16-3762-cv
Estler v. Dunkin’ Brands, Inc.
                                  UNITED STATES COURT OF APPEALS
                                      FOR THE SECOND CIRCUIT

                                         SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 23rd day of May, two thousand seventeen.

PRESENT: RALPH K. WINTER,
                 REENA RAGGI,
                                 Circuit Judges,
                 ALVIN K. HELLERSTEIN,
                                 District Judge.*
----------------------------------------------------------------------
THOMAS ESTLER, BLAKE RUEHRWEIN, and
STEVEN PARK, on behalf of themselves and all others
similarly situated,
                                 Plaintiffs-Appellants,

                                 v.                                      No. 16-3762-cv

DUNKIN’ BRANDS, INC., DUNKIN’ DONUTS
STORE, #350125, DUNKIN’ DONUTS STORE,
#350126, DUNKIN’ DONUTS STORE, #350127,
DUNKIN’ DONUTS STORE, #345768,
                   Defendants-Appellees,

JOHN DOES 1–500,
                                 Defendants.
----------------------------------------------------------------------


*
  Judge Alvin K. Hellerstein, of the United States District Court for the Southern District
of New York, sitting by designation.

                                                     1
APPEARING FOR APPELLANTS:               CARL JOSEPH MAYER, Mayer Law Group
                                        LLC, Princeton, New Jersey (Zachary J. Liszka,
                                        Law Office of Zachary J. Liszka, New York,
                                        New York, on the brief).

APPEARING FOR APPELLEES:                ERIC L. YAFFE (Virginia E. Davis Horton,
                                        Whitney A. Fore, Gray, Plant, Mooty, Mooty &
                                        Bennett, P.A., Washington, D.C.; Janet C.
                                        Evans, Gray, Plant, Mooty, Mooty & Bennett,
                                        P.A., Minneapolis, Minnesota, on the brief),
                                        Gray, Plant, Mooty, Mooty & Bennett, P.A.,
                                        Washington, D.C., for Dunkin’ Brands, Inc.

                                        CHRISTOPHER G. KELLY (Stosh M. Silivos,
                                        on the brief), Holland & Knight LLP, New
                                        York, New York, for Dunkin’ Donuts Store,
                                        #350125, Dunkin’ Donuts Store, #350126,
                                        Dunkin’ Donuts Store, #350127.

                                        JOANNE M.F. WILCOMES, Paris Ackerman
                                        & Schmierer LLP, Roseland, New Jersey, for
                                        Dunkin’ Donuts Store, #345768.

      Appeal from a judgment of the United States District Court for the Southern

District of New York (Lorna G. Schofield, Judge).

      UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

AND DECREED that the judgment entered on October 5, 2016, is AFFIRMED.

      Plaintiffs Thomas Estler, Blake Ruehrwein, and Steven Park filed this putative

class action against defendants Dunkin’ Brands, Inc.—franchisor of the Dunkin’ Donuts

fast-food chain—and several Dunkin’ Donuts franchisees in Manhattan, alleging that

plaintiffs were unlawfully charged sales tax in violation of New York state law when

purchasing bags of pre-packaged coffee from defendants’ stores. See N.Y. Tax Law

§ 1115(a)(1). Plaintiffs appeal from the dismissal of their state common law and N.Y.


                                          2
Gen. Bus. Law § 349 claims for failure to comply with New York’s exclusive

administrative remedy for refunds of erroneous sales tax charges, see N.Y. Tax Law

§§ 1139, 1140. Specifically, plaintiffs argue that (1) such administrative procedures are

not mandated in this case, and (2) they may independently pursue a § 349 claim to the

extent defendants’ collection of sales tax amounted to an unfair or deceptive practice.

We review the challenged dismissal de novo, accepting plaintiffs’ factual allegations as

true and drawing all reasonable inferences in their favor. See Absolute Activist Master

Fund Ltd. v. Ficeto, 677 F.3d 60, 65 (2d Cir. 2012).1 In so doing, we assume the

parties’ familiarity with the facts and record of prior proceedings, which we reference

only as necessary to explain our decision to affirm.

1.     Exclusive Administrative Remedy for New York State Sales Tax Refunds

       Under New York law, consumers seeking a return of sales taxes “erroneously,

illegally or unconstitutionally collected or paid . . . to a person required to collect tax,”

must apply for a refund to the state tax commission. N.Y. Tax Law § 1139(a). That

refund process is the “exclusive remed[y] available to any person for the review of tax


1
  The district court construed defendants’ motion as one for dismissal without prejudice
for lack of subject-matter jurisdiction under Fed. R. Civ. P. 12(b)(1). See Holt v. Town
of Stonington, 765 F.3d 127, 130 (2d Cir. 2014) (presuming that such failure to exhaust
state administrative remedies as would deprive state courts of subject-matter jurisdiction
would similarly deprive federal court of jurisdiction); Hernandez v. Conriv Realty
Assocs., 182 F.3d 121, 123 (2d Cir. 1999) (holding dismissals for lack of subject-matter
jurisdiction are necessarily without prejudice). We need not here decide whether
dismissal for failure to comply with this mandatory and exclusive state administrative
remedy should be addressed under Fed. R. Civ. P. 12(b)(1) or 12(b)(6), as our review of
the pure issues of law presented here would be de novo in any event, see Absolute Activist
Value Master Fund Ltd. v. Ficeto, 677 F.3d at 65, and defendants do not challenge the
dismissal without prejudice on Rule 12(b)(1) grounds.

