Prison Phone Justice

Case 2:13-cv-04989-WJM-MF Document 35 Filed 09/08/14 Page 1 of 11 PageID: 433

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Docket No.: 13-4989-WJM-MF

BOBBIE JAMES et al.,
Plaintiffs,

OPINION
v.
GLOBAL TEL*LINK CORPORATION,
INMATE TELEPHONE SERVICE, and
DSI-ITI LLC,
Defendants.
WILLIAM J. MARTINI, U.S.D.J.:
This is a putative class action involving the fees charged for phone calls
originating from prison pay phones in the state of New Jersey. Defendants filed a
motion pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the
Complaint. For the reasons set forth below, the motion is hereby denied.
I.

BACKROUND
a. Allegations of the Complaint

Defendants provide managed telecommunications services at state and local
correctional facilities in New Jersey so inmates can communicate with family
members, friends, attorneys, and other approved persons outside the correctional
facilities. (Complaint at ¶ 12) Defendants are three corporate entities that operate
as a single economic unit with respect to the telecommunications services relevant
to the Complaint. (Complaint at ¶ 15) Defendants have the sole right to provide
telecommunications services for people incarcerated in certain New Jersey state and
county prison and detainee facilities. (Complaint at ¶ 16)

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Plaintiffs are all people who had to use the Defendants’ services in order to
communicate with a friend or family member. 1 Plaintiffs allege that Defendants
charged illegally and unconscionably high and undisclosed rates and fees to a captive
market. (Complaint at ¶ 22) Plaintiffs filed a Complaint with seven causes of action:
(1) violation of the New Jersey Consumer Fraud Act (“NJCFA”); (2) violations of
certain sections of the NJCFA and N.J.A.C. § 45A-803; (3) violation of the New
Jersey public utilities statutes (N.J.S.A. § 48-3.1 and 3.2); (4) unjust enrichment; (5)
violation of the Federal Communications Act, 47 U.S.C. § 201 (“FCA”); (6)
violation of the Takings Clause of the Fifth Amendment; and (7) declaratory
judgment.
Plaintiffs allege that the State of New Jersey benefits financially from the
Defendants’ monopoly. (Complaint at ¶¶ 17-19) Specifically, Defendants remit to
the state 40% of the rates charged and 50% or more to the counties of Hudson,
Bergen, Essex, and Monmouth. (Complaint at ¶¶ 18-19) New Jersey receives $4.42
million per year as its percentage of revenue pursuant to its contract with Defendants.
(Complaint at ¶ 19)
The Complaint alleges that Defendants purchase their minutes for calls
terminating within the United States for less than 3/10 of a penny per-minute, and
Defendants often resell the minutes they buy at more than 100 times their cost to
Plaintiffs and other Class Members. (Complaint at ¶ 23) The market rate for
competitively priced prepaid calling cards is approximately 1¢ to 2¢ per minute for
calls within the United States. Depending upon the country being called, the rates
for international calls can be as low as 1¢ per minute. Defendants, however, charge
approximately 30¢ per minute for calls within the United States. The Complaint
also alleges that Defendants charge exorbitant rates for international calls.
(Complaint at ¶ 24)
Plaintiffs allege that Defendants’ customers establish their accounts over the
phone. (Complaint at ¶ 25) When a prisoner wishes to call someone outside the
detention facility, they must place a collect call to that person. (Id.) The called
person hears a series of automated prompts to set up an account with Defendants in
order to accept the call. (Id.) The same automated procedures are followed when
customers seek to open an account by calling the Defendants’ 800 number provided
at the prison facility to customers. (Id.)
Four Plaintiffs are residents of New Jersey. Plaintiffs John Crow and Barabara Skladany are residents of New York.
Plaintiff Milan Skladany was a resident of New Jersey until 2011, when he returned to the Slovak Republic.
Defendants are privately held Delaware corporations with principal places of business in Alabama. (Complaint at ¶ ¶
6-16)
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Using standardized scripts and prompts, the Defendants’ system sets up an
account for the customer or called person using a credit or debit card provided by
the customer. (Complaint at ¶ 26) These accounts must be set up in amounts of $25,
$50, or $100. (Complaint at ¶ 26) After the account is set up, the called person is
then provided with a PIN so he or she may accept calls from the prisoner in the future,
and charges for all calls are deducted from the called person’s account. (Complaint
at ¶ 26)
The Complaint alleges that Defendants tell customers that no information on
rates and charges are available until they have an account number. (Complaint at
¶ 27) Defendants do not provide customers with a written contract when they
establish an advance pay account with Defendants by telephone, nor are they advised
of any of the terms and conditions applicable to their accounts. (Complaint at ¶ 28)
The Complaint alleges that Defendants do not issue account statements in
writing or electronically to customers in the ordinary course of business. When
making or receiving a call, customers hear a voice prompt advising them how much
money is left in their accounts, but customers cannot obtain an itemized statement
of charges to their accounts, nor can customers determine how many minutes of
calling time they have left because Defendants do not disclose rates and applicable
charges. (Complaint at ¶ 29)
