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Alan Grayson v. At&T Corporation

September 17, 2009


Appeal from the Superior Court of the District of Columbia (CAB1425-02) (Hon. Melvin R. Wright, Trial Judge)

The opinion of the court was delivered by: Reid, Associate Judge:

Argued March 4, 2009

Amended January 20, 2011

Before REID and KRAMER, Associate Judges, and BELSON, Senior Judge.

Appellant, Alan Grayson, appeals the trial court's dismissal of his District of Columbia False Claims Act ("FCA")*fn1 claim*fn2 against AT&T Corporation,

MCI Worldcom Communications, Sprint Corporation, Verizon Communications Corporation, and the corporations' chief fiscal officers (collectively "appellees").*fn3 These claims involved the unused balance on telephone calling cards (escheated telephone calling card prepayments), and Mr. Grayson describes his lawsuit as "a 'whistleblower' action" to recover funds belonging to the District. The trial court dismissed Mr. Grayson's FCA claim after concluding that the allegations forming the basis for his claim had been publicly disclosed and that Mr. Grayson was not the original source of the publicly disclosed information. We affirm the trial court's dismissal of Mr. Grayson's FCA claim.


Mr. Grayson's Amended Complaint

On March 26, 2004, Mr. Grayson filed an amended complaint in which he set forth as a cause of action: "Violation of the Unclaimed Property Act and False Claims Act." He brought his action as a qui tam plaintiff in the interest of himself and the general public.*fn4 His complaint included the following allegations:

he "served as the President of a communications business in 1990 and 1991" which sold prepaid calling cards; "[h]e is a member of the International Prepaid Communications Association, the trade association for prepaid calling cards," and has "edited one of the two leading industry surveys of prepaid communications"; and he "has obtained and used prepaid calling cards in [the] District."*fn5

An owner of a prepaid calling card "pays a deposit for the card . . . [to] establish[] an account with the prepaid communications company holder of the funds, and his prepayment is a deposit or advance payment." "[T]he Defendants record the balance of the owner's prepayment in terms of dollars and cents." They then deduct the cost for using the prepaid calling card from the advance payment until the owner of the card exhausts the advance payment. When an owner of a prepaid calling card fails to exhaust the value of the card, the remaining balance is known as breakage.

The appellees account for a substantial amount of the $4 million to $6 million a year of breakage in the District of Columbia ("the District"), which constitutes "intangible personal property [that] escheat[s] to the District." The Unclaimed Property Act ("UPA") requires persons holding such property to report and deliver the property to the Mayor.*fn6 The appellees, however, "have been retaining [the] breakage since 1992." Mr. Grayson "discussed this misconduct with . . . MCI's Unclaimed Property Reporting Manager" who "confirmed . . . that MCI has retained millions of dollars in prepaid communications breakage." MCI's Unclaimed Property Reporting Manager "also confirmed that . . . his peers at . . . AT&T and Sprint, . . . verified that they followed the same practice." This practice stems from "a widespread deviant view in the industry that the customer's loss is the industry's gain." Moreover, the appellees knew that they had a duty to report and deliver the calling card breakage to the Mayor because their employees are members of the Unclaimed Property Holders Liaison Council ("Holders Council"). As members, they receive and read newsletters from the National Association of Unclaimed Property Administrators (NAUPA), the central organization for state administration of unclaimed property. In the Winter of 1995, the NAUPA issued a newsletter which contained an article entitled "Virtual Money" that stated, in part: In Europe, for a number of years stored value technology has been used for pay telephones. . . . Could stored value cards create a whole new class of unclaimed property? Absolutely. For those of us in unclaimed property, there is no question that an unclaimed money card balance represents an intangible asset which is due and owing.*fn7

The Holders Council held meetings in which they discussed "the duty to report and pay or deliver prepaid calling card breakage as unclaimed property."

