In a decision issued April 9 by the Appellate Division’s First Department, the court unanimously upheld a lower court’s dismissal of claims against Verizon, AT&T, Frontier and other providers. The judges found that the companies’ conduct did not rise to the level of fraud.
Local governments fund emergency systems with small fees placed on phone lines that help pay for dispatch centers and technology to improve response times.
In 2019, Phone Administrative Services, Inc., a private telecommunications consulting firm based in New York, brought the lawsuit under the state’s False Claims Act after the state Attorney General’s Office declined to intervene.
The company said it became aware of issues through its own investigation after it reviewed data, phone bills and practices in other states. In court filings, Phone Administrative Services alleged that major telecom companies underpaid the state’s 911 fees by undercounting the number of telephone lines eligible for the fees.
The lawsuit also accused telecommunications companies of using billing methods that reduced fees, such grouping multiple locations together.
The civil action also claimed that the companies and the audit firm KPMG submitted misleading reports to municipalities that hid the true number of lines and the extent of the alleged underpayments. The lawsuit claimed local governments had lost tens of millions of dollars in emergency services funding every year.
In their ruling this month, the appellate judges affirmed the lower court’s findings that even though some statements in the reports were inaccurate, they were not “material” and didn’t impact what local governments were owed or paid. Some of the alleged errors were minor or had no financial impact.
Judges also affirmed a lower court’s dismissal of Phone Administrative Services’ argument that the telecommunications companies applied an incorrect definition of “access lines,” the unit used to calculate the surcharge.
The judges said that the statute was ambiguous, and the companies’ interpretation, “whether or not correct, was not unreasonable.”
The court ruled that the essential element of fraud was missing without clear evidence that the companies knew they were misapplying the law. The court also found the state had not proven that rounding certain numbers or reporting zero uncollectible surcharges had definitely deprived counties of money.