Phone Recovery Services, LLC v. Verizon of New England, Inc.

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SJC-12410
PHONE RECOVERY SERVICES, LLC,1 vs. VERIZON OF
NEW ENGLAND, INC., & others.2
Suffolk. February 5, 2018. - August 7, 2018.
Present: Gants, C.J., Gaziano, Budd, & Cypher, JJ.
Massachusetts False Claims Act. Telecommunications. Practice,
Civil, Standing, Motion to dismiss. Jurisdiction.
Statute, Construction. Words, "Relator."
Civil action commenced in the Superior Court Department on
January 31, 2014.
After transfer to the business litigation session, a motion
to dismiss was heard by Edward P. Leibensperger, J.
The Supreme Judicial Court on its own initiative
transferred the case from the Appeals Court.
1 On behalf of itself and the Commonwealth.
2 All subsidiaries and related entities of Verizon of New
England, Inc.; XO Massachusetts, Inc., and all subsidiaries and
related entities; United Business Telephone, Inc., doing
business as Century Link, doing business as Qwest, and all
subsidiaries and related entities; YMAX Communications Corp.,
and all subsidiaries and related entities; Paetec
Communications, Inc., and all subsidiaries and related entities;
Comcast Business Communications, LLC; and John Does Nos. 1
through 75.
2
David H. Rich (Christopher Weld, Jr., & Alycia Kennedy also
present) for the plaintiff.
Gregory L. Skidmore, of North Carolina (William A. Worth,
Laura Steinberg, David B. Chaffin, & J. William Codinha also
present) for Verizon of New England, Inc., & others.
Jonathan G. Cedarbaum, of the District of Columbia, Steven
P. Lehotsky, & Janine M. Lopez, for Chamber of Commerce of the
United States of America, amicus curiae, submitted a brief.
BUDD, J. The plaintiff, Phone Recovery Services, LLC
(PRS), a New Jersey limited liability corporation, commenced
this qui tam action on behalf of the Commonwealth against the
defendants, Verizon of New England, Inc., and several other
communication service providers, pursuant to the Massachusetts
False Claims Act (act), G. L. c. 12, §§ 5A-5O.3 PRS claimed that
the defendants failed to collect from their customers, and remit
to the Commonwealth, a surcharge for 911 emergency telephone
service (911 service surcharge), as required by G. L. c. 6A,
§ 18H. In so doing, PRS alleged that the defendants knowingly
provided false information to the Commonwealth to avoid certain
financial obligations. A Superior Court judge allowed the
defendants' motion to dismiss on the basis that the 911
surcharge is a tax and that, as such, it is not subject to the
3 A "qui tam" action "is an action brought by an informer
sometimes called a 'whistle blower'" whose "motive is to expose
and redress a wrong, generally a fraud or false claim against
the government and also to collect his bounty for his action."
Scannell v. Attorney Gen., 70 Mass. App. Ct. 46, 49 (2007),
quoting J.R. Nolan & L.J. Sartorio, Equitable Remedies § 476A,
at 139 (2d ed. 2003 & Supp. 2006).
3
act. PRS appealed, and we transferred the case here on our own
initiative. Because we conclude that PRS, as a corporation,
does not have standing to bring suit under the act, we remand
the matter to the Superior Court for a judgment dismissing the
case for lack of subject matter jurisdiction.4
Background. The Commonwealth's enhanced 911 services are
funded, in part, with a monthly surcharge paid by communication
services customers.5 Pursuant to G. L. c. 6A, § 18H (a),
"[t]here shall be imposed on each subscriber or end user whose
communication services are capable of accessing and utilizing an
enhanced 911 system, a surcharge in the amount of 75 cents per
month." Furthermore, that "surcharge shall be collected by the
communication service provider and shall be shown on the
subscriber's or end user's bill as 'Disability Access/Enhanced
911 Service Surcharge.'" Id. Surcharges collected by the
We acknowledge the amicus brief submitted by the Chamber
4
of Commerce of the Unites States of America.
