Grayson Chases Telecom Firms

Posted September 23, 2009 at 6:33pm

A D.C. court ruling last week stood out because of the unusual plaintiff — Rep. Alan Grayson (D-Fla.) — who is trying to force telephone companies to return to consumers unused balances on prepaid calling cards. But to Grayson, the case must have sounded familiar: The issues and conclusions were nearly identical to a case Grayson brought in California six years ago against some of the same telephone companies.

Before coming to Congress last year, Grayson was a lawyer specializing in “qui tam— or “whistle-blower— cases. These cases are based on laws that encourage citizens who discover fraud to file suit on behalf of the government. He also helped to found IDT, a telecommunications company that provided prepaid calling cards and was sued over its own calling card practices — though Grayson does not appear to have been part of that litigation.

The D.C. case — which Grayson vowed to carry on despite being a Member of Congress — carries a host of references to Grayson’s prior career as a lawyer for whistle-blowers.

Grayson originally filed the case in 2004, arguing that major telecommunications companies routinely pocket the unused balances of consumers’ prepaid calling cards. Grayson contended that when a D.C. customer failed to use all of the value on the prepaid card, the unused balance — known as “breakage— — should be returned to the District as “unclaimed property.—

Grayson cited his years of experience in the telecommunications industry and journal articles as his source of knowledge that the telephone companies were pocketing breakage that they knew should be turned over to the government as unclaimed property to be returned to consumers.

Grayson pursued the case under the District’s False Claims Act, which, like the federal act, entitles the successful plaintiff to a portion of the penalty recouped by the government. Grayson also suggested that the claim against the phone companies could proceed under the D.C. Consumer Protection Procedures Act.

The U.S. Court of Appeals for the D.C. Circuit ruled last week that Grayson could not pursue the False Claims Act portion of his case, with his own prior casework providing some of the reasoning.

The False Claims Act requires that cases be based on personal information obtained by a plaintiff, not public information that would have already been available to the government to pursue. Qui tam case law indicates that the point of the language is to prevent “parasitic— lawsuits, where a plaintiff simply picks up a newspaper story about fraud and immediately files a lawsuit to collect a portion of the damages.

The court concluded that “we are unable to say on this record that Mr. Grayson is the original source of the allegations in his complaint,— because he admits that there have been published stories on the practice.

The D.C. court also cited the analysis of a California appeals court in a 2006 ruling in a qui tam case Grayson brought against some of the same telephone companies, arguing the same allegations and using the same evidence as the basis for his claim. The California court concluded that Grayson’s complaint proves that “experts on unclaimed property throughout the country were aware that many believed holders of breakage had a duty— to return it to the state. “His complaint merely echoes what the government already knew and chose not to prosecute.—

The California court based its ruling in part on another qui tam case, Findley v. FPC- Boron Employees’ Club, in which Grayson served as the lawyer for the plaintiff. In that case, Grayson’s client was a vending machine operator who had lost out on a government contract, discovering in the process what was already well-known in government circles — that employee recreational clubs were allowed to keep the proceeds of vending machines operated on government property. The courts in that case concluded that Grayson’s client was not the original source of the information, and that qui tam cases are limited to plaintiffs who “played a role in exposing a fraud of which the public was previously unaware.—

Despite these interlocking losses, Grayson is optimistic about his D.C. calling card case — the court allowed him to continue to pursue the consumer protection act portion of the case.

Grayson said in a statement: “I am delighted that the D.C. Court of Appeals has held that our action against these defendants for their violations of the Consumer Protection Procedures Act can proceed. These defendant telephone companies have been operating a shell game and cheating D.C. calling card users for years. We will continue to press hard to end their misrepresentations, false advertising and overcharges, which have cost consumers millions of dollars.—

An AT&T spokesman said the company “acts properly regarding its calling cards, which provide great value and convenience for its customers. The plaintiff brought the same claims against carriers in California. AT&T prevailed in the California courts and is confident that it ultimately will prevail in D.C.—

Another lawyer specializing in qui tam cases says Grayson’s loss in the telephone case in California in no way suggests the telephone case in D.C. was inappropriate.

“The law isn’t necessarily uniform in all the states,— said Don Warren, partner in the Warren Benson Law Group, who said qui tam cases are “all we’ve done the past 20 years.—

“Just because a qui tam case based on unclaimed property may not have been successful in one state does not mean it is inappropriate or will be unsuccessful in another state,— Warren said.

Warren added that Grayson is well-known and well-respected among qui tam lawyers. “It’s a fairly small group of lawyers that specialize in these cases,— and Grayson “has a very good reputation as a good lawyer,— Warren said. “He knew what he was doing.—