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New York Trial Court Trims the Fat but Keeps the Meat on False Claims Act Lawsuit

By Christopher Chang and Jack Trachtenberg

A New York State trial court has denied a motion filed by Sprint Nextel Corporation a

July 3, 2013

By Christopher Chang and Jack Trachtenberg

A New York State trial court has denied a motion filed by Sprint Nextel Corporation and its subsidiaries (Sprint) to dismiss a claim brought under the New York False Claims Act (FCA) alleging the company knowingly filed false tax returns and underpaid New York State sales taxes on fixed-rate monthly wireless telephone plans sold to New York customers. The court rejected Sprint’s argument that it reasonably interpreted the law when it determined that section 1105(b) of the New York Tax Law allowed it to exclude from sales tax the portion of its fixed monthly charges attributable to interstate voice services. Focusing solely on section 1105(b)(2) of the Tax Law, which imposes tax on sales of mobile telecommunication services, the court held that sections 1105(b)(1) and (3) of the Tax Law were not relevant to the analysis, even though those provisions specifically exempt interstate telecommunications from tax and despite statutory language suggesting that the provisions must be read together. The court also rejected Sprint’s arguments under federal law and the U.S. Constitution. Specifically, the court held: (1) the federal Mobile Telecommunications Sourcing Act (MTSA) does not require that Sprint be allowed to unbundle its charges because the MTSA applies only to states that—unlike New York—do not subject aggregated telecommunications services to taxation; and (2) the Ex Post Facto Clause of the U.S. Constitution does not prohibit retroactive application of the FCA because the penalties imposed under the FCA are not intended as a punishment. Plaintiffs’ causes of action brought under the Executive Law and Tax Law were partially dismissed as time-barred for periods prior to March 31, 2008. Plaintiffs’ cause of action alleging that Sprint conspired to violate New York law was dismissed in its entirety. People ex rel. Empire State Ventures, LLC, v. Sprint Nextel Corp., Sprint Spectrum L.P., Nextel of New York, Inc., and Nextel Partners of Upstate New York, Inc., Index No. 103917/2011 (N.Y. Sup. Ct., July 1, 2013).

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