The Complaint alleges that Defendants fail to inform their customers that they
will be charged a service or set-up fee which will be deducted from their advance
pay balance when an account is first established. (Complaint at ¶ 30)
The Complaint alleges that Defendants charge an unconscionable service fee
of approximately 20% of the deposit, i.e. $4.75 out of the first $25.00 deposit, $9.50
out of the first $50.00 deposit, and $19.00 out of the first $100.00 deposit when an
account is first established. (Complaint at ¶ 31)
The Complaint alleges that Defendants fail to inform their customers when an
account is first established that they will be charged fees (a per-call transaction or
connection fee) for each call placed in addition to the call rates per minute.
(Complaint at ¶ 32) Defendants charge upwards of $1.75 per call as a connection or
transaction fee. (Complaint at ¶ 33)
The Complaint alleges that Defendants charge a $5.00 fee to close an account
and obtain a refund of any remaining balance. However, Defendants fail to inform
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their customers when an account is first established that they will be charged this
additional service fee to close the account. (Complaint at ¶ 34)
The Complaint alleges that Defendants fail to inform their customers when an
account is first established that their account balances will be forfeited if they do not
use Defendants’ service for a 90-day period. (Complaint at ¶ 35)
The Complaint alleges that Defendants fail to inform their customers when an
account is first established that a monthly inactivity fee will be charged against their
account for any months when it is not used. (Complaint at ¶ 36)
The Complaint alleges that because customers must purchase calling time in
multiples of $25, $50, or $100 and must establish an account in advance of paying
for calls, it is inevitable that customers will not use the exact amount of money in
their account. As a result, every customer will incur either the $5.00 fee to close
their account or will forfeit their account as a result of it being inactive for 90 days.
(Complaint at ¶ 37)
The Complaint alleges that Defendants also fail to advise customers that the
customer’s account may be frozen if Defendants deem the amount remaining in the
account to be too little to accept calls from an inmate. In order to unfreeze the
account so he or she can receive calls, the customer must recharge his or her account,
while incurring service charges of 20% of the amount deposited in doing so.
(Complaint at ¶ 38)
b. New FCC Regulations
Since Plaintiffs filed this Complaint, the Federal Communications
Commission (“FCC”) issued a series of regulations (“the new regulations”) that
appears to address the issues in this case in a manner unfavorable to Defendants. 78
Fed. Reg. 67956. On November 12, 2013, the FCC stated that inmate calling service
(“ICS”) rates and charges were frequently unjust, unreasonable, and unfair, and
therefore in violation of the Federal Communications Act. 78 Fed. Reg. 67956. The
new regulations were designed to “provide relief to the millions of Americans who
have borne the financial burden of unjust and unreasonable interstate inmate phone
rates.” Id. The new regulations mandate that ICS rates and ancillary services be
cost-based. In preparation of the new regulations, the FCC conducted a study about
what the fair cost-based rates of ICS services would be. As a result of this study, the
FCC created interim safe-harbor ICS rates. Rates below 12¢ per minute for prepaid
interstate calls are presumptively reasonable. The new regulations imposed an
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interim rate cap of 21¢ per minute for interstate prepaid calls. The new regulations
also banned the practice of recovering site commission payments – fees paid by ICS
providers to the state in order to win exclusive rights to provide their services –
through ICS rates or ancillary charges.
The Commission notes in the Federal Register that it is in the process of
seeking additional information that could result in revisions of the new regulations.
78 Fed. Reg. 67957. The new regulations also require ICS providers to submit data
on their underlying costs so that the Commission can develop a permanent rates
structure. Id.
On November 14, 2013, Defendants appealed the new regulations in the D.C.
Circuit. Global Tel*Link v. FCC, No. 13-1281. On January 13, 2014, the D.C.
Circuit stayed 47 C.F.R. § 64.6010 (cost-based rates and fees), 47 C.F.R. § 64.6020
(interim safe harbor rates), and 47 C.F.R. § 64.6060 (annual reporting requirements)
pending the outcome of the appeal. The Defendants, along with similarly-situated
ICS companies from around the country, are appealing the FCC’s new regulations
as being unlawful for a variety of reasons. (See Global Tel*Link v. FCC, No. 131281, Document # 1494131)
Moreover, on August 8, 2014, the Defendants notified this court that in July
2014, the New Jersey Board of Public Utilities (“BPU”) issued a Notice of Action
(“Notice”) on a Petition for Rulemaking filed by a group of prisoners, prisoners’
families, and prisoners’ rights groups. (ECF No. 30) The Petition asked the agency
to set rate caps for intrastate inmate calls at 5¢ per minute. (Id.) In its Notice, the
BPU stated that it “has been considering this petition and is still reviewing the merits
of the petitioner’s suggested new rules” and that it will continue this deliberation
until October 31, 2014. (Id.) At that time, the BPU will finalize its Notice of Action
on the petition. (Id.)
II.

