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August 26, 2005.

MARY BYRD, et al., Plaintiffs,
GLEN S. GOORD, Commissioner, New York State Department of Correctional Services, in his official capacity, ELIOT L. SPITZER, Attorney General, New York State, in his official capacity, H. CARL McCALL, Comptroller, State of New York, in his official capacity, MCI WORLDCOM, INC., a Georgia Corporation, and MCI TELECOMMUNICATIONS CORPORATION, a Delaware Company, Defendants.

The opinion of the court was delivered by: GEORGE DANIELS, District Judge


Recipients of collect telephone calls made by state prison inmates bring suit against the New York State Department of Corrections, state officials ("state defendants") and the telephone companies ("MCI") alleging that the exorbitant rates plaintiffs are charged, the exclusive services contract between the state and the telephone companies, and its collect-call-only aspect violate their constitutional rights. Defendants move to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). State defendants' motion to dismiss plaintiffs' challenge to the exclusive services contract is granted. State defendants' motion to dismiss plaintiffs' challenge to the collect-call-only aspect of the contract is also granted. State defendants' motion to dismiss plaintiffs' constitutional challenge to the imposition of a sixty percent state commission charge is denied. Defendant MCI's motion to dismiss is granted in its entirety. INTRODUCTION

Plaintiffs, a group consisting of family members, legal counsel and others who receive collect phone calls from prison inmates, allege that the exclusive services contract between the New York State Department of Corrections ("DOCS") and MCI Worldcom, Inc. and its subsidiary MCI Telecommunications Corporation (collectively, "MCI")*fn1 resulted in excessively high telephone rates to the recipients of inmate collect calls.*fn2 Under this contract, DOCS granted to MCI the exclusive right to provide telephone services to all of its prison facilities. Neither inmates nor the recipients of their calls are permitted to use other telephone providers or other billing methods. On October 30, 1995 DOCS circulated its Request for Proposals which "required a minimum commission of at least forty-seven percent of the gross revenues" to be returned to the state. Compl. ¶ 28. In its successful bid, MCI guaranteed DOCS a commission of sixty percent of the gross revenues from accepted and completed telephone calls, in addition to a "significant bonus" that is "over and above the cost of administration and operation of the telephone system."*fn3 Compl. ¶¶ 28-29. The telephone system restricts inmates to making collect calls to persons on a pre-approved list. Inmates cannot receive telephone calls from outside the facility.

  Plaintiffs challenge these three aspects of the telephone system: MCI's position as the sole provider of all telephone services to DOCS; the fact that the system allows inmates to make only collect calls; and the sixty percent commission guaranteed and paid by MCI to DOCS. Specifically, plaintiffs assert violations of: (1) their equal protection and due process rights under the Fourteenth Amendment; (2) their right to freedom of association under the First Amendment; (3) their right to Contract under the First Amendment, antitrust violations under the Sherman Act and the Donnelly Act; and a common law claim for tortious interference with contract.

  Plaintiffs allege that each collect call made by an inmate is assessed a surcharge that is approximately sixty percent greater than the normal connection fee charged for exactly the same service for regular non-inmate collect calls, allowing MCI to pass onto plaintiffs the cost of the guaranteed sixty percent commission. Plaintiffs contend that this surcharge violates their due process and equal protection rights under the Fourteenth Amendment.*fn4 Plaintiffs also challenge the collect-call-only aspect of the telephone system, arguing that the ensuing high cost of the collect calls restricts plaintiffs' ability to communicate with their family members in prison in violation of their First Amendment right to freedom of speech and association. Lastly, plaintiffs argue that the exclusive services contract prevents them from contracting with a telephone service provider of their choice, which they argue could yield a lower price for each call. They contend that the exclusive services contract violates both federal and state antitrust statutes. Plaintiffs seek a declaratory judgment that the telephone system is illegal, a permanent injunction disallowing the use of that system, and restitution and damages in the amount of ninety-three million dollars, plus attorneys' fees.*fn5

  Defendant MCI moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). The state defendants also moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6).


  The court must decide a motion to dismiss under Rule 12(b)(6) accepting all allegations in the complaint as true and drawing all reasonable inferences in the plaintiff's favor. See Hartford Courant Co. v. Pellegrino, 380 F.3d 83, 89-90 (2d Cir. 2004). In order to avoid dismissal, a plaintiff must do more than plead mere "conclusory allegations or legal conclusions masquerading as factual conclusions." Gebhardt v. Allspect, Inc., 96 F. Supp. 2d 331, 333 (S.D.N.Y. 2000). The point at which "conclusory allegations" become valid pleadings lies where the plaintiff has asserted sufficient facts that, when construed liberally, allow the inference of a violation. See, e.g., Gregory v. Daly, 243 F.3d 687, 692 (2d Cir. 2001). The court must not dismiss, however, "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [her] claim that would entitle [her] to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). This principle is to be applied "with particular strictness when the plaintiff complains of a civil rights violation." Branum v. Clark, 927 F.2d 698, 705 (2d Cir. 1991). "In adjudicating a Rule 12(b)(6) motion, a district court must confine its consideration `to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken.'" Leonard F. v. Israel Discount Bank, 199 F.3d 99, 107 (2d Cir. 1999) (quoting Allen v. Westpoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991)).

  I. Single Provider System Claims

  Plaintiffs argue that the single provider system, where MCI is the exclusive telephone services provider to all DOCS prison facilities, implicates their right to contract under Article 1, § 10 of the United States Constitution, and violates Sections 1 and 2 of the Sherman Act.

  A. Contracts Clause

  Plaintiffs challenge this single provider feature as a violation of their freedom to contract. It is alleged that "each of [the] [p]laintiffs and class members have an ongoing contract with a chosen telephone company for the provision of long distance telephone service. Those contracts specify the services to be provided, the charges for different types of calls and the calling options." Compl. ¶ 94.

  Article I, Section 10, Cl. 1 of the U.S. Constitution provides that "[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts." By its terms, the clause "is aimed at the legislative power of the State, and not at . . . the acts of administrative or executive boards or officers." New Orleans Waterworks v. Louisiana Sugar Refining Co., 125 U.S. 18, 30 (1888). In other words, whether a statute violates the contracts clause "must be determined by examining the statute itself and asking whether it breached or substantially impaired a contract or whether it required state officials to do so." Association of Surrogate's & Supreme Court Reporters v. New York, No. 92 Civ. 4004, 1995 WL 555777, at *2 (S.D.N.Y. Sept. 19, 1995).

  To state a claim for violation of the Contracts Clause, a plaintiff must allege facts sufficient to demonstrate that a state law has "operated as a substantial impairment of a contractual relationship." General Motors Corp. v. Romein, 503 U.S. 181, 186 (1992) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978)). There are three components to this inquiry: (1) "whether there is a contractual relationship"; (2) "whether a change in law impairs that contractual relationship"; and (3) "whether the impairment is substantial." Id. Even if a state law constitutes a substantial impairment, however, it will survive a Contracts Clause challenge if it serves "a significant and legitimate public purpose" and "the adjustment of `the rights and responsibilities of contracting parties [is based] upon reasonable conditions and [is] of a character appropriate ...

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