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T-Netix, Inc. v. County of Middlesex

December 21, 2007

T-NETIX, INC., AND ITS WHOLLY-OWNED SUBSIDIARY, T-NETIX TELECOMMUNICATIONS SERVICES, INC., PLAINTIFFS-APPELLANTS,
v.
COUNTY OF MIDDLESEX, GLOBTAL TEL*LINK, CORP., AND STATE OF NEW JERSEY, DEFENDANTS-RESPONDENTS.
ARTHUR HECKEL, MAMDOUH KHIRY, MARCUS MCCLEERY, AND T-NETIX, INC., PLAINTIFFS-APPELLANTS,
v.
COUNTY OF BURLINGTON, COUNTY OF CAMDEN, COUNTY OF CAPE MAY, COUNTY OF CUMBERLAND, COUNTY OF GLOUCESTER, COUNTY OF HUDSON, COUNTY OF HUNTERDON, COUNTY OF MERCER, COUNTY OF MONMOUTH, COUNTY OF MORRIS, COUNTY OF OCEAN, COUNTY OF SOMERSET, COUNTY OF SUSSEX, COUNTY OF UNION, STATE OF NEW JERSEY, AND GLOBAL TEL*LINK, CORP., DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-5187-06 (A-6591-05T1) and Mercer County, Docket No. L-2947-06 (A-3707-06T1).

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 24, 2007

Before Judges Weissbard, S. L. Reisner and Gilroy.

These two appeals were calendared back-to-back.*fn1 We consolidate the matters for purpose of this opinion and affirm.

The primary issue in each appeal concerns T-Netix's challenge to a contract that was awarded, following a competitive bidding process by the State of New Jersey, Department of Treasury, Division of Purchase and Property (the State), to AT&T Corp., and later assumed by defendant Global Tel*Link Corp. (Global). Under the contract, Global is required to provide inmate telephone services to State correctional facilities, and upon election, to county correctional facilities through the State's Cooperative Purchase Program (CPP). N.J.S.A. 40A:11-12; N.J.A.C. 5:34-7.29 to -7.32. T-Netix contends that Global "has developed an illegal scheme to circumvent New Jersey's public bidding laws and to monopolize the inmate telephone service provider market throughout the State of New Jersey." We first set forth the core facts and the procedural histories of the appeals. We will address other facts as necessary when discussing the issues presented.

I. THE STATE CONTRACT

In 2001 the State issued a Request for Proposal (RFP), soliciting bids for a five-year contract for inmate/resident telephone equipment and control services, at State Department of Corrections (DOC) and Juvenile Justice Commission (JJC) facilities. Under the RFP, prison inmates would only be allowed to make outgoing, station-to-station collect calls. The inmates would be assigned a six digit, personal identification number, identifying an inmate's authorization to call a preapproved number. After an inmate made a collect telephone call, it was anticipated that the telephone service provider would receive payment for the telephone call by charging the individual who had accepted the telephone call, and then in turn, pay a commission at the contracted rate, to the State or county that operated the correction facility where the inmate was incarcerated. Under the RFP, bidders were asked to submit various commission alternatives, based upon the cost of telephone calls made by inmates. When responding to the proposal, bidders were encouraged to submit alternative solutions. In answering an inquiry concerning whether the commissions or the end user rates had greater value to the State, the "State never expressed a preference, but rather preferred that the bidders provide a range of options."

The RFP included a provision that the commission rates and services provided to the DOC and JJC "are to be extended to the county correctional facilities" participating in the contract. Paragraph 5.6 of the RFP (Procedural-New Technology) addressed post-award additions or substitutions:

A. After the contract award, additions and/or substitutions will be allowed provided:

* It is approved in writing by the Director, Division of Purchase and Property, with or without consultation from OIT [the State Office of Information Technology], DOC and JJC;

* Product/service meets or exceeds performance of the original; and

* Product/service is compatible with the original.

B. If new service, having the same functional purpose and a demonstrated nexus to the service under the contract, is developed and comes into standard production after the contract award, that service will be considered for addition and/or replacement for the service under contract.

The contractor must make a written request to the Purchase Bureau for new service to be added to the contract. Such written request must include the specifications for the new service, evidencing that the new service serves the same functional purpose and has a close nexus to the service under contract.

