by David M. Reutter

On November 23, 2009, the New York Court of Appeals – the state’s highest court – affirmed the dismissal of a lawsuit arguing that the contract between the New York State Department of Correctional Services (NYDOCS) and MCI Worldcom Communications for prison telephone services violated the state’s constitution.

The complaint alleged that the portion of the telephone charge allocated as a commission (i.e., kickback) paid to NY-DOCS constituted an illegal tax or fee, amounted to a government taking without just compensation, and violated the peti-tioners’ equal protection, free speech and associational rights. NYDOCS used the phone commission payments to fund the Family Benefit Fund, which included prisoner health care services, bus transportation for family visitation programs, free prisoner postage, and expenses at prison visitor centers.

New York’s initial 1996 contract with MCI included a 60% per-call commission payment to the state. In 2001, a new contract lowered NYDOCS’ commission to 57.5%. A 2003 contract revision purported to provide relief to families from MCI’s “unfair” variable rate structure by enacting a flat rate fee of $3.00 per phone call plus $.16 per minute, but continued the 57.5% commission.

While the suit was on appeal, having been dismissed for being time-barred, then-Governor Eliot Spitzer enacted an executive policy requiring NYDOCS to discontinue collecting commissions on prisoner calls. A law that went into effect on April 1, 2007 made it illegal for NYDOCS to accept or receive revenue in excess of its reasonable operating costs for ad-ministering the prison phone system. [See: PLN, April 2007, p.20].

After the case was remanded by the appellate court, which found it was not time-barred, the trial court dismissed the complaint on the merits. [See: PLN, Oct. 2008, p.24]. The dismissal was then affirmed on appeal. See: Walton v. New York State Department of Correctional Services, 57 A.D.3d 1180, 869 N.Y.S.2d 661 (N.Y.A.D. 3 Dept. 2008).

On review in the Court of Appeals, the parties agreed that the actions of the executive and legislative branches rendered the complaint’s injunctive relief claim academic, and that any decision in the case would affect the rights and liabilities of the parties only to the extent that the petitioners were entitled to refunds.

As to whether the commissions constituted a tax or fee, the Court concluded that MCI’s contractual obligations fell into the category of permissible government activity of entering into contracts with the private sector. The Court noted that it was an “industry standard” for telephone service providers to pay commissions when placing a payphone on public or private property. Additionally, in the prison context such commissions typically ranged from 20% to 63%.

The commission, the Court found, “lacks the hallmarks of a tax or fee because [NYDOCS] has not compelled petition-ers to purchase services from MCI, nor are telephone services a government benefit.” Even if the commissions were considered a tax, the “claim for refunds would be barred because [petitioners] failed to pay the rate under protest.”

Further, the “takings” claim failed because the use and acceptance of the prison phone system was voluntary. The com-plaint’s free speech and associational claims also failed, because the alternatives of visitation and mail were available to prisoners and their family members. Finally, the petitioners’ equal protection claim failed as it was “not alleged that recipients of station-to-station collect calls to non-inmates pay less than the rate they paid MCI.” Accordingly, the order of dismissal was affirmed. See: Walton v. New York State Department of Correctional Services, 13 N.Y.3d 475, 921 N.E.2d 145 (N.Y. 2009).

No lawsuits challenging exorbitant prison phone rates have been successful; when there are reductions in such rates, they usually occur as a result of action by the legislative or executive branch – as was the case in New York.

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