Rebates for Customers Of InPhonic In Peril, Again

By Annys Shin
Washington Post Staff Writer
Wednesday, December 26, 2007

InPhonic, a reseller of wireless services based in the District, may be leaving some of its customers out in the cold for a second time.

The company's sale to a Philadelphia private-equity firm and its bankruptcy filing mean that it is less likely to repay hundreds of customers under a settlement with the D.C. attorney general's office over allegations of deceptive rebate practices.

The sale and bankruptcy filing also call into question the fate of a class-action lawsuit against the company over the same rebate practices. The lawsuit is pending in U.S. District Court in the District of Columbia.

"The company has decided to use the bankruptcy laws to avoid paying back the consumers it scammed," said Harvey Rosenfield, a lawyer with the Foundation for Taxpayer and Consumer Rights in Los Angeles and who is involved in the class-action lawsuit.

InPhonic spokesman Tripp Donnelly said he would not comment on the class-action suit or the settlement with the attorney general's office because the matters are pending in court.

InPhonic sells cellphones made by Motorola, Samsung Electronics and other major companies, as well as wireless plans from carriers including Verizon Wireless, Cingular Wireless and T-Mobile USA, through several Web sites. David Steinberg started the company out of his Bethesda home in 1999 and attracted the support of venture capitalists such as former Apple chief executive John Sculley. Steinberg stepped aside in October and was replaced by former Radio Shack executive Andy Zeinfeld.

The company's troubles date to last year, when at least four class-action lawsuits were filed in three states against the company over its rebate practices. The cases were consolidated and are before U.S. District Judge Ellen Segal Huvelle.

Next in line to sue InPhonic was the D.C. attorney general's office, acting in response to more than 2,000 consumer complaints filed against InPhonic with the local chapter of the Better Business Bureau.

The office accused the company of making it "difficult or impossible" for customers to obtain rebates and of not fully disclosing its rebate policies. For example, the company told customers who wanted rebates to submit a cellphone bill that was at least 120 days old as proof that they had made payments. But the papers had to be postmarked within 120 days of when the service began. When customers called InPhonic to complain, the company wasn't responsive.

InPhonic settled with the D.C. attorney general in November 2006 and agreed to change its advertising and to pay customers who should have gotten rebates. At the time, Donnelly said the company was reducing its reliance on rebates.

The restitution program was only half complete when the company filed for bankruptcy protection last month, according to Bennett Rushkoff, chief of the consumer and trade protection section of the attorney general's office.

In April, the Federal Trade Commission ordered InPhonic to pay customers it owed rebates and to fully disclose the terms of rebates. Matthew Gold, a lawyer in the FTC's San Francisco office, said the order is not affected by the bankruptcy filing because the company had to comply within 75 days.

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