Court Opinion

ID: 9516980
Source: CourtListenerOpinion
Date Created: 2023-08-06 23:58:40.971697+00
Date Added: 2024-06-11T09:42:44.187968
License: Public Domain

Smith, J. (dissenting).
In Arsberry v Illinois (244 F3d 558, 566 [7th Cir 2001]), a case much like the present one, Judge Posner explained what the state was doing: “[T]he State . . . exercising as it does an iron control over access to the inmate *498market, has rented pieces of the market to different phone companies . . . Judge Posner explained that the state was in substance “charging fees or taxes that exploit the monopoly of force that is the definition of government” (id.). But he, like today’s majority, thought there was no constitutional problem in the government’s making money by renting out its police power. I think there are very serious problems. Before discussing them, however, I will address the idea advanced by the concurrence that it does not matter whether the State has acted constitutionally or not, because the “filed rate” doctrine bars any review of the question.
I
The Public Service Commission (PSC) held that it had no power to decide whether DOCS acted reasonably or unreasonably, lawfully or unlawfully, in demanding that MCI pay to the State an extortionate commission on inmates’ telephone calls. The portion of MCI’s rates that resulted from the State’s commission was labeled by the PSC as “non-jurisdictional.” This ruling seems right to me; why should the constitutionality of the State’s practice be a matter for the PSC to decide? And if the PSC was right to disclaim jurisdiction, it seems obvious that the filed rate doctrine has no application here.
That doctrine states that a regulated entity may not “charge rates for its services other than those properly filed with the appropriate . . . regulatory authority” (Arkansas Louisiana Gas Co. v Hall, 453 US 571, 577 [1981]). And of course, in Arkansas Louisiana Gas Co., as in every other case applying the filed rate doctrine that I am aware of, the “appropriate” regulatory authority was one that had jurisdiction over the rate. If that were not so—if the word “filed” were taken literally, so that a rate that is placed in a regulatory agency’s file were unchallengeable, whether the agency has authority to regulate that rate or not—the result would be intolerable. The filed rate doctrine would give state officials an all-purpose shield against any independent scrutiny of their behavior. A state could nullify anyone’s constitutional right, simply by demanding a commission from the telephone company on calls made by the person the state wanted to victimize—and the resulting telephone rate would be immune from challenge if it was on file with a regulatory agency that had no jurisdiction to alter or reject it.
Surprisingly, my concurring colleague never says whether she thinks the PSC’s disclaimer of jurisdiction in this case was right *499or wrong. But I infer that she thinks it was wrong—that the PSC did have jurisdiction to consider petitioner’s constitutional arguments—partly because, as I have explained, I think it obvious that if the PSC was right, the filed rate doctrine cannot apply. Indeed, the concurrence says that “petitioners were required to raise their constitutional . . . objections to the inmate collect call rate in a CPLR article 78 proceeding brought against the PSC” (concurring op at 497)—a strange thing to do if the PSC acted properly in ignoring those constitutional objections.
If I have correctly understood the concurrence’s position, I disagree with it because, as I have said, the constitutional issues seem inappropriate for PSC consideration. Walton I provides no support for the contrary view, despite our remark, to which the concurrence refers (concurring op at 496), that the PSC “could have determined that MCI’s call rate and surcharge as a whole” were unlawful (Walton v New York State Dept. of Correctional Servs., 8 NY3d 186, 196 [2007]). What we meant, as we explained in the next sentence, was that “[i]t was reasonable for petitioners to believe that the PSC could have rejected MCI’s rate and surcharges in their entirety” (id.). We did not imply that the PSC erred by refusing to examine the entire rate and surcharge. It did not err; it properly found the portion of the rate attributable to the State’s commission to be beyond its jurisdiction; and the filed rate doctrine is inapplicable to this case.
II
It is plain from the complaint that the State charged petitioners—indirectly, through MCI—sums far in excess of what it cost the State to provide the service from which petitioners benefitted. The complaint says that the costs of maintaining and operating the prison telephone system were less than 8% of the money the State received from it. A document in the record suggests that the disproportion was even greater—that costs were less than 2% of revenues. It is also plain that the State was able to make this huge profit because it had imprisoned the people that petitioners wanted to talk to—that the State was, as Judge Posner put it, exploiting its monopoly of the “inmate market.” I think these allegations are sufficient to sustain petitioners’ claims of unconstitutional taxation, unlawful taking, and denial of equal protection. (I agree with the majority that petitioners’ free speech and association claims are legally insufficient.)
*500Usurpation of the Power to Tax
It is undisputed that if the payments at issue in this case are properly characterized as taxes, the State has violated the Constitution. Taxation is the province of the Legislature (see NY Const, art III, § 1; art XVI, § 1) and DOCS makes no claim that it may levy taxes without legislative authorization.
Taxation is, of course, the normal means by which states raise revenue, but two others have been recognized, which may be labeled as “user fees” (e.g., the State can charge for licenses to defray the cost of a regulatory program) and “market transactions” (e.g., the State can rent its unused office space, or sell its surplus property, for whatever it can get). (Perhaps there are still other valid ways of raising revenue, but no one has claimed that they are applicable in this case.) The payments in issue here cannot be defended as user fees, because the power to charge such fees is limited by the rule “that the fees charged be reasonably necessary to the accomplishment of the regulatory program” (Suffolk County Bldrs. Assn, v County of Suffolk, 46 NY2d 613, 619 [1979]; see also Jewish Reconstructionist Synagogue of N. Shore v Incorporated Vil. of Roslyn Harbor, 40 NY2d 158, 162-163 [1976]).