JURISDICTION

This court has original jurisdiction over this class action pursuant to 28 U.S.C.
§ 1332(d) (“Class Action Fairness Act”) because the matter in controversy exceeds
the sum or value of $5,000,000 exclusive of interest and cost, there are at least one
hundred members of the proposed class, and at least one member of the proposed
class is a citizen of a different state than the Defendants. Jurisdiction is also proper
in this court pursuant to 28 U.S.C. § 1331 because this matter involves federal
questions under 47 U.S.C. § 201 and 42 U.S.C. § 1983. The court has supplemental

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jurisdiction over Plaintiffs’ state law claims because they arise from “a common
nucleus of operative facts.” Lyon v. Whisman, 45 F.3d 758, 760 (3d Cir. 1995).
III.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a
complaint, in whole or in part, if the plaintiff fails to state a claim upon which relief
can be granted. The moving party bears the burden of showing that no claim has
been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding
a motion to dismiss under Rule 12(b)(6), a court must take all allegations in the
complaint as true and view them in the light most favorable to the plaintiff. See
Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d
Cir. 1998) (citing Warth v. Seldin, 422 U.S. 490, 501 (1975)).
Although a complaint need not contain detailed factual allegations, “a
plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires
more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Thus, the factual allegations must be sufficient to raise a plaintiff’s right to relief
above a speculative level, such that it is “plausible on its face.” See id. at 570; see
also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008).
“[D]etermining whether a complaint states a plausible claim is context-specific,
requiring the reviewing court to draw on its experience and common sense.”
Ashcroft v. Iqbal, 556 U.S. 662, 663-64 (2009). A claim has “facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
678 (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard is not akin
to a ‘probability requirement’ . . . it asks for more than a sheer possibility.” Id. at
678.
IV.