5 The "[e]nhanced 911 service" is
"a service consisting of communication network, database
and equipment features provided for subscribers or end
users of communication services enabling such subscribers
or end users to reach a [public safety answering point] by
dialing the digits 911, or by other means approved by the
[State 911 Department], that directs calls to appropriate
[public safety answering points] based on selective routing
and provides the capability for automatic number
identification and automatic location identification."
G. L. c. 6A, § 18A.
4
providers are to be remitted "to the state treasurer for deposit
in the Enhanced 911 Fund." G. L. c. 6A, § 18H (d). On the
basis of its belief that the defendants were not meeting the
statutory requirements to bill, collect, and remit the
surcharges, and that this failure constituted a false claim
pursuant to the act, PRS filed this complaint on behalf of
itself and the Commonwealth.6
In the complaint, PRS averred, among other things, that the
defendants engaged in a practice that has resulted in the
undercollection, and underpayment to the Commonwealth, of the
911 surcharge. In particular, PRS focused on landline (i.e.,
nonmobile) telephone lines. Based on data from the Federal
Communications Commission (FCC), PRS stated that in 2012, the
Commonwealth anticipated collecting approximately $80 million
per year in 911 surcharges, approximately $30.4 million of which
would be from landlines (the remainder coming from mobile
6 Phone Recovery Services, LLC (PRS), initially filed the
complaint under seal and served it only on the Attorney General,
as required by the Massachusetts False Claims Act (act): "When
a relator brings an action . . . a copy of the complaint . . .
shall be served on the attorney general . . . . The complaint
shall be filed under seal and shall remain so for 120 days after
service upon the attorney general." G. L. c. 12, § 5C (3). The
Attorney General declined to take over the action, and PRS
therefore proceeded on its own. See G. L. c. 12, § 5C (4)
("Before the expiration of the initial 120 day period, . . . the
attorney general shall: [i] assume control of the action . . .
or [ii] notify the court that [s]he declines to take over the
action, in which case the relator shall have the right to
conduct the action").
5
telephones). PRS further stated that the Commonwealth
"experienced an annual shortfall" in the collection of the 911
surcharge of approximately $36 million from landlines alone,
again based on FCC data.7 If successful in its claims against
the defendants, PRS is entitled to share in any proceeds
recovered and collected. See G. L. c. 12, § 5F (4) ("If the
attorney general does not proceed with an action . . . , the
relator bringing the action . . . shall receive an amount which
the court decides is reasonable . . .").
The defendants moved to dismiss the complaint pursuant to
Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974). In doing so,
they raised four possible bases: (1) PRS did not plead its
claim under the act with the particularity required; (2) PRS
does not meet the definition of "relator" and therefore cannot
bring a claim under the act; (3) PRS's claim is precluded by the
act's so-called "public disclosure bar;" and (4) PRS's claim is
precluded by the act's so-called "tax bar." The judge
considered only the fourth issue, pertaining to the "tax bar,"
and after determining that PRS's claim was barred on that basis,
he did not reach the other issues. Although we agree with the
7 We need not go into detail regarding the projected amounts
of 911 surcharges to be collected, what the Commonwealth
actually collected, and any shortfall. Suffice it to say that
PRS alleges that the defendants purposely failed to provide
accurate information to the Commonwealth and that the
Commonwealth was thus unaware of any amounts not collected.
6
judge that the complaint must be dismissed, we do so, as noted
above, for a different reason: namely, that the court lacks
subject matter jurisdiction. See Commonwealth v. Va Meng Joe,
425 Mass. 99, 102 (1997) (appellate court may affirm on grounds
other than those relied on by judge below).
Discussion. Our consideration whether the court has
subject matter jurisdiction depends, in this case, upon whether
PRS has standing to pursue its claims. Because "[t]he issue of
'standing' is closely related to the question whether an 'actual
controversy' exists, . . . we have treated it as an issue of
subject matter jurisdiction." Doe v. Governor, 381 Mass. 702,
705 (1980). In general,
"[t]he question of standing is one of critical
significance. From an early day it has been an established
principle in this Commonwealth that only persons who have
themselves suffered, or who are in danger of suffering,
legal harm can compel the courts to assume the difficult
and delicate duty of passing upon the validity of the acts
of a coordinate branch of government." (Quotations and
citation omitted).
