Sprint Can’t Outrun Whistle-Blower Suit

MANHATTAN (CN) - New York State can proceed with a more than $300 million whistle-blower lawsuit alleging the Sprint underpaid millions in taxes on access charges for wireless calling plans, an appellate court ruled.

In March 2011, a whistle-blower filed claims under seal accusing the telecommunications giant of avoiding sales tax on 25 percent of its "flat rate" calling plans for more than half a decade. The scheme allegedly started in 2005 and continues to this day, Attorney General Eric Schneiderman's office said in a press release.

"As a result of Sprint's unlawful actions, its underpayment of New York sales taxes is growing by about a $210,000 every week, more than $30,000 a day," the release states.

Schneiderman became lead plaintiff on an amended version of that complaint against made public more than two years later.

"Sprint's decision to not collect and pay the required sales taxes in New York arose out of a nationwide scheme to gain an advantage over its competitor wireless carriers, not by cutting its prices or offering better service, but by failing to collect and pay sales taxes, thereby reducing the cost of its products to its customers," the amended complaint stated.

Schneiderman called the lawsuit the first to use of New York's False Claims Act, a statute that triples the amount a defendant must pay for defrauding the government. The law rewards those who expose such conduct with a portion of any potential judgment.

Manhattan Supreme Court Judge Peter Sherwood allowed the lawsuit to proceed in June 2013.

On Thursday, a five-judge panel of a New York appellate court unanimously upheld the original decision.

"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," Schneiderman said in an email statement.

Attorney David Koenigsberg, who represents the whistle-blower for the law firm of Menz Bonner Komar & Koenigsberg LLP, did not immediately reply to an email asking what motivated his client to step forward with his claims.

In a statement, Koenigsberg lauded the decision for recognizing "the vital role New York's whistleblower tax false claims law will play in ensuring New York's tax laws are fairly observed by all of us."

Sprint's attorneys could not immediately be reached by press time.

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