Verizon, MetTel Seek Sanctions for Pursuit of ‘Frivolous’ Payphone Rate Allegations

For more than 20 years, plaintiffs Best Payphones, Northeastern Telecom and Paramount Financial Recovery contended that the payphone service rates that defendant Verizon charged between 1997 and 2006 didn’t comply with FCC regulations, said Verizon and co-defendant MetTel in their memorandum of law Monday (docket 1:23-cv-04935) in U.S. District Court for Southern New York in Manhattan in support of their motion to dismiss the complaint. The claims lack merit and are time barred, it said.

Verizon and MetTel also asked the court to impose sanctions against the plaintiffs for pursuing what they call “frivolous” allegations. The plaintiffs alleged in their June 13 complaint that the rates Verizon charged for “basic payphone services” didn’t meet the standards under the 1996 Telecommunications Act because they weren’t based on Verizon's “actual cost determined using forward-looking methodologies plus a reasonable amount of overhead.” They also alleged that Verizon charged payphone service providers unlawful subsidies.

Despite “repeatedly losing” before state and federal agencies and in state and federal courts over the past two decades, the plaintiffs “are reprising their arguments as damages claims,” said the memorandum. Each claim fails “for multiple independent reasons,” it said.

All the plaintiffs’ claims against Verizon are time barred, said the memorandum. The plaintiffs complain about rates they paid more than 17 years ago, and in some cases more than 25 years ago, but the longest statute of limitations applicable to any claim the plaintiffs have pleaded is six years, the defendant said.

“Issue preclusion” also bars each of the plaintiffs’ claims, said the memorandum. These plaintiffs “already litigated (and lost) the question whether Verizon’s decades-old rates were lawful,” including pursuing an unsuccessful cert petition to the U.S. Supreme Court, it said.

Nearly all the plaintiffs’ claims against Verizon “fail for additional reasons,” said the memorandum. The filed rate doctrine bars the New York statutory and common law claims and the antitrust claim, “because all those claims challenge rates found in Verizon’s tariffs,” it said.

Granting the plaintiffs leave to amend “would be futile” because there's nothing they could plead that would cure the complaint’s deficiencies, said the memorandum. The court should dismiss the complaint with prejudice, and for the reasons cited in the defendants’ concurrently filed Rule 11 motion, the court should impose sanctions for the plaintiffs’ pursuit of this frivolous complaint, it said.

Sanctions are warranted against the plaintiffs because even “a cursory review" of the complaint reveals that their damages claims against Verizon are all time barred, said the defendants’ separate memorandum of law in support of their Rule 11 motion for sanctions. “Equally sanctionable” is the plaintiffs’ contention that the court should stay the proceedings pending the outcome of the FCC petition they filed for a declaratory ruling that they assert “could result in rulings supporting their claims here” against Verizon and MetTel, it said.

The plaintiffs are wrong, said the Rule 11 memorandum. Nothing the FCC could do “would revive their time-barred claims,” it said. And even if future favorable FCC rulings could be the “predicate” for the plaintiffs’ claims against Verizon and MetTel to accrue, “they must wait to file their claims until those rulings happen -- if they ever do,” it said. It’s “frivolous” for the plaintiffs to file “unripe claims now,” it said.

Rule 11 sanctions are “appropriate,” said the memorandum. The plaintiffs “have been complaining about the payphone service rates they paid for two decades or more and have lost at every turn,” it said. “They now come to federal court seeking yet another bite at the apple,” it said.

But it’s “well past time for this long-running litigation to end,” said the memorandum. The plaintiffs were given the opportunity to withdraw their complaint but have refused to do so, it said. The plaintiffs’ actions show that this “baseless litigation” won’t end “unless and until they face consequences,” it said. Verizon and MetTel urge the court to impose sanctions under Rule 11 and to compensate them for the attorneys’ fees and other expenses they incurred “in responding to the frivolous complaint,” it said.