Lifeline Distributor Sues TracFone, Verizon Over Claims It Paid Agents on Commission

A Nashville-based marketing firm is suing TracFone and Verizon over false claims it paid field agents on commission, a practice barred by the FCC Lifeline program, said the firm's breach of contract complaint Thursday (docket 1:24-cv-20600) in U.S. District Court for Southern Florida in Miami.

The defendants contracted with plaintiff Team Marketing, an authorized Lifeline distributor, on May 1, 2022, to establish Lifeline retail locations in designated territories, said the complaint. Team Marketing subcontracted with various local companies to staff the venues, and at each point of sale subcontractors’ employees identified and enrolled eligible customers, it said.

Under the contract, Team bought cellphones from TracFone for distribution, with the carrier agreeing to pay the distributor according to a schedule, the complaint said. TracFone could withhold payments that it deemed “improperly or fraudulently ‘earned,’” it said. If payment was withheld, TracFone had to provide written notice identifying the nature of the impropriety, it said. Team was responsible for penalties, damages and attorneys’ fees that accrued due to a subcontractor’s fraudulent or intentional misconduct and could be charged a penalty of $250 per action, capped at $20,000 per incident, it said.

TracFone and parent Verizon terminated the contract the following November without notice or the opportunity for Team Marketing “to cure” within 15 days as required by the agreement, the complaint said. There was “no cause for termination,” with the defendants claiming Team was paying field agents on commission, a practice “prohibited by the FCC,” it said. Team doesn’t employ field agents; they are hired by the subcontractors, it said.

In numerous audits and ongoing discussions throughout the “abbreviated term,” defendants never identified a field agent who was paid by commission, the complaint said. “As instructed by Defendants,” Team Marketing required the subcontractors to compensate their employees using the same methods as the defendants, it said.

The defendants periodically audited select field agents, said the complaint. On July 6, TracFone raised a concern that Team was paying field agents on commission without providing details; it asked Team to “self-report any commission payments or provide additional documentation confirming that field agents were paid properly,” it said.

On Aug. 17, Team started using a “revised” subcontractor agreement at defendants’ request, said the complaint. The defendants never provided a description identifying the nature of fraud or improperly earned payments as stipulated in the contract, nor did they impose a penalty for intentional misconduct, it said. The defendants terminated the contract on Nov. 17 based on their “own (wrong) assertion” that Team was paying agents on commission in violation of federal law, it said.

Team’s requests for relief include that judgment be entered in its favor, and that the defendants are required to appear and defend in the matter. The complaint also seeks compensatory damages and attorneys’ fees and costs. TracFone and Verizon didn't comment Friday.