Ginther v. Commissioner of Ins., 427 Mass. 319, 322 (1998).
Furthermore, such issues "should be given priority -- since
if there is no jurisdiction there is no authority to sit in
judgment of anything else." Vermont Agency of Natural Resources
v. United States ex rel. Stevens, 529 U.S. 765, 778 (2000)
(considering jurisdictional issues under Federal False Claims
Act, including relator standing under art. III of United States
7
Constitution). If a plaintiff lacks standing, the complaint
must be dismissed. See, e.g., Planning Bd. of Marshfield v.
Zoning Bd. of Appeals of Pembroke, 427 Mass. 699, 703 (1998).
To determine whether PRS has standing, we look to the
statute itself. See, e.g., 81 Spooner Road, LLC v. Zoning Bd.
of Appeals of Brookline, 461 Mass. 692, 700 (2012) (statute
defines who has standing; under G. L. c. 40A, party must be
"person aggrieved"). The act imposes liability on "[a]ny
person" who defrauds the Commonwealth by certain delineated
means. See G. L. c. 12, § 5B (a) (setting forth various false
or fraudulent claims for which person shall be liable). The act
also provides an incentive for an individual, referred to as a
relator, with "direct and independent knowledge of information
that an entity is defrauding the Commonwealth to come forward by
awarding to such individuals a percentage of the Commonwealth's
recovery from the defrauding entity." Scannell v. Attorney
Gen., 70 Mass. App. Ct. 46, 48 (2007). To be entitled to a
recovery, "an individual in possession of such knowledge must
attain the status of a 'relator' by filing suit against the
defrauding entity in Superior Court in the name of the
Commonwealth or a subdivision thereof" (citation omitted). Id.
at 48-49.
The question of standing, therefore, turns on whether PRS
is a "relator." Other than the Attorney General, only a
8
relator, defined as "an individual," may bring an action under
the statute. See G. L. c. 12, § 5A. See also G. L. c. 12,
§ 5C (2) ("An individual, hereafter referred to as relator, may
bring a civil action in superior court . . . on behalf of the
relator and the commonwealth . . ."). The heart of the issue
here is whether PRS is an "individual" for purposes of the
statute. We conclude that it is not.
Although the statute does not include a definition of the
word "individual," it does include a definition of the word
"person." Pursuant to the statute, a "person" is "a natural
person, corporation, partnership, association, trust or other
business or legal entity." G. L. c. 12, § 5A. By that
definition, PRS is a "person," but, as the defendants note, the
Legislature expressly did not use the word "person" to define
"relator" or, importantly, to identify who could bring an action
pursuant to the statute. If the Legislature had intended to
provide both natural persons and corporations with a right of
action, it would have simply used the word "person," a defined
term, in defining "relator." It did not do so. Rather, the
statute defines "relator," as previously noted, as "an
individual who brings an action under [G. L. c. 12, § 5C (2)]"
(emphasis added). G. L. c. 12, § 5A.
The use of the word "person" in other sections of the
statute further highlights the distinction between "person" and
9
"individual." Section 5B, for example, refers to a "person" who
violates the statute. In that context, it makes perfect sense
that either a natural person or a corporation (or any of the
other entities included in the definition of the word "person")
could violate the statute. If the Legislature had intended the
same to apply to a relator, it could have defined "relator" as a
"person," not an "individual." See Commonwealth v. Gagnon, 439
Mass. 826, 833 (2003), quoting 2A N.J. Singer, Sutherland
Statutory Construction § 46.06, at 194 (6th ed. rev. 2000)
("where the legislature has carefully employed a term in one
place and excluded it in another, it should not be implied where
excluded"). Similarly, § 5N, which addresses, among other
things, the Attorney General's authority to demand certain
documentary evidence relevant to a false claims investigation,
also refers to a "person." See, e.g., G. L. c. 12, § 5N (1).
The use of the word "person" in this context also makes logical
sense where either a natural person or a corporation might be in
possession of such information.
