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James v. Global Tel*Link Corp.

United States District Court, D. New Jersey

August 6, 2018

BOBBY JAMES, et al., on behalf of themselves and all others similarly situated,, Plaintiffs,
v.
GLOBAL TEL*LINK CORP., INMATE TELEPHONE SERVICE, and DSI-ITI LLC, Defendants.

          OPINION

          WILLIAM J. MARTINI, U.S.D.J.

         Plaintiffs bring this class action against Defendant Global Tel*Link and its subsidiaries (collectively, “GTL”) in connection with the company's provision of inmate calling services (“ICS”) to state and county correctional facilities in New Jersey. GTL moves for summary judgment of all four remaining claims pursuant to Federal Rule of Civil Procedure 56. Plaintiffs have cross-moved for partial summary judgment as to whether GTL violated the Takings Clause of the Fifth Amendment. U.S. Const. amend. V. No oral argument was held. Fed R. Civ. P. 78(b). For the following reasons, both competing motions for summary judgment are DENIED. This case will proceed to trial.

         I. BACKGROUND

         The following facts are described in further detail in the Court's Opinion granting class certification under Rule 23. ECF No. 179. Since 2006, GTL has been the exclusive provider of ICS to all prisons and jails operated by the State of New Jersey and to each county facility except Passaic. These include 20 New Jersey Department of Corrections (“DOC”) facilities and 21 county facilities.[1] See Taylor Decl. in Supp. Cert. (“Taylor Decl.”), Ex. E. New Jersey law classifies GTL as an “alternative operator service” (“AOS”), [2] subject to regulation by the New Jersey Board of Public Utilities (“BPU” or “the Board”). GTL's interstate calling services are subject to regulation by the Federal Communications Commission (“FCC”).[3] Historically, however, federal and state regulators have declined to interpose rate limits on New Jersey correctional facilities.[4]

         Plaintiffs are inmates of New Jersey correctional facilities between 2006 and 2016 who used GTL's phone services, as well as non-inmates (generally, their friends and family) who used GTL's services to communicate with inmates during that time.[5]Plaintiffs allege that, in the absence of rate regulation, they were charged excessive rates and fees for ICS. They estimate they were overcharged more than $150 million over the class period. See Taylor Decl., Ex. M., Extended Rebuttal Report of Michael F. Finneran, at 2.

         In 2005, GTL won an exclusive contract to provide ICS for the DOC and most county correctional facilities. Remaining counties, except for Passaic, formed independent contracts with GTL or one of its subsidiaries. As part of these contracts, GTL paid the facilities “site commissions, ” defined as “a straight percentage of all originating, billable revenue.” Taylor Decl., Ex. J, Report of Melissa Copeland at 5. Because commissions produce substantial revenue for the State and counties, ICS contracts are often awarded to the provider who offers the highest commissions to facilities.[6] See, e.g., Taylor Decl., Ex. Q, Rebuttal Report of Dr. Roy Epstein, ¶¶ 24-27; Van Nostrand Decl., Ex. 11, Essex County Decision Memorandum (June 6, 2006) (“[T]his is a revenue generating arrangement.”). Stephen Yow, GTL's CFO, agreed that site commissions were likely the most important feature of ICS service agreements. Yow Dep. Tr. 42:4-5. GTL offered a range of commission options within each contract; the DOC chose to receive a 40% commission for calls from state facilities. Most counties selected options that paid the highest commissions, either 55% and 56%. See, e.g., Epstein Report ¶ 25.

         To earn a profit, GTL paired higher commission rates with higher per-minute rates, surcharges, and “ancillary fees” incurred by GTL's end users. See, e.g., Yow Dep. 170:16-20. Ancillary fees included, for instance, a 19% fee each time a non-inmate set up or deposited funds into a GTL Advance Pay account by telephone.[7] Taylor Decl., Ex. H, Baker Dep. Tr. 37:8-38:11. As Mr. Yow explained, “imposing deposit fees is a way to generate enough revenue from the facility to administer the commission they're expecting and also to cover all the other costs that we have to provide the service in that jail.” Yow Dep. 170:16-20; see, e.g., Dr. Epstein Rebuttal Report (“[D]eposit fee revenue can be used to recoup site commissions paid to facilities.”).

         Plaintiffs argue that this “revenue sharing” configuration resulted in calling rates and fees that were far in excess of the actual cost of providing ICS. They claim, for example, that GTL was charging as much as $1.00 per minute for calling time that GTL purchased from telecom providers for as little as $.00018 per minute. Pls.' Br. Supp. Cert. at 1; Van Nostrand Decl., Ex. I, Decl. Michael Barth ¶ 8. Because GTL's contracts with the DOC and counties were exclusive, Plaintiffs-unlike normal telephone users-could not choose among different providers, and generally paid amounts far in excess of industry standards. See, e.g., Global Tel*Link, 866 F.3d at 401 (“ICS per-minute rates and ancillary fees together are extraordinarily high.”). In effect, GTL operated a state-sanctioned monopoly that generated substantial revenue for the government and GTL by imposing artificially high rates and fees on inmates and their loved ones. See Id. (“Winning ICS providers thus operate locational monopolies with a captive consumer base of inmates and the need to pay high site commissions.”)(citation omitted).

