contractual relationship existed pursuant to three separate agreements. Id.; Complaint [Doc. No. 1] ¶¶ 15-17. In particular: A. FM and Carrabba’s Italian Grill, LLC, Bonefish Grill, LLC, Bonefish Grill of Florida, LLC, Outback/Flemings’s, LLC, Roy’s/Outback Joint Venture, and Outback Steakhouse of Florida, LLC (collectively, “OSI Companies”) entered into an agreement that was effective from March 30, 2009 through September 30, 2010 (“Agreement I”); B. FM and the OSI Companies entered into a second agreement covering the period from October 1, 2010 until December 31, 2013 (“Agreement II”); and C. FM and plaintiff OSI Restaurant Partners, LLC (“OSI”) entered into a third agreement that was in effect from January 1, 2014 until July 27, 2015 (“Agreement III”).2 Pursuant to Agreements I and II, FM agreed, in connection with Covered Services (as therein defined), to use its best commercial efforts to achieve certain cost savings for Plaintiffs as compared to the amount spent by them during a defined prior timeframe (defined by Agreements I and II as the “Spend Baseline”). Agreement I and II, ¶ 7 (a). FM sought reimbursement for its work under Agreements I and II by way of weekly invoices. Id., ¶ 7 (b). Those invoices would generally include, among other things, charges for the actual cost of work performed and, in certain circumstances, sales taxes. Id., ¶ 7 (b). 1 Any facts set forth herein are conceded solely for purposes of this MSJ. See Horton v. New York Life Ins. Co., 71 N.Y.S.2d 883, 884 (N.Y. Sup. Ct. 1947), aff'd, 76 N.Y.S.2d 837 (N.Y. App. Div. 1948) (recognizing facts can be conceded solely for purposes of pending summary judgment motion). 2 Id. Copies of Agreements I, II and III are appended to the Complaint as Exhibits A, B and C, and are herein collectively referred to as the “Agreements.” -2- 8 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 FM was compensated by way of a “Shared Savings Calculation.” Agreement I, Exhibit M; Agreement II, Exhibit G. Generally speaking, by comparing the Spend Baseline to the amount that Plaintiffs actually spent on Covered Services, the parties were able to calculate the amount that FM had saved Plaintiffs during the relevant timeframe (“Total Savings”). Agreement I, Exhibit M; Agreement II, Exhibit G.3 Once the Total Savings amount was determined, Agreements I and II further set forth the manner in which such savings would be “split” between the parties. Agreement I, Exhibit M; Agreement II, Exhibit G. Agreement III was fundamentally different from Agreements I and II. Pursuant to Agreement III, FM was paid, as compensation, a “Service Fee of $355 per restaurant per month plus the actual cost of reactive and scheduled maintenance services at such restaurants.” Agreement III, Exhibit B, ¶ 1. By their own admission, as early as 2009, Plaintiffs believed that FM was overcharging them for sales taxes. Affidavit of Michael Barrett (“Barrett Aff.”), ¶¶ 11-12; see also Complaint, ¶ 20. Despite this knowledge, Plaintiffs continued to make payments on FM’s invoices for work performed. Complaint, passim; Barrett Aff., ¶¶ 11-12. The parties eventually entered into discussions regarding Plaintiffs’ claims of alleged tax overpayments. Affidavit of Thomas Greenebaum (“Greenebaum Aff.”), ¶ 8. In particular, in June 2012, Plaintiffs claimed they were owed reimbursements for $548,438 in sales tax overcharges during 2009 through May 2012. Id. As a result, FM elected, as a good faith gesture, and despite the fact that it had not yet recovered any funds from state taxing authorities 3 The terminology used in Agreement I was slightly different than that used in Agreement II. Nevertheless, the conceptual framework was essentially the same. -3- 9 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 in connection with the $548,438 Plaintiffs alleged to be due, to assume the correctness of Plaintiffs’ claim and to credit their accounts accordingly. Id., ¶ 9.4 LEGAL STANDARD To prevail on a motion for summary judgment, Plaintiffs must establish “prima facie entitlement to judgment as a matter of law.” Schulman Family Enters. v. Schulman, 104 A.D. 3d 934, 935 (N.Y. App. Div. 2013). Courts have steadfastly adhered to the principle that summary judgment