Monday, October 13, 2014


Former Prosecutor Demands Piece of $60 Million Overcharge Case Against Sprint

, The Recorder
SAN FRANCISCO — In a classic qui tam lawsuit, a private citizen sues a business for fraud against the government. The government decides whether to step in, and if a settlement is reached, the whistleblower gets a slice of any recovery.
That's not how things worked out for John Prather.
Based on his 30-plus years as a state and local prosecutor—including a stint leading New York state's organized crime task force under Eliot Spitzer—Prather suspected that telecom companies were overbilling government investigators for wiretaps and other surveillance.
He sued a handful of major carriers in 2009 under the False Claims Act, but the U.S. Justice Department took a pass on his case. A federal judge in San Francisco dismissed the lawsuit, and Prather walked away with nothing.
Shortly after Prather's case wrapped, the U.S. attorney's office in San Francisco slapped Sprint Communications with its own lawsuit, very similar on its face to Prather's. It was even filed by one of the federal prosecutors who'd monitored Prather's lawsuit on behalf of the government.
Now, in an odd sort of reverse qui tam, Prather is trying to insert himself into the government's action against Sprint to lay claim to 15 percent to 25 percent of any potential government proceeds.
The case is an outlier in many ways, but it points to the inherent imbalance of power between the government and relators in whistleblower lawsuits.
"The DOJ really holds a lot of cards in this regime," said Stanford Law School professor David Engstrom, whose research has focused on qui tam litigation. "Some people think this is a good thing and some people think this is a bad thing."
So far, Prather has to be one of the latter.
Prather declined to comment on his case. His lawyer, John Balestriere of New York's Balestriere Fariello, wrote in an email that the government's suit against Sprint shows his client was right.
"As Mr. Prather has complained to various government agencies for 15 years, the nation's telecommunication companies exploited a change in the law to massively overcharge government prosecutors across America," Balestriere said.Balestriere said he did not know whether the government will argue that its case against Sprint is based on different facts than Prather's. Prosecutors, he said, have ignored his letters since the beginning of their lawsuit against Sprint.
A spokeswoman for the U.S. attorney's office declined to comment.


Both Prather's lawsuit and the government's stem from a Clinton-era law passed to make sure police and prosecutors could continue to carry out surveillance as telephone carriers shifted to digital technologies. The Communications Assistance for Law Enforcement Act, or CALEA, passed by Congress in 1994, mandated surveillance-friendly upgrades to the telecommunications system without fully designating who should pay for them.
Surveillance in the analog age often involved a law enforcement technician physically bugging someone's phone by attaching a device to it or, more often, climbing a nearby telephone pole to tap into a wire. The CALEA was meant to simplify surveillance, forcing the telecoms to make wire-tapping available digitally at the flip of a switch.
Law enforcement agencies, though, saw their bills increase for the new, digital surveillance services. In 2004, federal law enforcement agencies asked the Federal Communications Commission to clarify whether the telecoms could pass along their costs for hardware and software upgrades. At the time, Prather was a New York deputy attorney general in charge of the state's organized crime task force, overseeing complex drug and mafia cases and reporting directly to then-Attorney General Spitzer. His experience, his lawyers would later write, gave him "extensive knowledge of eavesdropping."
While in that role in 2004, Prather helped prepare Spitzer's comments to the FCC regarding the CALEA and provided an affidavit documenting the "exorbitant charges" his task force had seen and positing that phone companies seemed to be profiting on electronic surveillance. Prather wrote that the cost increases had gotten "to the point that many prosecutor's offices across New York state simply do not have the funds to pay for this crucial investigative tool."
After the comment period, in 2006 the FCC barred carriers from recovering the equipment costs when billing for surveillance.


