Superior Court of Massachusetts, Suffolk, Business Litigation Session
MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS' JOINT MOTION TO DISMISS FIRST AMENDED MASSACHUSETTS FALSE CLAIMS ACT COMPLAINT
Edward P. Leibensperger, Justice
Plaintiff, Phone Recovery Services, LLC (PRS), brings this action under the Massachusetts False Claims Act (MFCA), G.L.c. 12, § § 5A--5O, inserted by St. 2000, c. 159, 18, against defendants, various mobile telecommunications or telephone exchange companies. PRS asserts a claim on behalf of the Commonwealth concerning defendants' obligation to collect a surcharge from subscribers and users of communication services. The surcharge is collected for expenses associated with services provided in connection with a statewide 911 emergency public safety system. PRS contends that defendants failed to bill, collect, report and remit the required amount for each line capable of reaching a 911 operator. As a result, defendants allegedly misrepresented to the Commonwealth the information regarding the amount of phone line charges that are subject to the 911 surcharge, causing substantial monetary losses to the Commonwealth.
Defendants filed a joint motion to dismiss PRS's First Amended Massachusetts False Claims Act Complaint (complaint) pursuant to Mass.R.Civ.P. 12(b)(6). PRS opposes the motion. For the reasons stated below, the defendants' joint motion to dismiss will be allowed.
The facts as revealed by the complaint and the relevant statutes are as follows.
PRS is the relator in this action. It is a New Jersey limited liability corporation. PRS served the Massachusetts Attorney General with a copy of the complaint pursuant to the MFCA. On December 3, 2014, the Commonwealth filed a notice of its statutory election not to intervene pursuant to G.L.c. 12, § 5C(4). Defendants, Verizon of New England, Inc., XO Massachusetts, Inc., United Business Telephone, Inc., Comcast Business Communications, LLC, YMAX Communications Corp., Paetec Communications, Inc., and John Does 1 through 75, are entities that provide telephone exchange services in Massachusetts.
In 2007, the Commonwealth established a 911 emergency telephone system (911 system) within the Division of Telecommunications and Cable. The 911 system is jointly administered by the Massachusetts Department of Public Safety. According to PRS, the 911 system was established to provide a stable source of revenue to fund the Commonwealth's 911 Emergency Telephone System Account, which pays for the installation, operation, and maintenance costs of the statewide enhanced 911 network, including wireless enhanced 911 services. The 911 system is also used to fund the Commonwealth's costs arising from emergency response and emergency response training.
The Commonwealth funds the 911 system through general appropriations and, in addition, through a $0.75 monthly surcharge imposed on each mobile telecommunications customer who uses the number primarily in Massachusetts. By statute, the surcharge is assessed to each subscriber or end user of communications systems. See G.L.c. 6A, § 18H (" There shall be imposed on each subscriber or end user whose communication services are capable of accessing and utilizing an enhanced 911 system, a surcharge in the amount of 75 cents per month for expenses associated with services provided . . ."). The mobile telecommunications company assesses the surcharge pursuant to 220 Code Mass. Regs. § 16.03 and 560 Code Mass. Regs. § 3.04. The Commonwealth also funds the 911 system through a $0.75 monthly surcharge imposed on each customer charged by a telephone exchange company for each voice grade access telephone number provided to the customer with a service address in Massachusetts. Mobile telecommunications companies and telephone exchange companies are required to collect the $0.75 surcharge on a monthly basis for " each and every voice grade line and mobile phone." They are also required to pay the amounts collected on a quarterly basis to the 911 Division within the Department of the Treasury. Moreover, each mobile telecommunications company and telephone exchange company is liable for the surcharge imposed and must itemize and separately identify the surcharge on a customer's monthly bill. The Massachusetts Department of Revenue has established instructions and forms for mobile telecommunications companies and telephone exchange companies to report and remit the surcharges it has collected on a quarterly basis.
