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Largest Ever Recovery in a Single-State False Claims Act Lawsuit: $330 Million Settlement with Sprint Communications

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New York Attorney General Barbara D. Underwood and Acting Tax Commissioner Nonie Manion announced a record $330 million settlement with Sprint Communications on December 21, 2018.  This settlement is not only the largest-ever recovery by the New York Attorney General resulting from an action filed under the New York False Claims Act, but it is also the largest-ever recovery by a single state in an action brought under a state false claims act.   

The lawsuit was filed in the New York County Supreme Court by A.G. Underwood against the cell phone carrier and some of its subsidiaries.[1]  The lawsuit alleged that for nearly a decade Sprint knowingly failed to collect and remit more than $100 million in state and local sales taxes owed on its flat-rate wireless calling plans in New York. 

The tax provision at issue in this lawsuit is New York Tax Law § 1105(b)(2), and it imposes a sales tax on all wireless voice services that are sold for a fixed period charge, with no differentiation between intrastate, interstate, or international voice calls. Regardless of this clear understanding, Sprint violated New York law by failing to collect and remit state and local sales tax on the portion of a flat-rate charge for a wireless calling plan that Sprint deemed to be for interstate calls.  Sprint continued to violate the law despite the Attorney General's investigation into their compliance, and their noncompliance continued even after the lawsuit was filed. 

The Attorney General's investigation found that in early 2002, Sprint and other major cell phone carriers lobbied the Tax Department in connection with the enactment of Tax Law § 1105(b)(2), and that Sprint's Regional Director for State and Local Government Affairs played one of the lead roles in those lobbying efforts. The investigation further found that Sprint's in-house tax lawyers knew of the lobbying efforts between Sprint's in-house and external lobbyists regarding Tax Law § 1105(b)(2) and that they were aware of the unambiguous language and clear guidance of the law. 

Attorney General Underwood said, “Sprint knew exactly how New York sales tax law applied to its plans – yet for years the company flagrantly broke the law, cheating the state and its localities out of tax dollars that should have been invested in our communities,” and further, “Now, Sprint will pay the price with this record-setting settlement. This should serve as a clear reminder that the New York False Claims Act protects New Yorkers from companies that attempt to flout their obligations under New York tax law.”

At least 29 states, the District of Columbia, and the federal government have instituted False Claims Acts, however, New York is the only state where the False Claims Act broadly covers all types of tax fraud.   By not complying with New York sales tax law, Sprint harmed not only the State of New York but also every city and town within New York that imposes a sales tax.  Sales tax revenue is an extremely important contributor to a county's revenue, and for that reason, a large portion of the settlement has been distributed to the localities that were directly harmed by Sprint's misconduct.  

This investigation began with a whistleblower lawsuit filed under the New York False Claims Act in March of 2011.  The whistleblower will receive $62.7 million

If you are aware of fraud against the government, whether in healthcare or another sector, you may be eligible to blow the whistle in a False Claims Act lawsuit and may be entitled to a portion of the recovery. To find out more, contact Goldberg Kohn for a confidential consultation.

[1] People of the State of New York, et al, v. Sprint Communications, Inc. et al., N.Y.S. 2d 103917/2011 (Sup. Ct. 2011). 

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