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

State: massachusetts

Issuer: Massachusetts Supreme Court

Document:

NOTICE:  All slip opinions and orders are subject to formal 
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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 
                     
 
4 We acknowledge the amicus brief submitted by the Chamber 
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).