DISCUSSION

Defendants’ main argument on this motion to dismiss is that the court should
abstain from hearing the case on the grounds that the FCC has primary jurisdiction.
This argument is pointed at Plaintiffs’ cause of action for a violation of the Federal
Communications Act. While the court agrees that the FCC has primary jurisdiction
over certain issues in this case, it will stay the case rather than dismiss it.

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a. Federal Communications Act
Plaintiffs claim that Defendants violated 47 U.S.C. § 201(b), which states:
“All charges, practices, classifications, and regulations for and in connection with [a
common carrier] communication service, shall be just and reasonable, and any such
charge, practice, classification, or regulation that is unjust or unreasonable is
declared to be unlawful.”
Section 207 of the FCA creates a private cause of action for Plaintiffs seeking
recovery for a violation of Section 201. Section 207 provides that:
[a]ny person claiming to be damaged by any common
carrier subject to the provisions of this chapter may either
make complaint to the Commission as hereinafter
provided for, or may bring suit for the recovery of the
damages for which such common carrier may be liable
under the provisions of this chapter, in any district court of
the United States of competent jurisdiction; but such
person shall not have the right to pursue both such
remedies.
47 U.S.C. § 207.
Plaintiffs have elected the option of bringing suit in district court. Construing
Sections 201 and 207 together, the Plaintiffs demonstrate liability under the FCA if
they can prove that Defendants’ conduct was “unjust or unreasonable.” For the
reasons set forth below, this court will not determine whether the challenged conduct
was “unjust or unreasonable” under Section 201. That is an issue determination that
is better left for the FCC to make in the first instance. Plaintiffs may file an
administrative complaint with the FCC for determination of the issue without losing
their right to pursue damages in this court. See Raritan Baykeeper v. NL Indus., Inc.,
660 F.3d 686, 691 (3d Cir. 2011); Waudby v. Verizon Wireless Services, LLC, No. 07470, 2007 WL 1560295, at *5 (D.N.J. May 25, 2007).
b. Primary Jurisdiction
Defendants argue that the court should, pursuant to the doctrine of primary
jurisdiction, dismiss the case because the FCC has primary jurisdiction to determine
whether the challenged charges and practices are “just and reasonable” under the
FCA. The court agrees that the FCC has primary jurisdiction; however, the court
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finds that staying the case, rather than dismissing it, is the appropriate course of
action.
The doctrine of primary jurisdiction, despite its name, does not implicate the
jurisdiction of a federal court. Rather, it is a principle of judicial administration
designed to achieve coordination between administrative agencies and the courts.
Puerto Rico Mar. Shipping Auth. v. Valley Freight Sys., Inc., 856 F.2d 546, 549 (3d
Cir. 1988) (citing Cheyney State College Faculty v. Hufstedler, 703 F.2d 732, 736
(3d Cir. 1983)). “The doctrine is a ‘prudential’ one, under which a court determines
that an otherwise cognizable claim implicates technical and policy questions that
should be addressed in the first instance by the agency with regulatory authority over
the relevant industry rather than by the judicial branch.” Clark v. Time Warner
Cable, 523 F.3d 1110, 1114 (9th Cir. 2008).
“The doctrine of primary jurisdiction applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed
within the special competence of an administrative body.” Raritan Baykeeper v. NL
Indus., Inc., 660 F.3d 686, 691 (3d Cir. 2011) (citing United States v. W. Pac. R.R.
Co., 352 U.S. 59, 64 (1956)). If the court applies the doctrine of primary jurisdiction,
the judicial proceedings are suspended pending the agency’s adjudication of the issue within the agency’s special competence. Id.
The term “referral” is something of a misnomer in this case because there is
no mechanism here for the court to request or demand that the FCC decide an issue.
See Reiter v. Cooper, 507 U.S. 258, 269 n. 3 (1993). Rather the court here considers
whether it should stay the proceedings to allow the filing of an administrative complaint. Id.
