Prison Technology Firm's Challenge to New Jersey Statute on Phone Rates Reinstated

Can a prison technology company make a claim for unrecouped costs based on a 2016 statute setting limits on inmate phone rates? It should be allowed to try, according to a ruling by the Appellate Division.

The appellate court on March 18 reversed and remanded a decision to dismiss a complaint by plaintiff Securus Technologies Inc. against the state over what it perceived as unfair restrictions on its ability to compete for inmate call services (ICS) contracts at two New Jersey facilities.

In its reversal, the panel said the dismissal was premature.

The case was argued before Superior Court Judges Carmen Messano, Douglas M. Fasciale and Greta Gooden Brown.

In the opinion, the judges wrote::“The State correctly argues that plaintiff has no constitutionally protected property right to future contracts. N.J. Ass’n of School Adm’rs v. Schundler. However, broadly read, plaintiff’s complaint alleges an inability to obtain a profitable rate of return on investments already made because it cannot recoup those costs under the rate limits of the Rate Control Law.”

The case was on appeal from Mercer County Superior Court.

In its complaint, plaintiff Securus, a prison technology company founded in 1986 and headquartered in Carrollton, Texas, argued that it was being unfairly restricted from recouping costs from major infrastructure investments it made at the Passaic County Jail and the Cape May County Correctional Center due to rate limits set forth by the RCL.

Securus said it provided ICS at both jails pursuant to contracts awarded in 2010 and 2013, respectively.

Named as defendants in the case are Gov. Phil Murphy, Attorney General Gurbir Grewal, acting Commissioner of the New Jersey Department of Corrections Marcus O. Hicks, among others.

A key issue is over fair pricing of inmate cell calls and whether achieving a rate of return on an investment should play a factor.

Securus filed a complaint in January 2017 seeking injunctive and declaratory relief against then-Gov. Chris Christie and the various state officials, arguing the RCL violated the takings and due process clauses of the Fifth Amendment of the U.S. Constitution, and the takings clause of the New Jersey Constitution.

The New Jersey Legislature in 2016 enacted the RCL, which set forth guidelines on how state, county, and private correctional facilities could contract for inmate call services. Under the law, only a “qualified vendor” can be chosen for such contracts, and the rate to be charged could not exceed 11 cents per minute.

The RCL also forbids any correctional facility to “accept or receive a commission or impose a surcharge for telephone usage by inmates in addition to the charges imposed by the telephone service provider. These provisions apply to any new or existing contract that’s been renewed.

Russell M. Blau of Morgan, Lewis & Brockius in Washington, D.C., represented the plaintiff, and Deputy Attorney General Chanel Van Dyke argued on behalf of the state.

Blau and an Attorney General's Office spokesman both declined to comment on the decision.

The rate limits under the RCL, Securus argued, also prevented the firm from renewing current contracts or bid on future ones.

The state filed a motion to dismiss the complaint with prejudice, contending that Securus lacked standing. To support this, the state provided Passaic and Cape May County documents regarding the plaintiff’s contracts with each. The contract with Passaic had expired with the county awarding a new contract to another vendor, while the contract with Cape May was unaffected by the RCL.

The state said Securus lacked a “justiciable controversy,” and therefore, could not invoke the Declaratory Judgment Act.

The American Civil Liberties Union of New Jersey intervened and supported the state’s motion to dismiss.

Securus argued that it should be permitted to file an amended complaint because the dismissal with prejudice was improper and it had standing to challenge the constitutionality of the RCL.

The Appellate Court in its per curiam, unpublished decision, agreed: “Although courts should avoid 'Deciding or declaring the rights or status of parties upon a state of facts which is future, contingent and uncertain,' … there is nothing speculative about plaintiff’s allegations."

“In a declaratory judgment action, no wrong need be proved, but the mere existence of a claim or threat of a possible claim disturbing the peace or freedom of the plaintiff by casting doubt or uncertainty upon the plaintiff’s right or status establishes the requisite condition of justiciability,” wrote the judges.

“Here, based only on the allegations in the complaint, the RCL allegedly affects the plaintiff’s ability to conduct business in New Jersey,” the judges wrote.