- On January 4, 2011, the US Court of Appeals for the Fifth Circuit affirmed the holding of a district court that AT&T, Inc. owes federal income tax on the federal and state universal service funds (USF) it received in 1998 and 1999, or roughly $500 million of income tax on over $1.5 billion of USF monies it received in those two years. AT&T argued that the USF funds should have been classified as non-shareholder capital contributions, but both the federal district court and court of appeals disagreed. The district court granted summary judgment to the government on the ground that “nothing in the payment structure for servicing high-cost or low-income customers directly implicates capital contributions.” The Fifth Circuit affirmed, reasoning that “whether a payment to a corporation by a non-shareholder is income or a capital contribution to the corporation is controlled by the intention or motive of the transferor,” and when, as here, the “transferor is a governmental entity, its intent may be manifested by the laws or regulations by which it effectuates the payment to the corporation.” The Fifth Circuit concluded that “the statutes authorizing the universal service programs, the administrative orders establishing the USFs, and the regulations implementing the raising of revenues for the USFs and the payments from them to AT&T and its subsidiaries, taken together, demonstrate an intent to supplement the income of the telephone companies, rather than to make capital contributions to them.” AT&T, Inc. v. United States, No. 09-50651 (5th Cir.).
- On December 29, 2010, Judge Richard Posner of the US Court of Appeals for the Seventh Circuit issued an opinion, joined by Circuit Judges Diane Wood and John Tinder, denying an interlocutory appeal of a district court’s refusal to dismiss a putative class action against the wireless arms of Verizon, AT&T, Sprint & T-Mobile for conspiring to fix the prices of text messages in violation of federal antitrust laws. After agreeing that it should entertain this interlocutory appeal because the “pleading standards in federal litigation are in ferment after [the Supreme Court’s decisions in] Twombly and Iqbal,” the Seventh Circuit proceeded to the merits of the appeal. Oral argument was denied. In his opinion, Judge Posner rejected the defendants’ argument that plaintiffs had not pled sufficient facts to state a conspiracy claim, noting that the complaint “alleges a mixture of parallel behaviors, details of industry structure, and industry practices, that facilitate collusion.” From those allegations he observed that “there is nothing incongruous about such a mixture. If parties agree to fix prices, one expects that as a result they will not compete in price – that’s the purpose of price fixing.” Judge Posner also found significance in plaintiffs’ allegation that “the defendants belonged to a trade association and exchanged price information directly at association meetings. This allegation identifies a practice, not illegal in itself, that facilitates price fixing that would be difficult for the authorities to detect.” He also highlighted plaintiffs’ allegation that “in the face of steeply falling costs, the defendants increased their prices. This is anomalous behavior because falling costs increase a seller’s profit margin at the existing price, motivating him, in the absence of agreement, to reduce his price slightly in order to take business from his competitors, and certainly not to increase his price.” Finally, he took note of the allegation that “all at once the defendants changed their pricing structures, which were heterogeneous and complex, to a uniform pricing structure, and then simultaneously jacked up their prices by a third.” The court rejected the notion that all of this circumstantial evidence was insufficient to state an antitrust claim: “direct evidence of conspiracy is not a sine qua non … Circumstantial evidence can establish an antitrust conspiracy.” The Seventh Circuit held that the case can proceed to discovery. In re Text Messaging Antritrust Litigation, No. 10-8037 (7th Cir.).
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In the courts
- Arent Fox LLP
- Ross A. Buntrock , Jonathan E. Canis , Alan G. Fishel , Michael B. Hazzard , Stephanie A. Joyce and Jeffrey E. Rummel
- January 10 2011
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