                                             3
liability imposed” under state sales tax law, and no “determination or proposed

determination of tax or determination on any application for refund shall be enjoined or

reviewed . . . by any action or proceeding other than a proceeding under article

seventy-eight of the [New York] civil practice law and rules.” Id. § 1140. Merchants

are not proper parties to such actions so long as they performed merely the “ministerial

act” of collecting sales tax on the state’s or municipality’s behalf, and the “dissatisfied

taxpayer’s recourse” must therefore be “against the taxing body.”            Davidson v.

Rochester Tel. Corp., 163 A.D.2d 800, 802, 558 N.Y.S.2d 1009, 1011 (3d Dep’t 1990).

       Where a plaintiff has failed to comply with a mandatory state-law administrative

remedy, “the action must be dismissed.” Holt v. Town of Stonington, 765 F.3d 127, 130

(2d Cir. 2014) (internal quotation marks omitted). Plaintiffs do not dispute that they

have not followed the administrative procedures in N.Y. Tax Law § 1139, or that such

procedures are generally mandatory when pursuing damages for erroneously imposed

sales taxes. They argue only that these procedures are inapplicable here insofar as

(1) they seek return not of sales taxes, but improper “surcharges” falsely labeled as such;

(2) no sales tax is lawfully imposed on pre-packaged coffee; and (3) compliance with

administrative procedures would violate their constitutional rights.      We reject each

argument in turn.

       a.     Plaintiffs’ Damages Claims Were Properly Classified as Requests for Sales
              Tax Refunds

       Plaintiffs’ argument that they seek only the return of an unlawful “surcharge,”

Appellants’ Br. 4, and not a sales tax refund, merits little discussion. The amended


                                            4
complaint concedes that the complained-of fee was consistently described as sales tax

and assessed at the 8.875% combined state and municipal sales tax rate in New York

City. See Sales Tax, City of New York, http://www1.nyc.gov/nyc-resources/service/

2389/sales-tax (last visited May 22, 2017).       Plaintiffs do not allege that fees were

charged over and above the normally applicable sales tax rate, or that defendants failed to

remit any charges collected to the appropriate state and municipal tax authorities. In

sum, plaintiffs offer nothing more than the bare and unsupported conclusion that

defendants’ allegedly erroneous charges were intended to represent anything other than

sales tax. This is insufficient to avoid the exclusive administrative remedy mandated by

N.Y. Tax Law § 1140.2 See Bigio v. Coca-Cola Co., 675 F.3d 163, 173 (2d Cir. 2012)

(“[P]leadings that[] . . . are no more than conclusions[] are not entitled to the assumption

of truth.” (internal quotation marks omitted)).

       b.     N.Y. Tax Law § 1140 Applies to Exempted Products

       Alternatively, plaintiffs argue that, because administrative procedures are required

for the refund of taxes “imposed” by the state tax code, see N.Y. Tax Law § 1140,

compliance with such procedures is not necessary where taxes were assessed in violation

of law, as where a merchant erroneously collects sales tax on an exempt foodstuff.

Similarly, plaintiffs argue that, insofar as defendants collected sales tax in alleged

violation of a statutory exemption, they could not have been performing a mere

“ministerial act” on the state’s behalf, Davidson v. Rochester Tel. Corp., 163 A.D.2d at

2
  We do not here address whether resort to this administrative remedy might ever be
unnecessary if an additional fee has been fraudulently charged as a “tax” yet not remitted
to state or municipal authorities.

                                             5
802, 558 N.Y.S.2d at 1011, and cannot avoid suit by adverting to state administrative

procedures.

       This interpretation of the statute is defeated by context. See In re Bernard L.