is a “drastic remedy,” and that it should be granted only where no genuine triable issue of fact exists. Henderson v. City of New York, 178 A.D.2d 129, 130 (N.Y. App. Div. 1991); see also De Paris v. Women’s Nat. Republican Club, Inc., 48 N.Y.S.3d 383, 385 (N.Y. App. Div. 2017) (summary judgment “should not be granted where there is any doubt as to the existence of triable issues or the issue is even arguable.”). Moreover, “a plaintiff’s cross-motion for partial summary judgment [is] properly denied as premature” where there is an “incomplete state of discovery, including the lack of any depositions.” Ali v. Effron, 967 N.Y.S.2d 11, 12 (N.Y. App. Div. 2013); Wilson v. Yemen Realty Corp., 74 A.D.3d 544 (N.Y. App. Div. 2010). LEGAL ARGUMENT I. The MTD Is Procedurally Improper. A. There Is No Basis To Convert The MSJ Into An MTD. Plaintiffs’ argue that the MTD should be converted into an MSJ because FM “relie[d] on information ‘from its own books and records, and from correspondence between the parties’” to justify their summary judgment request. See Opp. Memo., p. 28, quoting Memorandum of Law in Support of IPT, LLC’s Motion to Dismiss the Complaint [Dkt. No. 8], p. 5, fn. 8. But Plaintiffs’ claimed justification for conversion attempts to expand the meaning of footnote 8 far beyond its literal terms or context. 4 Additional facts (with supporting citations) will, as appropriate, be introduced below. -4- 10 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 As footnote 8 itself makes clear, it was nothing more than counsel’s explanation as to why the laws of some states, but not others, were being discussed in the MTD. Footnote 8 could be excised from the MTD entirely, and its absence would not change the MTD’s meaning one bit. More importantly, other than the footnote’s passing reference to them, there were no “books,” “records,” or “correspondence” enclosed with the MTD, nor did it discuss, cite, quote from or rely upon any such materials in any way. Additionally, the MTD included no affidavit or other form of authentication and, as such, there was no “evidence that could properly be considered on a motion for summary judgment” as CPLR § 3211 (c) requires. (emphasis added.) In addition, the MTD never touched on any of the issues that Plaintiffs now claim are ripe for summary judgment. It is devoid, for example, of any mention of the $186,136 alleged tax overpayment that FM purportedly “kept,” nor does it make any mention of mitigation costs or counsel fees. Because FM did not assert or rely upon facts outside the pleadings, and because the issues are subject to discovery (which has yet to commence), it would be improper to convert the MTD (particularly when it really isn’t a “conversion” but, instead, a stand-alone summary judgment motion). Plaintiffs’ quest for conversion under CPLR 3211 (c) should be seen for what it is – an effort to file a preemptive MSJ before issue has been joined and discovery has taken place. FM respectfully submits that this Court should not sanction that effort.5 II. To The Extent This Court Considers The MSJ, It Should Be Denied Because, At A Minimum, There Are Numerous Genuine Disputed Issues of Fact. A. FM Did Not Warrant The Accuracy Of Its Sales Tax Assessments. Plaintiffs attempt to create the impression that FM was contractually obligated to properly calculate and assess state sales taxes, and that its failure to do so constitutes a breach. 5 As a free-standing MSJ, Plaintiffs’ filing is untimely since issue has not been joined.White House Manor, Ltd. v. Benjamin, 11 N.Y.3d 393, 400-01 (N.Y. 2008). Plaintiffs’pursuit of the MSJ without affording FM the opportunity to fully investigate their claims is thus particularly troubling because Plaintiffs relied on that non- joinder to decline to substantively respond to FM’s initialdiscovery requests. See Affirmation of Donald E. Frechette, Esq., Exhibit A, attached hereto. -5- 11 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 Their assertion is at odds with the language of the Agreements, however, particularly when viewed through the prism of the public policies undergirding sales tax collection. At a minimum, significant questions of fact exist that preclude summary judgment. 