New York Attorney General Files First-Of-Its-Kind Lawsuit, Casting Spotlight On Recent Developments In State And Local False Claims Acts

In a ground-breaking development, New York Attorney General Eric Schneiderman filed a lawsuit on Thursday, April 19, 2012, relying on the New York State False Claims Act (NYS FCA) to seek over $300 million from Sprint-Nextel Corp. for allegedly underpaying sales taxes. This action is the culmination of over a year of increased attention by AG Schneiderman to the NYS FCA and particularly to a 2010 amendment—which is unique among the federal and various state FCAs and which was sponsored by then-State Senator Schneiderman—extending the NYS FCA to misrepresentations relating to taxes.

In January 2011, soon after he took over the AG's Office, AG Schneiderman committed additional resources to the Medicaid Fraud Control Unit, which enforces the NYS FCA in Medicaid matters, and created a new Taxpayer Protection Bureau (TPB) to enforce the NYS FCA in tax and other non-Medicaid contexts, all with the stated objective of strengthening and expanding NYS FCA enforcement. Last Thursday's filing was the TPB's first public invocation of the NYS FCA.

The suit against Sprint originated as a March 2011 complaint filed by a whistleblower, which prompted a TPB investigation. The complaint alleges that Sprint was and is undercollecting sales taxes on flat-rate access charges for wireless calling plans and thus passing back too small an amount to the New York State and local governments.

The New York State False Claims Act

The NYS FCA was enacted in 2007, based on the federal False Claims Act as it then stood. Both FCAs allow private whistleblowers, as well as the government itself, to file suit to redress fraud against the government (with the NYS FCA covering both fraud against the State and fraud against local governments within the State); both provide for treble damages plus per-claim penalties; and both award whistleblowers a share of any money recovered as a result of their action. However, the current NYS FCA is in some ways broader and in some ways narrower than its current federal counterpart. The lawsuit against Sprint highlights the NYS FCA's unique provision extending it to false claims relating to taxes (above certain dollar thresholds). In addition, the NYS FCA explicitly allows for consequential damages while such damages are not recoverable under the federal FCA, compare N.Y. State Fin. Law § 189(1)(g) with United States v. Aerodex, Inc., 469 F.2d 1003, 1011 (5th Cir. 1972), and the NYS FCA seems to require less particularity in pleading fraud...