Madoff Inv. Sec. LLC, 654 F.3d 229, 237 (2d Cir. 2011) (explaining that statute is

properly “understood in context with and by reference to the whole statutory scheme”

(internal quotation marks omitted)).          New York Tax Law § 1139 makes clear that

§ 1140’s exclusive administrative remedy is designed for precisely those cases in which a

claimant   alleges     that   a   tax   has    been   collected   “erroneously,   illegally   or

unconstitutionally.”    Following this plain language, New York courts have required

claimants to apply for relief to the state tax commission where sales taxes were collected

in alleged violation of law. See, e.g., CMSG Rest. Grp., LLC v. State, 145 A.D.3d 136,

141, 40 N.Y.S.3d 412, 416 (1st Dep’t 2016) (“[P]laintiffs’ argument that the

performances . . . were exempt from the sales taxes at issue is not properly raised in this

action, due to the statute’s exclusive remedy provision (Tax Law § 1140).”); see also

Davidson v. Rochester Tel. Corp., 163 A.D.2d at 802, 558 N.Y.S.2d at 1011 (holding

claim that collection of sales tax was “improper, unnecessary, [and] unauthorized by law”

must be “raised in an administrative proceeding” (internal quotation marks omitted)).         It

could hardly be otherwise, as there would be no dispute for the state tax commission to

address if all parties agreed that collection of a sales tax were legal. See generally

S.E.C. v. Rosenthal, 650 F.3d 156, 162 (2d Cir. 2011) (“A statute should be interpreted in

a way that avoids absurd results.” (internal quotation marks and alterations omitted)).



                                                 6
       To the extent plaintiffs argue that the administrative review scheme is intended

only for clerical miscalculations of sales tax, not errors in determining which products are

statutorily exempt, that position is equally inconsistent with the statute and relevant

precedent. Section 1140 nowhere distinguishes taxes assessed in an improper amount

from taxes improperly assessed on exempt products.      To the contrary, New York courts

have concluded that the administrative scheme applies equally to cases in which the

claimant alleges that sales and use taxes were erroneously assessed on a tax-exempt

product or service.     See CMSG Rest. Grp., LLC v. State, 145 A.D.3d at 141, 40

N.Y.S.3d at 416 (concluding that claim that services taxed were “exempt from the sales

taxes at issue” was not properly raised due to “exclusive remedy provision”); Davidson v.

Rochester Tel. Corp., 163 A.D.2d at 802, 558 N.Y.S.2d at 1011 (requiring resort to

administrative remedy where plaintiff alleged “that the sales tax imposed [was] within an

exception in the tax statute”).

       c.     Constitutional Claim Unavailable

       Because plaintiffs’ asserted constitutional claims were not raised in the district

court, they have been forfeited, and we need not consider them here. See, e.g., Mhany

Mgmt., Inc. v. County of Nassau, 819 F.3d 581, 615 (2d Cir. 2016) (“It is a

well-established general rule that an appellate court will not consider an issue raised for

the first time on appeal.”).      Even if plaintiffs could clear that hurdle, and even if

defendants were deemed state actors for purposes of plaintiffs’ constitutional challenges,

those claims would fail here in any event. “The comity doctrine prohibits federal courts

. . . from awarding damages personally against the taxing officials in suits contesting the

                                              7
constitutionality of state taxes . . . so long as the plaintiffs have access to state remedies

that are plain, adequate, and complete, and may ultimately seek review of the state

decisions in the Supreme Court.” Abuzaid v. Mattox, 726 F.3d 311, 315 (2d Cir. 2013)

(internal quotation marks and alterations omitted).        Plaintiffs do not challenge the

adequacy of the mandatory state procedures at issue here.

       Accordingly, we conclude that dismissal of plaintiffs’ complaint was warranted

for failure to comply with the exclusive remedy provision of N.Y. Tax Law § 1140.

2.     Gen. Bus. Law § 349 Claim

       Finally, plaintiffs argue that, even if dismissal of their state common law claims

were warranted, they could independently assert a claim that defendants’ improper

collection of sales tax was a deceptive act or practice in violation of N.Y. Gen. Bus. Law

§ 349. As support, plaintiffs point only to § 349(g), which explains that this statutory

cause of action applies to “all deceptive acts or practices declared to be unlawful, whether

or not subject to any other law of this state.”        Plaintiffs do not explain why that

provision abrogates the need to resort to a mandatory administrative remedy. Indeed,

the cases they cite merely stand for the noncontroversial principle that the absence of a

private cause of action under one statute does not necessarily foreclose an action under

another. That in no way speaks to the situation presented here, where N.Y. Tax Law

§§ 1139 and 1140 explicitly foreclose legal remedies other than the mandatory

administrative procedure described therein to recover improperly collected sales taxes.

While additional conduct causing further injury might support a § 349 claim, plaintiffs’



                                              8
complaint alleges no actions beyond defendants’ continued practice of charging sales tax

on pre-packaged coffee.

       Accordingly, plaintiffs’ challenge to dismissal of their Gen. Bus. Law § 349

claims fails.3

3.     Conclusion

       We have considered plaintiffs’ remaining arguments and conclude that they are

without merit. Accordingly, the judgment of the district court is AFFIRMED.

                                  FOR THE COURT:
                                  CATHERINE O’HAGAN WOLFE, Clerk of Court




3
  We therefore need not address the district court’s conclusion that defendants’ actions in
this case were not sufficiently “consumer oriented” for plaintiffs to plead a N.Y. Gen.
Bus. Law § 349 claim. App’x 145.

                                            9
