Government Contracts Monitor

Not a Happy New Year for AT&T

January 7, 2013

By: Lindsay Simmons

Continuing the strong trend to increase the reach of the False Claims Act, on December 28, 2012, the United States District Court for the Western District of Pennsylvania denied AT&T’s motion to dismiss a False Claims Act (FCA) whistleblower suit filed by Constance Lyttle, a former AT&T IP Relay call center employee.  See United States ex rel. Lyttle v. AT&T Corp., No. 10-cv-1376 (W.D. Pa. Dec. 28, 2012).

Lyttle alleges that AT&T billed the Federal Government for international scammer calls made through an Internet-based call service for the hearing impaired.  Under the Americans with Disabilities Act carriers like AT&T are required to provide voice telephone services for hearing or speech-impaired callers.  AT&T is reimbursed about $1.30 per minute for these services, by the Federal Communications Commission (FCC), through a fund comprised of fees added to consumers' telephone bills.

The United States intervened in the suit, claiming that AT&T allowed the Internet-based phone system to be overrun by criminals and then invoiced the Government for the calls in violation of the False Claims Act. The Justice Department says that as many as 95 percent of the calls in AT&T’s hearing-impaired program were made by ineligible, unverified users outside the U.S. attempting to defraud merchants through the use of stolen credit cards, counterfeit checks and money orders.  Justice claims that AT&T knowingly failed to prevent swindlers from using a government subsidized telephone service meant for deaf people.

AT&T’s position – set forth in its motion to dismiss -- is that the case is an “improper and brazen attempt to use the False Claims Act to litigate a garden-variety regulatory claim.”  AT&T maintains it did not know international callers were using the system, and says it is always possible for an individual to misuse IP Relay services, just as someone can misuse the postal system or an email account.

In its motion to dismiss, AT&T argued that: (1) its requests for compensation from the FCC’s Fund Administrator were not “claims” under the FCA because the Administrator is not an “agent” of the United States; (2) its claims to the Fund were not false under either a theory of “factual falsity” or “legal falsity”; and (3) it did not “knowingly” submit false claims.

The Court concluded: First, that the funds used to reimburse AT&T were collected and disbursed on behalf of the FCC and that the Fund Administrator acted on the FCC’s behalf and subject to its control, thus the Fund Administrator meets the definition of “agent” for purposes of alleging that a false “claim” was submitted under the FCA.

Second, that under the FCA, a claim is factually and legally false when the claimant misrepresents the services provided to the Government – when it submits an incorrect description of what was provided or a request for reimbursement for something never provided. Here, AT&T submitted requests for reimbursement from the Fund while allegedly knowing, or having a reasonable basis to know, the requests were for calls that originated outside the United States and were thus non-compensable.

Third, that the United States sufficiently alleged scienter in that AT&T knew, or had a reasonable basis to know, that the IP Relay calls for which it sought reimbursement were not compensable because they originated outside the United States and/or were placed by individuals who did not have a hearing disability.

Click here to read the Magistrate Judge’s Report and Recommendation, which was adopted by the Court in its Order Denying the Motion to Dismiss.

 

Lindsay Simmons is the attorney responsible for the content of this article.