Walton v. Correctional Servs.

• Decision Date: 23 November 2009
• Docket Number: No. 149,149
• Parties: In the Matter of IVEY WALTON et al., Appellants, v. NEW YORK STATE DEPARTMENT OF CORRECTIONAL SERVICES, Respondent, et al., Respondent.
• Court: New York Court of Appeals Court of Appeals

13 N.Y.3d 475

2009 NY Slip Op 8665

921 N.E.2d 145

893 N.Y.S.2d 453

In the Matter of IVEY WALTON et al., Appellants, v. NEW YORK STATE DEPARTMENT OF CORRECTIONAL SERVICES, Respondent, et al., Respondent.

No. 149

Court of Appeals of New York.

Argued October 13, 2009.

Decided November 23, 2009.

Center for Constitutional Rights, New York City (Rachel Meeropol and Darius Charney of counsel), and Community Service Society (Juan Cartagena and Michelle Light of counsel), for appellants.

Andrew M. Cuomo, Attorney General, Albany (Victor Paladino, Barbara D. Underwood and Andrea Oser of counsel), for respondent.

Kramer Levin Naftalis & Frankel LLP, New York City (Michael J. Sternhell of counsel), for the Sentencing Project and others, amici curiae.

Legal Aid Society, New York City (Steven Banks, Scott Rosenberg, John Boston and Milton Zelermyer of counsel), for Legal Aid Society of City of New York, amicus curiae.

Weil, Gotshal & Manges LLP, New York City (Robert F. Carangelo, Douglas Lumish and Allen Yu of counsel), and Innocence Project, Inc. (David Loftis of counsel), for Innocence Project, Inc. and another, amici curiae.

OPINION OF THE COURT

GRAFFEO, J.

Between 1996 and 2007, the Department of Correctional Services (DOCS) contracted with MCI Worldcom Communications Inc. (MCI) for the provision of telephone services in state prisons. Under the agreement, MCI charged the recipients of inmate collect calls a certain rate and paid a percentage of the revenues generated on each call to DOCS as a commission. The payment of these commissions was later restricted by statute. But this proceeding was commenced by petitioners — family members and legal services providers of inmates incarcerated in DOCS facilities — before such legislative action. Their verified petition and complaint alleges that the portion of the telephone charge allocated as a DOCS commission constituted an illegal tax or fee, amounted to a government taking without just compensation and violated petitioners' equal protection and free speech and association rights. We agree with the Appellate Division that petitioners' allegations fail to assert cognizable claims under the New York Constitution and we therefore affirm.

As detailed in our prior decision (see Walton v New York State Dept. of Correctional Servs., 8 NY3d 186 [2007] [Walton I]), this controversy arises from DOCS' implementation of a telephone calling system that allowed inmates to contact family, friends and legal services providers using coinless pay telephones without operator assistance. To establish the system, DOCS issued requests for proposals to prospective providers in 1996 and again in 2001 detailing the appropriate security features needed in the prison setting, including technology permitting DOCS to monitor and record calls indefinitely, providing DOCS the capability to restrict access to particular telephone numbers and bar certain users from calling specified numbers, limiting the length of calls and preventing inmate calls from being forwarded by call recipients. As a result of the competitive bidding process, MCI won the contract in both 1996 and 2001. In exchange for receiving exclusive access to inmates and their call recipients, MCI agreed to pay DOCS a commission on each call. During the relevant time frame, the payment of commissions in return for acquiring access to a customer base was common in inmate calling plans in other states as well as in telephone services contracts outside the prison context. DOCS used the commission revenues to fund a variety of different programs supported by its Family Benefit Fund, such as health care services for inmates, bus services for family visitation programs, free inmate postage and expenses at its visitor centers. Only a small portion of the commission represented the actual costs DOCS incurred in administering the inmate calling program.

Because MCI is a telephone services provider, the rates or tariffs it charges customers require approval from the Federal Communications Commission (interstate calls) and the New York Public Service Commission (PSC) (intrastate calls). In 1998, the PSC approved in their entirety the variable rates that DOCS and MCI had agreed to in their 1996 contract, including a 60% per call commission payment.¹ DOCS and MCI subsequently entered into a similar contract in 2001 that continued the prior tariff schedule but reduced the DOCS commission to 57.5%.

