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Prather v. AT&T, Inc.

United States Court of Appeals, Ninth Circuit

February 6, 2017

John C. Prather, on behalf of himself and the United States of America, and the several states of California, Delaware, Florida, Illinois, Indiana, Massachusetts, Nevada, New Hampshire, New Jersey, New Mexico, New York, Rhode Island, Virginia, as well as the District of Columbia, Plaintiff-Appellant,
v.
AT&T, Inc.; Cellco Partnership, dba Verizon Communications; Qwest Communications International, Inc.; Sprint Nextel Corp., Defendants-Appellees.

          Argued and Submitted September 14, 2016 San Francisco, California

         Appeal from the United States District Court for the Northern District of California No. 3:09-cv-02457-CRB, Charles R. Breyer, District Judge, Presiding

          John G. Balestriere (argued) and Jillian L. McNeil, Balestriere Fariello, New York, New York, for Plaintiff-Appellant.

          Mark E. Haddad (argued), Collin Wedel (argued), and Douglas A. Axel, Sidley Austin LLP, Los Angeles, California, for Defendant-Appellee AT&T.

          Laura K. Lin, Jonathan H. Blavin, and Jerome C. Roth, Munger Tolles & Olson LLP, San Francisco, California, for Defendant-Appellee Cellco Partnership.

          Breena M. Roos, Kathleen M. Sullivan, and David F. Taylor, Perkins Coie LLP, Seattle, Washington, for Defendants-

          Appellees Sprint Nextel Corp. and Qwest Communications International Inc.

          Benjamin M. Stoll and Edward C. Barnidge, Williams & Connolly LLP, Washington, D.C., for Defendant-Appellee Sprint Nextel Corp.

          Before: Ronald M. Gould and Marsha S. Berzon, Circuit Judges, and William K. Sessions III, [*] District Judge.

         SUMMARY [**]

         False Claims Act

         The panel affirmed the district court's dismissal for lack of subject matter jurisdiction of a qui tam action, under the False Claims Act, brought by a longtime prosecutor, alleging that the largest telecommunications companies in the United States were fraudulently overcharging the federal government for surveillance services.

         The public disclosure bar of the False Claims Act provides that once allegations of fraud have entered the public domain, a person may not bring a quit tam action unless he can prove that he was on original source of those allegations.

         The panel held that the district court properly determined that the 2010 Amendments to the False Claims Act, which transformed the public disclosure bar from a jurisdictional bar to an affirmative defense, did not apply to the plaintiff's action, brought in 2009, because the Amendments impacted the substantive rights of parties and substantive changes are not applied retroactively.

         The panel held that plaintiff was not an "original source" of the information. The panel agreed with the district court's conclusion that plaintiff did not have direct knowledge of fraud sufficient to qualify as an "original source." The panel also held that plaintiff's submissions to the Federal Communications Commission were not "voluntarily provided" as required by the statute, 31 U.S.C. § 3730(e)(4)(B).

         The panel held that the district court properly concluded it had no discretion to exercise supplemental jurisdiction over plaintiff's state law claims.

          OPINION

          SESSIONS, District Judge:

         OVERVIEW

         John C. Prather, a longtime state prosecutor, brought a qui tam action alleging that the largest telecommunications ("telecom") companies in the United States were fraudulently overcharging the federal government for surveillance services. The district court dismissed Prather's action under the False Claims Act's ("FCA") public disclosure bar, which states that once allegations of fraud have entered the public domain a person may not bring a qui tam action unless he can prove that he was an original source of those allegations. See 31 U.S.C. § 3730(e)(4) (2006). For the reasons set forth below, we agree that Prather did not qualify as an original source and affirm.

         FACTUAL BACKGROUND

         Prather served as an attorney in state government for over thirty years. He began his service as an Assistant Attorney General in his native state of North Carolina, then moved to New York and joined the office of the Manhattan District Attorney. In 1989 he became the Deputy Chief of the Frauds Bureau in that office, and in 1992 was appointed Senior Investigative Counsel in the Rackets Bureau. He joined the New York Office of the Attorney General ("NYOAG") in 1999. From 2002 to 2008, Prather served as the Deputy Attorney General in charge of the NYOAG's Organized Crime Task Force ("OCTF"). When he initiated this qui tam action, he was serving as the Deputy Inspector General for Investigation in the Metropolitan Transportation Authority, Office of the Inspector General.

         During his many years as a government attorney, Prather supervised hundreds of wiretaps. The OCTF alone conducted over 200 wiretaps per year. As head of the OCTF, Prather was authorized to determine when it was necessary to seek court permission to use wiretaps, and to personally apply for eavesdropping warrants. He also reviewed telecom companies' rate sheets and developed surveillance budgets.

         Until the mid-1990s, most wiretaps required the manual "bugging" of a phone or phone line. To bug a phone line, law enforcement would either physically attach a device to the phone wire or place a bug inside the phone itself. The phone company would then set up a separate line into which law enforcement could dial and listen to the conversations taking place over the bugged line. The separate line was essentially the same as any other business or residential phone line provided by the phone company.

         With the emergence of cellular phones, this method of bugging telephones was no longer effective. In 1994, Congress passed the Communications Assistance to Law Enforcement Agencies Act ("CALEA"), authorizing the payment of $500 million to telecom companies for investment in the hardware and software necessary to maintain law enforcement's ability to effectively eavesdrop despite technological developments in telecommunications. See 47 U.S.C. § 1001-1010. Prather alleges that as a result of these upgrades, phone companies can now, "by a simple flick of a switch, " duplicate and forward to law enforcement both a call's audio content and its associated information, such as caller identification. ER 188.

         By law, the government is required to pay the telecom companies for their assistance with eavesdropping procedures. The Omnibus Crime Control and Safe Streets Act of 1968 ("OCCSSA"), as amended, requires phone carriers to "furnish the applicant [requesting eavesdropping] forthwith all information, facilities, and technical assistance necessary to accomplish the interception unobtrusively and with a minimum of interference with the services that such provider . . . is according the person whose communications are to be intercepted." 18 U.S.C. § 2518(4). In turn, law enforcement must compensate carriers for the "reasonable expenses incurred in providing such facilities or assistance." Id.

         The OCCSSA does not define "reasonable expenses." Nor does the more-recently enacted CALEA reference the reimbursement provision in the OCCSSA. In 2002, the Federal Communications Commission ("FCC") issued an Order and Final Rule stating that "carriers can recover at least a portion of their CALEA software and hardware costs by charging to [law enforcement agencies], for each electronic surveillance order authorized by the CALEA, a fee that includes recovery of capital costs, as well as recovery of the specific costs ...


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