Four factors should be considered in deciding whether to refer an issue to an
administrative agency: (1) whether the issues presented fall within the “conventional
expertise” of judges; (2) whether the issues are within the agency’s discretion or
require the exercise of the agency’s expertise; (3) whether there are any dangers of
inconsistent rulings between the courts and agency; and (4) whether a prior
application has been made to the agency. Oh v. AT&T Corp., 76 F. Supp. 2d 551,
557 (D.N.J. 1999).
Cases involving “abstract statutory terms such as ‘reasonable’” are
particularly well suited for transfer to an administrative agency.” Demmick v. Cellco
Partnership, 2011 WL 1253733, at *5 (D.N.J. March 29, 2011). This is particularly
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true for the meaning of “reasonable” under Section 201 of the FCA. Oh, 76 F. Supp.
2d at 557 (stating that courts “have consistently found that claims which allege
unreasonable practices in violation of § 201(b) [of the FCA] fall within the primary
jurisdiction of the FCC.”); Demmick, 2011 WL 1253733, at *6 (“[R]easonableness
determinations under § 201(b) [of the FCA] lie within the primary jurisdiction of the
FCC, because they involve policy considerations within the agency’s discretion and
particular field of expertise.”).
Primary jurisdiction should be used sparingly because it can result in added
expense and delay. Alpharma, Inc. v. Pennfield Oil Co., 411 F.3d 934, 938 (8th Cir.
2005); Waudby v. Verizon Wireless Services, LLC, No. 07-470, 2007 WL 1560295,
at *4 (D.N.J. May 25, 2007) (“[C]ourts must balance the advantages of applying the
primary jurisdiction doctrine against the potential costs resulting from complications
and delay in the administrative proceedings.”). When “the matter is not one
peculiarly within the agency’s area of expertise, but is one which the courts or jury
are equally well-suited to determine, the court must not abdicate its responsibility.”
Raritan Baykeeper v. NL Indus., Inc., 660 F.3d 686, 691 (3d Cir. 2011). Where the
issue is simply one of whether a rule has been violated, primary jurisdiction should
not be applied, but where the question is whether an act is reasonable, primary
jurisdiction should be applied. See Williams Pipe Line Co. v. Empire Gas Corp., 76
F.3d 1491, 1497 (10th Cir. 1996); U.S. v. Elrod, 627 F.2d 813, 818 (7th Cir. 1980).
Plaintiffs argue that primary jurisdiction is inapplicable because the FCC has
already determined the issue of reasonable ICS rates. If the only issue were whether
the Defendants had violated the new regulations, then indeed, primary jurisdiction
would be inapplicable. See Williams Pipe Line Co. v. Empire Gas Corp., 76 F.3d
1491, 1497 (10th Cir. 1996); U.S. v. Elrod, 627 F.2d 813, 818 (7th Cir. 1980).
However, the issue is not whether the Defendants have violated the new regulations,
but whether their charges and practices prior to the issuance of the new regulations
violated the FCA, 47 U.S.C. § 201. Moreover, due to the pending appeal in the D.C.
Circuit, it is not clear that the new regulations will even remain in place.
Under these circumstances, the first three primary jurisdiction factors weigh
heavily in favor of its application. The reasonableness of the Defendants’ charges
and practices under the FCA “implicates technical and policy questions” that the
FCC has the special expertise to decide in the first instance. Clark v. Time Warner
Cable, 523 F.3d 1110, 1114 (9th Cir. 2008). Likewise, the issue of whether ICS
rates are “just and reasonable” under the FCA falls outside the conventional expertise
of judges. There is a great danger of inconsistency between the court and the FCC
if this case proceeds without the FCC first determining whether the Defendants’
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charges and practices were reasonable under the FCA prior to the issuance of the
new regulations.
The fourth factor has little weight here. Although the FCC issued its new
regulations because of prior complaints about practices like the Defendants’ rates
and charges, see 78 Fed. Reg. 67956, the FCC did not address the exact charges and
practices of these Defendants. Nor is it clear whether the FCC intended that the new
regulations apply retroactively. For these reasons, the court will stay the case until