During a CCH State Tax Advisory Board discussion, held on April 16, 1997, accounting firms hired to conduct appellees' annual financial examinations confirmed "that prepaid calling card breakage must be reported and paid or delivered to the States and the District."*fn8 That "discussion was reported in 'Trends in Taxation: Trends in State and Local Taxation,' CCH State Tax Review (June 9, 1997)" and reprinted in the September 1997 issue of Taxes. Whenever appellees fail to include breakage on their unclaimed property reports filed with the District; or include calling card breakage as revenue in their financial records; or substantially under-report prepaid calling card revenue to the Federal Communications Commission (FCC); or include breakage as revenue or profit on their tax returns and revenue reports; or certify on a Clean Hands Self-Certification Form that they do not owe more than $100.00 to the District,*fn9 the carriers make false statements "to conceal, avoid or decrease the obligation to pay or transmit breakage to the Mayor" in violation of the FCA. Appellees made at least one or more of these false statements each year from November 1, 1997 to 2003, and have "engaged in the trade practice of soliciting and accepting communications prepayments, and then failing to pay or deliver to the Mayor the unused balances of prepaid calling cards . . ., in violation of D.C. Code § 41-119 and D.C. Code 2-308.14."

Appellees' Motion to Dismiss

On March 20, 2007, appellees moved to dismiss Mr. Grayson's complaint pursuant to Super. Ct. Civ. R. 12 (b)(1) and 12 (b)(6). The appellees maintained that the trial court should dismiss Mr. Grayson's FCA claim for lack of jurisdiction over the subject matter and for failure to state a claim upon which relief may be granted. They argued that the NAUPA newsletter*fn10 and CCH State Tax Review article "placed into the public domain specific 'allegations or transactions' on which [Mr. Grayson's] claim rests well before he filed this action," and that Mr. Grayson was not the original source of the information; hence, there was a jurisdictional bar to his complaint. Relying in part on United States ex rel. Findley v. FPC-Boron Employees' Club, 323 U.S. App. D.C. 61, 73, 105 F.3d 675, 687 (1997), appellees argued that "the tax and journal reports described in [Mr. Grayson's] complaint disclosed 'the questionable legality' of withholding phone card breakage, and . . . [t]hese disclosures placed 'enough information in the public domain to identify' with 'no trouble' the 'allegedly fraudulent transactions' of particular calling card providers." Appellees acknowledged that prior to the filing of Mr. Grayson's complaint, the news media had not reported "that the failure to treat breakage as unclaimed property violated the District of Columbia's False Claims Act and/or Consumer Protection Law." But they maintained that similar circumstances existed in Findley, where the court declared that the "'ability to recognize the legal consequences of a publicly disclosed fraudulent transaction does not alter the fact that the material elements of the violation already have been publicly disclosed.'"*fn11

Furthermore, appellees claimed in their motion to dismiss that Mr. Grayson could not overcome the public disclosure jurisdictional bar because he was not the "original source" of the allegations in his complaint. Relying on a similar California case, they asserted that Mr. Grayson did not have "direct and independent knowledge" of the alleged fraud because he never "saw any of the alleged misconduct 'with his own eyes,'" and "even if [his] experience could be construed as providing him with specialized knowledge, such knowledge is insufficient to imbue him with 'direct and independent' knowledge."*fn12

The Trial Court's Ruling

The trial court relied on three cases decided by other courts in its November 7, 2007 oral ruling granting appellees' motion to dismiss. With respect to the FCA's subject matter jurisdictional bar based on prior disclosures in the news media, the trial court found State ex rel. Grayson v. Pacific Bell Tel. Co., 48 Cal. Rptr. 3d 427 (Cal. Ct. App. 2006), "persuasive in its analysis" and United States ex rel. Alcohol Found., Inc. v. Kalmanovitz,186 F. Supp. 2d 458 (S.D.N.Y. 2002) "very persuasive." The trial court stated that the New York case "found that the publications of scholarly scientific periodicals meet the definition of news media," and implicitly determined that the NAUPA newsletter and CCH publication also fell into the category of "news media." Looking to the California case, the trial court "f[ou]nd[] that the issues regarding these calling cards and whether they're unclaimed property is substantially similar to what the plaintiff seeks to raise in his [amended] complaint; and therefore, he does not meet the definition of having filed his lawsuit prior to the information being in the public domain." The trial court further declared that Mr. Grayson's FCA claim would be barred unless he was "the original source" of his FCA allegations. The court cited the case of Rockwell Int'l Corp. v. United States, 549 U.S. 457 (2007) in concluding that Mr. Grayson ...

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