All proposed additions or replacements are subject to a review and written acceptance by the Director, Division of Purchase [and] Property. The sale of new service accepted in writing by the Director shall be governed by the terms of the contract, including price. The aggregate price of any new services must be equal to or less than the existing contracted service.

Among those submitting bids were Verizon New Jersey, Inc., AT&T Corp., Focal Communications, Inc., Quest Communication, Worldcom, and T-Netix, but not Global. The AT&T proposal included a provision allowing the State to "change its rate and commission structure" during the contract term to meet its needs, along with a variable call-rate schedule.

[W]e have proposed a flexible rate and commission offering that allows the State to select from four rate/commission alternatives. These alternatives will allow the State to tailor the most impact to the taxpayers of New Jersey and inmate friends and families across the nation. With AT&T, the State can also change its rate and commission structure at any time during the term of the contract to meet its specific needs and/or to address the concerns of consumers.

Depending on which of the four "rate/commission alternatives" was chosen under the AT&T proposal, commissions due the State or the counties could vary from 0% to 53%.

Following the issuance of the 2001 RFP, the State evaluated the technology offered through the proposals. In September 2003, the State's Purchase Bureau recommended that Verizon be awarded the contract. T-Netix and AT&T protested the State's intent to award the contract to Verizon. On April 26, 2004, the State rescinded its intention of awarding Verizon the contract, "[b]ecause of new information pertaining to the telephone industry and the possibility of changes relating to the scope of work."

On February 1, 2005, Verizon requested to be released from its proposal. The State consented. On February 25, 2005, the State awarded the contract to AT&T for the intended services AT&T had denominated in its responding proposal as the Value-Added Communications, Inc. ("VAC System, Option A," platform, with a 47% commission rate). The resulting contract, known as #61618, was for five years, commencing in April 2005, and provided that it was "available for political subdivision [meaning county] use" as well. Upon award of the contract to AT&T, T-Netix withdrew its bid protest that it had filed against the State's intention of awarding the contract to Verizon. TNetix did not file a protest against the award of the contract to AT&T.

In the Spring of 2005, Global purchased the division of AT&T that had been awarded the contract. On June 2, 2005, with the consent of the State, AT&T assigned the contract to Global. In the fall of 2005, Global and the State had discussions, pursuant to the terms of the AT&T contract, allowing flexibility in the various rate and commission structures, and Global's offer to add a telecommunications product known as "LazerPhone." Those discussions led to the State's issuance of a one-page "Special Notice" (Notice) on January 13, 2006, referencing a "new contract" between it and Global, for the services previously covered by the contract with AT&T from which the counties could choose. Attached to the Notice was a schedule, listing the available technology and commission options for various services offered. On the same date of its issuance, the State sent a copy of the Notice to all eligible counties in the State inmate telephone contract.

Notwithstanding that the Notice referred to the contract as "new," it continued the "61618" contract reference number and recited that the contract had begun in April 2005, the same date as the AT&T contract had started, and would expire on March 31, 2010, the same expiration date as the AT&T award. It also affirmed that the contract extended to both State and county facilities, but not local facilities.

On March 24, 2006, the State notified Global that it approved adding the LazerPhone to contract 61618, in accordance with certain stipulations, including Global's provision of "upgraded Recording at [Global's] cost, value $250k," and its agreement to "[m]ove all NJ DOC sites to 40% immediately." Counties, however, were free to choose a different commission rate in accordance with the schedule of options. All other terms of the contract remained unchanged. Global then offered the various options in accordance with the Notice and schedule of options directly to the counties.

THE MIDDLESEX COUNTY ACTION

On January 28, 2003, while the State's decision on the award of the contract was pending, T-Netix signed a three-year contract with Middlesex County to provide telephone equipment and related services to two county correctional facilities. Under the contract, T-Netix agreed to pay Middlesex County a commission of 53-6/10% of gross billed revenues for each completed call, excluding certain taxes and surcharges. During the fall of 2005, and prior to expiration of plaintiff's contract with Middlesex County, the County issued a new RFP. However, the County cancelled the advertised bid opening, and subsequently withdrew its RFP, expressing that changes were necessary to the RFP. After plaintiff's contract with Middlesex County expired in January 2006, the parties continued to operate under the terms of the prior contract "on a month to month basis."