         In 2013, when this case was filed, there were roughly 23, 000 inmates in New Jersey correctional facilities.[8] Ms. King's challenges are typical of many individuals who could not afford to stay connected with their incarcerated loved ones. As the FCC has formally acknowledged, the social and economic impacts of ICS are grave:

Excessive ICS rates also impose an unreasonable burden on some of the most economically disadvantaged in our society. Families of incarcerated individuals often pay significantly more to receive a single 15-minute call from prison than for their basic monthly phone service. We have received tens of thousands of comments from individuals, including many personal stories from inmates, their family members and their friends about the high price of staying in touch using ICS. These rates discourage communication between inmates and their families and larger support networks, which negatively impact the millions of children with an incarcerated parent, contribute to the high rate of recidivism in our nation's correctional facilities, and increase the costs of our justice system. Familial contact is made all the more difficult because “mothers are incarcerated an average of 160 miles from their last home, so in-person visits are difficult for family members on the outside to manage.”

FCC Report & Order & Notice of Further Rulemaking, FCC 13-113 (Sept. 26, 2013).

         Since the FCC issued the above Report and Plaintiffs filed this lawsuit, New Jersey's legislature has taken measures to eliminate the practices at issue and to reduce the future costs of ICS to end users. In August 2016, the legislature enacted a statute prohibiting site commissions in all state, county, and private correctional facilities in New Jersey; limiting rates to 11 cents per minute for domestic debit, prepaid, and collect calls, and outlawing “any service charge or additional fee exceeding the per minute rate, including, but not limited to, any per call surcharge, account set up fee, bill statement fee, monthly account maintenance charge, or refund fee.” N.J.S.A. § 30:4-8.12. GTL now charges roughly 5 cents per minute for all calls. Taylor Decl., Ex. K.

         The Instant Motions for Summary Judgment

         The parties should be familiar with the procedural history of this case. A detailed account is nonetheless provided in the Court's Opinion granting class certification. ECF No. 179. The remaining claims include:

• Count One: Violation of CFA, N.J.S.A. § 56:8-2, for “unconscionable business practices”;
• Count Two: Violation of CFA Disclosure Requirements, N.J.S.A. § 56:8-176(h);
• Count Four: Unjust Enrichment; and
• Count Six: Violation of the Takings Clause, brought under 42 U.S.C. § 1983.

         GTL moves for summary judgment on all claims. Plaintiffs oppose and cross-move for summary judgment on their Takings claim. This Opinion disposes of both motions.

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 56 provides for summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir. 1990). A factual dispute is genuine if a reasonable jury could find for the non-moving party, and is material if it will affect the outcome of the trial under governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court considers all evidence and inferences drawn therefrom in the light most favorable to the non-moving party. Andreoli v. Gates, 482 F.3d 641, 647 (3d Cir. 2007). “When confronted with cross-motions for summary judgment, the court must rule on each party's motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the summary judgment standard.” Marciniak v. Prudential Fin. Ins. Co. of Am., 184 Fed.Appx. 266, 270 (3d Cir. 2006).

         III. Defendants' Motion for Summary Judgment

         GTL seeks judgment as to all remaining claims against it. It argues (A) that the CFA claims do not apply to GTL because they interfere with ICS regulation by other state and federal agencies; (B) plaintiffs alleging “unconscionable business practices” under the CFA must show deceptive conduct, which Plaintiffs cannot; (C) the CFA's disclosure requirements do not apply to GTL; (D) the Takings claims under § 1983 fail because GTL is not a “state actor” and because the claims are not ripe; and (E) the claims for unjust enrichment fail because there is no evidence of unjust conduct, and because the voluntary payment doctrine bars these claims. The Court now addresses each defense.

         A. Conflicts between the CFA and State and Federal Statutes

         Two related arguments form the bulwark of GTL's motion for summary judgment: (1) applying the CFA to GTL would encroach upon the Board's exclusive authority to regulate alternate operator service (“AOS”) providers pursuant to the AOSP Act, and (2) permitting private actions against GTL under the CFA would create “actual” and “potential” conflicts with existing state and federal ICS regulatory schemes. Both arguments fail.

         i. The AOSP Act does not Prohibit CFA Claims

         The “strong and sweeping legislative remedial purpose apparent in the CFA” creates a presumption that the CFA applies even to conduct regulated by other agencies. Lemelledo v. Beneficial Corp. of Am., 696 A.2d 546, 553 (N.J. 1997). “The CFA explicitly states that the rights, remedies and prohibitions that it creates are cumulative to those created by other sources of law.” Id. (citing N.J.S.A. § 56:8-2.12). The New Jersey Supreme Court has explained that the CFA's cumulative reach and its creation of a private cause of action “reflect an apparent legislative intent . . . to delegate [] authority among various governmental and nongovernmental entities, each exercising different forms of remedial power.” Id.

         Nevertheless, GTL claims that the AOSP Act explicitly precludes CFA application by the following language:

Notwithstanding the provisions of [the Telecommunications Act] or any other law to the contrary, the Board of Public Utilities shall regulate the rates and terms and conditions of service of an alternate operator service provider, in a manner consistent with federal law, and use any other means necessary pursuant to law, rule, or regulation to protect the users of the services of an alternate operator service provider.

N.J.S.A § 48:2-21.23.

         GTL's argument falls short for two reasons. First, genuine issues of material fact remain as to whether GTL violated the Takings Clause by imposing excessive fees and rates. See infra at 14. If the jury finds that compliance with BPU's regulations was nevertheless unconstitutional, then the Board was not acting “in a manner consistent with federal law” when it passed these regulations, and was therefore not acting within its statutory limits. See Lourdes Med. Ctr. of Burlington Cnty v. Board of Review, 963 A.2d 289, 312 (N.J. 2009) (citations omitted) (“If a regulation is plainly at odds with the statute, the court must set it aside . . . the meaning of enabling legislation is pivotal to any analysis of ...


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