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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 action against Defendant Global Tel*Link and its subsidiaries (collectively, “GTL”) in connection with GTL's provision of inmate calling services (“ICS”) to State and county correctional facilities in New Jersey. Plaintiffs move pursuant to Federal Rule of Civil Procedure 23 to certify claims under (1) the New Jersey Consumer Fraud Act (“CFA”) (Count One) and (2) the Takings Clause of the Fifth Amendment (Count Six). There was no oral argument. Fed.R.Civ.P. 78(b). For the following reasons, the Court GRANTS the Plaintiffs' motion for class certification of Counts One and Six.

         I. BACKGROUND

         GTL provides 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. Supp. Class Cert. (“Taylor Decl.”), Ex. E, Expert Report of Michael F. Finneran (“Finneran Report”).

         In 2005, the DOC conducted a competitive procurement process to select an exclusive ICS provider to all state correctional facilities and most counties. The process began with a Request for Proposal (“RFP”) detailing mandatory technical specifications tailored to the unique logistical and security requirements of ICS. The RFP sought the proposal “that best represents, in its opinion, the most advantageous solution for the State [based on] price and other factors.” Van Nostrand Decl., Ex. 11. As is typical of procurement, the terms and conditions set forth in the RFP (or “the Solicitation”) became the terms of the agreement, to be implemented according to the winning proposal. See N.J. Contract 61618 (“All terms and conditions as a part of Solicitation 32533 . . . and also including the bidder's proposal as accepted by the State are included herein . . .”); Taylor Decl., Ex. J, Expert Report of Melissa J. Copeland (“Copeland Report”). Accordingly, “RFP” and “contract” are used interchangeably unless stated otherwise.

         AT&T won the bid in April 2005 and assigned the contract to GTL in June of 2005, though GTL did not assume operations until 2006.[2] Van Nostrand Decl., Ex. 11; Copeland Report, n. 1, 5. In addition to governing ICS for the DOC facilities, the RFP extended to thirteen county facilities. See RFP, Attachment 1.[3] Additional counties, including Essex and Bergen, procured services independently by issuing their own RFPs; these contracts resembled the main DOC contract in their use of large commissions, high calling rates, and other ancillary fees. See infra. The parties have stipulated to the rates and fees charged by GTL during the class period, which begins in 2006. See Taylor Dec., Ex. K.

         A. Site Commissions

         One essential term of the DOC and county contracts was that GTL pay the government site commissions (“commissions”), defined by the RFP as “a straight percentage of all originating, billable revenue.” Taylor Decl. Ex. J, Copeland Report at 5. Site commissions are calculated by multiplying minutes by calling rate, then multiplying that product by the commission percentage. They are not based at all on ancillary fees, such as account setup and deposit fees.

         GTL's winning proposal offered the DOC (and participating counties) six billing options, each comprised of a commission rate and a calling rate. Higher commission rates were paired with higher calling rates. Ex 2, ¶ 25. Commissions ranged from 0% to 53%. The DOC selected a commission rate of 40% (later adjusted to 41%). Counties participating in the DOC RFP overwhelmingly chose one of the two options with the highest commission and calling rate combinations. See, e.g., Taylor Decl., Ex. K. In 2006, for instance, Camden and Somerset counties chose Option 2, with a 53% commission rate. See, e.g. Copeland Report at 6. GTL paid an average commission of 46% for all New Jersey contracts in 2009. See Rebuttal Report of Dr. Roy J. Epstein (“Epstein Rebuttal”) ¶ 69.

         Counties choosing to issue their own RFPs similarly emphasized generating revenue through site commissions. See Epstein Rebuttal ¶ 25. Atlantic County's 2007 RFP stated that it would reward the ICS contract to “the responsive and responsible bidder offering the Highest Commission Rate to the County, ” which could be not less than 50 percent. Id. at ¶ 27. In short, there is no disputing that commissions were an attractive revenue source for the State, counties, and GTL, and that commissions formed a central role in the procurement process. See, e.g., Decision Memorandum, Essex County, Ex. H. Van Nostrand Decl. (“[T]his is a revenue generating arrangement.”). Indeed, GTL's CFO, Stephen Yow, agreed that site commissions were probably the most important feature of ICS service agreements. Yow Dep. Tr. 42:4-5.

         B. Ancillary Fees

         Not only did commissions lead to higher calling rates, they also incentivized GTL to impose higher ancillary fees to make up for revenue paid out in commissions. 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.. Epstein Rebuttal (“[D]eposit fee revenue can be used to recoup site commissions paid to facilities.”). Most notably, GTL charged a 19% fee[4] each time a non-inmate set up or deposited funds into a GTL Advance Pay account.[5]

         C. Excessive Calling Rates and Ancillary Fees

         Plaintiffs argue that ICS charges and fees were many times greater than the costs to GTL of providing ICS. For instance, “[d]uring the class period, GTL was charging as much as $1.00 per minute for calling time that it was paying as low as .018¢ per minute.” Pls.' Br. Supp. Cert. at 1. Because the ICS contracts made GTL the exclusive provider, Plaintiffs-unlike normal telephone users-could not choose among different providers, and generally paid amounts far in excess of prevailing industry rates and fees. They argue that what emerged was a sanctioned, unregulated monopoly that generated substantial revenue for the government and GTL by imposing excessive charges and fees on inmates and their loved ones. See M. Skladany Dep. Tr. 28:23-25 (“[P]eople were always . . . talking about the phone rates, how outrageous and, you know, felt like we were being extorted.”). As the state legislature has found, “where a captive market exists for competitive telecommunications services, market conditions are not always able to protect the public interest.” N.J.S.A. § 48:2-21.22. Many Plaintiffs likely chose to incur these charges out of sheer desperation for contact with their loved ones. See, e.g., King Dep. Tr. 111:17-112:9.