Notwithstanding the distinct uses of the terms "individual"
and "person" in the statute, PRS maintains that it is a relator.
On the basis that there is little decisional law addressing the
act, PRS urges us to look to the analogous Federal False Claims
Act (FCA), 31 U.S.C. §§ 3729 et seq., on which the act is
modeled. See Scannell, 70 Mass. App. Ct. at 49 n.4 (because
10
there is little decisional law interpreting act and scant
legislative history, court looked for guidance to cases and
treatises interpreting FCA). However, this course does not aid
PRS.
PRS is correct that both natural persons and corporations
may pursue claims pursuant to the FCA. See, e.g., United
States, ex rel. Ven-A-Care of the Florida Keys, Inc. v. Baxter
Healthcare Corp., 772 F.3d 932, 939-942 (1st Cir. 2014) (action
by corporate relator precluded action by individual relators);
United States, ex rel. Duxbury v. Ortho Biotech Prods., L.P.,
579 F.3d 13, 15-16 (1st Cir. 2009), cert. denied, 561 U.S.
(2010) (relators were natural persons); United States of Am., ex
rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 647
(D.C. Cir. 1994) (corporate relator). Unlike the act, however,
the FCA uses the word "person," not "individual," to describe
who may act as a relator. The FCA provides that "[a] person may
bring a civil action . . . for the person and for the United
States Government" (emphasis added). 31 U.S.C. § 3730(b)(1).
Although the word "person" is not specifically defined in the
FCA, as it is in the act, it is defined generally for Federal
statutory construction purposes to include both natural persons
and corporations. See 1 U.S.C. § 1 ("the words 'person' and
'whoever' include corporations, companies, associations, firms,
partnerships, societies, and joint stock companies, as well as
11
individuals"). On the other hand, the act, as noted above,
specifically defines the word "person," and does so to include
corporations, yet then uses the word "individual," not "person,"
to define a relator. For purposes of determining who is a
relator under the act, this is no small difference.
Having determined that "individual" means an individual
person, and that PRS is not such an individual, we conclude that
PRS does not qualify as a relator for purposes of the act. PRS
thus has no standing to bring this action, and we, in turn, have
no jurisdiction to consider anything further. "Jurisdiction is
power to declare the law, and when it ceases to exist, the only
function remaining to the court is that of announcing the fact
and dismissing the cause." Vermont Agency of Natural Resources,
529 U.S. at 778-779, quoting Ex parte McCardle, 7 Wall. 506, 514
(1868).8
8 PRS takes the position that it can cure its standing
problem by filing a second amended complaint naming a new,
individual plaintiff. In the trial court, before the defendants
filed their motion to dismiss, PRS filed a motion for leave to
file a second amended complaint in which PRS intended to
substitute Roger Schneider, whom PRS refers to as its managing
member, as the plaintiff. The defendants argued below, and
maintain now, that the act precludes adding a plaintiff, as it
provides that "[w]hen a relator brings an action pursuant to
this section, no person other than the attorney general may
intervene or bring a related action based on the facts
underlying the pending action." G. L. c. 12, § 5C (6). A judge
denied the motion without prejudice and noted that, depending on
the resolution of the then-pending motion to dismiss, the judge
would hold a hearing on whether to allow the motion for leave to
12
Conclusion. For the foregoing reasons, we remand the
matter to the Superior Court for a judgment dismissing the case
for lack of subject matter jurisdiction.
So ordered.
file a second amended complaint. No further proceedings
occurred because the motion to dismiss was allowed.
We are skeptical of the defendants' argument pursuant to
§ 5C (6), which they refer to as the "first to file bar." As
PRS notes, if it is not a proper relator and the complaint is
dismissed on that basis, then no relator has yet brought an
action and a new complaint from an individual plaintiff would
not be problematic. Indeed, "[a] complaint that is dismissed
for lack of jurisdiction is not an adjudication on the merits.
. . . It is thus inappropriate to attach preclusive effects to
the dismissal beyond the matter actually decided -- the absence
of subject matter jurisdiction" (citation omitted). Bevilacqua
v. Rodriguez, 460 Mass. 762, 780 (2011).