1. The Public Policies Associated With Sales Tax Collection Counsel Against Implying A Contractual Duty To Warrant The Ultimate Correctness of Sales Tax Assessments. Plaintiffs struggle to turn a sales tax over-collection case into one for implied breach of contract. Their motivation is obvious. Because the statutory schemes governing sales tax refunds greatly limit Plaintiffs’ avenues for recovery, they instead try to recast their refund claims in order to effectuate a direct recovery against FM and, further, to benefit from the fee- shifting provisions of Agreements I and II. Plaintiffs’ effort to morph their claims is, however, anathema to public policies and judicial pronouncements regarding sales tax collection.6 To begin with, many states, including New York, have a statutory presumption of taxability that applies, in certain contexts, to sales/use taxes. See In the Matter of Ace Provision & Luncheonette Supply, Inc., 135 A.D.2d 1070, 1072 (N.Y. App. Div. 1987) (citing New York Tax Law § 1132 (c)); see also N.C. Gen. Stat. § 105-164.26; L &L Oil Serv., Inc. v. Director, Div. of Tax., 18 N.J.Tax 514, 528-29 (N.J. Tax Ct. 2000); Ill. Dept. of Rev. Letter, 1997 WL 699922 (Ill. Dept. Rev. 1997); Colo. General Info. Letter, 2007 WL 7271617 (Colo. Dept. Rev. 1997); City of Gilroy v. State Bd. Of Equalization, 260 Cal.Rptr. 723, 734 (Cal. App. 1989); Continental Surfaces, LLC v. Comptroller, 2016 WL 2587924, at *2 (Md. Ct. Spec. App. May 5, 2016); 830 Code of Mass. Reg. 64H.8.1 (4) (a) (1); Appeal of McKee, 861 P.2d 1386, 1391 (Kan. Ct. App. 1993); Stanton Quilting Co. v. Tax Comm’n, 314 S.E.2d 844, 846 (S.C. Ct. App. 1984). The general goal of sales and use tax statutes is to establish a complementary scheme whereby everything is presumed taxable. A state sales tax is presumed to be owed on the sale of any tangible 6 Those public policies are perhaps best evidenced by the principles addressed, and cases cited, in the MTD. -6- 12 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 personal property within the state, and all gross receipts are presumed to be subject to a sales tax. Accordingly, a taxpayer protesting the imposition of a tax has the burden of proving that the transaction in question is not taxable. 85 C.J.S. Taxation, § 2194 (April 11, 2017 update) (footnotes omitted; emphases added). Other states similarly recognize that sales taxes, even those collected in error, must be remitted to the taxing authority because the collecting agent holds them as the state’s trustee. Bergmoser v. Smart Document Solutions, LLC, 2007 WL 634674, at *2 fn. 2 (N.D. Ohio Feb. 22, 2007); Kawa v. Wakefern Food Corp. Shoprite Supermarkets, Inc., 24 N.J. Tax 444, 450 (N.J. Super. Ct. App. Div. 2009); see also Ala. Code, § 40-23-26 (d). And good faith errors as to the taxability of a given transaction will not necessarily shield a vendor from liability, including interest and penalties, should he fail to collect tax on an otherwise taxable transaction. Rent-a- Center East, Inc. v. Lincoln Parish Sales & Use Tax Comm’n, 60 So.3d 95, 99 (La. Ct. App. 2011). Plainly, particularly in the face of the economic challenges that many states currently face, taxing authorities have a compelling interest in assuring that every penny of tax is collected. As New Jersey’s tax court has recognized, the design of the Sales and Use Tax Act is for vendors to collect the tax even where there is some doubt as to taxability, and for vendors, acting as trustees of the State, to remit all monies collected under authority of the statute, whether correctly or incorrectly, intentionally or negligently, to the State. Frank Greek and Son, Inc. v. Verizon New Jersey, Inc., 2016 WL 4490597, at *4 (N.J. Super. Ct. App. Div. Apr. 26, 2016) (emphases added), quoting Kawa v. Wakefern Food Corp. Shoprite Supermarkets, Inc., 24 N.J. Tax 39, 53 (N.J. Tax Ct. 2008), aff’d, 24 N.J. Tax 444 (N.J. Super. Ct. App. Div. 2009); see also Volbers-Klarich v. Middletown Mgmt., Inc., 929 N.E.2d 434, 439 (Ohio 2010) (recognizing that taxes that have been “wrongfully collected . . . belong to the -7- 13 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 state”). Put differently, doubts regarding the validity of a sales tax assessment