Prather filed his qui tam suit under seal in 2009, a year after leaving the attorney general's office. Prather's lawyers contend he pursued the telecommunications companies for overcharging at the direction of the Justice Department after months of discussion with government lawyers. Prather sued on behalf of the federal government, as well as 13 states and the District of Columbia, which have laws similar to the False Claims Act. Though he goes by Christopher professionally, Prather filed the suit under his given name, John.
The suit sought to "force the telecoms to pay back the tens, if not hundreds, of millions of dollars, that defendants have insidiously squeezed from the federal government and various states across the nation," Prather's lawyers wrote. Prather claimed he knew of wiretap bills that went as high as $100,000 for a single month, compared to the mid-1990s, when wiretaps only ran a little more than $2,000 per month, at most.
In addition to Sprint, Prather targeted AT&T Inc., Verizon Communications and Qwest Communications. The telecom giants brought in a line-up of heavy hitters for the defense. Sprint turned to Perkins Coie and Williams & Connolly. AT&T hired Sidley Austin; Verizon tapped Munger, Tolles & Olson; and Qwest also retained Perkins Coie.
In July 2011, the United States indicated it would not intervene in Prather's action. After two rounds of motions to dismiss from the telecoms, U.S. District Judge Charles Breyer of the Northern District of California knocked out Prather's claims. Breyer found that Prather failed to establish that he was an "original source" under the False Claims Act by demonstrating direct knowledge of fraud.
In essence, Breyer concluded that Prather was acting on a prosecutor's hunch, not inside information. Prather's "allegations are based on little more than conjecture," Breyer wrote, since his knowledge of surveillance costs pre- and post-CALEA were based on just a few invoices. Prather, Breyer found, was unable to identify which carriers provided which invoices. Prather also lacked knowledge of the carriers' internal costs.
The defendants also argued Prather's disclosures were not technically "voluntary" as mandated by the FCA because he was required to report fraud as part of his job, and by his ethical duties as an attorney. Prather's lawyers argued that he came forward out a sense of personal moral obligation, but Breyer was not convinced.
Prather's 2004 affidavit to the FCC, which first advanced his overcharging theory, was noteworthy to Breyer on this front. "Even assuming that disclosing fraud was not a part of [Prather's] regular job description, his disclosure was involuntary because it was prompted by the FCC's request for comment and submitted in his" official capacity, the judge wrote.
When the carrier defendants asked Breyer to award attorney fees and costs, though, the judge denied them. Breyer pointed out that the parties had litigated about subject matter jurisdiction for months and he only dismissed the case after twice hearing arguments.
"Here, [Prather's] claim, though ultimately unsuccessful, does not demonstrate a complete lack of factual or legal merit to rise to the level of 'clearly frivolous' under the FCA," Breyer wrote in February.


Less than a month after Breyer's attorney fees ruling, federal prosecutors sued Sprint alleging the company over-billed for wiretaps, pen registers and trap devices from January 2007 to July 2010.
A Justice Department news release on its suit did not mention Prather. Rather, it stated, "The prosecution is a result of an investigation by the Department of Justice Office of the Inspector General."
The government's complaint, filed by lawyers in the U.S. Attorney's Office for the Northern District of California, claims that Sprint caused the government to pay more than $21 million in unapproved costs. It seeks treble damages and civil penalties under the FCA. Breyer, who latched onto the government's case, finding it related to Prather's, has held off ruling on Sprint's motion to dismiss to give the two sides time to hold settlement talks.
In their motion to intervene, Prather's lawyers at Balestriere Fariello and Miclean Gleason in Redwood Shores claim federal prosecutors based substantial parts of their allegations on information Prather previously provided them.
"Although the U.S. attorney's office declined to intervene then, it is now bringing a nearly identical claim before this court against Sprint," Balestriere wrote in a letter to the magistrate judge overseeing settlement talks. The actions amount to an "effective intervention" by the federal government in Prather's case and he remains entitled to 15 percent to 25 percent of whatever the government might squeeze out of Sprint, Balestriere wrote.
Prather's lawyers point out that the lead prosecutor in the government's Sprint case, Assistant U.S. Attorney Steven Saltiel, actively participated in the prior case. Representatives of the U.S. attorney's office attended a deposition, participated in phone calls, and reserved the government's rights to pursue claims against the carriers if Prather's case failed.
Saltiel didn't respond to a call and email.
Prather, who was working for New York's Metropolitan Transportation Authority as the deputy inspector general for investigations when he filed his qui tam suit, now works at Thacher Associates, a company that provides inspector general services.


In qui tam litigation, the Justice Department's decision whether to intervene can make or break a case. Research by Stanford's Engstrom shows cases with DOJ backing "have generated recoveries a whopping 90 percent of the time." Conversely, qui tam plaintiffs proceeding without government intervention didn't do as well. "The centrality of DOJ intervention is hard to ignore: Between 1986 and 2011, intervened cases generated roughly $24 billion in recoveries" while declined cases generated only $1.5 billion, Engstrom wrote in the Northwestern University Law Review.
Qui tam champions, Engstrom wrote, would argue the high success rate is as much due to the power of the government's seal of approval on a case as it is to its screening function.
Berger & Montague partner Daniel Miller, who regularly represents whistleblowers, said he had never seen a situation like Prather's where the government investigated a qui tam case, declined to take it up, but then brought its own similar claims shortly after the whistleblower's lawsuit was dismissed.
"But in this case," Miller said, "it very well could be true that the government continued its investigation and got new information and that's what caused the new case."
Cohen Millstein partner Matthew Axelrod said the assistant U.S. attorney prosecuting the Sprint case has little incentive to cut Prather out. "It's not like his bonus comes from any recoveries he gets for the government," said Axelrod, who served as an AUSA in Miami before overseeing major FCA investigations at the Department of Justice in Washington, D.C. Axelrod said there's stiff competition between U.S. attorney's offices to attract quality qui tam cases since those claims often can be brought in multiple jurisdictions.
Axelrod said he sees the case working out one of two ways: Either the government and Prather will work out some sort of deal to share a portion of any proceeds, or the government could point to Breyer's decision and insist that Prather isn't an original source. "The government could say, 'We're sorry. Yes, this was a fraud, but you weren't the person who tipped everyone off.'"

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