Thus, DOCS either unconstitutionally exercised the taxing power or it engaged in legitimate market transactions. I conclude that it did the former.
The majority holds that DOCS was engaging in market transactions, drawing an analogy to a per-call commission that might be charged by an owner of real property for use of a pay telephone “in a public airport or a private shopping mall” (majority op at 486). The majority overlooks an obvious distinction: the people who use the phones at airports and shopping malls are not prevented from leaving the premises by armed guards. The owner of the shopping mall is ordinarily a private entity; the owner of the airport may be a public one, but in allowing use of its premises for a pay telephone it is acting essentially as a private market participant. It is not exploiting, to quote Judge Posner once more, “the monopoly of force that is the definition of government” (Arsberry, 244 F3d at 566).
Here, the State has used its imprisonment of inmates as a source of economic leverage. I cannot accept this as legitimate market activity. If the State can do this, why could it not charge for in-person visits to prison inmates—at a rate 50 times the cost of making such visits possible? Why could it not charge *501commissions—limited not by the State’s costs, but only by what the traffic would bear—on sums earned by inmates in work release programs? Why could it not charge prisoners who seek furloughs an amount limited only by the prisoners’ willingness to pay? I cannot believe that the majority would characterize any of these transactions as normal attempts by a government agency to turn a profit in a marketplace, but the majority offers no adequate explanation of why the transactions in this case are different.
A tax is “a compulsory contribution for the purpose of defraying the cost of government” (.American Ins. Assn. v Lewis, 50 NY2d 617, 623 [1980]). Our cases establish that a contribution may be “compulsory” without being literally compelled on pain of fine or imprisonment: thus, the fees imposed on insurers in American Insurance Association were taxes, even though the insurance companies were not literally compelled to transact business in the State; the fees in Jewish Reconstructionist Synagogue were taxes, though the synagogue was not compelled to apply for zoning permits and variances; and the fees in Suffolk County Builders would (if not legitimate user fees) have been taxes, though the builders were not compelled to seek licenses and approvals, or even to put up buildings. The question is whether the State has applied an unacceptable degree of coercion in exacting the payments. As Justice Holmes explained in Federal Land Bank of New Orleans v Crosland (261 US 374, 378 [1923])—a case holding that fees charged for the recording of deeds were an unlawful tax, to the extent they exceeded the state’s expenses of maintaining its registry: “The State . . . cannot use its control as a means to impose a liability that it cannot impose directly.”
I would hold that where, as in this case, the State has leveraged its police power for a profit, enough coercion is present to make the transaction involuntary—a tax, not an innocent marketplace exchange.
Unconstitutional Taking
The issue of coercion is likewise critical to the takings claim. The majority oversimplifies in saying that “a ‘taking’ cannot occur in the absence of government compulsion” (majority op at 489)—indeed, if it means “compulsion” literally, it misstates the law. The United States Supreme Court has held that surrenders of property rights not literally compelled by the government are nevertheless “takings” if they are exacted in exchange for *502benefits that do not have a nexus to, or are not roughly proportional to, the property rights taken—even though the benefits were ones the state was free to withhold entirely (Dolan v City of Tigard, 512 US 374 [1994]; Nollan v California Coastal Comm’n, 483 US 825 [1987]). Particularly relevant here is Dolan, requiring “rough proportionality” between the exaction demanded by the state and the impact on the state of the private activity that furnished the occasion for the demand (Dolan, 512 US at 391). I have explained elsewhere why I think the “exactions” analysis of Nollan and Dolan is not limited to the real property context in which those cases arose (Consumers Union of U.S., Inc. v State of New York, 5 NY3d 327, 379-380 [2005, R.S. Smith, J., dissenting]). I do not see how the State’s conduct here, as alleged in the complaint, can withstand an exactions analysis, and I would therefore uphold petitioners’ takings claim.
Equal Protection
If I were to view the payments made by petitioners here as no more than voluntary payments for telephone service, I would agree with the majority that petitioners have not been deprived of equal protection. It is true that petitioners are not similarly situated to any other group of telephone users. But the merit of petitioners’ equal protection claim becomes apparent when the State’s conduct is viewed as a tax, an exaction of money to defray the expenses of government.
The equal protection argument would be essentially the same if the Legislature, seeking to raise funds to operate the prison system, had enacted a tax payable by those people who happened to receive telephone calls from prisoners. I would not think there was an equal protection violation if the State levied such a tax (or user fee) on the prisoners themselves. It is not arbitrary or unfair to require those who have made an expenditure necessary to pay the cost of it. But a tax on everyone who chooses to talk to an inmate on the telephone is arbitrary. There is no rational basis for choosing those people, rather than either the inmates or the State’s citizens in general, to keep the prison system solvent. The majority concludes otherwise only by overlooking the fact that the State’s practice was, essentially, a coercive fiscal measure.
Accordingly, I would reinstate petitioners’ unlawful tax, unlawful taking and equal protection claims.
*503Chief Judge Lippman and Judges Ciparick, Pigott and Jones concur with Judge Graffeo; Judge Read concurs in result in a separate opinion; Judge Smith dissents in another opinion.
Order affirmed, without costs.