PRS claims that " [u]pon information and belief, the defendants have and are presently engaged in a practice that has resulted in the under-collection of the 911 assessment that they are required to collect and remit to the Commonwealth of Massachusetts for payment pursuant to Massachusetts law." Complaint at para. 21. PRS asserts that defendants have benefitted by failing to comply with Massachusetts law. Relying on data from the Federal Communications Commission (FCC), PRS believes that Massachusetts has an operating base of approximately 9.9 million non-mobile telephone voice grade access lines (e.g., landlines). Based on this data, PRS alleges that the amount of 911 surcharges that should be collected from landline phones in Massachusetts each year is approximately $89.8 million.
Based on data reported to the FCC by the Commonwealth on 911 collection of surcharges in 2012, Massachusetts anticipated collecting $80 million per year in 911 surcharges: $49.6 million in mobile surcharges and only $30.4 million in 911 surcharges from landlines. PRS contends that in 2012, " Massachusetts experienced an annual shortfall in collections of 911 fees . . . in the range of $36 million per annum from landlines . . . alone." Complaint at pars. 24. In addition, PRS claims that surcharges are not being paid on phones associated with the Lifeline Program for low-income consumers. Thus, PRS estimates that since the Commonwealth established the MFCA in 2000, it has experienced lost revenues of $214, 079, 323 based on defendants' purported failure to collect 911 surcharges. Complaint at para. 25. PRS asserts that defendants purposefully and knowingly failed to file accurate and truthful reports to the Commonwealth and that the Commonwealth was not aware of the amounts not collected by defendants because that information is in the control of defendants. This, PRS claims, resulted in a substantial loss of revenue for the Commonwealth.
PRS's complaint contains three counts: false claims action and declaratory judgment (Count I), breach of fiduciary duty (Count II), and injunctive relief (Count III). PRS's MFCA claim in Count I is based on the following allegations: Massachusetts law requires defendants to collect, report, and remit surcharges to the Commonwealth. Defendants knowingly failed to charge their customers the statutory surcharge required or only charged a portion of the statutory surcharge. Defendants knowingly provided false information to the Commonwealth in order to conceal, avoid, or decrease their financial obligations under the law. The Commonwealth lacks information to sufficiently identify the total number of false records or statements contained in the reports submitted to the Commonwealth because this information is solely in defendants' custody. As a result of these actions, the Commonwealth has not received the statutory surcharges it is entitled to receive under the law, and the Commonwealth and the general public have been harmed.
To survive a motion to dismiss, the plaintiff's " [f]actual allegations must be enough to raise a right to relief above the speculative level . . . [based] on the assumption that all the allegations in the complaint are true (even if doubtful in fact) . . ." Iannacchino v. Ford Motor Co., 451 Mass. 623, 636, 888 N.E.2d 879 (2006), citing Bell A. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007). In other words, " [w]hile a complaint attacked by a . . . motion to dismiss does not need detailed factual allegations . . . a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions . . ." Iannacchino, 451 Mass. at 636, quoting Bell A. Corp., 127 S.Ct. at 1966. Dismissal under Mass.R.Civ.P. 12(b)(6) is proper where a reading of the complaint establishes beyond doubt that the facts alleged do not support a cause of action which the law recognizes, such that the plaintiff's claim is legally insufficient. Nguyen v. William Joiner Center for the Study of War and Social Consequences, 450 Mass. 291, 295, 877 N.E.2d 1266 (2007).
Defendants argue, among other things, that PRS's MFCA claim in Count I should be dismissed because the 911 surcharges at issue are " taxes" and fall under the MFCA's express tax bar. Under the MFCA, the statute " shall not apply to claims, records or statements made or presented to establish, limit, reduce or evade liability for the payment of tax to the commonwealth or other governmental authority." G.L.c. 12, § 5B(d). The MFCA's tax bar provision is similar to the tax bar contained in the Federal False Claims Act, which states: " This section does not apply to claims, records, or statements made under the Internal Revenue Code of 1986." 31 U.S.C. § 3729(d). See United States ex rel. Lissack v. Sakura Global Capital Markets, Inc., 377 F.3d 145, ...