his just in from the United States District Court for the Middle District of Pennsylvania:
This case presents another chapter in a three-year legal saga involving a putative class plaintiff in search of a class. This case comes before the court on a discovery motion filed by the Plaintiff, who alleges that he represents a class which he has not yet been able to define with precision after three years of litigation.
I explained the underlying litigation nearly a year and a half ago in a pre-forbes.com post titled Peace With Spain. You will have to go there for the connection with Spain, the pointless family anecdote and the celebration of my heritage. Here is the part that is relevant:
The Background
It concerns the excise tax on long distance phone calls. The language of the tax indicated that it would be charged on calls that were priced based on time and distance. The cost of long distances calls substantially declined and companies began offering a variety of flat rate plans. The tax was levied on these charges also. Companies began suing for refunds. The IRS kept losing the suits, but kept on fighting them. Finally, they threw in the towel. For a period of time doing the refund claims was a bit of a cottage industry. I made some efforts to get my former firm interested, but the problem was you needed really big long distance bills to make it worthwhile. In the interest of simplification the IRS indicated that it would give you a refundable credit of either $30 or $60 depending on your family size on your 2006 return.
The Tax Inspector General estimated that the population of non-filers eligible for the refund was between 10 million and 30 million people. As early as August 2006, the IRS estimated that approximately 21.9 million to 22 million of these people would fill out a form 1040EZ-T to obtain the refund. Given the $30 to $60 range of safe harbor amounts, which approximately 99% of taxpayers who sought the refund elected to take, these numbers show that the IRS expected to refund between $657 million and $1.3 billion of the projected 21.9 million non-filers filed the form 1040EZ-T. This estimate proved to be wide of the mark. As of the filing of the class certification motion, only about $26 million had been refunded to the approximately 700,000 tax payers that filed a form 1040EZ-T. Thus, the IRS has actually refunded only 2 to 4 percent of the money it originally expected to return to non-filers.
Brian Tech was among those who did not get the word, the group I dubbed the “coalition of the clueless”. Fortunately he had a sister who could get him some good representation:
Q: How did it come about that you contacted any law firm with respect to this lawsuit?
A: A family member found some information on it, and I needed a lawyer …
Q: So am I right that some family member informed you something about the Telephone-the availability of the Telephone Excise Tax?
A: Um-hum.
Q: So tell me what your told you with respect to the Telephone Excise Tax.
A; She said a lot of people are getting taxed unjustly, and you might fall in the category of it because you’re subsidized. Everything you have is given to you by either one government or the next, and these people can help you.
It might seem odd to have a fairly substantial Boston law firm AND a DC law firm representing somebody who got screwed out of $30 because he wasn’t paying attention. Based on the estimates there are 20,000,000 people who didn’t get the $30. The billion or so that they left lying on the table leaves room for some pretty hefty attorneys fees.
The Latest
Mr. Tech has a fairly simple request to locate his brothers and sisters who were victims of grave injustice. Get customer lists from major long distance carriers. Once you have those, you run them against the IRS databases to determine who did or did not get the $30. Piece of cake. Things stalled at step one.
In an effort to resolve the burgeoning dispute, the court convened a telephone conference with the parties and the Carriers on March 26, 2012. Following this conference, the court directed the parties to further consult with one another and to report back to the court by April 9, 2012, regarding the status of the discovery dispute. On April 9, 2012, counsel for Verizon Communications Inc. wrote to inform the court that despite good faith efforts, a number of intractable disputes remained, and counsel represented that Verizon objected to the Plaintiff’s requested discovery on the grounds that the discovery created an unacceptable burden on the carrier, and implicated issues of privacy, confidentiality, and corporate proprietary information.
Tech’s team did not think that the Court should pay attention to where the discovery was heading, but the Court did think it was relevant:
Furthermore, while Tech urges us not to consider this aspect of the discovery plan, we find that the ultimate goal of this proposal is extraordinarily sweeping in its reach. In essence, it would require an agency of the United States government and the nation’s largest communications carriers to indulge in an intensive data mining effort to match millions of Americans’ private identifying information from corporate and government data bases and then release that information in some format to Tech, solely so that Tech could then begin to pursue a class action lawsuit.
The Court found a few little things wrong with Tech’s discovery plan. Each one gets a couple of paragraphs, but I’ll just give you the headings:
Much of the Information Sought From the Carriers Would Be Unreasonably Burdensome to Produce, and Would Ultimately Fail, on Its Own, to Yield Useful or Relevant Information
The Discovery Tech Seeks Would Ultimately Violate Customer Privacy and Would Improperly Require the Carriers to Violate State Privacy Laws
Tech’s Discovery to the Carriers is Ultimately Futile Because He Cannot Force the United States to Issue Administrative Summonses, or Perform a “Cross-Check” that Would, In Any Event, Result in an Over-Inclusive Class
Tech Cannot Force the United States to Issue Administrative Summons For Purposes of Determining Potential Class Members
Disclosure of the Results of the “Cross-Check” Would Violate 26 U.S.C. § 6103
The Cross-Check List Would Be Over-Inclusive
Other than that Mrs Lincoln, how did you enjoy the play ?
Taken as a whole, therefore, even if the Carriers were required to furnish Tech with information about the customer information that they have in their possession or control, the information that would be produced after considerable effort and expense would have no independent value, and would not, on its own, be relevant for purposes of defining or populating the class in this case. Instead, Tech would require a separate second phase of discovery.
In that second phase, Tech would have the district court force the IRS to compel the Carriers, through administrative summonses or otherwise, to provide the customer information, including private, identifying information, to the IRS so that the IRS could then perform a “cross check” of customer information against IRS tax information. This process in itself would violate federal law by requiring the IRS to disclose information about tax filers that must be kept confidential.
I have a hard time understanding why this thing is being allowed to continue. It was thirty dollars, Mr. Tech. Get over it. Will the world be a better place if the federal government sends out a bunch of $30 checks to 20 million people, with a cut of who knows how much going to a couple of law firms? I don’t know. On the bright side, like my mother’s generation used to say, it gives people work.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com on June 20, 2012