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Texas Supreme Court Victory Secured for TracFone Wireless, Inc.

Yetter Coleman secured a long-awaited victory for TracFone Wireless, Inc. in the Texas Supreme Court in a case against the Texas Commission on State Emergency Communications (CSEC).  Chris Ward, argued the case, supported by counsel team Ryan Bates and Cam Barker.

At issue was whether the CSEC could assess against prepaid wireless phone providers a fee in a 1997 statute that applies to providers of traditional monthly-billed phone service. The Texas Supreme Court agreed with the firm’s argument that the CSEC could not do so.  Read full opinion.

After TracFone and another prepaid company had mistakenly paid about $2.3 million for fees imposed by the 1997 statute, they realized the statute did not apply to their business model. So they stopped paying and sought refunds.  CSEC took the position that prepaid providers had to pay the fee, even though it was calculated on a monthly basis and was required to be printed on bills sent to customers — provisions that could not possibly apply to prepaid providers.  When CSEC issued a final administrative order against prepaid providers, TracFone hired Yetter Coleman to appeal the order.

Yetter Coleman argued the first stage of the appeal in Travis County district court in 2009. That court reversed, stating that a 2009 prepaid-specific statute, which TracFone helped to enact, was persuasive evidence that the 1997 fee never applied to prepaid.  But CSEC successfully appealed to the Austin Court of Appeals, which deferred to the agency.

The firm petitioned for and was granted review by the Texas Supreme Court, and arguments were heard  in October 2012.  In a unanimous opinion issued April 5, 2013, the court adopted our argument: because the statute does not unambiguously impose a tax on the prepaid business model, it must be strictly construed in favor of the purported taxpayers.  The court further opined that, in light of the 2009 prepaid-specific fee, unconstitutional double taxation would result from construing the 1997 statute to reach the same prepaid service. 

The Texas Supreme Court’s decision is a significant victory for TracFone and other prepaid providers, which have been fighting similar litigation battles in states around the country.