will not excuse timely collection and remittance of the tax. Cf. Application of Underpinning & Foundation Co., 3 A.D.2d 415, 416 (N.Y. App. Div. 1957). If this Court were to here recognize the existence of a contractual duty to accurately assess sales taxes, especially one that has as its premise the notion that a collecting agent’s views as to sales tax applicability must be correct 100% of the time, all of these public policies would be undercut. Vendors like FM would be faced with the untenable prospect of serving two competing masters – the vendees (who will sue the vendor if it overcollects) and the states’ taxing authorities (who will assess interest and penalties if the vendor undercollects). The potentially negative effect on the public fisc is manifest. This issue was addressed in Long v. Dell, Inc., 93 A.3d 988 (R.I. 2014). There, a class of plaintiffs sought a recovery from the defendant for its collection of sales taxes on non-taxable transactions. The court declined to recognize the claim, noting that were it to do so, “the result would be an opposing incentive to under-collect sales taxes when the tax law is unclear. This, in turn, would lead to a decrease in the amount of taxes collected by the state, in contravention of the state’s interest in receiving revenue.” Id. at 999 (emphasis added). Further commenting on the “no-win” proposition facing the retailer, the court observed: Finally, notions of fairness also favor our conclusion that a retailer does not owe a duty to consumers to properly collect sales tax. As discussed above, retailers already owe a duty to the state and are subject to penalties for under-collection. It would be untenable to make retailers subject to state penalties for under-collection and civil suit for over-collection. Such a policy would force retailers to be perfectly accurate in their tax calculations or face legal action. Given the complexity of tax law, which is rife with nuance and exceptions, it would be unfair to subject retailers to this additional duty. Id. (emphasis added); see also Loeffler v. Target Corp., 324 P.3d 50, 61 (Cal. 2014) (describing -8- 14 of 31 FILED: ONONDAGA COUNTY CLERK 05/17/2017 08:11 AM INDEX NO. 2016EF2494 NYSCEF DOC. NO. 26 RECEIVED NYSCEF: 05/17/2017 the “taxability question, whether a particular sale is subject to or is exempt from sales tax, [as] exceedingly closely regulated, complex and highly technical”); Deloitte & Touche USA LLP v. Lamela, 2005 WL 2810719, at *1 (Del. Ch. Oct. 21, 2005) (recognizing that states’ sales tax statutes are, generally, “extremely complex”); By Lo Oil Co. v. Dept. of Treasury, 703 N.W.2d 822, 835 (Mich. Ct. App. 2005) (“sales taxation in general can be highly complex”); Losana Corp. v. Porterfield, 236 N.E.2d 535, 537 (Ohio 1968) (“The sales tax is difficult to administer. It is complex and intricate.”). It is against this backdrop that the contracts at issue in this case must be considered. 2. The Language Of The Agreements Cannot Be Read To Obligate FM To Warrant The Correctness Of Its Tax Collections. Plaintiffs seek to recast their tax rebate case as one for breach of contract. Of course, and as argued in the MTD, the exclusive remedies provided by the varying state taxing schemes preclude any such effort. FM respectfully submits that such preclusion arises directly out of the public policies described above and in the MTD. These same public policies make clear why the language of the Agreements simply cannot be interpreted to create an unwavering duty for FM to assure Plaintiffs, with 100% accuracy, that its sales tax assessments are error-free. At a minimum, serious questions of fact exist regarding the parties’ intent in entering into the Agreements. These questions, when coupled with the words of the Agreements themselves, lead to the conclusion that such agreements are, at the very least, ambiguous, and that ambiguity precludes summary judgment. P.S. Burnham, Inc. v. Wertheimer, 141 A.D.2d 431 (N.Y. App. Div. 1988) (“ambiguity as to the contract's terms precludes . . . summary disposition”). Each of the Agreements will be considered in turn. a. Agreements I and II Plaintiffs first focus on paragraph 7 (b) of Agreements I and II, which provides that -9- 15