         Whether the charges and fees bore any relationship to the cost of providing ICS services is the subject of competing expert testimony. Mr. Finneran states that GTL charged between $0.05 and $0.89 per minute for calls that GTL itself was purchasing from carriers at a tiny fraction of those costs. Taylor Decl., Ex. F., Rebuttal Report by Michael Finneran, at 4-5. Michael Barth, Director of Network Planning & Contracts-Operations at GTL, testified that bulk rates could be purchased by GTL as low as $0.00018. Taylor Decl., Ex. I, Declaration of Michael Barth. Dr. Roy J. Epstein, hired to challenge Mr. Finneran's report, cautioned against viewing any one particular cost or fee in isolation. Epstein Dep. Tr. 79:11-25. Dr. Epstein also stated that providing ICS services requires specialized security and logistical costs, which are missing from Mr. Finneran's analysis.[6] Epstein Report ¶ 5. Not surprisingly, however, the largest “costs” Dr. Epstein identified were site commissions. See Id. ¶¶ 9-10. Mr. Finneran's Rebuttal Report responds that “while the specialized call handling features . . . may have been expensive to develop 10 or 15 years ago, they are now available from cloud-based providers at far lower cost.” Taylor Decl., Ex. F.

         D. Recent Decline in ICS Calling Rates and the Elimination of Site Commissions

         Phone rates for New Jersey inmates have declined dramatically since the original GTL-DOC contract ended in 2010. That same year, the DOC eliminated commissions for State facilities, though county facilities participating under the DOC contract continued to collect commissions into 2014. See Epstein Report ¶ 25. From June 2010 to February 2014, GTL dropped rates for calls from State institutions to a flat rate of 33 cents per minute. As of July 30, 2015, after several additional reductions, the rate for all calls from State institutions was 4.384 cents per minute. Taylor Dec., Ex. K. Meanwhile, FCC regulations effective in February 2014 capped interstate call rates, causing GTL to drop the interstate call rate from county jails to 21 cents per minute for prepaid calls and 25 cents per minute for collect calls.[7] Intrastate calling rates from certain county facilities remained unchanged until their contracts expired at various points in mid-to-late 2016. GTL now charges roughly 5 cents per minute for all calls. Taylor Dec., Ex. K.

         E. Procedural History before this Court

         Plaintiffs filed this action in August 2013 alleging violations of the New Jersey Consumer Fraud Act (“CFA”), the Federal Communications Act (“FCA”), the Takings Clause of the Fifth Amendment, the New Jersey Public Utilities statute, as well as alleging unjust enrichment, and seeking declaratory relief. ECF No. 1. On February 11, 2016, the Court granted Defendants' motion to compel arbitration for one Plaintiff, Crystal Gibson, but denied that motion with respect to the remaining Plaintiffs.[8] Plaintiffs expressed frustration with GTL's “pattern of promising to produce discovery and missing its own self-selected deadlines.” See Letter of Lindsay Taylor, ECF No. 133. Nevertheless, Judge Falk's July 2017 scheduling order set a December 1, 2017 deadline for discovery, which included depositions of several expert witnesses. ECF No. 136. The parties met for a brief status conference before the Court on March 15, 2018. ECF No. 157.

         On February 27, 2018, Plaintiffs moved to certify their class for the purposes of two claims: (a) GTL's alleged violation of the CFA, N.J.S.A. § 56:8-2, by charging unconscionable rates and fees, and (b) alleged violations of the Takings Clause of the Fifth Amendment. U.S. Const. amend. V. They propose the following class:

All persons of the United States who, at any time since 2006 were incarcerated in a New Jersey prison or correctional institution who use or used the phone system provided by Defendants or, who established an advance pay account with Defendants in order to receive telephone calls from a person incarcerated in New Jersey, excluding Essex County prior to June 2010, or persons receiving calls from persons incarcerated in Essex County prior to June, 2011.[9]

         On March 27, 2018, after opposing certification, Defendants moved for summary judgment on all counts. Plaintiffs filed an opposition and cross-motion for summary judgment on May 4, 2018. ECF No. 164. After several filing extensions at the request of Defense counsel, briefing on summary judgment concluded on June 8, 2018. The competing motions for summary judgment shall be addressed in a separate Opinion.

         II. DISCUSSION

         “The trial court, well-positioned to decide which facts and legal arguments are most important to each Rule 23 requirement, possesses broad discretion to control proceedings and frame issues for consideration under Rule 23.” In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 310 (3d Cir. 2008), as amended (Jan. 16, 2009) (citations omitted). The Court finds that Plaintiffs have satisfied each requirement by a preponderance of the evidence. The following analysis begins with the four requirements of Rule 23(a) (numerosity, commonality, typicality, and adequacy), then proceeds to Rule 23(b)(3).

         A. Fed.R.Civ.P. 23(a)

         1. Numerosity

         Numerosity is satisfied when joinder of all putative class members is impracticable. Fed.R.Civ.P. 23(a)(1). That is obviously true of this putative class, which includes many thousands of inmates and those ...


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