Last spring, a New York trial court denied Sprint’s motion to dismiss the New York Attorney General’s lawsuit alleging tax fraud under the New York False Claims Act (NY FCA). Specifically, the NY AG claims that Sprint deliberately failed to collect and pay sales tax on calling plan monthly access charges (People ex rel. Empire State Ventures, LLC v. Sprint Nextel Corp., 41 Misc. 3d 511, 970 N.Y.S. 2d 164 [N.Y. Sup. Ct. N.Y. Co. 2013]). As previously reported, Sprint faces damages of up to three times the alleged $130 million sales tax underpayment and penalties of $12,000 per alleged false claim.
Sprint had attacked the merits of the complaint and the retroactive application of the August 2010 amendments to the NY FCA that authorized actions based on tax fraud. A detailed discussion of the trial court’s June 2013 opinion is available here. Sprint then appealed.
On February 27, 2014 (People ex rel. Empire State Ventures, LLC v. Sprint Nextel Corp., 2014 WL 743828 [N.Y. App. Div. 1st Dept. Feb. 27, 2014]), the Appellate Division unanimously affirmed the trial court’s decision.
In a very short opinion, the New York Appellate Division held that:
“. . . Plaintiffs’ complaint adequately alleges that defendants violated New York’s False Claims Act (State Finance Law Sec. 189  [g]), Executive Law Sec. 63 (12) and Article 28 of the Tax Law by knowingly making false statements material to an obligation to pay sales tax pursuant to Tax Law Sec. 1105 (b) (2). Contrary to defendants’ interpretation, the Tax Law provision is not preempted by the Federal Mobile Telecommunications Sourcing Act (4 USC 116 et seq.).
The court also properly rejected defendants’ argument that the New York False Claims Act with respect to statements made under the Tax Law should not be given its stated retroactive effect. Defendants fail to show that the Act’s sanction of civil penalties, including treble damages, is so punitive in nature and effect as to have its retroactive effect barred by the Ex Post Facto Clause (U.S. Const., art. I, sec. 10).”
That same day, New York Attorney General Eric T. Schneidermann issued a press release, in which he stated: “Today’s decision allows my office to proceed in holding Sprint accountable for deliberately evading sales taxes and costing state and local governments approximately $130 million.”
We will bring you further developments in this case, which may include Sprint’s appeal to New York’s highest court – the New York Court of Appeals.