Telephone service providers want Ga. counties’ lawsuits against them removed to federal court

By Jessica Karmasek | Feb 9, 2016

ATLANTA (Legal Newsline) - A pair of telephone service providers being sued for their alleged failure to pay two Georgia counties thousands in 911 fees want the lawsuits against them moved from state court to the same federal court in which the counties filed similar suits.

In December, two of the largest counties in the state -- Cobb and Gwinnett counties -- filed a string of lawsuits in federal court against various telephone service providers, seeking to recover millions in 911 charges that they allege have gone unpaid.

Cobb County filed eight separate lawsuits in the U.S. District Court for the Northern District of Georgia, Atlanta Division, Dec. 16. Gwinnett County joined in filing seven of the suits, also claiming unpaid charges.

The counties also filed lawsuits against various telephone service providers in Gwinnett County Superior Court and Fulton County Superior Court.

The lawsuits seek to recover more than $50 million for three years of alleged unpaid fees.

Peerless Network of Georgia LLC and Level 3 Telecom Holdings LLC were among those sued in Fulton County Superior Court in December.

Both companies filed removal notices to the Northern District of Georgia, Atlanta Division, Feb. 1.

Also on Feb. 1, Level 3 filed a motion to dismiss the counties’ lawsuit altogether.

“This lawsuit is an attempt to exact a tax from Defendants even though they are not the taxpayer and were not otherwise made liable by the Georgia legislature,” the company wrote in its 26-page motion.

Under Georgia law, funding for Emergency 911 Systems comes from assessing a charge on exchange access lines and lines that allow for voice over Internet protocol, or VoIP, telephone service.

In their lawsuits, the counties argue that state law -- the “E911 Statute” -- requires telephone service suppliers, such as the defendants, to bill, collect, report and remit 911 charges for every telephone subscriber, excluding those persons or entities otherwise exempt from taxation.

In particular, suppliers are required to bill, collect, report and remit to the local governments operating Emergency 911 systems 911 charges of up to $1.50 per month for every exchange access line, channel or pathway.

Under state law, such receipts, less a 3-percent administrative fee, are to be remitted to the local governing authority each quarter.

The counties contend the suppliers’ under-billing, under-collecting and underpayment was “purposeful.”

But Level 3 argues in its motion that it is being penalized simply for under-billing.

“In this lawsuit, the Counties do not allege that Defendants have collected 911 taxes from their customers and failed to remit those taxes to Counties, thereby enriching themselves,” it wrote. “Nor do they (or could they) allege that Defendants have not collected and remitted any 911 taxes under the Act. What the Counties claim is something very different.

“They claim that Defendants should have billed more 911 charges to their customers than they, in fact, did. And, as a penalty for this alleged under-billing, the Counties have now manufactured a right of action from whole cloth and seek to treat Defendants as the taxpayer under the Act or hold Defendants jointly liable with the taxpayer for the 911 taxes.”

Level 3, pointing to state law, contends the counties have no “roving commission” to levy and collect taxes.

Rather, they are strictly limited to the express authority granted by the legislature.

To proceed, the counties would need lawmakers to add words to the current law through an amendment, Level 3 argues.

“This issue is dispositive,” the company wrote. “Under Georgia law, the Counties are not permitted to step beyond the legislative grant of taxing authority to allow them to collect taxes from persons -- Defendants -- not made liable for the taxes in the statute delegating power.

“And they cannot ‘end run’ Georgia law by characterizing their lawsuit as a tort action or an action for injunctive relief.”

Also in its motion, Level 3 takes issue with the counties’ decision to hire outside counsel.

“The private consultants (and the Counties’ counsel) have entered into contractual arrangements with the Counties to be compensated exclusively based on contingency fee agreements -- agreements that violate Georgia public policy,” the company wrote, explaining that the law firms are not authorized to share in a percentage of the taxes collected.

The counties have hired the Barnes Law Group in Marietta and Harris Penn Lowry LLP in Atlanta to represent them.

According to a copy of the firms’ engagement letter with the counties -- as provided by the Cobb County Attorney’s Office through an open records request -- the firms are entitled to a 35 percent contingency fee.

“If no Fee Deficiency Proceeds are recovered, the County shall not be indebted to the Firms for any attorneys’ fees whatsoever,” the letter states.

The counties have refused to comment on the lawsuits, saying they do not comment on “pending legal cases.”

“These suits are necessary because the telephone service providers have a statutory and fiduciary responsibility under Georgia law to properly bill, collect and remit 911 fees,” Roy E. Barnes, counsel for the counties, said in a previous statement.

“We believe, based on the evidence we have received, that responsibility has not been met. These monies need to be paid for the benefit of the counties’ 911 systems.”

The counties are seeking: a record of the defendants’ accounts; judgment entered against the defendants, including damages; a declaration that the suppliers are obligated to bill, collect and turn over the 911 charges under state law; an order enjoining the suppliers from failing to fully and truthfully bill, collect and remit the 911 charges; and costs, including attorneys’ fees.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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Barnes Law Group Cobb County Harris Penn Lowry LLP

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