State High Court Upholds Decision Denying Refunds in Inmate Phone Rate Case

On November 23rd, the New York State Court of Appeals issued its decision in Walton v. New York State Department of Correctional Services, upholding a ruling of the Appellate Division, Third Department which held that the families of inmates in state prisons could not receive refunds for the "commissions" paid to the prisons through high rates paid by recipients of collect calls made by inmates.

In 1996, the state Department of Correctional Services ("DOCS") created a telephone calling system that allowed inmates to contact family, friends, and legal services providers using coinless pay telephones without operator assistance. The system included security features, such as technology permitting DOCS to monitor and record calls, providing DOCS the capability to restrict access to particular telephone numbers and bar certain users from calling specified numbers, limiting the length of calls, and preventing inmate calls from being forwarded by call recipients. MCI was awarded the contract to provide the inmate calling service in 1996 and in 2001. In exchange for receiving exclusive access to inmates and their call recipients, MCI agreed to pay DOCS a commission on each call.

The payment of commissions is common in inmate calling plans in other states. In New York, while only a small portion of the commissions represented the actual costs DOCS incurred in administering the inmate calling program, the revenues were used for various programs, including free inmate postage. The commissions were set high: in 1998, a 60% per call commission payment was approved by the New York State Public Service Commission ("PSC"), which was reduced to 57.5% in 2001.

In 2003, DOCS and MCI amended their contract to provide for a flat rate (a $3.00 surcharge per call plus 16 cents per minute), but continued the DOCS commissions at 57.5%. When MCI submitted a revised tariff filing with the PSC at that time, the PSC approved the rate change, but concluded that it lacked jurisdiction to assess the propriety of the DOCS commissions. As a result, it only reviewed and approved the "jurisdictional portion" of the rate, the 42.5% retained by MCI. The Court of Appeals noted that this narrow view by the PSC of its jurisdiction was not before the court because the PSC had not been sued.

While the case was pending, then-Governor Spitzer changed executive policy and required DOCS to discontinue the practice of collecting commissions on inmate calls. The Legislature also acted on April 1, 2008 by making it unlawful for DOCS to accept or receive revenue in excess of its reasonable operating costs for administering an inmate calling system. Thus, the commission system in New York State ended in 2008 and the petitioners were able to achieve the primary relief they sought - a change in the inmate calling system, resulting in a significant reduction in costs incurred by call recipients. However, the families of the inmates sought refunds on the grounds that DOCS was precluded from entering into a telephone services arrangement that included a commission.

Writing for the Court, Judge Graffeo supported the Governor and Legislature's decision to eliminate the commissions, but found that the commissions were expenses incurred by the telephone service provider and not a tax, comparable to other types of operating costs that are encompassed within the tariff filed with the PSC and charged to customers. The commissions were also deemed not to be a tax because the inmates' families were not required to purchase services from MCI and because telephone service is not a government benefit. "Not only were such commissions common in the payphone industry," Judge Graffeo wrote, "but, during the period relevant to this lawsuit, they were often included in other state inmate calling plans where the commission typically ranged from 20% to 63%." Finding that a tax had not been imposed on MCI, the Court was "not persuaded that the commission was transformed into a tax or fee just because MCI passed this cost on to call recipients along with its other reasonable operating expenses."

Further, even if the commissions were deemed to be a tax, the Court found that any claim for refunds would be barred because the petitioners "failed to pay the rate under protest. . . . [P]etitioners were not compelled to pay anything either to DOCS or MCI, nor was their money or other property confiscated by the state." The Court went on to hold that "[t]he acceptance of collect calls was voluntary action and, by taking the calls, petitioners agreed to pay the associated rate. They were in control of the length of the calls and, thus, the costs incurred. Just like any other consumer, petitioners purchased a service from MCI and were billed accordingly."

The Court also rejected the claim that the commissions were an unlawful taking:

Essentially, petitioners' takings claim boils down to the contention that DOCS had a constitutional obligation to ensure that the family members and legal services providers of inmates received telephone services at the lowest possible expense. While this might be a desirable policy decision, it was not an obligation mandated by the New York Constitution.

The Court also rejected the argument that the commissions violated the First Amendment:

[T]o state a viable claim under the free speech and association clause in this context, petitioners must allege that the DOCS commission was so high that it substantially impaired the limited right of inmates to contact and associate with family members or legal services providers and that the commission bore no reasonable relationship to legitimate penological aims. Even assuming their allegations to be true, petitioners do not meet this threshold. . . . [T]he additional expense associated with the DOCS commission on telephone calls did not imperil the right of inmates to communicate with others.

By denying the constitutional claims, the Court did not reach the alternative arguments raised by DOCS, and accepted by the Third Department, that the request for refunds was barred by the Filed Rate Doctrine.

For more information on this case and inmate calling in general, see New York Court of Appeals Revives Suit to Recover Excessive Charges for Inmate Telephone Calls and Governor Spitzer Promises Reform of Prison Inmate Telephone Charges , and PULP's website page on inmate phone service.

Lou Manuta