the FCC determines whether Defendants’ charges and practices prior to the new
regulations violated the FCA.
c. Scope of the Stay
Plaintiffs urge the court to stay only the FCA cause of action while discovery
commences on the other causes of action. In this jurisdiction, we find no cases where
the court merely stayed an FCA cause of action pursuant to primary jurisdiction
while allowing the other causes of action to go forward. See, e.g., Oh v. AT&T Corp.,
76 F. Supp. 2d 551, 557 (D.N.J. 1999); Demmick v. Cellco Partnership, 2011 WL
1253733, at *5 (D.N.J. March 29, 2011); Waudby v. Verizon Wireless Services,
LLC, No. 07-470, 2007 WL 1560295, at *4 (D.N.J. May 25, 2007).
We find one case from the District of Kansas, In re Universal Service Fund
Telephone Billing Practices Litig., 300 F. Supp. 2d 1107, 1153 (D. Kan. 2003), where
the court did refer an FCA cause of action while allowing three other causes of action
to proceed to discovery. The Universal Service Fund case does not, however,
provide an analogy that warrants deviating from the usual custom within this district.
In Universal Service Fund, the causes of action that the court permitted to proceed
to discovery were not related to acts subject to review by the FCC. In this case, by
contrast, all causes of action arise from the same charges and practices, and the FCC
can review all of these actions for reasonableness under the FCA.
The facts of this case are more similar to Waudby v. Verizon Wireless Services,
LLC, No. 07-470, 2007 WL 1560295, at *4 (D.N.J. May 25, 2007). In that case,
Plaintiffs brought a putative class action against Verizon, alleging that its early
termination fees violated both state law and the FCA. The court in Waubdy elected
to stay the entire case, finding that allowing the FCC first to rule on the challenged
actions “would promote uniformity and consistency in its regulation of the
telecommunications industry.” Id., at *7 (citing Kiefer v. Paging Network, Inc., 50
F. Supp. 2d 681, 683 (E.D. Mich. 1999)). Staying the proceedings until after the
FCC rules on the reasonableness issue prevents the court from “interfering with or
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contradicting any FCC rulings and [allows] the Court to address remedy issues left
open after the FCC decision.” Id., at * 5.
While the FCC’s determination in this case is not dispositive to any of the
non-FCA causes of action, its determination could influence the ultimate outcome
of the other causes of action. Moreover, the overhanging uncertainty about the
FCC’s determination could make discovery on the other causes of action more
contentious than necessary. For these reasons, we consider it more prudent to follow
the other courts in our district and stay the entire case until the FCC rules on the
reasonableness of the Defendants’ charges and practices, or the Plaintiffs drop the
FCA cause of action.
As noted above, there is no legal mechanism for this court to “refer” the case
to the FCC. Moreover, Plaintiffs suggested at oral argument that they may not seek
the FCC’s determination on the reasonableness of the challenged charges and
practices even if the court stays the case for them to do so. Because such inaction
on the part of the Plaintiffs would cause further undue delay, we add the following
directive to the opinion and order to effectuate a “referral:” that Plaintiffs shall file
an administrative complaint with the FCC within 90 days of the D.C. Circuit’s filing
of the opinion in the pending appeal, Global Tel*Link v. FCC, No. 13-1281. If
Plaintiffs fail to do so, the Defendants may petition the court to dismiss the FCA
cause of action for lack of prosecution.
V.

CONCLUSION

For the reasons set forth above, the Defendants’ motion to dismiss is denied.
The case is stayed until the FCC determines whether the challenged charges and
practices violated the FCA, 47 U.S.C. § 201, the Plaintiffs voluntarily dismiss the
FCA cause of action, Plaintiffs fail to file an administrative complaint with the FCC
within 90 days of the filing of the D.C. Circuit’s opinion in the pending appeal
(Global Tel*Link v. FCC, No. 13-1281), or either party petitions the court with other
good cause for lifting the stay.

/s/ William J. Martini
______________________________
WILLIAM J. MARTINI, U.S.D.J.
Date: September 8, 2014

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