In 2003, DOCS concluded that the existing variable rate structure was unfair to most families receiving calls and, as a result, DOCS and MCI amended their contract to provide for a flat rate (a $3 surcharge per call plus $.16 per minute) but continued the DOCS commission at 57.5%. MCI submitted a revised tariff filing with the PSC and a rate review proceeding ensued in which petitioners challenged the total rate as unjust and unreasonable, particularly the portion attributable to the DOCS commission. The PSC approved MCI's rate change in October 2003 but, because DOCS is a government agency and not a telephone services provider, the PSC concluded that it lacked jurisdiction to assess the propriety of the DOCS commission. Thus, it reviewed only the "jurisdictional portion" of the rate — i.e., the 42.5% retained by MCI — and determined that it was just and reasonable. In doing so, the PSC referenced the fact that, outside the prison context, AT&T assessed a $2.25 surcharge plus a flat rate of $.30 per minute for station-to-station collect calls — a rate resulting in substantially greater call costs than the MCI "jurisdictional rate." The PSC therefore directed that MCI file the new rate in a bifurcated form that made clear to customers which part of the rate would be retained by MCI and which would be forwarded to DOCS.²

In this action, petitioners are two legal services providers who represent prisoners and three individuals who have accepted collect calls from family members incarcerated in DOCS facilities and paid the total rate charged by MCI under the inmate calling plan, including the DOCS commission.³ They commenced this combined declaratory judgment and CPLR article 78 proceeding against DOCS and MCI within four months of the PSC determination. In the verified petition and complaint, petitioners challenged DOCS' collection of the commission on a variety of legal theories, including four state constitutional rationales.

First, petitioners alleged that, by collecting a commission, DOCS was taxing them to pay for Family Benefit Fund services without legislative authorization to impose such a tax. Second, they characterized the DOCS commission as a governmental taking of property (money) without just compensation. Third, they argued that the inclusion of the commission in the rates charged for telephone services violated their right to the equal protection of the law. Finally, they claimed that the call system impeded their freedom to associate with and speak to their loved ones and clients. Based on these causes of action, petitioners sought an injunction precluding MCI from charging more than the 42.5% "jurisdictional rate" reviewed by the PSC; a declaration that DOCS' actions were illegal; and refunds from DOCS for the commissions that had been collected by MCI and forwarded to DOCS.

Respondents DOCS and MCI moved to dismiss the verified petition and complaint as untimely and asserted that the causes of action failed to state cognizable claims for relief. As a separate ground for dismissal, respondents contended that petitioners' challenge to the rate collected by MCI was barred by the filed rate doctrine, which constituted a total defense even if petitioners' allegations would otherwise be actionable. Supreme Court and the Appellate Division dismissed petitioners' constitutional causes of action as time-barred⁴ but, in Walton I, this Court reinstated those claims as timely.

While Walton I was pending in this Court, Governor Eliot Spitzer announced a change in executive policy and required DOCS to discontinue the practice of collecting commissions on inmate calls. The Legislature also acted, adopting Correction Law § 623 which, effective April 1, 2008, made it unlawful for DOCS to accept or receive revenue in excess of its reasonable operating costs for administering an inmate calling system (see L 2007, ch 240). The parties agree that these executive and legislative actions render petitioners' claims for injunctive relief academic and that any decision in this case will affect the rights and liabilities of these parties only to the extent of determining petitioners' entitlement to refunds.

After we decided Walton I, this matter was remitted to Supreme Court to address the arguments raised in the motions to dismiss that had not been reached due to the dismissal on the threshold statute of limitations issue. Supreme Court reviewed each of petitioners' state constitutional arguments — the assertion that the DOCS commission constituted an unlawful tax, that it amounted to a governmental taking without just compensation, that it violated petitioners' equal protection and free speech/association rights — but concluded that petitioners failed to state cognizable claims for relief, warranting dismissal of the verified petition and complaint (18 Misc 3d 775 [2007]). The Appellate Division unanimously agreed with Supreme Court's treatment of the constitutional claims and also addressed DOCS' alternative argument that the refund claims would, in any event, be barred by the filed rate doctrine, rejecting that defense (57 AD3d 1180 [2008]). The case proceeded to this Court as of right.⁵

We begin by clarifying what issues are not before us. Petitioners and the amici curiae urge that DOCS' decision to seek a commission on calls made by inmates was, to say the least, ill-advised. They contend that the inclusion of a commission inflated the cost of inmate telephone calls to such an extent that it limited the ability of inmates to maintain family...