On March 16, 2006, the Middlesex County Board of Chosen Freeholders adopted a resolution, awarding a contract to Global, pursuant to the terms of the State contract. Because Middlesex County elected to participate in the State contract pursuant to the CPP, a separate contract did not exist between Middlesex County and Global, the resolution acting as the contract. Middlesex selected one of the options set forth in the Notice, the option under which it would receive a commission of 53%: "[t]he Rate Option No. 2 - Category - New No. 1 New Technology Offer" plan. After awarding the contract to Global, MiddleseX and eight other counties moved forward with implementation, as Global began customizing services and equipment for each subscribing facility. On April 12, 2006, Global notified TNetix of its contract with Middlesex County. On June 12, 2006, Global notified T-Netix via e-mail, of its schedule of dates for the installation of its equipment in ten different counties, including Middlesex. By July 2006, Global had invested more than $650,000 in hardware and "contractual commitments" pursuant to those plans, and was scheduled to install and activate Middlesex County's system in the middle of July 2006. On July 13, 2006, Middlesex County advised that installation of the new system was nearly completed, and it anticipated operating inmate phones via the new system the following day.

Meanwhile, T-Netix had learned in March 2006 that Middlesex County had awarded a contract for inmate services to Global. TNetix, aware of the State's March 24, 2006, intention to move "all NJ DOC sites to 40%," investigated whether Middlesex County had also agreed to accept the "forty percent State Commission rate" when that "was more than thirteen percent less than the commission [then] provided by [T-Netix]." T-Netix learned on April 12, 2006, that Global had agreed to pay Middlesex County a commission rate of 53% for providing inmate phone services at the County's two correctional facilities.

T-Netix accused Global of devising a scheme to procure county inmate phone service agreements outside the normal bid process, improperly leading to the "new contract," between Global and the State. Global countered that its discussions with the State in the fall of 2005, the State's acceptance of new technology, and the promulgation and acceptance of additional rate and commission options, were in compliance with AT&T's contract and the new technology provision in the State's RFP.

On June 15, 2006, T-Netix filed a verified complaint against defendant County of Middlesex, together with an application for an order to show cause (OTSC), seeking among other matters: 1) to restrain the County from awarding a new contract or expanding the terms of the existing contract to its current vendor for provision of inmate telephone services at Middlesex County's correctional facilities, and 2) a declaratory judgment "declaring null and void the March 16, 2006, Middlesex County Resolution (R. #06-374)." In the complaint, T-Netix alleged that "Middlesex has improperly awarded the new contract for inmate telephone services to the State vendor, as said award provides for terms and conditions that are significantly different from those awarded and currently utilized by the State under State Contract #61618 . . . ." T-Netix alleged that Middlesex's contract with Global was "contrary to the expressed requirements of the State [CPP]" and "constitute[d] clear violations of the Local Public Contract Law*fn2 [(LPCL)] . . . including . . . the State [CPP] requirements and limitations set forth in N.J.S.A. 40A:11-12 and N.J.A.C. 5:34-7.29(d)."

Plaintiff's application for an OTSC was argued before the trial court on June 23, 2006. On motion granted, Global intervened. Determining that plaintiff had not established a likelihood of success on the merits and had known about the contract between Middlesex County and Global since March 2006 before filing the complaint, Judge Longhi denied T-Netix's application for a temporary restraint. The judge also dismissed the action without prejudice, concluding that the complaint was improvidently filed because T-Netix failed to join the State as a party having an interest in the action. A confirming order was entered on August 8, 2006.

In the interim, on June 30, 2006, plaintiff filed a second complaint, naming the County of Middlesex, the State, and Global as defendants, substantially repeating its earlier claims and prayers for relief in support of an OTSC with temporary restraints and for a declaratory judgment. In this complaint, T-Netix alleged that "[t]he Middlesex Contract with [Global] differs substantially from the terms and conditions awarded to AT&T by the State for State Contract #61618, and differs substantially from the newly-negotiated option utilized by the State, which provides for a far lower commission rate and requires the VAC technology platform." T-Netix further alleged that "[t]he authorization and publication of the new County Rate Schedule by the State, which provides options and technology platforms not set forth in the AT&T bid award of 2005 and not currently utilized by the State, constitute violations of the [LPCL] . . . including . . . the State [CPP] . . . ."

T-Netix's application for a preliminary restraint was argued before Judge Longhi on July 14, 2006. Following argument, the judge denied the application for temporary restraints and dismissed the complaint with prejudice, determining that the complaint was time barred, both by court rule and administrative regulations, and that Middlesex County had properly awarded ...


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